Table 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.

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

2021:

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		Consumer			Commercial
	Real Estate		Real Estate			and Industrial			Consumer			Unallocated			Total
	$		$			$			$			$			$
Allowance for credit losses:
Beginning balance - December 31, 2020		6,329		3,449			1,972			52			525			12,327

Charge-offs		0—		0—			0—			(14	)		0—			(14	)
Recoveries		0—		0—			1			1			0—			2
Provision		173		(41	)		(15	)		20			238			375

Balance - March 31, 2021		6,502		3,408			1,958			59			763			12,690

Charge-offs		0—		0—			0—			(9	)		0—			(9	)
Recoveries		0—		0—			16			6			0—			22
Provision		48		83			19			10			(160	)		0—

Balance - June 30, 2021		6,550		3,491			1,993			66			603			12,703

During the ~~nine~~six months ended ~~September~~June 30, ~~2016, a credit~~2021, management charged off $23,000 in loans while recovering $24,000 and added $375,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, 2020, to 4.7% as of June 30, 2021. Net provision expense was recorded for all loan sectors. The higher provision in the commercial real estate sector was due to growth in this portfolio of loans since December 31, 2020, as well as an increase in the qualitative factor related to the trends in the nature and ~~industrial segment with provision expense~~volume of this sector. There were minimal charge-offs and recoveries recorded ~~in all other loan categories. For~~during the ~~entire portfolio, $200,000 of additional~~six months ended June 30, 2021, so the provision expense was ~~needed for~~primarily related to an increase in loan balances as well as slightly higher unallocated portion of the ~~first nine months~~allowance.

20 Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016:~~

2021:

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
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
  for impairment — — — — — —
Ending balance: collectively evaluated
  for impairment 3,795 1,652 1,552 82 481 7,562

Loans receivable:
Ending balance 275,067 213,771 77,192 4,537 570,567
Ending balance: individually evaluated
  for impairment 1,894 — 75 — 1,969
Ending balance: collectively evaluated
  for impairment 273,173 213,771 77,117 4,537 568,598

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


	Commercial		Consumer		Commercial
As of June 30, 2022:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		18		0—		56		0—		0—		74
Ending balance: collectively evaluated for impairment		5,853		4,715		2,485		44		435		13,532

Loans receivable:
Ending balance		479,218		418,176		136,484		5,376				1,039,254
Ending balance: individually evaluated for impairment		4,885		0—		250		0—				5,135
Ending balance: collectively evaluated for impairment		474,333		418,176		136,234		5,376				1,034,119


	Commercial		Consumer		Commercial
As of December 31, 2021:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		37		0—		110		0—		0—		147
Ending balance: collectively evaluated for impairment		6,226		3,834		2,002		87		635		12,784

Loans receivable:
Ending balance		400,760		403,916		109,341		5,132				919,149
Ending balance: individually evaluated for impairment		2,829		0—		495		0—				3,324
Ending balance: collectively evaluated for impairment		397,931		403,916		108,846		5,132				915,825

5.Fair Value Presentation

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

Level I:

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


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


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

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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,~~2022, and December 31, ~~2016,~~2021, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

~~Fair Value Measurements:~~

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

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

U.S. treasuries		0—		33,608		0—		33,608
U.S. government agencies		0—		25,461		0—		25,461
U.S. agency mortgage-backed securities		0—		49,999		0—		49,999
U.S. agency collateralized mortgage obligations		0—		31,190		0—		31,190
Non-agency MBS/CMO		0—		40,922		0—		40,922
Asset-backed securities		0—		87,230		0—		87,230
Corporate bonds		0—		76,878		0—		76,878
Obligations of states & political subdivisions		0—		233,730		0—		233,730
Equity securities		8,895		0—		0—		08,895

Total securities		8,895		579,018		0—		587,913

On ~~September~~June 30, ~~2017,~~2022, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of ~~September~~June 30, ~~2017,~~2022, the CRA fund investments had a ~~$5,250,000~~$7,276,000 book and fair market value and the bank stock portfolio had a book value of ~~$307,000,~~$1,635,000, and fair market value of ~~$368,000.~~

~~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.

$1,619,000.

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

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	December 31, 2021
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. Treasuries		0—		14,813		0—		14,813
U.S. government agencies		0—		29,021		0—		29,021
U.S. agency mortgage-backed securities		0—		51,988		0—		51,988
U.S. agency collateralized mortgage obligations		0—		31,077		0—		31,077
Asset-backed securities		0—		101,219		0—		101,219
Corporate bonds		0—		82,509		0—		82,509
Obligations of states & political subdivisions		0—		247,466		0—		247,466
Equity securities		8,982		0—		0—		8,982

Total securities		8,982		558,093		0—		567,075

Table of ~~December 31, 2016 and September 30, 2017.~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

On December 31, 2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities 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.~~

2021, the CRA fund investments had a $7,240,000 book and market value and the bank stocks had a book value of $1,570,000 and a market value of $1,742,000.

The following tables ~~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~~2022 and December 31, ~~2016,~~2021, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(~~Dollars in Thousands~~)DOLLARS IN THOUSANDS)

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

	June 30, 2022
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	0—	$	0—	$	5,061	$	5,061
Total	$	0—	$	0—	$	5,061	$	5,061

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

	December 31, 2021
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	0—	$	0—	$	3,177	$	3,177
Total	$	0—	$	0—	$	3,177	$	3,177

The Corporation had a total of ~~$2,144,000~~$5,135,000 of impaired loans as of ~~September~~June 30, ~~2017,~~2022, with ~~$98,000~~$74,000 of specific allocation against these loans and ~~$1,969,000~~$3,324,000 of impaired loans as of December 31, ~~2016,~~2021, with no$147,000 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~~

23 Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)

		June 30, 2022
~~(DOLLARS IN THOUSANDS)~~		Fair Value			Valuation		Unobservable		Range
	~~September 30, 2017~~	Estimate			Techniques		Input		(Weighted Avg)
	~~Fair Value~~	~~Valuation~~	~~Unobservable~~	~~Range~~
Impaired loans			5,061			Appraisal of collateral (1)		Appraisal adjustments (2)		0% to -20% (-20%)
	~~Estimate~~	~~Techniques~~	~~Input~~					Liquidation expenses (2)		0% to -10% (-10%)

		December 31, 2021
		Fair Value			Valuation		Unobservable		Range
		Estimate			Techniques		Input		(Weighted Avg)

Impaired loans			3,177			Appraisal of collateral (1)		Appraisal adjustments (2)		0% to -20% (-20%)
~~Impaired loans~~	~~2,046~~	~~Appraisal of~~	~~Appraisal~~	~~-20% (-20%)~~
		~~collateral (1)~~	~~adjustments (2)~~
			Liquidation	~~-10% (-10%)~~
			expenses (2)			0% to -10% (-10%)

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

~~Impaired loans~~	~~1,969~~	~~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.

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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

(DOLLARS IN THOUSANDS)

	June 30, 2022
					Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		54,612		54,612		54,612		0—		0—
Regulatory stock		6,145		6,145		6,145		0—		0—
Loans held for sale		4,763		4,763		4,763		0—		0—
Loans, net of allowance		1,027,834		999,129		0—		0—		999,129
Mortgage servicing assets		2,012		2,803		0—		0—		2,803
Accrued interest receivable		6,219		6,219		6,219		0—		0—
Bank owned life insurance		35,780		35,780		35,780		0—		0—

Financial Liabilities:
Demand deposits		678,472		678,472		678,472		0—		0—
Interest-bearing demand deposits		69,711		69,711		69,711		0—		0—
NOW accounts		127,622		127,622		127,622		0—		0—
Money market deposit accounts		215,781		215,781		215,781		0—		0—
Savings accounts		373,060		373,060		373,060		0—		0—
Time deposits		113,634		110,956		0—		0—		110,956
Total deposits		1,578,280		1,575,602		1,464,646		0—		110,956

Long-term debt		44,206		44,205		0—		0—		44,205
Short-term borrowings		20,000		20,000
Subordinated debt		19,720		18,800		0—		0—		18,800
Accrued interest payable		316		316		316		0—		0—

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 the fair value of each class of financial instrument:~~

~~Cash 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, and the fair value, determined by discounting the remaining contractual fee over the term 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.

~~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:~~

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

(DOLLARS IN THOUSANDS)

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 — —

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

	December 31, 2021
					Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		158,449		158,449		158,449		0—		0—
Regulatory stock		5,380		5,380		5,380		0—		0—
Loans held for sale		3,194		3,194		3,194		0—		0—
Loans, net of allowance		907,973		914,251		0—		0—		914,251
Mortgage servicing assets		1,768		2,129		0—		0—		2,129
Accrued interest receivable		5,152		5,152		5,152		0—		0—
Bank owned life insurance		35,414		35,414		35,414		0—		0—

Financial Liabilities:
Demand deposits		686,278		686,278		686,278		0—		0—
Interest-bearing demand deposits		63,015		63,015		63,015		0—		0—
NOW accounts		139,366		139,366		139,366		0—		0—
Money market deposit accounts		168,327		168,327		168,327		0—		0—
Savings accounts		341,291		341,291		341,291		0—		0—
Time deposits		113,936		113,919		0—		0—		113,919
Total deposits		1,512,213		1,512,196		1,398,277		0—		113,919

Long-term debt		44,206		43,060		0—		0—		43,060
Subordinated debt		19,680		19,088		0—		0—		19,680
Accrued interest payable		255		255		255		0—		0—

~~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.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,~~2022, firm loan commitments were ~~$40.5~~$103.4 million, unused lines of credit were ~~$209.3~~$430.1 million, and open letters of credit were ~~$11.1~~$11.2 million. The total of these commitments was ~~$260.9~~$544.7 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

27 26

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

7.Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016~~2021 is as follows:

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

(DOLLARS IN THOUSANDS)

~~ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)~~				Unrealized
~~(DOLLARS IN THOUSANDS)~~				Gains (Losses)
	~~Unrealized~~			on Securities
	~~Gains (Losses)~~			Available-for-Sale
	~~on Securities~~			$
	~~Available-for-Sale~~
	$
Balance at December 31, ~~2016~~2021		~~(4,885~~ 3,441	)
Other comprehensive ~~income~~loss before reclassifications		~~418~~ (23,629	)
Amount reclassified from accumulated other comprehensive income (loss)		(92110	)
Period change		~~326~~ (23,739	)

Balance at March 31, ~~2017~~2022		(~~4,559~~20,298	)

Other comprehensive ~~income~~loss before reclassifications		~~2,778~~ (16,518	)
Amount reclassified from accumulated other comprehensive income (loss)		~~(71~~ 0—	)
Period change		~~2,707~~ (16,518	)

Balance at June 30, ~~2017~~2022		(~~1,852~~36,816	)

Balance at December 31, 2020		7,958
Other comprehensive loss before reclassifications		(~~268~~4,964	)
~~Amount reclassified from accumulated other comprehensive loss~~		~~(112~~	)
~~Period change~~		~~(380~~	)

~~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 (loss)		(~~480~~70	)
Period change		~~570~~ (5,034	)

Balance at March 31, ~~2016~~2021		~~318~~ 2,924

Other comprehensive ~~income~~loss before reclassifications		~~2,258~~ 4,654
Amount reclassified from accumulated other comprehensive income (loss)		(~~620~~216	)
Period change		~~1,638~~ 4,438

Balance at June 30, ~~2016~~2021		~~1,956~~ 7,362
~~Other comprehensive loss before reclassifications~~		~~(429~~	)
~~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.

28 27

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

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Three Months
	Ended June 30,
	2022		2021			Affected Line Item in the
	$		$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains, reclassified into earnings		0—		274		Gains on the sale of debt securities, net
Related income tax expense		0—		(58	)	Provision for federal income taxes
Net effect on accumulated other comprehensive income (loss) for the period		0—		216

(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

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

(1) Amounts in parentheses indicate debits.

8. Subsequent Events

Subsequent to June 30, 2022, but prior to the filing of this report, on July 22, 2022, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20 million of subordinated debt notes with a maturity date of September 30, 2032. These notes are all non-callable for 5 years and carry a fixed interest rate of 5.75% per year for the 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

8. 9.Recently Issued Accounting Standards

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this Update specifies the accounting for certain costs to obtain or fulfill a contract 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. 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 are not within the scope of Topic 606. However, we do expect that the standard will result in new disclosure requirements, which are currently being evaluated.

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

~~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 consolidation of the investee) to be measured at fair value with changes 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 portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability 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 allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. For public business entities, the amendments in this Update are effective 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 scope 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 earlier 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 the scope 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 earlier as of the fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. 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 February 2016, 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 applied 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.

~~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~~

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~~cumulative-effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. In November 2019, the FASB issued ASU 2019-10, Financial Instruments ‒ Credit Losses (Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842). This Update defers the effective date of ASU 2016-13 for SEC filers that are eligible to be smaller reporting companies, non-SEC filers, and all other companies, to fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. We expect to recognize a one-time ~~cumulative effect~~cumulative-effect adjustment to the allowance for ~~loan~~credit losses as of the beginning of the first reporting period in which the new standard is effective but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

31 28

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In ~~August 2016,~~November 2018, the FASB issued ASU ~~2016-15,~~~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~2018-19, Codification Improvements to Topic 326, Financial Instruments ‒ Credit Losses, which, ~~addresses eight specific cash flow issues with~~in addition to addressing other matters, ASU 2018-19 clarifies that receivables arising from operating leases are not within the ~~objective~~scope of ~~reducing diversity in practice. Among these include recognizing cash payments~~Subtopic 326-20. The effective date and transition requirements 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 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. The amendments in this UpdateASU 2018-19 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, 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. An entity that elects early adoption must adopt all of the amendments in the same ~~period. The amendments~~as those in this Update should be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments 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, 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. 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 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.2016-13. 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,~~~~Statement of Cash Flows~~2019-05, Financial Instruments – Credit Losses (Topic ~~230)~~326), which ~~requires~~allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a ~~statement~~cumulative-effect adjustment to opening retained earnings as of ~~cash flows explains~~ the ~~change during~~date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the ~~period in~~credit losses standard, the total 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 equivalentsASU is effective when ~~reconciling~~they implement the ~~beginning-of-period and end-of-period total amounts shown on~~credit losses standard. For entities that already have adopted the statement of cash flows. 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,credit losses standard, the ~~amendments are~~ASU is effective for fiscal years beginning after December 15, ~~2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted,~~2019, 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~~years. The Corporation qualifies as a smaller reporting company and does not expect to early adopt ASU 2016-13.

