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

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). This Form 10-Q, for the ~~first~~third quarter of 2021, is reporting on the results of operations and financial condition of ENB Financial ~~Corp.~~

Operating results for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, 2020.

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

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

The amortized cost, gross unrealized gains and losses, and fair value of securities held at ~~March 31,~~September 30, 2021,

The amortized cost and fair value of securities available for sale at ~~March 31,~~September 30, 2021, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

Securities available for sale with a par value of ~~$86,896,000~~$91,079,000 and $86,849,000 at ~~March 31,~~September 30, 2021, and December 31, 2020, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was ~~$90,400,000~~$94,538,000 at ~~March 31,~~September 30, 2021, and $91,666,000 at December 31, 2020.

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

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. No securities in the portfolio had other-than-temporary impairment recorded in the first ~~three~~nine months of 2021 or 2020.

Information pertaining to securities with gross unrealized losses at ~~March 31,~~September 30, 2021, and December 31, 2020, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

In the debt security portfolio there were ~~110~~101 positions from 78 different issuers that were carrying unrealized losses as of ~~March 31,~~September 30, 2021. There were no instruments considered to be other-than-temporarily impaired at ~~March 31,~~September 30, 2021.

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

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at ~~March 31,~~September 30, 2021 and December 31, 2020.

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three and nine months ended ~~March 31,~~September 30, 2021 and 2020, and the portion of unrealized gains and losses for the period that relates to equity investments held as of ~~March 31,~~September 30, 2021 and 2020.

The following table presents the Corporation’s loan portfolio by category of loans as of ~~March 31,~~September 30, 2021, and December 31, 2020:


(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled ~~$253,527,000~~$274,892,000 and $235,437,000 as of ~~March 31,~~September 30, 2021, and December 31, 2020, respectively.

The largest movement within the Corporation’s loan portfolio since December 31, 2020 was the growth in the commercial and industrial loan sector, which experienced a $13.1 million, or 13.4% increase. This was a direct result of the Small Business Administration’s Paycheck Protection Program (PPP) established as part of the CARES Act passed in March 2020, to provide relief to small businesses from the impact of COVID-19. The Corporation began making these loans in early April 2020, but many of the original PPP loans had been forgiven as of December 31, 2020. Beginning in early 2021, another round of PPP funding was approved and the Corporation had again begun making loans under this program. The majority of these new loans have been written with a five-year term, however management expects the vast majority of these loans to be forgiven by the SBA, or paid off by the borrower, prior to maturity of the loan. As a result, management expects the commercial and industrial loan balances to decline by December 31, 2021 with further declines during 2022.

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of ~~March 31,~~September 30, 2021 and December 31, 2020. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

•

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

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

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

•

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

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

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

•

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

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)

March 31, 2021	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
																					Commercial
															Commercial		Agriculture				and		Tax-free		Agriculture
September 30, 2021															Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		134,318		169,690		15,787		100,413		16,233		17,359		453,800		162,806		179,880		12,648		64,457		17,279		18,657		455,727
Special Mention		5,437		—		5,530		6,540		—		85		17,592		2,458		0-		6,138		5,082		0-		0-		13,678
Substandard		5,184		8,380		—		4,083		—		1,022		18,669		1,477		8,575		0-		4,156		0-		523		14,731
Doubtful		—		—		—		—		—		—		—		0-		0-		0-		0-		0-		0-		0-
Loss		—		—		—		—		—		—		—		0-		0-		0-		0-		0-		0-		0-

Total		144,939		178,070		21,317		111,036		16,233		18,466		490,061		166,741		188,455		18,786		73,695		17,279		19,180		484,136

																					Commercial
															Commercial		Agriculture				and		Tax-free		Agriculture
December 31, 2020	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total		Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		133,853		166,102		21,142		87,767		10,949		18,586		438,399		133,853		166,102		21,142		87,767		10,949		18,586		438,399
Special Mention		3,683		1,651		2,299		5,592		—		774		13,999		3,683		1,651		2,299		5,592		0-		774		13,999
Substandard		5,162		8,252		—		4,537		—		1,005		18,956		5,162		8,252		0-		4,537		0-		1,005		18,956
Doubtful		—		—		—		—		—		—		—		0-		0-		0-		0-		0-		0-		0-
Loss		—		—		—		—		—		—		—		0-		0-		0-		0-		0-		0-		0-

Total		142,698		176,005		23,441		97,896		10,949		20,365		471,354		142,698		176,005		23,441		97,896		10,949		20,365		471,354

Substandard loans decreased by $287,000, or 1.5%, while special mention loans have increased by $3,593,000, or 25.7%, from December 31, 2020 to March 31, 2021. Substandard loans decreased from $19.0 million to $18.7 million from December 31, 2020, to March 31, 2021 while special mention loans increased from $14.0 million to $17.6 million during this same period. The loan areas that experienced material changes in special mention were commercial mortgages and construction loans. Under commercial mortgages, one $1.5 million loan was transferred to special mention due to COVID-19 negatively impacting business operations. This was the primary reason for the increase in special mention loans as well as other smaller loan relationships that were downgraded during the first quarter of 2021.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of ~~March 31,~~September 30, 2021 and December 31, 2020:

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)

March 31, 2021 1-4 Family
Residential
Mortgages Home Equity
Loans Home Equity
Lines of
Credit Consumer Total
Payment performance: $ $ $ $ $

Performing 264,943 10,614 70,898 4,814 351,269
Non-performing 184 — — 13 197

Total 265,127 10,614 70,898 4,827 351,466

December 31, 2020 1-4 Family
Residential
Mortgages Home Equity
Loans Home Equity
Lines
of Credit Consumer Total
Payment performance: $ $ $ $ $

Performing 262,185 10,708 71,267 5,141 349,301
Non-performing 1,384 — 23 14 1,421

Total 263,569 10,708 71,290 5,155 350,722

	1-4 Family				Home Equity
	Residential		Home Equity		Lines of
September 30, 2021	Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		302,436		11,889		74,919		5,200		394,444
Non-performing		234		0-		0-		11		245

Total		302,670		11,889		74,919		5,211		394,689

~~Index~~

~~ENB FINANCIAL CORP~~

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

	1-4 Family				Home Equity
	Residential		Home Equity		Lines of
December 31, 2020	Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		262,185		10,708		71,267		5,141		349,301
Non-performing		1,384		0-		23		14		1,421

Total		263,569		10,708		71,290		5,155		350,722

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of ~~March 31,~~September 30, 2021 and December 31, 2020:

~~AGING OF LOANS RECEIVABLE~~

~~(DOLLARS IN THOUSANDS)~~

Loans
Greater Receivable >
30-59 Days 60-89 Days than 90 Total Past Total Loans 90 Days and
March 31, 2021 Past Due Past Due Days Due Current Receivable Accruing
$ $ $ $ $ $ $
Commercial real estate
   Commercial mortgages — — 192 192 144,747 144,939 —
   Agriculture mortgages 245 — — 245 177,825 178,070 —
   Construction — — — — 21,317 21,317 —
Consumer real estate
   1-4 family residential mortgages 1,351 174 184 1,709 263,418 265,127 139
   Home equity loans — — — — 10,614 10,614 —
   Home equity lines of credit — — — — 70,898 70,898 —
Commercial and industrial
   Commercial and industrial 14 — 444 458 110,578 111,036 —
   Tax-free loans — — — — 16,233 16,233 —
   Agriculture loans 6 — — 6 18,460 18,466 —
Consumer 8 1 13 22 4,805 4,827 13
       Total 1,624 175 833 2,632 838,895 841,527 152

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

													Loans
					Greater								Receivable >														Loans
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and						Greater								Receivable > 90 Days
December 31, 2020	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
															30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
September 30, 2021															Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		—		—		208		208		142,490		142,698		—		0-		0-		186		186		166,555		166,741		0-
Agriculture mortgages		—		—		—		—		176,005		176,005		—		756		0-		1,516		2,272		186,183		188,455		0-
Construction		—		—		—		—		23,441		23,441		—		0-		0-		0-		0-		18,786		18,786		0-
Consumer real estate
1-4 family residential mortgages		618		—		1,384		2,002		261,567		263,569		1,336		529		0-		234		763		301,907		302,670		172
Home equity loans		1		—		—		1		10,707		10,708		—		19		0-		0-		19		11,870		11,889		0-
Home equity lines of credit		—		—		23		23		71,267		71,290		23		47		0-		0-		47		74,872		74,919		0-
Commercial and industrial
Commercial and industrial		—		—		469		469		97,427		97,896		—		0-		0-		377		377		73,318		73,695		0-
Tax-free loans		—		—		—		—		10,949		10,949		—		0-		0-		0-		0-		17,279		17,279		0-
Agriculture loans		42		—		—		42		20,323		20,365		—		24		0-		95		119		19,061		19,180		0-
Consumer		23		3		14		40		5,115		5,155		14		5		0-		11		16		5,195		5,211		11
Total		684		3		2,098		2,785		819,291		822,076		1,373		1,380		0-		2,419		3,799		875,026		878,825		183

15 14

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)