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

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

32 29

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In ~~September 2017,~~January 2020, the FASB issued ASU ~~2017-13,~~~~Revenue Recognition~~2020-04, Reference Rate Reform (Topic ~~605)~~848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, ~~Revenue from Contracts with Customers (Topic 606), Leases (Topic 840),~~to provide temporary optional expedients and ~~Leases (Topic 842~~):~~Amendments to SEC Paragraphs Pursuant~~exceptions to the ~~Staff Announcement~~U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the ~~July 20, 2017 EITF Meeting~~modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and ~~Rescission~~can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of ~~Prior SEC Staff Announcements~~the ASU will have a material impact on the Corporation’s financial statements.

In January 2021, the FASB issued ASU 2021-01, Reference Rate Reform (Topic 848), which provides optional temporary guidance for entities transitioning away from the London Interbank Offered Rate (LIBOR) and ~~Observer Comments.The SEC Observer said~~other interbank offered rates (IBORs) to new references rates so that derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions within Topic 848. ASU 2021-01 clarifies that the ~~SEC staff would not object if entities~~derivatives affected by the discounting transition are explicitly eligible for certain optional expedients and exceptions in Topic 848. ASU 2021-01 is effective immediately for all entities. Entities may elect to apply the amendments on a full retrospective basis as of any date from the beginning of an interim period that ~~are considered public business entities only because their~~includes or is subsequent to March 12, 2020, or on a prospective basis to new modifications from any date within an interim period that includes or is subsequent to the date of the issuance of a final update, up to the date that financial statements ~~or financial information is required~~are available to be ~~included~~issued. The amendments in ~~another entity’s SEC filing use~~this update do not apply to contract modifications made, as well as new hedging relationships entered into, after December 31, 2022, and to existing hedging relationships evaluated for effectiveness for periods after December 31, 2022, except for certain hedging relationships existing as of December 31, 2022, that apply certain optional expedients in which the ~~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~~accounting effects are recorded through the ~~Codification related to previous SEC staff announcements and moves other paragraphs, upon adoption~~end of ~~ASC 606 or ASC 842.~~the hedging relationship. This Update is not expected to have a significant impact on the Corporation’s financial statements.

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

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

33 30

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the ~~2016~~2021 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

Forward-Looking Statements

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

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

National and local economic conditions

	·	Interest rate and monetary policies of the Federal Reserve Board
	·	Inflation and monetary fluctuations and volatility
	·	Volatility of the securities markets including the valuation of securities
	·	Effects of ~~slow~~ economic conditions particularly with regard to the negative impact of severe, wide-ranging and continuing disruptions caused by the spread of coronavirus (COVID-19) and any other pandemic, epidemic, or ~~prolonged economic weakness,~~health-related crisis and government and business responses thereto, specifically the effect on loan customers to repay loans

Health of the housing market

Real estate valuations and its impact on the loan portfolio

~~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, increase in taxes or regulations, or increasing debt balances

Political changes and their impact on new laws and regulations

Competitive forces

Impact of mergers and acquisition activity in the local market and the effects thereof

Potential impact from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses

Changes in customer behavior impacting deposit levels and loan demand

Changes in accounting principles, policies, or guidelines as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standards setters

Ineffective business strategy due to current or future market and competitive conditions

Management’s ability to manage credit risk, liquidity risk, interest rate risk, and fair value risk

Operation, legal, and reputation risk

Results of the regulatory examination and supervision process

The impact of new laws and regulations ~~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 Basel III standards~~ and other regulatory pronouncements, regulations and rules

~~Disruptions~~Large scale global disruptions such as pandemics, terrorism, trade wars, and armed conflict.

Local disruptions due to flooding, severe weather, or other natural disasters

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful

Business and competitive disruptions caused by new market and industry entrants

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

The Corporation recorded net income of ~~$2,034,000~~$2,558,000 for the ~~third quarter of 2017,~~three-month period ended June 30, 2022, a ~~2.1%~~$993,000, or 28.0% decrease from the ~~$2,077,000 earned~~three months ended June 30, 2021. Net income for the six-month period was $5,749,000, a $2,306,000, or 28.6% decrease from earnings in the ~~third quarter of 2016, while for the nine-month~~six-month period ended ~~September~~June 30, ~~2017, the Corporation recorded $5,733,000 of net income, a 1.8% increase over the same period in 2016.~~2021. The Corporation experienced strong levels of 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 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. Earningsearnings per share, basic and diluted, were ~~$0.71 and $2.01~~$0.46 for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2022, compared to ~~$0.73 and $1.98~~$0.64 for the same ~~periods~~period in ~~2016.~~2021, and for the year-to-date period, earnings per share were $1.03 compared to $1.45 in 2021.

The Corporation’s ~~NII has grown each successive quarter since the third quarter of 2016 due to three Federal Reserve~~net 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~~income (NII) increased by ~~$1,048,000,~~$2,243,000, or ~~15.8%~~23.1%, and ~~$4,198,000,~~$3,285,000, or ~~23.0%~~16.9%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, compared to the same periods in ~~2016.~~2021. The increase in NII primarily resulted from an increase in interest and fees on ~~securities and dividend income~~loans of ~~$519,000,~~$1,350,000, or ~~31.8%~~16.5%, and ~~$2,623,000,~~$1,780,000, or ~~69.7%~~10.8%, for the three and ~~nine-month~~six months ended June 30, 2022, respectively, compared to the same periods ~~ended September 30, 2017. The portion of the increase that was caused~~in 2021. Additionally, interest on securities available for sale increased by ~~non-recurring amortization was $170,000~~$845,000, or 37.7%, for the three-month period ended June 30, 2022, and ~~$1,681,000~~$1,271,000, or 29.7%, for the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2017. The Corporation’s NII also benefited from a $459,000,~~2022, compared to the three and six months ended June 30, 2021. In addition, interest expense on deposits and borrowings decreased by $21,000, or ~~8.0%~~2.6%, and ~~$1,280,000,~~$189,000, or ~~7.7% increase in interest and fees on loans~~11.4%, for the three and ~~nine-month periods~~six months ended ~~September~~June 30, ~~2017,~~2022, 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~~same periods in the ~~nine-month period ended September 30, 2017.~~prior year.

The Corporation recorded ~~$240,000~~a $650,000 provision for loan losses in the second quarter of 2022, and $750,000 for the year-to-date period, compared to no provision expense recorded in the ~~third~~second quarter of ~~2017,~~2021 and a year-to-date provision of $375,000 through June 30, 2021. The higher provision in 2022 was primarily caused by lower classified loans but a significantly higher amount of loan growth.

Other income was lower in 2022 compared to ~~$200,000 for~~ the ~~third quarter~~prior year primarily as a result of 2016, and provision expense of $450,000 for the nine months ended September 30, 2017, compared to $200,000 for 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 higherlower 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.~~mortgage and security gains. The gains from the sale of ~~securities~~mortgages were ~~$170,000 and $417,000~~$328,000 for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2022, compared to ~~$464,000 and $2,130,000 for the same periods in 2016, representing decreases~~gains of $294,000, or 63.4%, and $1,713,000, or 80.4%, respectively. Market interest rates were lower in 2016, making it more conducive to achieving gains from the sale of securities. The gain on the sale of mortgages decreased by $47,000, or 8.4%, and increased by $193,000, or 17.4%,$1,245,000 for the three ~~and nine-month periods~~months ended ~~September~~June 30, ~~2017, compared~~2021, a decrease of $917,000, or 73.7%. For the six-month period, gains were $1,063,000, a decrease of $2,112,000, or 66.5%, from the six months ended June 30, 2021. The decrease in mortgage gains can be primarily attributed to the ~~prior year’s periods. Both~~rapid rise in mortgage ~~production and margins realized on sold mortgages were higher in~~rates during the first ~~nine months~~half of ~~2017 compared~~2022 which has caused customer activity to ~~2016. Total operating expenses increased $899,000, or 13.3%, and $2,938,000, or 14.7%,~~shift from fixed-rate mortgages that were sold on the secondary market, to adjustable rate mortgages held on the Corporation’s balance sheet. Gains/losses on securities in total decreased by $380,000, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2022, and $584,000, for the six months ended June 30, 2022, compared to the same periods in ~~2016.~~the prior year. Outside of mortgage and security gains, other non-interest income increased by $239,000, or 9.3%, and decreased by $4,000, or 0.1%, for the three and six months ended June 30, 2022. Operating expenses increased by $1,781,000, or 18.4%, and $3,202,000, or 17.0%, for the three and six months ended June 30, 2022, compared to the same periods in the prior year. This increase can be primarily attributed to the rising cost of salaries and employee benefits.

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The latter measurement typically receives more attention from shareholders. The ROA and ROE ~~increased~~decreased for the ~~nine months~~quarter-to-date period and the year-to-date period ended ~~September~~June 30, ~~2017,~~2022, compared to the same period 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~~lower earnings 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.~~2022.

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		2022		2021		2022		2021

Return on Average Assets		0.80%		0.87%		0.77%		0.81%		0.60%		0.92%		0.68%		1.07%
Return on Average Equity		8.06%		8.31%		7.86%		7.71%		9.55%		10.86%		9.70%		12.43%

~~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

Provision for loan losses

Other income

Operating expenses

Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income (NII)

~~Net interest income (NII)~~NII represents the largest portion of the Corporation’s operating income. In the first ~~nine~~six months of ~~2017,~~2022, NII generated ~~74.8%~~77.2% of the Corporation’s ~~gross~~ revenue stream, which consists of ~~net interest income~~NII and non-interest income, compared to ~~68.1%~~67.4% in the first ~~nine~~six months of ~~2016. The~~2021. This increase is a result of higher levels of NII ~~as a percentage~~in the first six months of ~~gross revenue was primarily caused by a combination of the last three Federal Reserve interest rate increases~~2022 as well as ~~non-recurring accelerated amortization expense in 2016.~~lower non-interest income compared to 2021. The overall performance of the Corporation is highly dependent on the changes in ~~net interest income~~NII 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~~NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis. The FTE ~~net interest income~~NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled ~~$582,000 and $1,793,000~~$317,000 for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2022, and $621,000 for the six months ended June 30, 2022, compared to ~~$524,000~~$289,000 and ~~$1,570,000~~$556,000 for the same periods in ~~2016.~~2021.

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,
	2022		2021		2022		2021
	$		$		$		$
Total interest income		12,759		10,537		24,163		21,067
Total interest expense		785		806		1,468		1,657

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

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

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

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

The average balance of interest earning assets and interest bearing liabilities

~~The Federal funds rate, the Prime rate, the shape of the~~NII is impacted by yields earned on assets and rates paid on liabilities. During 2021, longer-term U.S. Treasury rates increased adding some slope to the yield curve, ~~and other wholesale funding curves, all affect NII. The~~but asset yields were still constrained. In the first six months of 2022, interest rates increased much more dramatically in anticipation of a Federal Reserve ~~controls~~rate movement which happened in mid-March. The two through five year Treasury securities experienced the ~~Federal funds~~most rate ~~which is one of a number of tools available to~~increases, with the ~~Federal Reserve to conduct monetary policy. The Federal funds rate, and guidance on when~~longer term rates increasing less. Management believes that higher market rates should help 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 December 16, 2015, 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%. Prior to December 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% Federal Reserve rate increase could occur in the fourth quarter of 2017. It remains to be seen whether mid and long-term U.S. Treasury rates will also increase to the same degree that the Federal Reserve will move the overnight Federal funds rate. If they do not, the yield curve would further flatten making it harder for the Corporation to increase asset yield.

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

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% 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. 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.(NIM) moving forward.

As a result of a larger balance sheet in the ~~Federal Reserve rate increases,~~first half of 2022, even with low asset yields, the Corporation’s NII on a tax equivalent basis ~~began to increase in 2017 with~~increased and the Corporation’s margin ~~increasing~~increased to ~~3.46%~~2.96% for the quarter and 2.85% for the six months ended June 30, 2022, compared to 2.72% in the second quarter of 2021 and 2.79% for the year-to-date ~~period ended September 30, 2017, compared to 3.04% for the nine months ended September 30, 2016.~~period. The Corporation’s NII for the ~~first nine~~three and six months ~~of 2017~~ended June 30, 2022, increased ~~substantially~~ over the same period in ~~2016,~~2021 by ~~$4,421,000,~~$2,243,000, or ~~22.3%~~23.1% and $3,285,000, or 16.9%, 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.respectively. Management’s asset liability sensitivity ~~measurements continue to show~~shows a small 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~~sheet, however there was some decline in ~~2017 would further improve both~~this asset sensitivity throughout 2021 and through the first half of 2022. In a down-rate environment, the margin and NII ~~although~~would suffer unless balance sheet growth is enough 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.

~~The extended extremely low Federal funds rate has enabled management to reduce the cost of funds on overnight borrowings and allowed~~offset lower interest rates paid on deposits, reducing the Corporation’s interest expense. It was only after the third 25-basis point Fed rate increase in March of 2017 that the Corporation raised some deposit rates minimally. While the low Prime rate reduced the yield on the Corporation’s loans for many years, the rate increases through September of 2017 did act to boost interest income and help improve the Corporation’s margin. With a higher Prime rate and elevated Treasury rates, higher asset yields should be possible throughout the remainder of 2017. Due to the increasing number of variable rate loans in the Corporation’s loan portfolio, the 25 basis point increase in 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.yields.

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in 2021, security reinvestment had generally been occurring at lower yields. With higher Treasury rates in the first nine months of 2017 compared to the same period in 2016, security reinvestment has been occurring at slightly higher yields and amortization has slowed resulting in higher yields. The Corporation’s loan yield has begun to increase as the variable rate portion of the loan portfolio is repricing higher with each Federal Reserve rate movement. The vast majority of the Corporation’s commercial Prime-based loans are priced at the Prime rate, currently at 4.25%. The pricing for the most typical five-year fixed rate commercial loans is currently very similar to the Prime rate. Previously, any increases in 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 the variable rate loans in a period of rising rates. An element 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 by local competition.

Mid-term and long-term interest rates on average were higher in 2017 compared to 2016. The average rate of the 10-year U.S. Treasury was 2.32% in the first nine months of 2017 compared to 1.74% in the first nine months of 2016, and it stood at 2.33% on September 30, 2017, compared to 1.60% at September 30, 2016. The slope of the yield curve has been compressed throughout most of 2016 and through the first nine months of 2017, with a difference of 108 basis points between the Fed Funds rate of 1.25% and the 10-year U.S. Treasury as of September 30, 2017, compared to 110 basis points as of September 30, 2016. 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% in 2016 and 2.62% in 2017, and as low as 1.37% in 2016 and 2.05% in 2017. Because the yield curve is still relatively flat, management was not able to increase loan rates to improve yield, but2022, security yields have ~~improved as a result of slightly higher investment rates~~increased 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 projectedhave helped to increase ~~throughout~~NII during the ~~remainder~~first half of ~~2017 and during 2018.~~2022.

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

~~While it is becoming increasingly difficult to achieve savings on the~~The Corporation’s overall cost of funds, including non-interest bearing funds, was 18 basis points through the ~~Corporation has been able to maintain relatively low offering rates on longer-term time deposits. These~~first half of 2022. Core deposit interest rates are ~~still below the interest~~at historic lows and time deposit rates ~~that existed four or five years ago. Rollover of these longer time deposits to lower~~are not much higher than core deposit rates ~~has caused a decrease~~resulting in ~~interest expense. Generally, it was the longer-term~~maturing 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 on 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 rate increases may need to be implemented beginning in 2018. Management selectively repriced some time deposit rates higher after the March Federal Reserve rate increase, but the time deposits repricing to lower rates offset any increased interest expense for those that were selectively priced higher. 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 borrowings at lower rates in 2016 but lower-priced borrowings matured in 2017 with no ability to refinance at lower rates, so the yield on borrowings increased slightly during 2017 and will likely continue to do soor moving into ~~2018.~~

~~Management currently anticipates that~~core deposit products. The average balance of borrowings was slightly lower in the ~~overnight interest rate and Prime rate will remain at~~first six months of 2022 than 2021, resulting in the current levels until December of 2017 with the possibility of one more 0.25% rate increase by year-end. It is likely that mid and long-term U.S. Treasury rates will increase slowly throughout the fourth quarter of 2017 as the market anticipates an additional Federal Reserve rate movement. 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, the yield curve could flatten, making 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 the repricing of the Corporation’s liabilities as thetotal cost of ~~money increases and more marketplace competition returns. Management anticipates that more deposit rate increases will need to be made to remain competitive in the market while maturing~~ borrowings ~~would also likely reprice to higher rates.~~decreasing by $150,000.

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

3834

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,
2017 vs. 2016 2016 vs. 2015
Increase (Decrease) Increase (Decrease)
Due To Change In Due To Change In
Net Net
Average Interest Increase Average Interest Increase
Balances Rates (Decrease) Balances Rates (Decrease)
$ $ $ $ $ $
INTEREST INCOME

Interest on deposits at other banks 27 136 163 — 43 43

Securities available for sale:
Taxable 44 2,059 2,103 (212 ) (1,610 ) (1,822 )
Tax-exempt 766 (49 ) 717 466 92 558
Total securities 810 2,010 2,820 254 (1,518 ) (1,264 )
Loans 938 340 1,278 1,982 (292 ) 1,690
Regulatory stock 31 (3 ) 28 44 (100 ) (56 )

Total interest income 1,806 2,483 4,289 2,280 (1,867 ) 413

INTEREST EXPENSE

Deposits:
Demand deposits 19 32 51 32 (41 ) (9 )
Savings deposits 10 (1 ) 9 8 (2 ) 6
Time deposits (93 ) (97 ) (190 ) (204 ) (123 ) (327 )
Total deposits (64 ) (66 ) (130 ) (164 ) (166 ) (330 )

Borrowings:
Total borrowings (25 ) 23 (2 ) 17 (261 ) (244 )

Total interest expense (89 ) (43 ) (132 ) (147 ) (427 ) (574 )

NET INTEREST INCOME 1,895 2,526 4,421 2,427 (1,440 ) 987

During the first nine months of 2017, the Corporation’s NII on an FTE basis increased by $4,421,000, a 22.3% increase over the same period in 2016. Total interest income on an FTE basis for the nine months ended September 30, 2017, increased $4,289,000, or 19.4%, from 2016, while interest expense decreased $132,000, or 5.7%, for the nine months ended September 30, 2017, compared to the same period in 2016. The FTE interest income from the securities portfolio increased by $2,820,000, or 56.7%, while loan interest income increased $1,278,000, or 7.6%. During 2017, additional loan volume caused by loan growth added $938,000 to net interest income, and the slightly higher yields caused a $340,000 increase, resulting in a total increase of $1,278,000. Higher balances in the securities portfolio caused an increase of $810,000 in net interest income, while higher yields on securities caused a $2,010,000 increase, resulting in a total increase of $2,820,000. The Corporation recorded $1,681,000 in non-recurring accelerated amortization on U.S. sub-agency securities during the nine months ended September 30, 2016, which was responsible for the lower yields on securities in 2016.

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

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 reduction to expense, and time deposits repricing to lower interest rates reduced interest expense by an additional $97,000, causing a total reduction of $190,000 in time deposit interest expense. Even with the low rate environment, the Corporation was successful in increasing balances of other deposit types.

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

The average balance of outstanding borrowings decreased by $3.1 million, or 4.2%, from September 30, 2016, to September 30, 2017. The decrease in total borrowings reduced interest expense by $25,000. The increase in market interest rates increased interest expense by $23,000, as some long-term borrowings at lower rates matured and were replaced with new advances at marginally higher rates. The aggregate of these amounts was a decrease in interest expense of $2,000 related to total borrowings.

	Three Months Ended June 30,									Six Months Ended June 30,
	2022 vs. 2021									2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)
	Due To Change In									Due To Change In
							Net									Net
	Average			Interest			Increase			Average			Interest			Increase
	Balances			Rates			(Decrease)			Balances			Rates			(Decrease)
	$			$			$			$			$			$
INTEREST INCOME

Interest on deposits at other banks		(11	)		39			28			4			39			43

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

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

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

INTEREST EXPENSE

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

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

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

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

The following tables show a more detailed analysis of ~~net interest income~~NII on ana 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). 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.

4035

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						2022						2021
					(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		29,899		48		0.65		49,710		20		0.16

Securities available for sale:
Taxable		200,043		1,030		2.06		183,607		608		1.32		426,130		2,042		1.92		373,610		1,259		1.35
Tax-exempt		124,262		1,566		5.04		113,566		1,444		5.09		207,379		1,349		2.60		188,390		1,262		2.68
Total securities (d)		324,305		2,596		3.20		297,173		2,052		2.76		633,509		3,391		2.14		562,000		2,521		1.79

Loans (a)		583,592		6,246		4.28		560,576		5,766		4.11		996,100		9,566		3.86		858,183		8,207		3.83

Regulatory stock		5,723		72		5.03		4,936		60		4.86		5,776		71		4.90		6,054		78		5.15

Total interest earning assets		943,117		9,026		3.83		888,658		7,917		3.56		1,665,284		13,076		3.15		1,475,947		10,826		2.94

Non-interest earning assets (d)		64,845						64,291						57,983						80,235

Total assets		1,007,962						952,949						1,723,267						1,556,182

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		199,001		93		0.19		192,147		72		0.15		388,334		117		0.12		338,060		40		0.05
Savings deposits		189,863		24		0.05		166,111		21		0.05		368,095		18		0.02		312,504		15		0.02
Time deposits		153,710		372		0.96		165,638		416		1.01		114,026		173		0.62		117,887		230		0.78
Borrowed funds		69,629		265		1.51		73,411		242		1.32		74,011		477		2.61		72,235		521		2.89
Total interest bearing liabilities		612,203		754		0.49		597,307		751		0.50		944,466		785		0.34		840,686		806		0.39

Non-interest bearing liabilities:

Demand deposits		293,124						253,527						664,435						579,007
Other		2,570						2,683						6,940						5,379

Total liabilities		907,897						853,517						1,615,841						1,425,072

Stockholders' equity		100,065						99,432						107,426						131,110

Total liabilities & stockholders' equity		1,007,962						952,949						1,723,267						1,556,182

Net interest income (FTE)				8,272						7,166						12,291						10,020

Net interest spread (b)						3.34						3.06						2.81						2.55
Effect of non-interest
bearing deposits						0.16						0.16						0.15						0.17
Net yield on interest earning assets (c)						3.50						3.22						2.96						2.72

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of ~~$1,122,000~~ $2,111,000 as of ~~September~~June 30, ~~2017,~~2022, and ~~$863,000~~$435,000 as of ~~September~~June 30, ~~2016.~~2021. Such fees and costs recognized through income and included in the interest amounts totaled ~~($112,000)~~$52,000 in ~~2017,~~2022, and ~~($99,000)~~$36,000 in ~~2016.~~2021.

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

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

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

ENB FINANCIAL CORP

Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Six Months Ended June 30,
	2022						2021
					(c)						(c)
	Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		58,307		85		0.29		53,820		42		0.16

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

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

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

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

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

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

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

Non-interest bearing liabilities:

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

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

Stockholders' equity		119,555						130,671

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

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

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

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The year-to-date average balances include net deferred loan costs of $1,972,000 as of June 30, 2022, and $815,000 as of June 30, 2021. Such fees and costs recognized through income and included in the interest amounts totaled $38,000 in 2022, and $374,000 in 2021.

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

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

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

4137

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,
2017 2016
(c) (c)
Average Annualized Average Annualized
Balance Interest Yield/Rate Balance Interest Yield/Rate
$ $ % $ $ %
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks 28,086 257 1.22 22,635 94 0.55

Securities available for sale:
Taxable 195,093 2,904 1.98 185,399 802 0.58
Tax-exempt 127,520 4,894 5.12 107,556 4,176 5.18
Total securities (d) 322,613 7,798 3.22 292,955 4,978 2.27

Loans (a) 578,496 18,176 4.19 548,492 16,898 4.11

Regulatory stock 5,581 201 4.80 4,724 173 4.88

Total interest earning assets 934,776 26,432 3.77 868,806 22,143 3.40

Non-interest earning assets (d) 62,695 62,200

Total assets 997,471 931,006

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits 200,471 256 0.17 183,852 204 0.15
Savings deposits 186,339 71 0.05 160,506 62 0.05
Time deposits 156,860 1,111 0.95 169,478 1,302 1.03
Borrowed funds 71,973 749 1.39 75,090 751 1.34
Total interest bearing liabilities 615,643 2,187 0.47 588,926 2,319 0.53

Non-interest bearing liabilities:

Demand deposits 281,620 241,786
Other 2,671 2,700

Total liabilities 899,934 833,412

Stockholders' equity 97,537 97,594

Total liabilities & stockholders' equity 997,471 931,006

Net interest income (FTE) 24,245 19,824

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

(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 as of September 30, 2017, and $796,000 as of September 30, 2016. Such fees and costs recognized through income and included in the interest amounts totaled ($335,000) in 2017, and ($275,000) in 2016.

~~(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.~~

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

The Corporation’s ~~interest income~~average balances on securities increased ~~at a faster pace primarily due to non-recurring security amortization in the first nine months of 2016, resulting in a higher NIM of 3.50%~~by $71.5 million, or 12.7%, for the ~~third quarter of 2017,~~three months ended June 30, 2022, and $84.4 million, or 16.0%, for the six months ended June 30, 2022, compared to ~~3.22% for the third quarter of 2016 and 3.46% for the nine months ended September 30, 2017, compared to 3.04% for~~ the same ~~period~~periods in ~~2016.~~2021. The tax equivalent yield ~~earned~~ on ~~assets~~investments increased by 2735 basis points for the ~~quarter~~quarter-to-date period and ~~37 basis points for the year-to-date period while the rate paid on liabilities dropped one basis point for the quarter and six~~19 basis points for the year-to-date period when comparing both years. Management does anticipate further improvements in NIM during the remainder of 2017 with the possibility of another rate increase in the fourth quarter. Loan yields were at historically low levels during 2016 and the first nine months of 2017Interest income on securities increased due to the ~~extended~~volume growth which was caused by an excess of liquidity in 2021 and 2022 as a result of the 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~~caused a large influx of 2017 with increases occurring during 2018 as the economy improves and loan demand increases, reducing pricing pressures and intense competition for loans. The increase in the Prime rate has helped to increase loan yieldsdeposits.

Average balances 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. The Corporation’s loan yield~~ increased ~~17 basis points in the third quarter of 2017 compared to the third quarter of 2016 and 8 basis points when comparing the year-to-date periods in both years. Loan interest income increased $480,000,~~by $137.9 million, or ~~8.3%, and $1,278,000, or 7.6%~~16.1%, for the three ~~and nine~~ months ended ~~September~~June 30, ~~2017,~~2022, and $115.2 million, or 13.6%, for the six months ended June 30, 2022, compared to the same periods in ~~2016.~~the prior year. Loan yields increased by 3 basis points for the quarter, but declined by 10 basis points for the year-to-date period and loan interest income increased for both time frames due to the increase in loan balances. The quarter-to-date increase in loan interest income was $1,359,000, or 16.6%, and the year-to-date increase was $1,801,000, or 10.8%.

~~Loan pricing~~The average balance of interest-bearing deposit accounts increased by $102.0 million, or 13.3%, and $105.9 million, or 14.1%, for the three and six months ended June 30, 2022, respectively, compared to the same periods in the prior year. While the average balance of time deposits did decrease for both the quarter and year-to-date time periods, the average balance on demand and savings accounts increased significantly and more than offset the decline in time deposits. The interest rate paid on demand deposits increased marginally for both of these time periods, while the interest rate on savings accounts remained the same and the rate on time deposits declined. The combination of these changes resulted in an increase in interest expense of $23,000, or 8.1% for the three months ended June 30, 2022, and a decrease in interest expense of $39,000, or 6.5%, for the six months ended June 30, 2022, compared to the same periods in 2021.

The Corporation’s average balance on borrowed funds increased by $1.8 million, or 2.5%, for the three months ended June 30, 2022, but decreased by $4.3 million, or 5.9%, for the six months ended June 30, 2022, compared to the same periods in 2021. The Corporation’s borrowed funds consist of FHLB advances as well as subordinated debt issued in December of 2020 which was ~~challenging~~used to support capital growth for the Corporation. The increase in ~~2016, and continues~~borrowed funds for the quarter-to-date period is due to be$20 million of short-term advances initiated in ~~2017 as~~the second quarter of 2022 to support loan growth. The decrease for the year-to-date period is 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. The current Prime rate of 4.25% is generally lower than most fixed-rate business and commercial loans, which typically range between 4.00% and 6.00%, depending on term and credit risk. 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%. However, there are relatively few of these higher rate loanspaying off FHLB advances in the ~~commercial~~prior year to take advantage of the low rate environment. The rate paid on borrowed funds decreased by 28 basis points for the three months ended June 30, 2022, and ~~agricultural portfolios due~~25 basis points for the six months ended June 30, 2022, compared to the ~~strong credit quality~~same periods in the prior year. This decrease in rate can be attributed to the pay off of higher-rate FHLB advances in 2021 as well as the issuance of lower-rate short-term advances in 2022.