													Loans
													Receivable
					Greater								> 90 Days
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
December 31, 2020	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		0-		0-		208		208		142,490		142,698		0-
Agriculture mortgages		0-		0-		0-		0-		176,005		176,005		0-
Construction		0-		0-		0-		0-		23,441		23,441		0-
Consumer real estate
1-4 family residential mortgages		618		0-		1,384		2,002		261,567		263,569		1,336
Home equity loans		1		0-		0-		1		10,707		10,708		0-
Home equity lines of credit		0-		0-		23		23		71,267		71,290		23
Commercial and industrial
Commercial and industrial		0-		0-		469		469		97,427		97,896		0-
Tax-free loans		0-		0-		0-		0-		10,949		10,949		0-
Agriculture loans		42		0-		0-		42		20,323		20,365		0-
Consumer		23		3		14		40		5,115		5,155		14
Total		684		3		2,098		2,785		819,291		822,076		1,373

The following table presents nonaccrual loans by classes of the loan portfolio as of ~~March 31,~~September 30, 2021 and December 31, 2020:

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)

	March 31,		December 31,		September 30,		December 31,
	2021		2020		2021		2020
	$		$		$		$

Commercial real estate
Commercial mortgages		192		208		186		208
Agriculture mortgages		—		—		1,516		0-
Construction		—		—		0-		0-
Consumer real estate
1-4 family residential mortgages		45		48		62		48
Home equity loans		—		—		0-		0-
Home equity lines of credit		—		—		0-		0-
Commercial and industrial
Commercial and industrial		444		469		377		469
Tax-free loans		—		—		0-		0-
Agriculture loans		—		—		95		0-
Consumer		—		—		0-		0-
Total		681		725		2,236		725

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

As of ~~March 31,~~September 30, 2021 and December 31, 2020, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and nine months ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020, is as follows:

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

Three Months Ended March 31,
2021 2020
$ $

Average recorded balance of impaired loans 5,739 3,937
Interest income recognized on impaired loans 66 35

	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
	$		$		$		$

Average recorded balance of impaired loans		2,012		5,060		4,391		4,062
Interest income recognized on impaired loans		38		31		176		72

No loan modifications were made during the first ~~quarter~~nine months of 2021 that would be considered a troubled debt restructuring (TDR). There was one loan modification made during the third quarter of 2020 that ~~would be~~was considered a TDR. One $3.6 million loan was restructured to provide relief to the commercial borrower by reducing the interest rate, providing a six-month interest only period, and extending the amortization period by an additional nine years. This loan paid off in the third quarter of 2021. In addition to this TDR, deferments of principal related to the impact of COVID-19 did occur beginning in late March 2020, however these modifications are not considered a TDR under the revised COVID-19 regulatory guidance. ~~There was one loan modification that occurred during the first quarter of 2019, constituting a TDR.~~ A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments. Included in the impaired loan portfolio ~~are three loans~~is one loan to ~~unrelated borrowers~~a commercial borrower that ~~are~~is being reported as ~~TDRs.~~a TDR. The balance of ~~these three~~this TDR loans was ~~$5,018,000~~$776,000 as of ~~March 31,~~September 30, 2021. ~~None~~This TDR is not non-accrual.

Table of ~~these TDR loans are non-accrual.~~

16 Contents

~~Index~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information regarding impaired loans by loan portfolio class as of ~~March 31,~~September 30, 2021 and December 31, 2020, and for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, and the twelve months ended December 31, 2020:

IMPAIRED LOAN ANALYSIS

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
March 31, 2021 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ $ $ $ $

With no related allowance recorded:
Commercial real estate
    Commercial mortgages 238 274 — 253 8
    Agriculture mortgages 796 796 — 802 10
    Construction — — — — —
Total commercial real estate 1,034 1,070 — 1,055 18

Commercial and industrial
    Commercial and industrial 444 484 — 455 6
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 444 484 — 455 6

Total with no related allowance 1,478 1,554 — 1,510 24

With an allowance recorded:
Commercial real estate
    Commercial mortgages 3,570 3,570 1,099 3,578 42
    Agriculture mortgages 651 651 14 651 —
    Construction — — — — —
Total commercial real estate 4,221 4,221 1,113 4,229 42

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

Total with a related allowance 4,221 4,221 1,113 4,229 42

Total by loan class:
Commercial real estate
    Commercial mortgages 3,808 3,844 1,099 3,831 50
    Agriculture mortgages 1,447 1,447 14 1,453 10
    Construction — — — — —
Total commercial real estate 5,255 5,291 1,113 5,284 60

Commercial and industrial
    Commercial and industrial 444 484 — 455 6
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 444 484 — 455 6

Total 5,699 5,775 1,113 5,739 66

(DOLLARS IN THOUSANDS)

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized
	$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		247		285		0-		2,802		116
Agriculture mortgages		1,720		1,721		0-		1,158		45
Construction		0-		0-		0-		0-		0-
Total commercial real estate		1,967		2,006		0-		3,960		161

Commercial and industrial
Commercial and industrial		377		428		0-		429		15
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		0-		0-		0-		0-		0-
Total commercial and industrial		377		428		0-		429		15

Total with no related allowance		2,344		2,434		0-		4,389		176

With an allowance recorded:
Commercial real estate
Commercial mortgages		0-		0-		0-		0-		0-
Agriculture mortgages		572		572		57		2		0-
Construction		0-		0-		0-		0-		0-
Total commercial real estate		572		572		57		2		0-

Commercial and industrial
Commercial and industrial		0-		0-		0-		0-		0-
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		95		95		95		0-		0-
Total commercial and industrial		95		95		95		0-		0-

Total with a related allowance		667		667		152		2		0-

Total by loan class:
Commercial real estate
Commercial mortgages		247		285		0-		2,802		116
Agriculture mortgages		2,292		2,293		57		1,160		45
Construction		0-		0-		0-		0-		0-
Total commercial real estate		2,539		2,578		57		3,962		161

Commercial and industrial
Commercial and industrial		377		428		0-		429		15
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		95		95		95		0-		0-
Total commercial and industrial		472		523		95		429		15

Total		3,011		3,101		152		4,391		176

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2020 Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
$ $ $ $ $

With no related allowance recorded:
Commercial real estate
    Commercial mortgages 256 318 — 798 —
    Agriculture mortgages 806 835 — 1,170 46
    Construction — — — — —
Total commercial real estate 1,062 1,153 — 1,968 46

Commercial and industrial
    Commercial and industrial 469 504 — 513 23
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 469 504 — 513 23

Total with no related allowance 1,531 1,657 — 2,481 69

With an allowance recorded:
Commercial real estate
    Commercial mortgages 3,581 3,581 1,110 1,468 57
    Agriculture mortgages 651 651 21 679 34
    Construction — — — — —
Total commercial real estate 4,232 4,232 1,131 2,147 91

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

Total with a related allowance 4,232 4,232 1,131 2,147 91

Total by loan class:
Commercial real estate
    Commercial mortgages 3,837 3,899 1,110 2,266 57
    Agriculture mortgages 1,457 1,486 21 1,849 80
    Construction — — — — —
Total commercial real estate 5,294 5,385 1,131 4,115 137

Commercial and industrial
    Commercial and industrial 469 504 — 513 23
    Tax-free loans — — — — —
    Agriculture loans — — — — —
Total commercial and industrial 469 504 — 513 23

Total 5,763 5,889 1,131 4,628 160

(DOLLARS IN THOUSANDS)

			Unpaid				Average		Interest
	Recorded		Principal		Related		Recorded		Income
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
	$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		256		318		0-		798		0-
Agriculture mortgages		806		835		0-		1,170		46
Construction		0-		0-		0-		0-		0-
Total commercial real estate		1,062		1,153		0-		1,968		46

Commercial and industrial
Commercial and industrial		469		504		0-		513		23
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		0-		0-		0-		0-		0-
Total commercial and industrial		469		504		0-		513		23

Total with no related allowance		1,531		1,657		0-		2,481		69

With an allowance recorded:
Commercial real estate
Commercial mortgages		3,581		3,581		1,110		1,468		57
Agriculture mortgages		651		651		21		679		34
Construction		0-		0-		0-		0-		0-
Total commercial real estate		4,232		4,232		1,131		2,147		91

Commercial and industrial
Commercial and industrial		0-		0-		0-		0-		0-
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		0-		0-		0-		0-		0-
Total commercial and industrial		0-		0-		0-		0-		0-

Total with a related allowance		4,232		4,232		1,131		2,147		91

Total by loan class:
Commercial real estate
Commercial mortgages		3,837		3,899		1,110		2,266		57
Agriculture mortgages		1,457		1,486		21		1,849		80
Construction		0-		0-		0-		0-		0-
Total commercial real estate		5,294		5,385		1,131		4,115		137

Commercial and industrial
Commercial and industrial		469		504		0-		513		23
Tax-free loans		0-		0-		0-		0-		0-
Agriculture loans		0-		0-		0-		0-		0-
Total commercial and industrial		469		504		0-		513		23

Total		5,763		5,889		1,131		4,628		160

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for credit losses by portfolio segment for the three and nine months ended ~~March 31,~~September 30, 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, 2020 6,329 3,449 1,972 52 525 12,327

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

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


	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

Charge-offs		0-			0-			0-			(7	)		0-			(7	)
Recoveries		0-			0-			2			6			0-			8
Provision		(909	)		216			81			(3	)		365			(250	)

Balance - September 30, 2021		5,641			3,707			2,076			62			968			12,454

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, management charged off ~~$14,000~~$30,000 in loans while recovering ~~$2,000~~$32,000 and added ~~$375,000~~$125,000 to the provision. The unallocated portion of the allowance increased from 4.3% of total reserves as of December 31, 2020, to ~~6.0%~~7.8% as of ~~March 31,~~September 30, 2021. Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2021, net provision expense was recorded for all loan sectors except for the commercial real estate ~~sector as well as the consumer sector with credit provisions recorded for the consumer real estate and commercial and industrial sectors.~~sector. The ~~higher~~lower provision in the commercial real estate sector was due to ~~growth~~the pay off of one loan during the third quarter of 2021 that had a specific allocation. Due to this pay off, the specific allocation was reversed resulting in ~~this portfolio of loans since December 31, 2020, as well as an increase in~~a credit provision for the ~~qualitative factor related to the trends in the nature and volume of this sector.~~nine months ended September 30, 2021. There were minimal charge-offs and recoveries recorded during the ~~three~~nine months ended ~~March 31,~~September 30, 2021, ~~so the provision expense was primarily related to an increase in loan balances~~ as well as ~~slightly higher unallocated portion of the allowance.~~

~~As of March 31, 2021, the Corporation’s total delinquencies were 0.31%, a decline from 0.34% at December 31, 2020. The Corporation’s total delinquencies continue to compare favorably~~minimal provision expense due to the ~~national uniform bank performance group, which was at 1.31% as~~improving economic conditions and the reversal of ~~December 31, 2020.~~

specific allocation from the previous time periods.