For the three months ended June 30, 2022, the net interest spread increased by twenty-six basis points to 2.81%, compared to 2.55% for the three months ended June 30, 2021. For the six months ended June 30, 2022, the net interest spread increased by 10 basis points to 2.71%, compared to 2.61% for the six months ended June 30, 2022. The effect of non-interest bearing funds decreased to 15 basis points from 17 basis points for the three months ended June 30, 2022, and decreased to 14 basis points from 18 basis points for the six months ended June 30, 2022, compared to the same periods in 2021. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s NIM for the second quarter of 2022 was 2.96%, compared to 2.72% for the second quarter of 2021. For the year-to-date period, the Corporation’s ~~borrowers. Competition in the immediate market area is pricing select shorter-term fixed-rate commercial and agricultural lending rates below 4.00%~~NIM was 2.85%, compared to 2.79% for the ~~strongest loan credits. This current market environment has largely prevented the Corporation from gaining yield on fixed rate commercial and agricultural loans.~~ same period in 2021.

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

Earnings and yields on the Corporation’s securities increased by 44 basis points for the three months ended September 30, 2017, and 95 basis points for the nine months ended September 30, 2017, compared to the same periodschanges in 2016. The Corporation’s securities portfolio consists of nearly all fixed income debt instruments. The Corporation’s taxable securities experienced a 74 basis-point increase in yield for the three months ended September 30, 2017, and a 140 basis-point increase in yield for the nine months ended September 30, 2017, compared to the same periods 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 reinvestment in the first nine months of 2017 has been occurring at higher rates and regular amortization has been lower due to the slightly higher interest rate environment. These variables have caused taxable security yields to increase significantly. The yield on tax-exempt securities decreased minimally by five basis points and six basis points for the three and nine months ended September 30, 2017, compared to the same periods in 2016.

Prior to 2017, 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, with higher short-term rates but still low longer-term rates, 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 months ended September 30, 2017. The average balance of time deposits declined during these same periods compared to 2016, 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 NOW, MMDA, and savings accounts the average interest rate paid on these instruments is significantly less than what is paid on time deposits, resulting in less interest expense.

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

Interest expense on deposits declined by $20,000, or 3.9%, and $130,000, or 8.3%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Demand and savings deposits reprice in entirety whenever the offering rates are changed. This allows management to reduce interest costs rapidly; however, it becomes difficult to continue to gain cost savings once offering rates decline to these historically low levels. For the third quarter of 2017 and the nine months ended September 30, 2017, the average balances of interest bearing demand deposits increased by $6.9 million, or 3.6%, and $16.6 million, or 9.0%, over the same periods in 2016, while the average balance of savings accounts increased by $23.8 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.

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 months ended September 30, 2017, time deposit balances decreased compared to balances at September 30, 2016. The decrease can be attributed to the lowest rates paid historically on time deposits, which has caused the differential between time deposit rates and rates on non-maturity deposits to be minimal. 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. The Corporation was able to reduce interest expense on time deposits by $44,000, or 10.6%, for the third quarter of 2017, compared to the same period in 2016, and by $191,000, or 14.7%, for the nine months ended September 30, 2017, compared to the same period in the prior year. Average balances of time deposits decreased by $11.9 million, or 7.2%, and $12.6 million, or 7.4%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. The average annualized interest rate paid on time deposits decreased by five basis points for the three-month period and eight basis points for the nine-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 were utilized in the three and nine months ended September 30, 2017, respectively, while average short-term advances of $10,052,000 and $11,131,000 were utilized in the three and nine months ended September 30, 2016. 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 by $3,782,000, or 5.2%, and $3,117,000, or 4.2%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Interest expense on borrowed funds was $23,000, or 9.5% higher, and $2,000, or 0.3% lower, for the three and nine-month periods when comparing 2017 to 2016.

For the three months ended September 30, 2017, 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 basis points to 3.30%, from 2.87% for the same period in 2016. The effect of non-interest bearing funds stayed the same for the three-month period and dropped by one basis point for the nine-month period compared to the same periods 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, the benefit of non-interest bearing deposits is reduced because there is less 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 to 0.20%, then the benefit of the non-interest bearing funds is only $20. This assumes dollar-for-dollar replacement, which is not realistic, but demonstrates the way the lower 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.

Provision for Loan Losses

The allowance for ~~loan~~credit losses ~~(ALLL)~~(ACL) provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio. The amount of the provision reflects the adjustment management determines necessary to ensure the ~~ALLL~~ACL is adequate to cover any losses inherent in the loan portfolio. The Corporation recorded a provision expense of ~~$240,000~~$650,000 for the ~~three months ended September 30, 2017, and $450,000~~second quarter of 2022, compared to no provision expense recorded for the ~~nine months ended September 30, 2017, compared to a provision expense~~second quarter of ~~$200,000 for~~2021. For the ~~three months ended September 30, 2016, and $200,000 for~~year-to-date period, the ~~nine months ended September 30, 2016. The analysis of the ALLL takes into consideration, among other things, the following factors:~~

Corporation recorded

4438

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,~~

~~changes in the value of underlying collateral.~~

~~During the nine months ended September 30, 2017, the Corporation recorded~~ provision expense of ~~$450,000 primarily~~$750,000 compared to $375,000 in 2021. The provision expense was higher in both time periods due to ~~higher balances~~loan growth partially offset by a lower balance of classified loans and a specific allocation of $98,000 related to an impaired loan. During the first nine months of 2016, the Corporation recorded $200,000 of provision expense. Management closely tracks delinquent, non-performing, and classified loans as a percentage of capital and of the loan portfolio.

loans. As of ~~September~~June 30, 2017, total delinquencies represented 0.46% of total loans, compared to 0.45% as of September 30, 2016. 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 of residential and commercial real estate, had stressed these ratios in past periods and the addition of a commercial loan relationship in the first quarter 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. 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 in the first nine months of 2017.

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, 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 months of 2017, qualitative factors were adjusted based on current information regarding delinquency, economic conditions, and other factors. Changes in qualitative factors were unchanged for two loan pools, while they increased for four pools and declined for three. 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.

~~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 since September 30, 2016 and December 31, 2016, and remains comparable with the peer group. As of September 30, 2017,2022, the allowance as a percentage of total loans was ~~1.37%~~1.31%, ~~up from 1.32%~~compared to 1.46% at ~~December 31, 2016, and 1.31% at September~~June 30, 2016. Management continues to evaluate the allowance for loan losses 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 is adequate to provide for future loan losses based on the current portfolio and the current economic environment.2021. More detail is provided under Allowance for ~~Loan~~Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the ~~third~~second quarter of ~~2017~~2022 was ~~$2,622,000,~~$3,019,000, a decrease of ~~$206,000,~~$1,058,000, or ~~7.3%~~26.0%, compared to the ~~$2,828,000~~$4,077,000 earned during the ~~third~~second quarter of ~~2016.~~2021. For the year-to-date period ended ~~September~~June 30, ~~2017,~~2022, other income totaled ~~$7,546,000,~~$6,695,000, a decrease of ~~$1,020,000,~~$2,700,000, or ~~11.9%~~28.7%, compared to the same period in ~~2016.~~2021. The following ~~tables detail~~table details the categories that comprise other income.

OTHER INCOME
(DOLLARS IN THOUSANDS)
	Three Months Ended September 30,				Increase (Decrease)						Three Months Ended June 30,
	2017		2016								2022			2021		Increase (Decrease)
	$		$		$			%			$			$		$			%

Trust and investment services		427		344		83			24.1			628			537		91			16.9
Service charges on deposit accounts		320		285		35			12.3			334			246		88			35.8
Other service charges and fees		328		304		24			7.9
Other fees												350			438		(88	)		(20.1	)
Commissions		583		552		31			5.6			952			952		—			—
Gains on securities transactions, net		170		464		(294	)		(63.4	)
Net gains (losses) on debt and equity securities												(130	)		250		(380	)		(152.0	)
Gains on sale of mortgages		510		557		(47	)		(8.4	)		328			1,245		(917	)		(73.7	)
Earnings on bank owned life insurance		170		210		(40	)		(19.0	)		235			202		33			16.3
Other miscellaneous income		114		112		2			1.8			322			207		115			55.6

Total other income		2,622		2,828		(206	)		(7.3	)		3,019			4,077		(1,058	)		(26.0	)

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,				Increase (Decrease)
	2022		2021
	$		$		$			%

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

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

Trust and investment services income increased $83,000, or 24.1%, and $231,000, or 20.9%, for the three and nine months ended September 30, 2017, 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 quarter of 2017, traditional trust income increased by $42,000, or 17.5%, while income from alternative investments increased by $41,000, or 39.7%, compared to the third quarter of 2016. For the nine months ended September 30, 2017, traditional trust services income increased by $158,000, or 21.2%, while income from alternative investment services increased by $73,000, or 20.4%, compared to the same period in 2016. Trust income was up for both time periods primarily as a result of ~~new business,~~ higher fees ~~and higher trust valuations. Several new~~on trust accounts ~~were opened in~~partially offset by lower income related to the fourth quarter of 2016 adding revenue beginning in 2017. A new trust fee schedule was implemented in March 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 and the fees generated from their fair market values.

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

investment services area. Service charges on deposit accounts increased by ~~$35,000, or 12.3%~~35.8% for the quarter and 26.9% for the year-to-date period, primarily as a result of higher overdraft charges and higher excess transaction charges in both time periods. Other fees decreased by 20.1% and 19.8%, ~~and $88,000, or 10.7%,~~respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, compared~~2022, driven by lower loan-related fees. Gains and losses on debt and equity securities were lower in 2022 driven by higher interest rates which has resulted in fewer opportunities to sell investment securities at gains. Mortgage gains declined by $917,000, or 73.7%, and $2,112,000, or 66.5%, in the ~~same periods in 2016. Overdraft service charges are the largest component of this category~~second quarter 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. Mostfirst half of ~~the other service charge areas showed minimal increases or decreases from the prior year.~~

Other service charges and fees increased by $24,000, or 7.9%, and $162,000, or 19.7%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. The quarterly and year-to-date increase is primarily due to an increase in loan administration fees that were higher by $40,000, or 37.7%, for the three-month period ended September 30, 2017, and $133,000, or 47.8%, for the nine-month period ended September 30, 2017,2022 compared to the same periods in the prior year. ~~A significant~~This was primarily a result of the rapid increase in ~~mortgage volume is being generated through~~interest rates during 2022 that resulted in very low margins on mortgages sold and fewer mortgages sold on the ~~mortgage expansion and was the primary reason for these~~secondary market as customers turned to adjustable rate mortgages in 2022. Earnings on bank-owned life insurance 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~~the purchase of additional BOLI policies. The miscellaneous income category was higher for the ~~services provided. Partially offsetting these increases, fees for 30-year mortgage originations decreased by $23,000, or 30.5%, and $11,000, or 6.0%,~~quarter but lower for the ~~three and nine months ended September 30, 2017, compared to the same periods~~year-to-date period in ~~2016. The other service charges and fees area is expected to continue to grow at~~2022 as a faster pace than other elements of the Corporation’s fees but the percentage increase will decline going forward. Various other fee income categories increased or decreased to lesser degrees making up the remainder of the variance compared to the prior year.

Commissions increased by $31,000, or 5.6%, and $103,000, or 6.4%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. This was primarily caused by debit card interchange income, which increased by $23,000, or 4.8%, and $90,000, or 6.4%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. The interchange income is a direct result of non-recurring income items that impacted the ~~volume~~second quarter of ~~debit card transactions processed and this income increases~~2022 as ~~customer accounts increase or~~well 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 months ended September 30, 2017, $170,000 of gains on securities transactions were recorded compared to $464,000 for the same period 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. 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 months~~quarter of 2016 provided greater opportunities to take significant gains out of the portfolio than during the first nine 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.

2021.

4739

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Gains on the sale of mortgages were $510,000 for the three-month period ended September 30, 2017, compared to $557,000 for the same period in 2016, a $47,000, or 8.4% decrease. Gains on the sale of mortgages for the nine months ended September 30, 2017, increased by $193,000, or 17.4%, compared to the same period in 2016. Secondary mortgage financing activity drives the gains on the sale of mortgages, and the activity in the first nine months of 2017 was at increased levels due to the greater marketing efforts of the Corporation’s mortgage area, a slightly improved local economy, as well as attractive mortgage rates. Management anticipates that gains should continue at these higher levels throughout the remainder of 2017, with the continued increased focus to grow the Corporation’s mortgage origination activity, continued low mortgage rates, and expanded adjustable rate mortgage offerings. Most of the Corporation’s recent held for investment mortgage growth has come in the form of 5/1 and 7/1 year adjustable rate mortgages.

For the three months ended September 30, 2017, earnings on bank-owned life insurance (BOLI) decreased by $40,000, or 19.0%, and for the nine months ended September 30, 2017, earnings on BOLI decreased by $90,000, or 14.9%, compared to the same periods in 2016. The decrease was primarily due to declining performance on 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 income due to the age 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. 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.

Operating Expenses

Operating expenses for the ~~third~~second quarter of ~~2017~~2022 were ~~$7,647,000,~~$11,477,000, an increase of ~~$899,000,~~$1,781,000, or ~~13.3%~~18.4%, compared to the ~~$6,748,000~~$9,696,000 for the ~~third~~second quarter of ~~2016.~~2021. For the year-to-date period ended ~~September~~June 30, ~~2017,~~2022, operating expenses totaled ~~$22,880,000,~~$22,085,000, an increase of ~~$2,938,000,~~$3,202,000, or ~~14.7%~~17.0%, compared to the same period in ~~2016.~~2021. The following ~~tables provide~~table provides details of the Corporation’s operating expenses for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017,~~2022, compared to the same periods in ~~2016.~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~2021.

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

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,				Increase (Decrease)						Three Months Ended June 30,
	2017		2016								2022		2021		Increase (Decrease)
	$		$		$			%			$		$		$		%
Salaries and employee benefits		14,370		12,230		2,140			17.5			6,707		5,959		748		12.6
Occupancy expenses		1,828		1,584		244			15.4			694		635		59		9.3
Equipment expenses		878		811		67			8.3			336		285		51		17.9
Advertising & marketing expenses		539		422		117			27.7			295		245		50		20.4
Computer software & data processing expenses		1,654		1,345		309			23.0			1,386		1,102		284		25.8
Bank shares tax		644		680		(36	)		(5.3	)
Shares tax												351		275		76		27.6
Professional services		1,260		1,207		53			4.4			633		598		35		5.9
Other operating expenses		1,707		1,663		44			2.6			1,075		597		478		80.1
Total Operating Expenses		22,880		19,942		2,938			14.7			11,477		9,696		1,781		18.4

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

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

Salaries and employee benefits are the largest category of operating expenses. ~~In general, they comprise 63% of the Corporation’s total operating expenses.~~ For the three months ended ~~September~~June 30, ~~2017,~~2022, salaries and benefits increased ~~$621,000,~~$748,000, or ~~14.7%~~12.6%, ~~from the same period in 2016.~~compared to 2021. For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2022, salaries and benefits increased ~~$2,140,000,~~by $1,561,000, or ~~17.5%~~13.4%, ~~compared to~~from the nine months ended September 30, 2016. Salaries increased by $459,000, or 14.3%, and employee benefits increased by $162,000, or 15.9%, for the three months ended September 30, 2017, compared to the same period in 2016. For the nine months ended September 30, 2017, salary expense increased by $1,528,000, or 16.9%, while employee benefits increased by $611,000, or 19.3%, compared to the nine months ended September 30, 2016. Salary and benefit expenses have grown significantly primarily due to the three new branch locations added in 2016, but also as a result of additional operational positions to support the growth of the Corporation.

~~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, or 12.4%, and $244,000, or 15.4%, for the three and nine months ended September 30, 2017, compared to the same periods in the prior year. Building repair and maintenance costs increased by $18,000, or 41.8%, and $85,000, 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%, when comparing the three and nine months ended September 30, 2017, to the same periods in the prior year. Lease expense increased by $22,000, or 61.5%, and $59,000, or 63.6%, for 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 both 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.~~

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

Equipment expenses increased by $23,000, or 8.3%, and $67,000, or 8.3%, for the three and nine months ended September 30, 2017, 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,~~This was primarily due to higher costs to replace employees who retired or ~~23.5%,~~left the organization due to nationwide, regional, and ~~$27,000, or 74.0%,~~local staffing challenges, a realignment of salaries company-wide with market norms, and an accrual 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, furnitureCorporation’s bank-wide incentive program. Occupancy and equipment expenses are ~~increasing~~higher than the prior year primarily due to the addition of a community lending office as well as a ~~result of the expanded~~full service branch ~~and office network.~~

office. Advertising and marketing expenses increased by ~~$23,000, or 19.2%~~20.4%, ~~for the three months ended September 30, 2017, compared to the same period in 2016,~~ and ~~increased by $117,000, or 27.7%~~32.0%, for the nine months ended September 30, 2017, compared to the same period in 2016. These expenses can be further broken down into two categories, marketing expenses and public relations. The marketing expenses remained the samerespectively, for the quarter ~~ended September 30, 2017, compared~~and year-to-date periods, due to the third quarter of 2016, but for the nine months ended September 30, 2017, these expenses increased by $84,000, or 31.7%, compared to the year-to-date period in 2016. Public relations expenses increased by $23,000, or 72.1%, for the three months ended September 30, 2017,promoting new market areas as well as new products and $34,000, or 21.7%, for the nine months ended September 30, 2017, compared to the same periods in 2016. 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.

services. Computer software and data processing expenses increased ~~by $104,000, or 22.1%, for~~as a result of higher technology costs as new systems are implemented to support the ~~third~~ongoing growth and efficiency of the Corpration and increased volumes due to a larger customer base. Shares tax expense is based on the Corporation’s level of shareholders’ equity and has grown substantially, commensurate with the growth in shareholders’ equity. Professional services expenses increased in the second quarter and the first half of ~~2017, and $309,000, or 23.0%, for the nine months ended September 30, 2017,~~2022 compared to the ~~same periods in 2016. Software-related~~prior year driven by higher legal fees and other outside services. Other operating expenses ~~were up $78,000, or 30.3%, and $242,000, or 33.4%, for the three and nine months ended September 30, 2017, compared to the same periods in~~increased over the prior year primarily as a result of ~~increased amortization on existing software as well as purchases of new software platforms~~higher FDIC and OCC assessment costs, higher fraud-related charges-offs, higher travel costs, and miscellaneous other operating costs that are increasing to support the strategic initiatives of the Corporation. Data processing fees were up $27,000, or 12.3%, and $68,000, or 10.9%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. These fees are likely to continue to increase throughout the remainder of 2017 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.a lesser degree.

The Pennsylvania Bank Shares Tax expense decreased $12,000, or 5.3%, and $36,000, or 5.3%, for the three and nine months ended September 30, 2017, compared to the same periods in 2016. Three main factors determine the amount of bank shares tax: the ending value of shareholders’ equity, the ending value of tax-exempt U.S. obligations, and the actual tax rate. The shares tax calculation in 2014 changed to using a year-end balance of shareholders’ equity, less tax-exempt U.S. obligations multiplied by a tax rate of 0.89%. In 2016, as part 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.

Other operating expenses increased by $74,000, or 14.8%, and by $44,000, or 2.6%, for the three and nine months ended September 30, 2017 respectively, compared to the same periods in 2016. Loan-related expenses 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, or 63.4%, and $45,000, or 50.7%, for the three and nine-month periods ended September 30, 2017, compared to the same periods in the prior year.

5040

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Income Taxes

~~The majority of the Corporation’s income is taxed at a corporate rate of 34% for~~ Federal income tax ~~purposes.~~expense was $308,000 for the second quarter of 2022 compared to $561,000 for the same period in 2021. For the ~~three and nine~~six months ended ~~September~~June 30, ~~2017,~~2022, the Corporation recorded Federal income tax expense of ~~$391,000 and $935,000,~~$806,000, compared to ~~tax expense of $445,000 and $1,045,000~~$1,492,000 for the ~~three and nine~~six months ended ~~September~~June 30, ~~2016.~~2021. The effective tax rate for the Corporation was ~~16.1%~~12.3% for the ~~three~~six months ended ~~September~~June 30, ~~2017, and 14.0% for the nine months ended September 30, 2017, compared to 17.6%~~2022, and 15.6% for the same periods in 2016. 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 was primarily caused by an increase in the Corporation’s tax-free municipal bond portfolio.

six months ended June 30, 2021. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and ~~BOLI~~Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax ~~rate. The~~rate and 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.~~first half of 2022 was lower than the prior year due to an increased level of tax-free assets.

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 in the third quarter of 2017 and $644,000 for the nine months ended September 30, 2017, compared to $227,000 and $680,000 for the same periods in 2016. The Bank Shares Tax expense appears on the Corporation’s Consolidated Statements of Income, under operating expenses.

5141

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,~~2022, the Corporation had ~~$320.7~~$579 million of securities available for sale, which accounted for ~~31.7%~~32.7% of assets, compared to ~~31.3%~~32.5% as of December 31, ~~2016,~~2021, and ~~30.7%~~37.0% as of ~~September~~June 30, ~~2016.~~2021. Based on ending balances, the securities portfolio decreased 0.9% from June 30, 2021, and increased ~~7.6% from September 30, 2016, and 4.1%~~3.7% from December 31, ~~2016.~~2021.

The debt securities portfolio was showing a net unrealized loss of ~~$3,381,000~~$46,602,000 as of ~~September~~June 30, ~~2017,~~2022, compared to an unrealized ~~loss~~gain of ~~$7,401,000~~$4,356,000 as of December 31, ~~2016,~~2021, and ~~an unrealized gain of $1,850,000~~$9,319,000 as of ~~September~~June 30, ~~2016.~~2021. The valuation of the Corporation’s securities portfolio, predominately debt securities, is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates. The 10-year U.S. Treasury yield was 1.60% as of September 30, 2016, 2.45% as of December 31, 2016, and 2.33% as of September 30, 2017. The lower Treasury rates since December 31, 2016 have caused an improvement in market valuation, which has resulted in the smaller unrealized loss recorded at September 30, 2017 compared to the significant unrealized losses at December 31, 2016.

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,~~2022, December 31, ~~2016,~~2021 and ~~September~~June 30, ~~2016.~~2021.

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

December 31, 2021
U.S. Treasuries		14,821		(8	)		14,813
U.S. government agencies		29,613		(592	)		29,021
U.S. agency mortgage-backed securities		51,964		24			51,988
U.S. agency collateralized mortgage obligations		30,917		160			31,077
Asset-backed securities		100,998		221			101,219
Corporate bonds		82,617		(108	)		82,509
Obligations of states and political subdivisions		242,807		4,659			247,466
Total debt securities		553,737		4,356			558,093
Equity securities		8,810		172			8,982
Total securities		562,547		4,528			567,075

~~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

5242

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

Net
Amortized Unrealized Fair
Cost Gains (Losses) Value
$ $ $
September 30, 2016
U.S. government agencies 33,088 (11 ) 33,077
U.S. agency mortgage-backed securities 50,160 31 50,191
U.S. agency collateralized mortgage obligations 34,940 98 35,038
Corporate bonds 53,751 158 53,909
Obligations of states and political subdivisions 118,515 1,452 119,967
Total debt securities 290,454 1,728 292,182
Marketable equity securities 5,835 122 5,957
Total securities available for sale 296,289 1,850 298,139

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 the Federal Reserve will act to increase rates one more time during 2017. During 2016, there was increased foreign market turmoil with several major European countries experiencing negative yields for mid and longer term notes. This resulted in foreign investors seeking U.S. Treasury debt as a safe haven and drove U.S. Treasury yields to new record lows early in the third quarter of 2016. Treasury rates increased significantly during the third and fourth quarters of 2016. The Treasury rates ran up to a 2017 high in March and then slowly retreated until hitting lows in early September. Since then Treasury rates have slowly increased and are likely to increase throughout the fourth quarter in anticipation of a December 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. 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 debt securities. The impact will vary according to the 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. 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 could grow if market rates do increase during the remainder of the year, either in anticipation of a Federal Reserve rate move, or after the next rate move.

After four consecutive quarters of declines ending on September 30, 2016, 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 decline in the second and third quarters of 2017. 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 30, 2017. Duration is expected to remain stable or decline slightly throughout the remainder of 2017. It will be more difficult to reduce duration materially since management has increased the percentage of municipal holdings 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.

~~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, gains from the sales of securities did decline significantly.

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 bonds, the Corporation’s equity holdings consist of a small CRA-qualified mutual fund with a book value of $5.3 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 and fair market value of $368,000 as of September 30, 2017. The equity holdings make up 1.8% 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~~establishes guidelines to ~~ensure~~promote 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
September 30, 2017 December 31, 2016 September 30, 2016
$ % $ % $ %

U.S. government agencies 28,647 8.9 32,261 10.5 33,077 11.1
U.S. agency mortgage-backed securities 53,583 16.7 55,869 18.1 50,191 16.8
U.S. agency collateralized mortgage obligations 54,038 16.9 37,936 12.3 35,038 11.8
Corporate debt securities 57,136 17.8 52,091 16.9 53,909 18.1
Obligations of states and political subdivisions 121,673 37.9 124,430 40.4 119,967 40.2
Equity securities 5,618 1.8 5,524 1.8 5,957 2.0

Total securities 320,695 100.0 308,111 100.0 298,139 100.0

The ~~largest movements within~~Corporation’s U.S. Treasury sector increased $18.8 million during the ~~securities portfolio were shaped by market factors, such as:~~

~~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~~

~~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 states and political subdivisions.~~

~~Since September~~first half of ~~2016, the most significant change occurring within the Corporation’s securities portfolio was an~~2022, resulting in a 126.9% increase in ~~U.S. agency collateralized mortgage obligations (CMOs), and~~this sector. This sector represents a ~~decrease in U.S. government agency securities.~~

safe credit at a market-appropriate yield which added some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased by ~~$4.4~~$3.6 million, or ~~13.4%~~12.3%, since ~~September 30, 2016, with the weighting decreased from 11.1% of~~December 31, 2021. Management has purchased Non-agency MBS and CMO securities since December 31, 2021 which has brought the portfolio to ~~8.9%. In the past, management’s goal was to maintain agency securities at approximately 15%~~$41 million as of June 30, 2022, or 7% of the ~~securities portfolio. In the current rate environment, management is comfortable maintaining agencies at a level of approximately 10% of the~~total portfolio. This sector ~~is also important in maintaining adequate risk weightings of~~will better structure the portfolio to ~~ensure sufficient U.S. government securities for pledging purposes,~~achieve higher yields and ~~importantly to ladder out~~shorten the duration while also protecting in 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.rates-up environment.

The Corporation’s U.S. agency MBS and CMO sectors have ~~increased in total~~decreased slightly since ~~September 30, 2016, and the weightings have changed~~December 31, 2021, with ~~significantly more CMOs and only slightly more~~ MBS ~~as of September 30, 2017, compared to September 30, 2016. The Corporation’s CMO portfolio has increased by $19.0~~decreasing $2 million, or ~~54.2%~~3.8%, ~~while MBS balances have only increased by $3.4 million, or 6.8%, when comparing September 30, 2017, to balances~~and CMOs staying relatively flat at ~~September 30, 2016.~~$31 million. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain a substantial amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. ~~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 - $3.0 million per month. Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield. ~~As interest rates decline, prepayment of principal on~~

The Corporation’s asset-backed securities ~~increases, the duration~~declined by $14 million, or 13.8%, from December 31, 2021, to June 30, 2022. Many of the ~~security shortens, and~~bonds in this sector receive regular monthly principal payments which caused the ~~yield declines as more amortization is required on premium bonds. When interest rates increase,~~value to decline. Additionally, some asset-backed securities were sold at gains in the ~~opposite~~first quarter 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, and helps2022 to ~~soften or smooth out~~support the Corporation’s ~~total monthly cash flow from all securities.~~earnings and liquidity position.