Outside of the above measurements and indicators, management continues to utilize nine qualitative factors to continually refine the potential credit risks across the Corporation’s various loan types. In addition, the loan portfolio is sectored out into nine different categories to evaluate these qualitative factors. A total score of the qualitative factors for each loan sector is calculated to utilize in the allowance for loan loss calculation. The agricultural dairy sector carries the highest level of qualitative factors due to the long-term weakness in milk prices. While the dairy market has improved recently, COVID-19 initially caused a sharp decline in milk prices.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

TheThe following table details activity in the allowance for credit losses by portfolio segment for the three and nine months ended ~~March 31,~~September 30, 2020:

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, 2019 4,319 2,855 1,784 41 448 9,447

    Charge-offs — — — (6 ) — (6 )
    Recoveries 11 — 1 — — 12
    Provision 252 296 171 21 (390 ) 350

Balance - March 31, 2020 4,582 3,151 1,956 56 58 9,803


	Commercial		Consumer		Commercial
	Real Estate		Real Estate		and Industrial			Consumer			Unallocated			Total
	$		$		$			$			$			$
Allowance for credit losses:
Beginning balance - December 31, 2019		4,319		2,855		1,784			41			448			9,447

Charge-offs		0-		0-		0-			(6	)		0-			(6	)
Recoveries		11		0-		1			0-			0-			12
Provision		252		296		171			21			(390	)		350

Balance - March 31, 2020		4,582		3,151		1,956			56			58			9,803

Charge-offs		0-		0-		0-			(10	)		0-			(10	)
Recoveries		0-		0-		1			1			0-			2
Provision		356		146		175			5			293			975

Balance - June 30, 2020		4,938		3,297		2,132			52			351			10,770

Charge-offs		0-		0-		(23	)		(3	)		0-			(26	)
Recoveries		0-		0-		1			1			0-			2
Provision		1,289		75		(18	)		4			(100	)		1,250

Balance - September 30, 2020		6,227		3,372		2,092			54			251			11,996

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, management charged off ~~$6,000~~$42,000 in loans while recovering ~~$12,000~~$16,000 and added ~~$350,000~~$2,575,000 to the provision. The unallocated portion of the allowance decreased from 4.7% of total reserves as of December 31, 2019, to ~~0.6%~~2.1% as of ~~March 31,~~September 30, 2020.

During the ~~three~~nine months ended ~~March 31,~~September 30, 2020, net provision expense was recorded for all sectors. The higher provision in the commercial real estate sector was due to a specific allocation of $1.1 million for a customer with ongoing business concerns. The higher provisions across the other categories were primarily caused by increasing the qualitative factors across all industry lines to various degrees as a result of the impact and effect from ~~COVID-19. A qualitative factor was increased for business loans specifically related to~~COVID-19 and the ~~special federal governmental lending programs developed as a result of COVID-19.~~declining economic conditions. There were minimal charge-offs and recoveries recorded during the ~~three~~nine months ended ~~March 31,~~September 30, 2020, so the provision expense was primarily related to ~~this~~the specific allocation as well as the change in economic conditions and potential for credit declines moving forward. The total amount of substandard loans at the end of the ~~first~~third quarter of 2020 was slightly higher resulting in slightly more provision expense.

~~As of March 31, 2020, the Corporation’s total delinquencies were 0.67%, a decline from 0.91% at December 31, 2019.~~

The Corporation reduced one qualitative factor for residential mortgages in the first quarter of 2020; this factor had been increased in the fourth quarter of 2019 because of higher delinquency. However, mortgage loan delinquency declined in the first quarter of 2020. Delinquency among agriculture loans, excluding loans to dairy farmers, has continued to increase, and ended at 2.32% at March 31, 2020. A total of six agriculture loans were delinquent at this time.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of ~~March 31,~~September 30, 2021 and December 31, 2020:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

As of March 31, 2021: Commercial Real
Estate Consumer
Real Estate Commercial
and Industrial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
  for impairment 1,113 — — — — 1,113
Ending balance: collectively evaluated
  for impairment 5,389 3,408 1,958 59 763 11,577

Loans receivable:
Ending balance 344,326 346,639 145,735 4,827 841,527
Ending balance: individually evaluated
  for impairment 5,255 — 444 — 5,699
Ending balance: collectively evaluated
  for impairment 339,071 346,639 145,291 4,827 835,828


	Commercial		Consumer		Commercial
As of September 30, 2021:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		57		0-		95		0-		0-		152
Ending balance: collectively evaluated for impairment		5,584		3,707		1,981		62		968		12,302

Loans receivable:
Ending balance		373,982		389,478		110,154		5,211				878,825
Ending balance: individually evaluated for impairment		2,539		0-		472		0-				3,011
Ending balance: collectively evaluated for impairment		371,443		389,478		109,682		5,211				875,814

forg

As of December 31, 2020: Commercial Real
Estate Consumer
Real Estate Commercial
and Industrial Consumer Unallocated Total
$ $ $ $ $ $
Allowance for credit losses:
Ending balance: individually evaluated
  for impairment 1,131 — — — — 1,131
Ending balance: collectively evaluated
  for impairment 5,198 3,449 1,972 52 525 11,196

Loans receivable:
Ending balance 342,144 345,567 129,210 5,155 822,076
Ending balance: individually evaluated
  for impairment 5,294 — 469 — 5,763
Ending balance: collectively evaluated
  for impairment 336,850 345,567 128,741 5,155 816,313


	Commercial		Consumer		Commercial
As of December 31, 2020:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		1,131		0-		0-		0-		0-		1,131
Ending balance: collectively evaluated for impairment		5,198		3,449		1,972		52		525		11,196

Loans receivable:
Ending balance		342,144		345,567		129,210		5,155				822,076
Ending balance: individually evaluated for impairment		5,294		0-		469		0-				5,763
Ending balance: collectively evaluated for impairment		336,850		345,567		128,741		5,155				816,313

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.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of ~~March 31,~~September 30, 2021, and December 31, 2020, 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)

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

U.S. government agencies — 29,180 — 29,180
U.S. agency mortgage-backed securities — 68,583 — 68,583
U.S. agency collateralized mortgage obligations — 40,786 — 40,786
Asset-backed securities — 97,000 — 97,000
Corporate bonds — 67,144 — 67,144
Obligations of states & political subdivisions — 228,907 — 228,907
Equity securities 7,217 — — 7,217

Total securities 7,217 531,600 — 538,817

	September 30, 2021
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. treasuries		0-		4,998		0-		4,998
U.S. government agencies		0-		29,281		0-		29,281
U.S. agency mortgage-backed securities		0-		57,462		0-		57,462
U.S. agency collateralized mortgage obligations		0-		33,593		0-		33,593
Asset-backed securities		0-		101,443		0-		101,443
Corporate bonds		0-		84,974		0-		84,974
Obligations of states & political subdivisions		0-		249,836		0-		249,836
Equity securities		8,844		0-		0-		8,844

Total securities		8,844		561,587		0-		570,431

On ~~March 31,~~September 30, 2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of ~~March 31,~~September 30, 2021, the CRA fund investments had a ~~$6,190,000~~$7,222,000 book and fair market value and the bank stock portfolio had a book value of ~~$927,000,~~$1,518,000, and fair market value of ~~$1,027,000.~~

$1,622,000.