ENB FINANCIAL CORP

Management’s Discussion and Analysis

As of ~~September~~June 30, ~~2017,~~2022, the fair value of the Corporation’s corporate bonds ~~increased~~decreased by ~~$3.2~~$5.6 million, or ~~6.0%~~6.8%, from balances at ~~September 30, 2016.~~December 31, 2021. Like any security, corporate bonds have both positive and negative qualities and management must evaluate these securities on a risk versus reward basis. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a high level of credit risk should the entity experience financial difficulties. ~~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~~consist of both tax-free ~~securities that generally provide the highest yield in the securities portfolio.~~and taxable securities. 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. ~~Due~~Municipal securities were purchased throughout 2020 and 2021 due to ~~purchases, the fair~~ market ~~value of municipal holdings has increased by $1.7 million, or 1.4%, from September 30, 2016~~conditions that led to ~~September 30, 2017.~~favorable yields on some instruments. Municipal bonds represented ~~37.9%~~39.8% of the securities portfolio as of ~~September~~June 30, ~~2017,~~2022, compared to ~~40.2%~~43.6% as of ~~September 30, 2016. The Corporation’s investment policy limits municipal holdings to 125% of Tier 2 capital. As of September 30, 2017, municipal holdings amounted to 109% of Tier 2 capital.~~December 31, 2021.

~~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 30, 2017, no securities have fallen below investment grade.

As of September 30, 2017, nineteen of the thirty-three corporate securities held by the Corporation showed an unrealized holding loss. These securities with unrealized holding losses were valued at 99.1% 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 30, 2017, all but three 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 corporate bonds, with a total book value of $6.7 million, did not have an A3 or A- rating as of September 30, 2017. 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 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 bonds have a book value of $20.0 million with a $57,000 unrealized loss as of September 30, 2017. 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 30, 2017, 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, management 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 is closely monitoring all corporate and municipal securities.

Loans

Net loans outstanding increased by ~~3.1%~~19.9%, to ~~$576.0~~$1,027.8 million at ~~September~~June 30, ~~2017,~~2022, from ~~$558.5~~$857.1 million at ~~September~~June 30, ~~2016.~~2021. Net loans increased by ~~2.1%~~13.2%, an annualized rate of ~~2.8%~~26.4%, from ~~$564.0~~$908.0 million at December 31, ~~2016.~~2021. The following table shows the composition of the loan portfolio as of ~~September~~June 30, ~~2017,~~2022, December 31, ~~2016,~~2021, and ~~September~~June 30, ~~2016.~~

~~ENB FINANCIAL CORP~~
~~Management’s Discussion and Analysis~~2021.

~~LOANS BY MAJOR CATEGORY~~

~~(DOLLARS IN THOUSANDS)~~

LOANS BY MAJOR CATEGORY
(DOLLARS IN THOUSANDS)
	September 30,					December 31,					September 30,					June 30,					December 31,					June 30,
	2017					2016					2016					2022					2021					2021
	$			%		$			%		$			%		$			%		$			%		$			%

Commercial real estate
Commercial mortgages		90,468			15.5		86,434			15.2		87,676			15.5		191,249			18.4		177,396			19.3		156,022			17.9
Agriculture mortgages		150,269			25.8		163,753			28.7		167,531			29.7		205,680			19.8		203,725			22.2		178,573			20.5
Construction		18,762			3.2		24,880			4.4		28,796			5.1		82,289			7.9		19,639			2.1		21,347			2.5
Total commercial real estate		259,499			44.5		275,067			48.3		284,003			50.3		479,218			46.1		400,760			43.6		355,942			40.9

Consumer real estate (a)
1-4 family residential mortgages		168,984			29.0		150,253			26.3		143,066			25.3		317,214			30.5		317,037			34.5		288,301			33.2
Home equity loans		11,457			2.0		10,391			1.8		10,537			1.9		13,711			1.3		11,181			1.2		11,525			1.3
Home equity lines of credit		57,991			9.9		53,127			9.3		50,251			8.9		87,251			8.4		75,698			8.2		71,694			8.2
Total consumer real estate		238,432			40.9		213,771			37.4		203,854			36.1		418,176			40.2		403,916			43.9		371,520			42.7

Commercial and industrial
Commercial and industrial		41,724			7.1		42,471			7.4		41,705			7.4		81,612			7.9		65,615			7.1		102,533			11.8
Tax-free loans		19,632			3.4		13,091			2.3		11,485			2.0		23,517			2.3		23,009			2.5		16,268			1.9
Agriculture loans		18,487			3.2		21,630			3.8		19,363			3.4		31,355			3.0		20,717			2.3		17,824			2.1
Total commercial and industrial		79,843			13.7		77,192			13.5		72,553			12.8		136,484			13.2		109,341			11.9		136,625			15.8

Consumer		5,166			0.9		4,537			0.8		4,663			0.8		5,376			0.5		5,132			0.6		5,133			0.6

Total loans		582,940			100.0		570,567			100.0		565,073			100.0		1,039,254			100.0		919,149			100.0		869,220			100.0
Less:
Deferred loan fees (costs), net		(1,137	)				(1,000	)				(895	)				2,186					1,755					535
Allowance for loan losses		8,028					7,562					7,435
Allowance for credit losses																	(13,606	)				(12,931	)				(12,703	)
Total net loans		576,049					564,005					558,533					1,027,834					907,973					857,052

(a)	Residential real estate loans do not include mortgage loans serviced for others which totaled ~~$90,123,000~~$304,841,000 as of ~~September~~June 30, ~~2017, $66,767,000~~2022, $289,263,000 as of December 31, ~~2016,~~2021, and ~~$59,506,000~~$263,005,000 as of ~~September~~June 30, ~~2016.~~2021.

ENB FINANCIAL CORP

Management’s Discussion and Analysis

There was ~~moderate~~significant growth in the loan portfolio since ~~September~~June 30, ~~2016,~~2021 and December 31, 2016. A decline in agricultural mortgages and construction lending secured by commercial real estate between December 31, 2016 and September 30, 2017 offset a large portion of the growth occurring in other areas of the portfolio, resulting in somewhat slower growth. Commercial real estate loans saw a decline2021. Most major loan categories showed an increase in balances from both time periods with ~~increases in consumer real estate loans and~~the exception of the commercial and industrial loans ~~more than offsetting this decrease. The biggest~~which showed an increase since December 31, 2021, but a decline insince June 30, 2021, due to the forgiveness of PPP loans since June 30, 2021.

The commercial real estate ~~sector has been in agricultural mortgages, which declined due to a reorganization~~category represents the largest group of loans for 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 consumerCorporation. Commercial real estate sector, 1-4 family residential mortgages increased due to the expansion of the Corporation’s mortgage division and successful efforts to expand the product line and increase the sales force to capture a greater share of the local mortgage market. Home equity lines of credit have grown in response to the low interest rate environment encouraging customers to utilize 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 during the first nine months of 2017.

~~In terms of all loans secured by real estate, the total of all categories of real estate loans comprises 85.4%~~makes up 46.1% of total loans as of ~~September~~June 30, ~~2017. At $259.5 million, commercial real estate is the largest category of the loan portfolio, consisting of 44.5%~~2022, compared to 40.9% of total ~~loans. This category includes commercial mortgages, agriculture mortgages, and construction loans. Commercial real estate~~ loans ~~decreased from $284.0 million~~ as of ~~September~~June 30, ~~2016, to $259.5 million as of September 30, 2017, a $24.5 million, or 8.6% decrease.~~

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 a combination of new agricultural lending competition in Lancaster County and weaker milk and egg pricing for farmers. Low dairy, egg, and poultry prices are constraining local farmers from expanding operations presently. 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 conditions improve for farmers in the local market area and pricing pressures from additional market entrants subside.

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

~~Commercial mortgages were the most stable sector within~~2021. Within the commercial real estate ~~area with~~segment, the increase has primarily been construction loans which was a ~~small percentage increase~~direct result of reclassification from 1-4 family residential loans in the ~~prior year period.~~ first half of 2022. The Corporation’s commercial construction loan balances increased by $60.9 million, or 285.5%, from June 30, 2021 to June 30, 2022. Commercial construction loans were 7.9% of the total loan portfolio as of June 30, 2022, and 2.5% as of June 30, 2021.

Commercial mortgages increased ~~by $2.8~~$35.2 million, or ~~3.2%~~22.6%, from ~~September~~balances at June 30, 2016 to September 30, 2017, with new loan production outpacing normal principal payments and paydowns 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 commercial real estate loans to remain stable2021. Commercial mortgages as a percentage of the ~~Corporation’s loans as we move through the last quarter of 2017.~~

The Corporation experienced declines in commercial construction as a number of construction projects completed and were converted into permanent financing. The Corporation did not originate any new large construction contracts to replace 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% of the~~ total loan portfolio ~~with balances~~increased to 18.4% as of ~~$238.4~~June 30, 2022, compared to 17.9% at June 30, 2021. Agricultural mortgages increased by $27.1 million, or 15.2%, from $178.6 million as of ~~September~~June 30, ~~2017, a marked increase from 36.1%~~2021, to $205.7 million as of June 30, 2022. Agricultural mortgages were 19.8% of the portfolio as of ~~September~~June 30, ~~2017. These~~2022, compared to 20.5% as of June 30, 2021.

The consumer residential real estate category of total loans ~~include~~increased from $371.5 million on June 30, 2021, to $418.2 million on June 30, 2022, a 12.6% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages ~~home equity term loans, and home equity lines of credit. Personal residential mortgages~~ account for ~~70.9%~~the vast majority of ~~total~~ residential real estate loans with fixed and ~~29.0%~~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, up from 70.2%~~loans. As of June 30, 2021, this percentage was 42.7%, and ~~25.3% respectively,~~ as of ~~September~~June 30, ~~2016. Traditional 10~~2022, it decreased to ~~20-year personal~~40.2%. Although economic conditions for consumers had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market was relatively strong as consumers refinanced existing debt to lower rates throughout 2021. During the first half of 2022, mortgage activity remained strong with the majority of consumers choosing adjustable rate mortgages ~~originated from and held by the Corporation have consistently been the largest single product of~~which remain in the Corporation’s loan ~~portfolio. During 2016~~portfolio as opposed to the 30-year fixed rate mortgages that were being generated in the past couple of years and ~~through~~sold on the secondary market.

The first lien 1-4 family mortgages increased by $28.9 million, or 10.0%, from June 30, 2021, to June 30, 2022. These first lien 1-4 family loans made up 77.6% of the residential real estate total as of June 30, 2021, and 75.9% as of June 30, 2022. The vast majority of the first ~~nine months~~lien 1-4 family closed end loans consist of ~~2017,~~single family personal first lien residential mortgages and home equity loans, with the ~~Corporation experienced significant increases in both portfolio and secondary market production. The volume~~remainder consisting 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.

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.non-owner-occupied mortgages. In the ~~first nine months~~second quarter of ~~2017, purchase~~2022, mortgage production increased 9% from the previous quarter but was down 13% from the second quarter of 2021. Purchase money origination constituted ~~66%~~82% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up ~~34%~~58% of ~~that. The growth~~that mix. With the continued higher volume of new construction business in combination with a rising interest rate environment, the percentage of mortgage originations being added into the Corporation’s held-for-investment mortgage portfolio ~~continued to be concentrated~~increased quarter-over-quarter. In the second quarter of 2022, 78% of all mortgage originations were held in ~~its ARM products;~~the mortgage portfolio, 52% of which were adjustable rate mortgages. As of June 30, 2022, ARM balances were ~~$18.0~~$159.5 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 percentagerepresenting 50.3% of the 1-4 family residential loan portfolio ~~amounting to over 46%~~ of the ~~total personal~~Corporation. With a continued decline in dollar volume of loans being delivered into the secondary market along with a continued increase in mortgage rates, the gains on the sale of mortgages 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 this area of the portfolio.declined quarter-over-quarter.

~~Second mortgages and home equity loans, fixed or variable rate, make up~~As of June 30, 2022, the remainder of the ~~Corporation’s~~ residential real estate ~~loans. The purposes~~loans consisted of ~~these loans can vary but for this analysis the loan type and form~~$13.7 million of fixed rate junior 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~~and $87.3 million of ~~historically low rates, while~~variable rate home equity lines of credit ~~which float on the Prime rate, have been the preferred home equity financing. The growth~~(HELOCs). This compares to $11.5 million 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.

~~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~~junior lien home equity loans, ~~have~~and $71.7 million of HELOCs as of June 30, 2021. Therefore, combined, these two types of home equity loans increased ~~by $0.9~~from $83.2 million ~~or 8.7%, and are expected~~ to $101.0 million, an 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 an21.4%.

The other area of ~~strategic focus for the Corporation.~~

commercial lending is non-real estate secured commercial lending, referred to as commercial and industrial lending. Commercial and industrial loans not secured by real estate ~~are significantly smaller than~~accounted for 13.2% of total loans as of June 30, 2022, a decline from the ~~Corporation’s commercial loans secured by real estate portfolio. These~~15.8% at June 30, 2021. The balance of total commercial and industrial loans ~~referred~~remained stable from June 30, 2021 to ~~as C&I~~June 30, 2022. This category of loans ~~are~~ generally ~~extended based on the health~~includes unsecured lines of ~~the commercial borrower. They include both fixed rate~~credit, truck, equipment, and receivable and inventory loans, and Prime-based variable rate loans. The variable rate loans are generally in the form of a business line of credit. The Corporation’s security position as 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 to 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.~~municipalities. The balance at June 30, 2022 and June 30, 2021, also includes the PPP loans, which have declined rapidly as these loans are forgiven by the SBA after businesses prove they used the funds for qualified expenses. The total balance of PPP loans declined by $47.0 million, or 96.1% from June 30, 2021, and represents $1.9 million as of June 30, 2022.

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The consumer loan portfolio increased ~~to $5.2~~slightly from $5.1 million at ~~September~~June 30, ~~2017, from $4.7~~2021, to $5.4 million at ~~September~~June 30, ~~2016. Consumer loans made up 0.9%~~2022, a 5.9% increase. The consumer loan portfolio represents 0.5% of total ~~loans on September 30, 2017, and 0.8% of loans on September 30, 2016.~~loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans ~~for those expenditures. Slightly higher demand~~that are generally unsecured. Demand for unsecured credit is ~~just slightly outpacing~~being matched by principal payments on existing loans resulting in ~~the small increase in~~stable 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~~Non-performing troubled debt restructurings

Other real estate owned

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

~~NON-PERFORMING ASSETS~~

~~(DOLLARS IN THOUSANDS)~~

September 30, December 31, September 30,
2017 2016 2016
$ $ $

Nonaccrual loans 687 721 805
Loans past due 90 days or more and still accruing 254 384 666
Troubled debt restructurings 263 — —
Total non-performing loans 1,204 1,105 1,471

Other real estate owned — — —

Total non-performing assets 1,204 1,105 1,471

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

NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
	June 30		December 31,		June 30
	2022		2021		2021
	$		$		$

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

Other real estate owned		—		—		—

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

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

The total balance of non-performing assets ~~decreased~~increased by ~~$267,000,~~$4.5 million, or ~~18.2%,~~484.1% from ~~September~~balances at June 30, ~~2016 to September 30, 2017,~~2021, and increased by ~~$99,000,~~$2.6 million, or ~~9.0%~~90.2%, from balances at December 31, ~~2016~~2021. There were no non-performing TDR loans in any of the periods presented. A TDR is a loan where management has granted a concession to ~~September 30, 2017. The decrease~~the borrower from the ~~prior year~~original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. Non-accrual loans increased by $4.0 million, or 616.9%, since June 30, 2021, and increased $2.1 million, or 82.6% since December 31, 2021. The increase that occurred between December 31, 2021 and June 30, 2022 was primarily due to ~~lower levels of non-accrual loans~~three agricultural relationships, a business loan, a commercial real estate loan, 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~~of unrelated borrowers all added to non-accrual in ~~outstanding balance on this loan. Additionally, loans~~the first half of 2022. Loans past due 90 days or more and still accruing ~~decreased by $412,000 primarily due to~~were up $488,000 from the prior year period, and $526,000, since December 31, 2021, as a result of an agriculture mortgage and two residential real estate loans that ~~were previously past due being brought current due to payments received. Management continues to monitor delinquency trends and~~entered the ~~level~~category during the first half 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 experienced in 2016.2022.

There was no other real estate owned (OREO) as of ~~September~~June 30, ~~2017,~~2022, December 31, ~~2016,~~2021, or ~~September~~June 30, ~~2016.~~

2021.

Allowance for ~~Loan~~Credit Losses

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

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Historical loan losses

Qualitative factor adjustments including levels of delinquent and non-performing loans

Growth trends of the loan portfolio

Recovery of loans previously charged off

Provision for loan losses

Strong credit and collateral policies have been instrumental in producing a favorable history of loan losses for the Corporation. The ~~Allowance for Loan Losses~~Net Charge-Off table below shows the ~~activity in the allowance for loan losses for the nine-month periods ended September 30, 2017 and September 30, 2016. 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 each segment of the ~~year.~~ Corporation’s loan portfolio as of June 30, 2022 and 2021.

Net Charge-Offs
(DOLLARS IN THOUSANDS)

	2022			2021
	$			$

Loans charged-off:
Commercial real estate		65			—
Consumer real estate		—			—
Commercial and industrial		41			—
Consumer		1			23
Total loans charged-off		107			23

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

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

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

Net charge-offs (recoveries) as a % of average loans outstanding
Commercial real estate		0.02%			0.00%
Consumer real estate		0.00%			0.00%
Commercial and industrial		0.01%			-0.01%
Consumer		-0.02%			0.30%
Total net charge-offs (recoveries) as a % of average loans outstanding		0.01%			0.00%

The ~~second is the total allowance for loan losses~~net charge-offs as a percentage of average total ~~loans.~~loans outstanding indicates the percentage of the Corporation’s total loan portfolio that has been charged off during the period. The Corporation has historically experienced very low net charge-off percentages due to conservative credit practices. As of June 30, 2022, net charge-offs were $75,000, representing a net charge off position of 0.01% of average loans outstanding as reflected above. As of June 30, 2021, net recoveries were $1,000, resulting in a net charge-off as a percentage of average loans of 0.00% for the year-to-date period.

6047

ENB FINANCIAL CORP

Management’s Discussion and Analysis

~~ALLOWANCE FOR LOAN LOSSES~~

~~(DOLLARS IN THOUSANDS)~~

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 months ended September 30, 2017, were $30,000, compared to $47,000 for the same period in 2016. Management typically charges off unsecured debt over 90 days delinquent with little likelihood of recovery. In the first nine months of 2017 and 2016, only small loans classified as commercial and industrial loans 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.

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 $14.0 million on ~~September~~June 30, ~~2017, was up $7.1~~2022, compared to $23.4 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, 2016.2021. Total classified loans ~~did not materially increase until~~have decreased from the first quarter of 2017 when a large business relationship with over $5 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 loan 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.

prior year. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans. In addition to this impact, management performs a specific allocation test on these classified loans. There was ~~$98,000~~$74,000 of specifically allocated allowance against the classified loans as of ~~September~~June 30, ~~2017, and no~~2022, $147,000 of specific allocation as of December 31, ~~2016, or September~~2021, and $1.1 million of specific allocation as of June 30, ~~2016. Classified loans could require larger provision amounts due~~2021. The higher specific allocation at June 30, 2021, was related to a ~~higher potential risk~~commercial customer with ongoing business concerns. This loan paid off during the third quarter of ~~loss, so as the classified loan balances fluctuate, the associated specific allowance applied to them fluctuates,~~2021, resulting in a ~~lower or higher required allowance.~~

~~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-offsdecline in the ~~future. Management does anticipate charging off one commercial~~provision for loan in the fourth quarter of 2017 that was on non-accrual status as of September 30, 2017. Management anticipates that charge-off to be approximately $275,000. The particular business has not been operating since 2016 and the property is expected to go to sheriff sale in the first quarter of 2018. Management is not aware of any other significant charge-offs that could occur in the fourth quarter of 2017. 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.

The allowance as a percentage of total loans was ~~1.37% as of September 30, 2017, 1.32% as of December 31, 2016, and~~ 1.31% as of ~~September~~June 30, ~~2016. Management anticipates that the allowance percentage will remain fairly stable during the remainder~~2022, and 1.46% as of ~~2017, as the allowance balance is increased with additional provision expense to account for loan growth throughout the year.~~June 30, 2021. It is typical for the allowance for ~~loan~~credit losses to contain a small amount of excess reserves. ~~Management desires~~Over the long term, management targets an excess reserve at approximately 5%-10% knowing that the ~~amount of excess~~ reserve ~~in the allowance for loan losses be maintained between 5% and 10%.~~can fluctuate. The excess reserve stood at ~~5.8%~~3.2% as of ~~September~~June 30, ~~2017.~~2022.

Premises and Equipment

Premises and equipment, net of accumulated depreciation, ~~increased~~decreased by ~~$1.6~~$0.4 million, or ~~7.0%~~1.6%, to ~~$24.4~~$24.3 million as of ~~September~~June 30, ~~2017,~~2022, from ~~$22.8~~$24.7 million as of ~~September~~June 30, ~~2016.~~2021. As of ~~September~~June 30, ~~2017, $1,285,000~~2022, $380,000 was classified as construction in process compared to ~~$156,000~~$379,000 as of ~~September~~June 30, ~~2016.~~2021. Fixed assets ~~increased~~declined as a result of the Corporation’s eleventh full-service branch office opened 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’sdepreciation outpacing new ~~Strasburg, PA branch office.~~

purchases year over year.

Regulatory Stock

The Corporation owns multiple forms of regulatory stock that is required in order to be a member of the Federal Reserve Bank (FRB) and members of banks such as the Federal Home Loan Bank (FHLB) and Atlantic Community Bankers Bank (ACBB). The Corporation’s $6.1 million of regulatory stock holdings as of ~~September~~June 30, ~~2017,~~2022, consisted of ~~$5.9~~$5.4 million of FHLB of Pittsburgh stock, ~~$151,000~~$631,000 of FRB stock, and $37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding Company of ACBB. All of these stocks are valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the investment is carried at book value and there is no fair market value adjustment.

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 million on September 30, 2017, $5.2 million on December 31, 2016, and $5.0 million on September 30, 2016, 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 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 by FHLB of Pittsburgh in the third and fourth quarters of 2016 and the first, second, and third quarters of 2017, is at a 5.00% annualized yield on activity stock and 2.00% 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.

Table of core deposit accounts is a direct result of the local market disruption caused by two large mergers, which impacted the three counties the Corporation primarily serves. The Corporation has gained many new customers as a result of being a long-standing safe community bank known for offering understandable financial productsContents

~~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, 2022, increased by ~~$21.3~~$66.1 million, or ~~2.6%~~4.4%, and ~~$46.2~~by $209.4 million, or ~~5.8%~~15.3%, from December 31, ~~2016,~~2021, and ~~September~~June 30, ~~2016,~~2021, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates. The mix of the Corporation’s deposit categories has changed moderately since ~~September~~June 30, ~~2016,~~2021, with the changes being a ~~$41.1~~$95.7 million, or ~~15.8%~~16.4% increase in non-interest bearing demand deposit accounts, a ~~$2.5~~$14.3 million, or ~~11.6% decrease~~25.8% increase in interest bearing demand ~~accounts,~~balances, a ~~$13.7~~$3.5 million, or ~~14.9%~~2.7% decrease in NOW balances, a ~~$13.1~~$53.5 million, or ~~15.3%~~33.0% increase in money market account balances, a ~~$21.1~~$52.8 million, or ~~12.6%~~16.5% increase in savings account balances, and a ~~$9.8~~$3.4 million, or ~~6.2%~~2.9% decrease in time deposit balances.

~~The significant growth across most categories~~48

ENB FINANCIAL CORP

Management’s Discussion and services with lower fees. The prolonged historically low interest rates also continue to aid the Corporation in growing core deposits as a result of very little difference between the core deposit rates and short-term time deposit rates. Customers view demand deposit, money market and savings accounts as the safest, most convenient place to maintain funds for maximum flexibility. Management believes these deposit account types will continue to hold higher balances until short-term interest rates increase further.Analysis

The Deposits by Major Classification table, shown below, provides the balances of each category for ~~September~~June 30, ~~2017,~~2022, December 31, ~~2016,~~2021, and ~~September~~June 30, ~~2016.~~2021.

~~DEPOSITS BY MAJOR CLASSIFICATION~~

~~(DOLLARS IN THOUSANDS)~~

September 30, December 31, September 30,
2017 2016 2016
$ $ $

Non-interest bearing demand 301,978 280,543 260,873
Interest bearing demand 19,279 20,108 21,799
NOW accounts 78,061 85,540 91,719
Money market deposit accounts 99,235 93,943 86,096
Savings accounts 188,015 175,753 166,904
Time deposits 148,513 156,381 158,300
Brokered time deposits 3,744 5,223 6,969
Total deposits 838,825 817,491 792,660

DEPOSITS BY MAJOR CLASSIFICATION
(DOLLARS IN THOUSANDS)

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

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

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

Convenience and service provided

Current rates paid on deposits relative to competitor rates

Level of and perceived direction of interest rates

Financial condition and perceived safety of the institution

Possible risks associated with other investment opportunities

Level of fees on deposit products

~~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. 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 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 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,~~2022, time deposit balances ~~excluding brokered deposits,~~ had decreased ~~$7.9~~$3.4 million, or ~~5.0%~~2.9%, from June 30, 2021, and ~~$9.8~~$0.3 million, or ~~6.2%,~~0.3% from December 31, ~~2016 and September 30, 2016, respectively.~~2021. The Corporation has experienced a slow and steady shift in deposit trends over the past five years as customers have moved money from time deposits into core checking and savings accounts. 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 that the recent declines in time deposits will likely continue until interest rates increase and cause more of a separation between longer-term rates and overnight rates.

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. ThisThe low rate environment 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 percentagesthis shift due to the ~~FDIC coverage.~~

small variance in rates between time deposits and other deposit products resulting in a change in customer behavior.

Borrowings

Total borrowings were ~~$68.4~~$83.9 million, ~~$69.6~~$63.9 million, and ~~$75.8~~$69.8 million as of ~~September~~June 30, ~~2017,~~2022, December 31, ~~2016,~~2021, and ~~September~~June 30, ~~2016,~~2021, respectively. ~~Of these amounts, $8.3~~There was $20.0 million ~~and $12.1 million reflect~~of short-term funds ~~for December 31, 2016,~~outstanding at June 30, 2022, and ~~September 30, 2016, respectively, with~~ no short-term funds outstanding ~~as of September~~at December 31, 2021, or June 30, ~~2017.~~2021. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year. The $20.0 million of short-term borrowings at June 30, 2022, consisted entirely of short-term FHLB advances.

Total long-term borrowings, borrowings initiated for terms longer than one year, were ~~$68.4~~$44.2 million as of ~~September~~June 30, ~~2017, $61.3~~2022, $44.2 million as of December 31, ~~2016,~~2021, and ~~$63.8~~$50.2 million as of ~~September~~June 30, ~~2016.~~2021. The long-term borrowings for the Corporation were made up entirely of FHLB long-term ~~advances at September 30, 2017, December 31, 2016, and September 30, 2016.~~advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. ~~Over the course of the past few years, the Corporation has minimally changed the ladder of~~The decrease in long-term FHLB borrowings since June 30, 2021, can be attributed to management taking advantage of declining rates by ~~replacing maturing~~prepaying FHLB advances with new long-term advances typically at rate savings. More recently, with interest rates rising, it is becoming increasingly difficult to fund new borrowings at rates lower than the maturing borrowings. Management will continue to analyze and ~~compare the costs and benefits of borrowing versus obtaining funding from deposits.~~

Inincurring penalties 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 30, 2017, the Corporation was significantly under this policy guideline at 6.8% of asset size with $68.4 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 30, 2017, the Corporation was significantly under this policy guideline at 67.8% of capital with $68.4 million total borrowings from all sources. The Corporation has maintained FHLB borrowings and total borrowings well within these policy guidelines throughout all of 2016 and through the first nine months of 2017.save on interest expense in future years.

6449

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~~$518.6 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.

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

Stockholders’ Equity

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

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

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

6550

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

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

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

Tier 1 Capital to Average Assets
	Consolidated	7.8%	N/A	N/A
	Bank	8.7%	4.0%	5.0%

As of December 31, 2021
Total Capital to Risk-Weighted Assets
	Consolidated	15.6%	N/A	N/A
	Bank	14.9%	8.0%	10.0%

Tier I Capital to Risk-Weighted Assets
	Consolidated	12.5%	N/A	N/A
	Bank	13.6%	6.0%	8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
	Consolidated	12.5%	N/A	N/A
	Bank	13.6%	4.5%	6.5%

Tier I Capital to Average Assets
	Consolidated	8.2%	N/A	N/A
	Bank	9.1%	4.0%	5.0%


As of June 30, 2021
Total Capital to Risk-Weighted Assets
	Consolidated	16.1%	N/A	N/A
	Bank	15.6%	8.0%	10.0%

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

As of June 30, 2022 the Bank’s Tier 1 Leverage Ratio stood at 8.7% while the Corporation’s Tier 1 Leverage Ratio was 7.8%. Tier 1 Capital levels at the Corporation level were not impacted by the subordinated debt issue since subordinated debt only qualifies as Tier 2 Capital at the corporate level. As such, in terms of the Corporation’s regulatory capital ratios, only the Total Capital to Risk-Weighted Assets ratio was enhanced as a result of the $20 million subordinated debt issue. Most of the marked improvement in capital ratios from 2020 to 2021 occurred at the Bank level. In 2022, the Corporation’s earnings, net of dividends paid, positively impacted the level of stockholders’ equity, but a devaluation of the investment portfolio, resulted in a higher level of unrealized losses, and a negative impact.