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

~~ASSETS MEASURED ON A RECURRING BASIS~~

~~(DOLLARS IN THOUSANDS)~~

December 31, 2020
Level I Level II Level III Total
$ $ $ $

U.S. government agencies — 54,361 — 54,361
U.S. agency mortgage-backed securities — 71,052 — 71,052
U.S. agency collateralized mortgage obligations — 35,035 — 35,035
Asset-backed securities — 60,475 — 60,475
Corporate bonds — 61,723 — 61,723
Obligations of states & political subdivisions — 193,782 — 193,782
Equity securities 7,105 — — 7,105

Total securities 7,105 476,428 — 483,533

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	December 31, 2020
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. government agencies		0-		54,361		0-		54,361
U.S. agency mortgage-backed securities		0-		71,052		0-		71,052
U.S. agency collateralized mortgage obligations		0-		35,035		0-		35,035
Asset-backed securities		0-		60,475		0-		60,475
Corporate bonds		0-		61,723		0-		61,723
Obligations of states & political subdivisions		0-		193,782		0-		193,782
Equity securities		7,105		0-		0-		7,105

Total securities		7,105		476,428		0-		483,533

On December 31, 2020, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, 2020, the CRA fund investments had a $6,176,000 book and market value and the bank stocks had a book value of $982,000 and a market value of $929,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of ~~March 31,~~September 30, 2021 and December 31, 2020, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

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


	March 31, 2021								September 30, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$
Assets:
Impaired Loans	$	—	$	—	$	4,586	$	4,586	$	0-	$	0-	$	2,859	$	2,859
Total	$	—	$	—	$	4,586	$	4,586	$	0-	$	0-	$	2,859	$	2,859

December 31, 2020
Level I Level II Level III Total
$ $ $ $
Assets:
Impaired Loans $ — $ — $ 4,632 $ 4,632
Total $ — $ — $ 4,632 $ 4,632

	December 31, 2020
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	0-	$	0-	$	4,632	$	4,632
Total	$	0-	$	0-	$	4,632	$	4,632

The Corporation had a total of ~~$5,699,000~~$3,011,000 of impaired loans as of ~~March 31,~~September 30, 2021, with ~~$1,113,000~~$152,000 of specific allocation against these loans and $5,763,000 of impaired loans as of December 31, 2020, with $1,131,000 of specific allocation against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

Table of 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:

~~Index~~QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

~~ENB FINANCIAL CORP~~(DOLLARS IN THOUSANDS)

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

~~QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS~~		September 30, 2021
~~(DOLLARS IN THOUSANDS)~~		Fair Value			Valuation		Unobservable		Range
	~~March 31, 2021~~	Estimate			Techniques		Input		(Weighted Avg)
	~~Fair Value~~	~~Valuation~~	~~Unobservable~~	~~Range~~
Impaired loans			2,859			Appraisal of collateral (1)		Appraisal adjustments (2)		-20% (-20%)
	~~Estimate~~	~~Techniques~~	~~Input~~	~~(Weighted Avg)~~

~~Impaired loans~~	~~4,586~~ Liquidation expenses (2)	~~Appraisal of~~	~~Appraisal~~	~~-20% (-20%)~~
		~~collateral (1)~~	~~adjustments (2)~~
			~~Liquidation~~	-10% (-10%)
			~~expenses (2)~~

		December 31, 2020
		Fair Value			~~Valuation~~	~~Unobservable~~ Valuation		~~Range~~	Unobservable		Range
	~~Estimate~~	~~Techniques~~ Estimate			~~Input~~	Techniques			Input		(Weighted Avg)

Impaired loans			4,632				Appraisal of collateral (1)			Appraisal adjustments (2)		-20% (-20%)
~~Impaired loans~~	~~4,632~~	~~Appraisal of~~	~~Appraisal~~	~~-20% (-20%)~~
		~~collateral (1)~~	~~adjustments~~			Liquidation expenses (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.

~~Index~~Table of Contents

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 ~~March 31,~~September 30, 2021 and December 31, 2020:

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

(DOLLARS IN THOUSANDS)

	March 31, 2021
					Quoted Prices in						September 30, 2021
					Active Markets		Significant Other		Significant						Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable						for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs		Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)		Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		88,614		88,614		88,614		—		—		78,820		78,820		78,820		0-		0-
Regulatory stock		6,160		6,160		6,160		—		—		5,635		5,635		5,635		0-		0-
Loans held for sale		2,018		2,018		2,018		—		—		3,174		3,155		3,155		0-		0-
Loans, net of allowance		829,244		844,405		—		—		844,405		867,807		879,942		0-		0-		879,942
Mortgage servicing assets		1,314		1,779		—		—		1,779		1,591		2,003		0-		0-		2,003
Accrued interest receivable		5,111		5,111		5,111		—		—		5,504		5,504		5,504		0-		0-
Bank owned life insurance		29,833		29,833		29,833		—		—		35,200		35,200		35,200		0-		0-

Financial Liabilities:
Demand deposits		580,003		580,003		580,003		—		—		591,333		591,333		591,333		0-		0-
Interest-bearing demand deposits		46,509		46,509		46,509		—		—		58,425		58,425		58,425		0-		0-
NOW accounts		125,101		125,101		125,101		—		—		133,443		133,443		133,443		0-		0-
Money market deposit accounts		151,297		151,297		151,297		—		—		162,050		162,050		162,050		0-		0-
Savings accounts		303,324		303,324		303,324		—		—		329,900		329,900		329,900		0-		0-
Time deposits		119,153		120,299		—		—		120,299		116,351		117,050		0-		0-		117,050
Total deposits		1,325,387		1,326,533		1,206,234		—		120,299		1,391,502		1,392,201		1,275,151		0-		117,050

Long-term debt		52,792		50,452		—		—		50,452		46,706		44,912		0-		0-		44,912
Subordinated debt		19,620		19,157		—		—		19,157		19,660		19,227		0-		0-		19,227
Accrued interest payable		496		496		496		—		—		470		470		470		0-		0-

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

(DOLLARS IN THOUSANDS)

	December 31, 2020
					Quoted Prices in						December 31, 2020
					Active Markets		Significant Other		Significant						Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable						for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs		Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)		Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		94,939		94,939		94,939		—		—		94,939		94,939		94,939		0-		0-
Regulatory stock		6,107		6,107		6,107		—		—		6,107		6,107		6,107		0-		0-
Loans held for sale		3,029		3,029		3,029		—		—		3,029		3,029		3,029		0-		0-
Loans, net of allowance		811,043		829,902		—		—		829,902		811,043		829,902		0-		0-		829,902
Mortgage servicing assets		1,076		1,083		—		—		1,083		1,076		1,083		0-		0-		1,083
Accrued interest receivable		4,546		4,546		4,546		—		—		4,546		4,546		4,546		0-		0-
Bank owned life insurance		29,646		29,646		29,646		—		—		29,646		29,646		29,646		0-		0-

Financial Liabilities:
Demand deposits		534,853		534,853		534,853		—		—		534,853		534,853		534,853		0-		0-
Interest-bearing demand deposits		47,092		47,092		47,092		—		—		47,092		47,092		47,092		0-		0-
NOW accounts		137,279		137,279		137,279		—		—		137,279		137,279		137,279		0-		0-
Money market deposit accounts		140,113		140,113		140,113		—		—		140,113		140,113		140,113		0-		0-
Savings accounts		274,386		274,386		274,386		—		—		274,386		274,386		274,386		0-		0-
Time deposits		119,088		121,470		—		—		121,470		119,088		121,470		0-		0-		121,470
Total deposits		1,252,811		1,255,193		1,133,723		—		121,470		1,252,811		1,255,193		1,133,723		0-		121,470

Long-term debt		54,790		51,800		—		—		51,800		54,790		51,800		0-		0-		51,800
Subordinated debt		19,601		19,601		—		—		19,601		19,601		19,601		0-		0-		19,601
Accrued interest payable		320		320		320		—		—		325		325		325		0-		0-

7.Commitments and Contingent Liabilities

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of ~~March 31,~~September 30, 2021, firm loan commitments were ~~$95.5~~$103.9 million, unused lines of credit were ~~$334.0~~$364.7 million, and open letters of credit were ~~$9.7~~$13.1 million. The total of these commitments was ~~$439.2~~$481.7 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.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

8.Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three and nine months ended ~~March 31,~~September 30, 2021 and 2020

is as follows:

ACCUMULATED OTHER COMPREHENSIVE INCOME (1) (2)

(DOLLARS IN THOUSANDS)

	Unrealized
	Gains (Losses)
	on Securities
	Available-for-Sale
	$
Balance at December 31, 2020		7,958
Other comprehensive loss before reclassifications		(~~4,965~~4,964	)
Amount reclassified from accumulated other comprehensive income (loss)		(6970	)
Period change		(5,034	)

Balance at March 31, 2021		2,924

~~Balance at December 31, 2019~~ Other comprehensive income before reclassifications		~~1,600~~ 4,654
~~Other comprehensive loss before reclassifications~~		~~(274~~	)
Amount reclassified from accumulated other comprehensive income (loss)		(~~223~~216	)
Period change		~~(497~~ 4,438	)

Balance at June 30, 2021		7,362

Other comprehensive loss before reclassifications		(2,759	)
Amount reclassified from accumulated other comprehensive income (loss)		(277	)
Period change		(3,036	)

Balance at September 30, 2021		4,326

Balance at December 31, 2019		1,600
Other comprehensive loss before reclassifications		(274	)
Amount reclassified from accumulated other comprehensive income (loss)		(223	)
Period change		(497	)

Balance at March 31, 2020		1,103

Other comprehensive loss before reclassifications

3,709

Amount reclassified from accumulated other comprehensive income (loss)

(290

)

Period change

3,419

Balance at June 30, 2020

4,522

Other comprehensive income before reclassifications

1,277

Amount reclassified from accumulated other comprehensive income

(43

)

Period change

1,234

Balance at September 30, 2020

5,756

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

~~A lease is defined as a contract, or part~~Table of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. The Corporation accounts for all lease agreements in accordance with ASC Topic 842. For the Corporation, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Corporation is the lessee.

All of these leases in which the Corporation is the lessee are comprised of real estate property for branches and office space with terms extending through 2026. All of the Corporation’s leases are classified as operating leases, and therefore, were previously not recognized on the Corporation’s Consolidated Balance Sheets. In accordance with Topic 842, operating lease agreements are required to be recognized on the Consolidated Balance Sheets as a right-of use (“ROU”) asset and a corresponding lease liability.