6651

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 months ended September 30, 2017, were $0.84, 3.7% higher than the $0.81 per share dividend in the first nine months of 2016. 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%. 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 months ended September 30, 2017, the payout ratio was 41.8%. 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 30, 2017, the Corporation showed an unrealized loss, net of tax, of $2,232,000, compared to an unrealized loss of $4,885,000 at December 31, 2016, and an unrealized gain of $1,221,000 as of September 30, 2016. 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 months ended September 30, 2017, 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.

~~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.

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.~~

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~(DOLLARS IN THOUSANDS)~~2022.

OFF-BALANCE SHEET ARRANGEMENTS
(DOLLARS IN THOUSANDS)
	~~September~~
	June 30,
	~~2017~~2022
	$
Commitments to extend credit:
~~Revolving home equity~~		~~75,381~~173,740
Construction loans		~~16,283~~53,139
Real estate loans		~~51,194~~92,400
Business loans		~~101,488~~207,262
Consumer loans		~~1,080~~1,404
Other		~~4,404~~5,582
Standby letters of credit		~~11,086~~11,185

Total		~~260,916~~544,712

~~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.

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Corporate Governance

Dodd-Frank requires publicly traded companies to give stockholders a non-binding vote on executive compensation at least every three years, a non-binding vote regarding the frequency of the vote on executive compensation at least every six years, and a non-binding vote on “golden parachute” payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. The SEC has finalized the rules implementing these requirements which took effect on January 21, 2011. The Corporation was exempt from these requirements until January 21, 2013, due to its status as a smaller reporting company. 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.

~~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.

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.

7053

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~~credit losses.

Liquidity Risk

Liquidity refers to having an adequate supply of cash available to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs, at a minimal cost. 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:~~as deposits, loan repayments, cash flows from securities, borrowings, and current earnings.

~~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~~The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a ~~cumulative maturity gap analysis~~30 and 90-day interval. The Bank stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to ~~measure~~this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of ~~assets maturing within various periods versus liabilities maturing~~cash that could be raised quickly without the need to liquidate assets. The Bank also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit flows in ~~those same periods. A gap ratio~~its local market, reduce access to wholesale funding and limit access of ~~100% represents an equal amount~~funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of 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 six-month and one-year gap ratios were within guidelines at September 30, 2017, and the three and five-year gap ratios were higher than corporate policy guidelines due primarily to higher cash levels and faster loan prepayment speeds resulting in more assets maturing within the stated timeframes. The three-year ratio was 143.1%, and five-year was 142.1%, compared to upper policy guidelines of 125% and 115%, respectively. All of the gap ratios are higher than the ratios as of December 31, 2016. Given the fact that we are already in a rising interest rate cycle with the likelihood of higher rates in both the near and long term forecasts, the elevated gap ratios would be beneficial to the Corporation. Management believes the current gap ratios are appropriate and will continue to monitor all gap ratiostime horizons to ensure ~~proper positioning~~the Bank has adequate funding resources. Assumptions used for ~~future interest rate cycles.~~liquidity stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes it can meet all anticipated liquidity demands.

Management has been maintaining higher levels of cash and cash equivalents to assist in offsetting the Corporation’s relatively long securities portfolio, which has helped to increase 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 aging of the portfolio. Since June 30, 2017 management has been selling longer duration municipal bonds and U.S. agencies, while purchasing shorter duration taxable securities including some floating rate instruments to better position the Corporation for higher rates.

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

It is likely that short term rates will increase further during 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 and 5 year gap ratios once several additional Federal Reserve rate increases occur. Ideally, management would like to have all gap ratios back within guidelines when the approximate midpoint of 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. This is referred to as opportunity risk, whereby lower levels of income are being achieved than desired. Carrying high gap ratios 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.

~~The risk of liabilities repricing at higher interest rates is increasing slightly in the present environment as~~Historically, the Corporation has ~~begun to increase some deposit rates minimally. However, a large portion~~satisfied its liquidity needs from earnings, repayment 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~~loans and amortizing investment securities, 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 34 basis points as of September 30, 2017, which is very low from an historic perspective. However, this cost of funds will likely begin to increase slightly throughout the remainder of 2017. The average cost of funds includes the benefit of non-interest bearing demand deposit accounts. The Corporation’s cost of funds was 33 basis points as of December 31, 2016, and 35 basis points as of September 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.

Deposits have 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 market interest rates rise further in the remainder of 2017 and during 2018, customer behavior patterns would change and deposits would be more rate sensitive with a portion potentially leaving the Corporation. The Corporation has experienced a steady growth in both non-interest bearing and interest bearing funds during this historically low interest rate environment and this trend continued throughout the first nine months of 2017. This trend can partially be attributed to the market disruption that occurred in 2016 as a result of recent large local bank mergers that greatly impacted the Corporation’s market area.

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 equity markets beginning to improve in 2017, there has been a resurgence of customers pulling funds from deposit accounts to reinvest in the equity markets. This trend could causeinvestment securities, loan sales, deposit growth and its ability to ~~slow or decline throughout the remainder~~access existing lines of ~~2017.~~credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered can be used as collateral for borrowings and are an additional source of readily available liquidity.

The Corporation’s net interest margin is improving from levels in the previous quarter, primarily as a result of the Federal Reserve rate increase in March and June of 2017. 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. Management expects that the gap ratios will remain within or above the established guidelines throughout the remainder of 2017.

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.

~~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~~On-hand Liquidity/Total Liabilities – ~~Core deposits~~Net liquid assets as a percentage of total liabilities

Non-Core Funding Dependence – Non-core liabilities minus short-term investments as a percentage of long-term assets

Reliance on Wholesale Funding ~~Concentration Analysis~~ – ~~Alternative~~Wholesale funding ~~sources outside of core deposits~~ as a percentage of ~~assets~~total funding

Net Short-term ~~Funds Availability~~Liabilities/Total Assets – ~~Readily available~~Short-term liabilities minus 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~~Loan to Deposit Ratio – ~~Internal borrowing limits in terms~~Total loans as a percentage of ~~both FHLB and~~ total ~~borrowings~~

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

ENB FINANCIAL CORP

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,~~2022, 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 important for the Corporation to prepare for a rates-up environment and having more liquidity is advantageous as funds can be reinvested in higher yielding assets faster when sufficient liquidity exists. Management carried an average of approximately $40 million of cash and cash equivalents on a daily basis throughout the first nine months of 2017, with an ending balance of $44.2 million on September 30, 2017, and expects this will continue in the near future. AllThe 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.~~scenarios that can vary according to the present level of interest rates. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, 300, or 400 basis points, or decrease 50100, or ~~100~~200 basis points. ~~Rates-down scenarios are unlikely at this point so management is more focused on the rates-up scenarios.~~

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

~~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 30, 2017. 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 is completed to compare actual results ~~is performed quarterly~~to projections to ensure the validity of the assumptions in the model. The ~~internal and external validations as well as the~~ back testing analyses indicate that the model assumptions are reliable.

Changes in Net Interest Income

The change in net interest income measures the amount of net interest income fluctuation that would be experienced over one year, assuming interest rates change immediately and remain the same for one year. This is considered to be a short-term view of interest rate risk. The analysis of changes in net interest income due to changes in interest rates is commonly referred to as interest rate sensitivity. The Corporation’s interest rate sensitivity analysis indicates that if interest rates were to go up immediately, the Corporation would realize more net interest ~~income.~~income in the up-100, 200, and 300 basis point scenarios and less net interest income in the up-400 and the down-rate scenarios. This is due to the ability of the Corporation to immediately achieve higher interest earnings on interest-earning assets while having the ability to limit the amount of increase in interest-bearing liabilities based on the timing of deposit rate changes. This generally results in an increase in net interest income in the ~~up-rate~~rising rate scenarios, but a decline in net interest income in the ~~down-rate~~declining rate scenarios.

~~The third quarter 2017 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon.~~ 55

ENB FINANCIAL CORP

As of ~~September~~June 30, ~~2017,~~2022, the Corporation was ~~well~~ within guidelines for the maximum amount of net interest income change in all rate scenarios. ~~All~~The majority of 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. 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~~securities and ~~the higher cash balances~~loans held on the Corporation’s balance sheet. On the liability side, when interest rates do increase, it is typical for management to react more slowly in increasing deposit ~~rates.~~rates so deposit rates move at a fraction of the full overnight rate movement. Loans that are Prime-based will increase by the full amount of the market rate movement while deposit rates will only increase at a fraction of the market rate increase. Additionally, deposit rates may level off more when market rates increase by 300 or 400 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 the event that they would go lower, 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 the highly unlikely down-rate scenarios, the Corporation’s exposure to declining net interest income is still within policy guidelines.

Management’s primary focus remains on the most likely scenario of higher interest rates. For the rates-up 100 basis point scenario, net interest income increases by 2.7% compared to the rates unchanged scenario. In the remaining rates-up scenarios, the net interest income increases 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 basis point scenarios, net interest income increases by 7.6%, 13.6%, and 19.6%, respectively, compared to the rates unchanged scenario. Management’s maximum permitted net interest income declines by policy are -5%, -10%, -15%, and -20% for the rates up 100, 200, 300, and 400 basis point scenarios, respectively.

~~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 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. Management does not expect the Corporation’s exposure to interest rate changes to increase or change significantly during the remainder of 2017.

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,~~2022, the Corporation was within guidelines for all rate ~~scenarios.~~scenarios except the down-200 basis point scenario. The ~~trend over the past year has been lessening risk in the up-rate scenarios with increasing cash balances and core deposit balances with the current quarter showing~~Corporation shows a ~~slightly smaller~~favorable benefit ~~in all up-rate scenarios than the quarter ended June 30, 2017. The strong GAP ratios played a large role in improving the Corporation’s~~to net portfolio value ~~profile.~~in the rising rate scenarios, due primarily to the large amount of core deposits on the Corporation’s balance sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet.

~~The results~~ However, as of September 30, 2017, indicate that the Corporation’s net portfolio value would experience valuation gains of 8.3%, 8.4%, 7.5%, and 5.2%, in the rates-up 100, 200, 300, and 400 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% for rates-up 400 basis points. A valuation loss would indicate thatinterest rates decrease, the value of the ~~Corporation’s assets is declining at a faster pace than the decrease~~core deposits also decreases resulting in exposure to fair value loss in the ~~value of the Corporation’s liabilities. While the~~ down-rate ~~scenarios that are modeled are unlikely, the~~scenarios.

The analysis does show a valuation loss in the ~~down 50~~down-100 and ~~down 100~~200 rate scenarios. Policy allows for a valuation decline of 25% for the down-200 basis point ~~scenarios.~~scenario and actual projected results show a valuation decline of 45%. While this loss is outside of policy guidelines, the Federal Reserve has signaled that their preferred course of action is to have several additional rate hikes in 2022 making a down-200 rate scenario unlikely. The ~~exposure~~Corporation will continue to ~~valuation changes could change going forward if~~monitor these measurements in the ~~behavior of the Corporation’s deposits changes due~~down-rate scenarios and adjust balance sheet structure as necessary to ~~higher interest~~prepare for future potential lower rates. Based on five past decay rate studies on the Corporation’s core deposits, management does not expect a material decline in core deposit accounts, including the non-interest bearing accounts, when short term interest rates do increase. 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 (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2017,~~2022, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of ~~September~~June 30, ~~2017,~~2022, are effective to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in Internal Controls.

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

7657

ENB FINANCIAL CORP

PART II – OTHER INFORMATION

~~September~~June 30, ~~2017~~2022

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. Management has not identified any new risk factors since the December 31, ~~2016~~2021 Form 10-K filing.

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

Purchases

The following table details the Corporation’s purchase of its own common stock during the three months ended ~~September~~June 30, ~~2017.~~2022.

Issuer Purchase of Equity Securites

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

July 2017 — — — 108,865
August 2017 8,500 $ 34.14 8,500 100,365
September 2017 — — — 100,365

Total 8,500

Issuer Purchase of Equity Securites

Total Number of

Maximum Number

Total Number

Average

Shares Purchased

of Shares that May

of Shares

Price Paid

as Part of Publicly

Yet be Purchased

Period

Purchased

Per Share

Announced Plans *

Under the Plan *

April 2022

—

167,100

May 2022

—

167,100

June 2022

3,000

17.75

3,000

164,100

Total

3,000

* On ~~June 17, 2015,~~October 21, 2020, the Board of Directors of ~~ENB Financial Corp announced~~ the ~~approval of~~Corporation approved a plan to ~~purchase,~~repurchase, in open market and privately negotiated transactions, up to ~~140,000~~200,000 shares of its outstanding common stock. ~~Shares repurchased are being held as treasury shares to be utilized in connection with the Corporation’s three stock purchase plans.~~ The first purchase of common stock under this plan occurred on ~~July 31, 2015.~~October 28, 2020. By ~~September~~June 30, ~~2017,~~2022, a total of ~~39,635~~35,900 shares were repurchased at a total cost of ~~$1,330,000,~~$723,000 for an average cost per share of ~~$33.56. Management may choose to repurchase additional shares in 2017 under this plan.~~$20.14.

Item 3. Defaults Upon Senior Securities – Nothing to Report

Item 4. Mine Safety Disclosures – Not Applicable

Item 5. Other Information – Nothing to Report

7758

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)

ENB FINANCIAL CORP

Item 6. Exhibits:

Exhibit
No.

Description

3(i)

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.~~July 21, 2021.)

10.1

Form of Deferred Income Agreement. (Incorporated herein by reference to Exhibit 10.1 of the Corporation’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2008.)

10.2

~~2011~~2022 Employee Stock Purchase Plan (Incorporated herein by reference to ~~Exhibit 10.2 of~~Appendix A to the Corporation’s ~~Annual Report on Form 10-K for the year ended December 31, 2011,~~Definitive Proxy Statement filed with the SEC on ~~March 29, 2012.~~April 4, 2022.)

10.3

~~2010~~2020 Non-Employee Directors’ Stock Plan. (Incorporated herein by reference to Exhibit 1099.1 of the Corporation’s Form S-8 filed with the SEC on June ~~4, 2010.~~3, 2020.)

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

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

32.1

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

32.2

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

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