27 Contents

~~Index~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

Lease Consolidated Balance Sheets Classification
(Dollars in Thousands) Classification March 31, 2021 December 31, 2020
Lease Right-of-Use Assets

Operating lease right-of use assets Other Assets $ 683 728

Lease Liabilities
Operating lease liabilties Other Liabilities $ 695 740

The calculated amount of the ROU assets and lease liabilities in the table above are impacted by the length of the lease term and the discount rate used to determine the present value of the minimum lease payments. The Corporation’s lease agreements often include one or more options to renew at the Corporation’s discretion. If at lease inception, the Corporation considers the exercising of a renewal option to be reasonably certain, the Corporation will include the extended term in the calculation of the ROU asset and lease liability. Regarding the discount rate, Topic 842 requires the use of the rate implicit in the lease whenever this rate is readily determinable. As the rate is rarely determinable, the Corporation utilizes its incremental borrowing rate at lease inception, on a collateralized basis, over a similar term. For operating leases existing prior to January 1, 2019, the rate for the remaining lease term as of January 1, 2019 was used.

March 31, 2021 December 31, 2020
Weighted-average remaining lease term
Operating leases 4.2 years 4.4 years
Weighted-average discount rate
Operating leases 3.11% 3.11%

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

~~Future minimum payments for operating leases with initial or remaining terms of one year or more as of March 31, 2021 were as follows:~~

Lease Payment Schedule
(Dollars in Thousands) Operating Leases
Twelve Months Ended:
    March 31, 2022 $ 206
    March 31, 2023 155
    March 31, 2024 154
    March 31, 2025 155
    March 31, 2026 61
Thereafter 12
Total Future Minimum Lease Payments 743
Amounts Representing Interests (48 )
Present Value of Net Future Minimum Lease Payments $ 695

~~Index~~

~~ENB FINANCIAL CORP~~

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

~~10.~~ 9.Risks and Uncertainties

COVID-19 Update

The following table provides information with respect to concentrations within our commercial ~~loans~~loan portfolio that may be more significantly impacted by ~~type~~the effects of the COVID-19 pandemic at ~~March 31,~~September 30, 2021.

At Risk

(Dollars in Thousands) # $ $ %
Number Total Principal of Total
of Loan Balance Loan
Loan Type Loans Exposure of Loans Balance
  Lessors of Nonresidential Buildings 162 80,435 72,980 8.67%
  Lessors of Residential Buildings 207 42,041 37,301 4.43%
  Specialized Freight 29 16,441 12,090 1.44%
  Residential Remodelers 94 10,533 3,916 0.47%
  New Single Family Housing Construction 50 8,190 3,721 0.44%
  Passenger Car Leasing 154 9,749 9,730 1.16%
  Hotels 13 7,436 6,512 0.77%
  Religious Organizations 34 7,468 6,368 0.76%
  Car Washes 7 6,345 6,184 0.73%
  Concrete & Structural Contrators 21 5,522 3,647 0.43%
  Other 67 14,991 8,122 0.96%

Totals 838 209,151 170,571 20.23%

(Dollars in Thousands)	#		$		$		%
	Number		Total		Principal		of Total
	of		Loan		Balance		Loan
Loan Type	Loans		Exposure		of Loans		Balance
Lessors of Nonresidential Buildings		177		104,261		85,142		9.67%
Lessors of Residential Buildings		227		48,681		44,558		5.06%
Specialized Freight		24		10,813		6,501		0.74%
Residential Remodelers		85		9,457		3,645		0.41%
New Single Family Housing Construction		45		9,596		5,281		0.60%
Passenger Car Leasing		172		9,496		9,256		1.05%
Hotels		12		8,274		8,039		0.91%
Religious Organizations		23		6,413		5,313		0.60%
Car Washes		7		6,030		5,869		0.67%
Concrete & Structural Contrators		19		4,879		3,039		0.35%
Other		59		9,850		3,209		0.36%

Totals		850		227,750		179,852		20.43%

The Corporation has a diversified commercial loan portfolio that is consistent with the diversified economies of Lancaster, Lebanon and Berks Counties in Pennsylvania, the Corporation’s market area. The above chart is focused on loan types that are commonly known to be at risk or negatively impacted by the COVID-19 pandemic and its effects. The Corporation’s largest exposure to at risk loan types are loans on leased commercial property and loans on residential investment properties. The Corporation has a relatively low exposure to the hospitality industry, including restaurants. Single loan type exposures falling under the other category do not exceed 0.5% of total loans and include loan types such as site preparation contractors, fuel dealers, and recreational centers. The above levels of exposure to these at risk loan types have not had significant movements from 2020 to 2021. Management does not expect any significant movements in these exposures going forward.

Paycheck Protection Program (PPP)

The Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, was signed into law on March 27, 2020, providing over $2 trillion in economic relief to individuals and businesses impacted by the COVID-19 pandemic. The CARES Act authorized the Small Business Administration (SBA) to temporarily guarantee loans under a new 7(a) loan program called the Paycheck Protection Program (PPP). As a qualified SBA lender, the Corporation was authorized to originate PPP loans.

In terms of qualifying for a PPP loan, an eligible business could apply for a PPP loan up to the greater of: (1) 2.5 times its average monthly payroll costs; or (2) $10 million. The PPP loans have the following terms: (a) an interest rate of 1.0%, (b) a two-year or five-year loan term to maturity; and (c) principal and interest payments deferred for six months from the date of disbursement. The SBA will guarantee 100% of the PPP loans made to eligible borrowers. The entire principal amount of the PPP loan, including any accrued interest, is eligible to be reduced by the amount of loan forgiveness available under the PPP, provided the employee and compensation levels of the business are maintained and 60% of the loan proceeds are used for payroll expenses, with the remaining 40% of the loan proceeds used for other qualifying expenses such as utilities.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In the initial CARES Act, $349 billion of funds were made available for PPP loans. This amount was fully exhausted prior to the end of ~~April.~~April 2020. Congress then passed an additional allocation of funds for the PPP loans, allowing a second round of applications to begin. The Corporation generated PPP loans under this initial plan in the amount of approximately $78 million. In the first quarter of 2021, the SBA made another round of PPP funding available and the Corporation made additional loans to qualifying small businesses. Additionally, ~~some~~all rounds of ~~the original~~ PPP loans became eligible for forgiveness. As a result of the forgiveness of some of the original PPP loans, ~~and~~ the initiation of additional PPP loans, and the forgiveness of a portion of these loans, the total balance of PPP loans at ~~March 31,~~September 30, 2021, was ~~$58.1~~$23.2 million. Management’s focus has been to serve the customers and market area that the Corporation serves.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

In accordance with the SBA terms and conditions on these PPP loans, as of ~~March 31,~~September 30, 2021, the Corporation received approximately ~~$5.1~~$5.5 million in fees associated with the processing of these loans. All fee income is being deferred over the expected life of each PPP loan. The initial batch of the PPP loans carried a stated maturity of two years. In later batches of PPP loans the maturity can be five years, however the majority of the Corporation’s PPP loans carry a two-year maturity. When a PPP loan is paid off or forgiven, the remaining fee amount is taken into income. This income amounted to $2,119,000 during the first nine months of 2021, and $1,442,000 during the first nine months of 2020. The Corporation expects there to be few loans that are on the books until the stated maturity dates.

COVID-19 Loan Forbearance Programs

~~As of March 31,~~Throughout 2020 and into 2021, ~~over~~ 330 of the Corporation’s customers had requested payment deferrals, or payments of interest only, on loans originally totaling over $65 million at the time of deferment. These loans now have a current balance of ~~$52.0~~$43.4 million, or ~~6.2%~~4.9% of the total loan portfolio as of ~~March 31,~~September 30, 2021. The ~~current~~ balance of these loans was $54.6 million as of December 31, 2020. In accordance with interagency guidance issued in March 2020, these short-term deferrals ~~are~~were not considered troubled debt restructurings (TDRs) unless the borrower was previously experiencing financial difficulty. In addition, the risk-rating on COVID-19 modified loans did not change, and these loans ~~will~~would not be considered past due until after the deferral period ~~is over~~ended and scheduled payments ~~resume. The credit quality of these loans will be reevaluated after the deferral period ends.~~

Of the $52.0 million of current loan balances with payments being deferred, $41.7 million, or 80.3%, were in the form of commercial or agricultural loan deferments, with the vast majority of these commercial loan deferrals. The remaining loan deferments consisted of $10.1 million of residential mortgage deferrals and $162,000 of consumer loan deferrals.resumed. The vast majority of the COVID-19 loan payment deferrals were for a 90-day period. As of ~~March 31,~~September 30, 2021, ~~the Corporation had eight~~there were no commercial loans remaining on deferment ~~totaling $4.6 million. It is expected that all of these loans will return to normal payments during the second quarter of 2021.~~

~~As of March 31, 2021,~~and the Corporation’s delinquent and non-performing levels were not ~~yet~~ materially impacted by the weaker economic conditions brought on by COVID-19. However, the Corporation did experience a sharp increase in the amount of impaired loans during the second half of 2020. Impaired loans grew from $3.9 million as of March 31, 2020 to $5.7 million as of March 31, 2021, a $1.8 million increase. This increase was solely due to a $3.6 million loan to one commercial borrower being classified as both impaired and a troubled debt restructuring. This borrower continues to perform according to restructured terms. Partially offsetting this additional impaired loan, other impaired loans paid off or paid down resulting in the lower level of increase.

Due to the severity and length of this economic interruption, management does anticipate that the levels of delinquencies and non-performing loans could rise in 2021. The significance of the credit deterioration will depend on the length of time local business operations are curtailed, or limited, and the amount of time it takes for consumer confidence to rebuild and engage into increased purchasing activities. Management has already significantly increased the Corporation’s provision for loan losses in 2020, as qualitative factors have been increased based on predicted prolonged economic weakness, which is expected to impact more and more borrowers.

~~11.~~ 10.Recently Issued Accounting Standards

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

~~Index~~

~~ENB FINANCIAL CORP~~

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses ~~Topic 326~~(Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for ~~the~~ applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted the credit losses standard, the ASU ~~2016-13,~~is effective when they implement the ~~effective dates and transition requirements are the same as those in ASU 2016-13.~~credit losses standard. For entities that already have adopted the credit losses standard, the ASU ~~2016-13, ASU 2019-05~~ is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. ~~Early adoption is permitted once ASU 2016-13 has been adopted On October 16, 2019, the FASB voted to defer the effective date for ASC 326,~~ ~~Financial Instruments – Credit Losses~~~~, for~~The Corporation qualifies as a smaller reporting ~~companies~~company and does not expect to ~~fiscal years beginning after December 15, 2022, and interim periods within those fiscal years. The final~~early adopt ASU ~~is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Corporation’s financial statements.~~

2016-13.

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

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

~~Index~~

~~ENB FINANCIAL CORP~~

~~Notes to the Unaudited Consolidated Interim Financial Statements~~

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In August 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. This ASU removes from U.S. GAAP the separation models for (1) convertible debt with a cash conversion feature and (2) convertible instruments with a beneficial conversion feature. As a result, entities will not separately present in equity an embedded conversion feature in such debt. Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (1) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (2) a convertible debt instrument was issued at a substantial premium. This ASU requires entities to provide expanded disclosures about the terms and features of convertible instruments, how the instruments have been reported in the entity’s financial statements, and information about events, conditions, and circumstances that can affect how to assess the amount or timing of an entity’s future cash flows related to those instruments. The amendments in this ASU are effective for public business entities that are not smaller reporting companies, for fiscal years beginning after December 15, 2021, and interim periods within those fiscal years. For all other entities, this ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The guidance may be early adopted for fiscal years beginning after December 15, 2020, and interim periods within those fiscal years. This Update is not expected to have a significant impact on the Corporation’s financial statements.

~~In October 2020, the FASB issued ASU 2020-08,~~ ~~Codification Improvements to Subtopic 310-20, Receivables – Nonrefundable Fees and Other Costs,~~ which clarifies that, for each reporting period, an entity should reevaluate whether a callable debt security is within the scope of ASC 310-20-35-33. For public business entities, ASU 2020-08 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. Early application is not permitted. For all other entities, ASU 2020-08 is effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Corporation’s financial statements.

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

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40), which requires an entity to treat a modification of an equity-classified warrant that does not cause the warrant to become liability-classified as an exchange of the original warrant for a new warrant. This guidance applies whether the modification is structured as an amendment to the terms and conditions of the warrant or as termination of the original warrant and issuance of a new warrant. An entity should measure the effect of a modification as the difference between the fair value of the modified warrant and the fair value of that warrant immediately before modification. The amendments in this Update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. An entity should apply the amendments prospectively to modifications or exchanges occurring on or after the effective date of the amendments. Early adoption is permitted for all entities, including adoption in an interim period. If an entity elects to early adopt the amendments in this Update in an interim period, the guidance should be applied as of the beginning of the fiscal year that includes that interim period. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In July 2021, the FASB issued ASU 2021-05, Leases (Topic 842), which amends ASC 842 so that lessors are no longer required to recognize a selling loss upon commencement of a lease with variable lease payments that, prior to the amendments, would have been classified as a sales-type or direct financing lease. Furthermore, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct financing lease and that would result in the recognition of a selling loss at lease commencement, provided that the lease includes variable lease payments that do not depend on an index or rate. For public business entities and certain not-for-profit entities and employee benefit plans that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within those fiscal years. For all other entities that have adopted ASC 842, the amendments are effective for fiscal years beginning after December 15, 2021, and for interim periods within fiscal years beginning after December 15, 2022. All entities that have adopted ASC 842 are permitted to early adopt the amendments in ASU 2021-05. The amendments in ASU 2021-05 are effective as of the same date as the guidance in ASC 842 for entities that have not adopted ASC 842. This Update is not expected to have a significant impact on the Corporation’s financial statements.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services – Depository and Lending (Topic 942), and Financial Services – Investment Companies (Topic 946): Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants (SEC Update), to amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Release No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. This ASU was effective upon issuance and did not have a significant impact on the Corporation’s financial statements.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the 2020 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

Forward-Looking Statements

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

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

National and local economic conditions

Effects of 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 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, a prolonged shutdown of the federal government, increase in taxes or regulations, or increasing debt balances

Political changes and their impact on new laws and regulations

Competitive forces

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

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

Changes in customer behavior impacting deposit levels and loan demand

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

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

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

Operation, legal, and reputation risk

Results of the regulatory examination and supervision process

The impact of new laws and regulations

Possible changes to the capital and liquidity requirements and other regulatory pronouncements, regulations and rules

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

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

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Business and competitive disruptions caused by new market and industry entrants

~~Index~~

~~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 quarter of~~nine months ended September 30, 2021 ~~was~~were positively impacted by a number of items resulting in ~~very~~ strong financial results. The COVID-19 pandemic and governmental and business responses thereto continues to impact customer behavior and balance sheet growth, but as of the date of this report there has not been significant negative impacts on earnings or credit. Customers have adapted to changes in behavior and the Corporation continues to seek ways to manage the structure of the balance sheet to ~~ensure~~achieve positive financial results now and in future time periods.

The Corporation recorded net income of ~~$4,504,000~~$4,139,000 for the three-month period ended ~~March 31,~~September 30, 2021, a ~~$2,339,000,~~$1,204,000, or ~~108.0%~~41.0% increase ~~from~~over the ~~$2,165,000 earned during~~three months ended September 30, 2020. Net income for the ~~same~~nine-month period was $12,194,000, a $3,495,000, or 40.2% increase over earnings in the nine-month period ended September 30, 2020. The earnings per share, basic and diluted, were ~~$0.81~~$0.74 for the three months ended ~~March 31,~~September 30, 2021, compared to ~~$0.38~~$0.53 for the same period in 2020, and for the year-to-date period, earnings per share were $2.19 in 2021, compared to $1.56 in 2020, a ~~113.2%~~40.4% increase. The increase in the Corporation’s 2021 earnings was caused primarily by growth in gains on ~~mortgages sold,~~securities, other income, and net interest ~~income.~~income, coupled with a decline in the provision for loan losses.

The gains from the sale of mortgages were $1,930,000 for the three months ended March 31, 2021, compared to gains of $541,000 for the first quarter of 2020, an increase of $1,389,000, or 256.7%. The volume of mortgages sold was higher during the first three months of 2021 compared to the same period in the prior year. This volume has been driven by low market rates, which has caused an increase in refinancing activity over the course of the past year. Additionally, margins received on sold mortgages have been at higher levels supporting this higher level of gains. Gains on securities in total increased by ~~$283,000, or 544.2%,~~$381,000, for the three months ended ~~March 31,~~September 30, 2021, and increased by $542,000, or 127.5%, for the nine months ended September 30, 2021, compared to the same ~~period~~periods in the prior ~~year primarly driven by gains on equity securities sold as well as unrealized gains on equity securities recorded in income due to the increased market values of bank stocks as of March 31, 2021.~~year. Outside of mortgage and security gains, other non-interest income increased by ~~$879,000,~~$259,000, or ~~40.4%~~11.3%, and $1,714,000, or 26.5%, for the ~~first quarter of~~three and nine months ended September 30, 2021, due to many positive trends such as higher trust income, higher commissions on debit card interchange fees, and lower mortgage servicing asset amortization.

The Corporation’s ~~NII~~net interest income (NII) increased by ~~$463,000,~~$1,086,000, or ~~5.0%~~11.4%, and $1,810,000, or 6.4%, for the three and nine months ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods in 2020. The increase in NII primarily resulted from an increase in interest on securities available for sale of ~~$244,000,~~$706,000, or ~~13.7%~~43.9%, for the three-month period ended ~~March 31,~~September 30, 2021, ~~as well as a decrease in~~and $1,482,000, or 29.0%, for the nine-month period ended September 30, 2021, compared to the three and nine months ended September 30, 2020. In addition, interest expense on deposits and borrowings ~~of $420,000,~~decreased by $56,000, or ~~33.0%.~~6.6%, and $669,000, or 21.5%, for the three and nine months ended September 30, 2021, compared to the same periods in the prior year. The low interest rate environment has caused a rapid decline in asset yield, but also a decline in the cost of funds, which has resulted in these much lower levels of interest expense.

The Corporation recorded a $250,000 credit provision for loan losses in the third quarter of 2021, due to the reversal of a specific allocation assigned to a commercial loan that paid off during the quarter. Provision expense was $1,250,000 for the third quarter of 2020. For the year-to-date period ended September 30, 2021, provision expense was $125,000, a decrease of $2,450,000, compared to the $2,575,000 recorded for the nine months ended September 30, 2020. The higher provision in 2020 was primarily caused by increasing the qualitative factors across industry lines to various degrees as a result of potential forward credit concerns related to COVID-19 and a higher specific allocation related to one commercial borrower.

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The latter measurement typically receives more attention from shareholders. The ROA and ROE increased for ~~the quarter-to-date period~~both periods ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods in the prior year, due to ~~much~~ higher earnings in ~~the first quarter of 2021 compared to 2020.~~

2021.

34 35

~~Index~~Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Key Ratios		Three Months Ended		Three Months Ended				Nine Months Ended
		March 31,		September 30,				September 30,
		2021	2020	2021		2020		2021		2020

Return on Average Assets	Return on Average Assets	1.24%	0.74%		1.03%		0.89%		1.06%		0.93%
Return on Average Equity	Return on Average Equity	14.03%	7.42%		11.91%		9.46%		12.25%		9.72%

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 represents the largest portion of the Corporation’s operating income. In the first ~~three~~nine months of 2021, NII generated ~~64.5%~~68.9% of the Corporation’s revenue stream, which consists of ~~net interest income~~NII and non-interest income, compared to ~~76.9%~~71.6% in the first ~~three~~nine months of 2020. This ~~significant~~ decrease is a result of much higher levels of ~~non-interest income primarily driven by mortgage gains~~NII in the first ~~quarter~~nine months of 2021 ~~which made up 12.9% of the Corporation’s revenue stream,~~ compared to ~~only 4.5% in the first quarter of~~ 2020. ~~However, the~~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.

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 ~~$268,000~~$291,000 for the three months ended ~~March 31,~~September 30, 2021, and $848,000 for the nine months ended September 30, 2021, compared to ~~$166,000~~$209,000 and $579,000 for the same ~~period~~periods in 2020.

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended				Three Months Ended				Nine Months Ended
	March 31,				September 30,				September 30,
	2021		2020		2021		2020		2021		2020
	$		$		$		$		$		$
Total interest income		10,530		10,487		11,417		10,387		32,483		31,342
Total interest expense		851		1,271		789		845		2,446		3,115

Net interest income		9,679		9,216		10,628		9,542		30,037		28,227
Tax equivalent adjustment		268		166		291		209		848		579

Net interest income (fully taxable equivalent)		9,947		9,382		10,919		9,751		30,885		28,806

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

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion~~NII is impacted by yields earned on assets and ~~Analysis~~

~~The~~rates paid on liabilities. With the decrease in the short-term Federal ~~funds rate, the Prime rate, the shape of~~Reserve rates in 2020, asset yields have declined significantly and the U.S. Treasury curve and other wholesale funding curves, all affect NII. The Federal Reserve controls the Federal funds rate, which is one of a number of tools available to the Federal Reserve to conduct monetary policy. The Federal funds rate, and guidance on when the rate might be changed, is often the focal point of discussion regarding the direction of interest rates.has been relatively flat. During 2020, the Federal funds rate was decreased by 150 basis points in March taking the rate to 0.25% by March 31, 2020. With the declines in the Federal funds rate, the U.S. Treasury yield curve became flatter. Long-term rates like the ten-year U.S. Treasury were 232 basis points under the 3.25% Prime rate as of December 31, 2020. Long-term Treasury rates remained low throughout 2020, and with the decreases in the Federal Reserve short-term rates, the yield curve remained essentially flat throughout the year. Management had not anticipated the Fed rate decreases in the first quarter of 2020. During the first quarter of 2021, longer-term U.S. Treasury rates did increase adding some slope to the yield curve. The ten-year Treasury rate was 1.74% as of March 31, 2021, which was 151 basis points under the Prime rate. This Treasury rate movement makes it a little easier to get asset yield on the longer end of the curve, but asset yields are still compressed, ~~compared to years prior to 2020, making increasing asset yield much more difficult,~~ which adds strain to NII and ~~NIM.~~net interest margin (NIM).

Table of Contents

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 decreased to 3.25% in March of 2020 after the 150 basis point Fed rate decline. The Corporation’s Prime-based loans generally reprice a day after the Federal Reserve rate movement.

As a result of a larger balance sheet in ~~the first quarter of~~ 2021, even with much lower asset yields, the Corporation’s NII on a tax equivalent basis increased while the Corporation’s margin decreased to ~~2.86%~~2.89% for the quarter and 2.82% for the nine months ended September 30, 2021, compared to ~~3.41%~~3.16% in the ~~first~~third quarter of ~~2020.~~2020 and 3.26% for the year-to-date period. Loan yields were lower in ~~the first quarter of~~ 2021 due to the 150 basis point Fed rate decline during the first quarter of ~~2020.~~2020 as well as competitive pressure throughout 2020 and 2021. The Corporation’s NII for the three and nine months ended ~~March 31,~~September 30, 2021, increased over the same ~~period~~periods in 2020, by ~~$565,000,~~$1,168,000, or ~~6.0%.~~12.0%, and $2,079,000, or 7.2%, respectively. Management’s asset liability sensitivity ~~measurements continue to show~~shows a small benefit to both margin and NII given Federal Reserve rate increases. Actual results over the past two years have confirmed the asset sensitivity of the Corporation’s balance ~~sheet. However,~~sheet, however there was some decline in this asset sensitivity in the first nine months of 2021. In a down-rate environment, the margin and NII would suffer unless balance sheet growth is enough to offset lower asset yields.

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in 2020, security reinvestment had generally been occurring at lower ~~yield levels.~~yields. With slightly higher Treasury rates in ~~the first quarter of~~ 2021, security yields have increased slightly, but still remain compressed compared to years prior to 2020.

The Corporation’s loan portfolio yield has decreased from the prior years’ period as the variable rate portion of the loan portfolio repriced lower with each Federal Reserve rate movement and some fixed rate borrowers requested loan modifications to reset their rates lower in the current record low market rate environment. The vast majority of the Corporation’s commercial Prime-based loans were priced at the Prime rate, which was 4.75% to start 2020, and then 4.25% as of March 4, 2020, and 3.25% as of March 16, 2020 through March 31, 2021. The pricing for the most typical five-year fixed rate commercial loans is currently in line with the Prime rate. With the significant 2020 Federal Reserve rate reductions, adding variable rate loans to the portfolio means they will be priced at very low rates to start but can reprice lower if the Federal Reserve lowers rates any further and would reprice higher if the Federal Reserve would increase rates. There are elements of the Corporation’s Prime-based commercial loans 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 influenced by local competition.

Mid-term and long-term interest rates on average were higher in the first quarter of 2021 compared to the first quarter of 2020. The average rate of the 10-year U.S. Treasury was 1.34% in the first quarter of 2021 compared to 1.37% in the first quarter of 2020, and it stood at 1.74% on March 31, 2021, compared to 0.70% on March 31, 2020. The slope of the yield curve has been compressed throughout 2020 and 2021 with a little more slope in the first quarter of 2021. As of December 31, 2020, the 10-year U.S. Treasury rate was only 68 basis points higher than the Fed funds rate and as of March 31, 2021, it was 149 basis points higher than the Fed funds rate. The slope of the yield curve has fluctuated many times in the past two years with the 10-year U.S. Treasury yield as high as 1.88% in the first quarter of 2020 and 1.74% in the first quarter of 2021, and as low as 0.54% in the first quarter of 2020, and 0.93% in the first quarter of 2021.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

~~The Corporation’s~~ overall cost of funds, including non-interest bearing funds, remained stable through the first ~~quarter~~nine months of 2021 between 1922 and 2116 basis points. ~~Management expects the cost of funds will decline slightly and then stabilize throughout 2021 as limited deposits reprice to lower rates.~~ Core deposit interest rates were reduced ~~nine times~~ throughout 2020 and time deposit rates have also decreased resulting in maturing time deposits repricing at lower levels or moving into core deposit products. Management does not anticipate significant deposit rate movements in 2021 as deposits are now priced at very low rates. Typically, financial institutions will make small systematic moves on core interest bearing accounts while making larger rate movements in the pricing of new or reissued time deposits. The Corporation’s costs on borrowings included ~~$50,000~~$140,000 of prepayment penalties recorded on ~~FHLB~~Federal Home Loan Bank (FHLB) long-term advances paid off early during the first ~~quarter~~nine months of 2021, and $234,000 of prepayment penalties recorded in the first nine months of 2020, accelerating the interest expense, but achieving savings in future ~~time~~ periods. While the average balance of borrowings was lower in the first ~~quarter~~nine months of 2021 than ~~the first quarter of~~ 2020, the interest expense was higher, as the new $20 million sub debt issue beginning on December 30, 2020, carried a higher rate of interest than FHLB long-term advances that were paid off. As a result, the total cost of borrowings increased ~~from~~$236,000 when comparing the ~~first quarter of 2020~~nine months ended September 30, 2021, to the ~~first quarter~~same period in the prior year.

Table of ~~2021 by $75,000.~~Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

Three Months Ended March 31, Three Months Ended March 31,
2021 vs. 2020 2020 vs. 2019
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 48 (86 ) (38 ) 25 (12 ) 13

Securities available for sale:
Taxable 399 (552 ) (153 ) 116 (179 ) (63 )
Tax-exempt 606 (117 ) 489 (66 ) (35 ) (101 )
Total securities 1,005 (669 ) 336 50 (214 ) (164 )

Loans 837 (912 ) (75 ) 622 (202 ) 420
Regulatory stock (24 ) (54 ) (78 ) 19 1 20

Total interest income 1,866 (1,721 ) 145 716 (427 ) 289

INTEREST EXPENSE

Deposits:
Demand deposits 55 (322 ) (267 ) 28 (152 ) (124 )
Savings deposits 6 (15 ) (9 ) 2 (4 ) (2 )
Time deposits (47 ) (172 ) (219 ) (5 ) 116 111
Total deposits 14 (509 ) (495 ) 25 (40 ) (15 )

Borrowings:
Total borrowings (41 ) 116 75 57 50 107

Total interest expense (27 ) (393 ) (420 ) 82 10 92

NET INTEREST INCOME 1,893 (1,328 ) 565 634 (437 ) 197

During the first three months of 2021, the Corporation’s NII on an FTE basis increased by $565,000, or 6.0%, over the same period in 2020. Total interest income on an FTE basis for the three months ended March 31, 2021, increased $145,000, or 1.4%, from 2020, while interest expense decreased $420,000, or 33.0%, for the three months ended March 31, 2021, compared to the same period in 2020. The FTE interest income from the securities portfolio increased by $336,000, or 17.2%, while loan interest income decreased $75,000, or 0.9%. During the first three months of 2021, additional loan volume caused by loan growth added $837,000 to net interest income, but the lower yields caused a $912,000 decrease, resulting in a total decrease of $75,000. Higher balances in the securities portfolio caused an increase of $1,005,000 in NII, while lower yields on securities caused a $669,000 decrease, resulting in a net increase of $336,000.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The average balance of interest bearing liabilities increased by 15.4% during the three months ended March 31, 2021, compared to the prior year driven by growth in deposit balances. The lower cost on deposit accounts resulted in a decrease in interest expense. Lower rates on all deposit types caused a $509,000 decrease in interest expense while higher balances of demand and savings deposits caused an increase in expense of $14,000 resulting in a total decrease of $495,000.

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 $47,000 reduction to expense, and time deposits repricing to lower interest rates decreased interest expense by $172,000, causing a net total decrease of $219,000 in time deposit interest expense. Even with the low rate environment, the Corporation was successful in increasing balances of other deposit types.

The average balance of outstanding borrowings decreased by 9.4% from the prior year, due to early payoff of FHLB advances that occurred during 2020 and the first quarter of 2021. This resulted in a decrease in interest expense of $41,000. Although interest rates were lower in the first three months of 2021 compared to the prior year, the Corporation incurred interest prepayment penalites of $50,000 to pay off a long-term FHLB advance. The Corporation also issued subordinated debt at the end of 2020, which was at a higher interest rate than the FHLB advances. These two events increased interest expense by $116,000. The combination of lower overall levels of borrowings at a materially higher weighted average interest rate caused an increase in interest expense of $75,000 on total borrowings. The sub debt issue was pursued because of the benefit of being treated as Tier 1 capital at the bank level and Tier II capital at the bank holding company level.

	Nine Months Ended September 30,									Nine Months Ended September 30,
	2021 vs. 2020									2020 vs. 2019
	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		55			(108	)		(53	)		98			(280	)		(182	)

Securities available for sale:
Taxable		1,448			(1,041	)		407			382			(928	)		(546	)
Tax-exempt		1,803			(445	)		1,358			149			(92	)		57
Total securities		3,251			(1,486	)		1,765			531			(1,020	)		(489	)

Loans		1,539			(1,714	)		(175	)		2,989			(2,131	)		858
Regulatory stock		(54	)		(73	)		(127	)		21			(76	)		(55	)

Total interest income		4,791			(3,381	)		1,410			3,639			(3,507	)		132

INTEREST EXPENSE

Deposits:
Demand deposits		94			(447	)		(353	)		82			(874	)		(792	)
Savings deposits		13			(15	)		(2	)		11			(40	)		(29	)
Time deposits		(97	)		(453	)		(550	)		(71	)		48			(23	)
Total deposits		10			(915	)		(905	)		22			(866	)		(844	)

Borrowings:
Total borrowings		(36	)		272			236			(13	)		188			175

Total interest expense		(26	)		(643	)		(669	)		9			(678	)		(669	)

NET INTEREST INCOME		4,817			(2,738	)		2,079			3,630			(2,829	)		801

The following ~~table shows~~tables show a more detailed analysis of ~~net interest income~~NII on an FTE basis with all the major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities. Additionally, the analysis provides the net interest spread and the net yield on interest earning assets. The net interest spread is the difference between the yield on interest earning assets and the interest rate paid on interest bearing liabilities. The net interest spread has the deficiency of not giving credit for the non-interest bearing funds and capital used to fund a portion of the total interest earning assets. For this reason, management emphasizes the net yield on interest earning assets, also referred to as the NIM. The NIM is calculated by dividing ~~net interest income~~NII 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.

~~Index~~Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Three Months Ended March 31,												For the Three Months Ended September 30,
	2021						2020						2021						2020
					(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		57,975		22		0.15		18,860		60		1.29		44,259		17		0.15		33,928		31		0.36

Securities available for sale:
Taxable		318,921		1,104		1.38		229,149		1,256		2.19		385,330		1,333		1.38		243,765		941		1.54
Tax-exempt		172,768		1,189		2.75		86,695		701		3.23		192,614		1,269		2.64		109,198		859		3.15
Total securities (d)		491,689		2,293		1.87		315,844		1,957		2.48		577,944		2,602		1.80		352,963		1,800		2.04

Loans (a)		838,954		8,416		4.03		759,998		8,491		4.48		879,836		9,023		4.09		840,252		8,656		4.11

Regulatory stock		6,033		67		4.45		7,468		145		7.77		5,807		65		4.45		6,871		109		6.33

Total interest earning assets		1,394,651		10,798		3.11		1,102,170		10,653		3.87		1,507,846		11,707		3.10		1,234,014		10,596		3.43

Non-interest earning assets (d)		79,897						72,386						86,494						77,629

Total assets		1,474,548						1,174,556						1,594,340						1,311,643

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		324,277		38		0.05		265,771		305		0.46		352,448		43		0.05		275,279		59		0.09
Savings deposits		286,793		14		0.02		215,889		23		0.04		325,018		16		0.02		251,130		13		0.02
Time deposits		119,309		262		0.89		133,706		481		1.45		117,041		218		0.74		124,479		359		1.15
Borrowed funds		74,411		537		2.93		82,118		462		2.26		69,247		511		2.93		64,877		415		2.54
Total interest bearing liabilities		804,790		851		0.43		697,484		1,271		0.73		863,754		788		0.39		715,765		846		0.48

Non-interest bearing liabilities:

Demand deposits		534,503						355,778						588,125						467,030
Other		5,028						3,896						4,616						5,377

Total liabilities		1,344,321						1,057,158						1,456,495						1,188,172

Stockholders' equity		130,227						117,398						137,845						123,471

Total liabilities & stockholders' equity		1,474,548						1,174,556						1,594,340						1,311,643

Net interest income (FTE)				9,947						9,382						10,919						9,750

Net interest spread (b)						2.68						3.14						2.71						2.95
Effect of non-interest
bearing deposits						0.18						0.27						0.18						0.21
Net yield on interest earning assets (c)						2.86						3.41						2.89						3.16

(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 ~~$1,199,000~~$872,000 as of ~~March,31~~September 30, 2021, and ~~$1,982,000~~$171,000 as of ~~March 31,~~September 30, 2020. Such fees and costs recognized through income and included in the interest amounts totaled ~~$338,000~~$617,000 in 2021, and ~~($35,000)~~$265,000 in 2020.

(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~~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.

~~Index~~Table of Contents

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,
	2021						2020
					(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		50,598		59		0.16		28,205		112		0.53

Securities available for sale:
Taxable		359,530		3,696		1.38		234,121		3,289		1.87
Tax-exempt		184,663		3,720		2.69		97,843		2,362		3.22
Total securities (d)		544,193		7,416		1.82		331,964		5,651		2.27

Loans (a)		859,141		25,646		3.98		809,325		25,821		4.26

Regulatory stock		5,964		210		4.69		7,255		337		6.19

Total interest earning assets		1,459,896		33,331		3.02		1,176,749		31,921		3.62

Non-interest earning assets (d)		82,233						73,691

Total assets		1,542,129						1,250,440

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		338,365		120		0.05		271,836		473		0.23
Savings deposits		308,245		46		0.02		235,084		48		0.03
Time deposits		118,071		711		0.81		128,749		1,261		1.31
Borrowed funds		71,945		1,569		2.92		74,314		1,333		2.40
Total interest bearing liabilities		836,626		2,446		0.39		709,983		3,115		0.59

Non-interest bearing liabilities:

Demand deposits		567,408						416,379
Other		5,006						4,570

Total liabilities		1,409,040						1,130,932

Stockholders' equity		133,089						119,508

Total liabilities & stockholders' equity		1,542,129						1,250,440

Net interest income (FTE)				30,885						28,806

Net interest spread (b)						2.63						3.03
Effect of non-interest
bearing deposits						0.19						0.23
Net yield on interest earning assets (c)						2.82						3.26

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The ~~Corporation’s interest~~year-to-date average balances include net deferred loan costs of $834,000 as of September 30, 2021, and $1,424,000 as of September 30, 2020. Such fees and costs recognized through income ~~increased primarily due to increased interest income on securities, but the increase in income was the result of growth~~and included in the ~~securities portfolio, not an increase~~interest amounts totaled $990,000 in ~~asset~~2021, and $315,000 in 2020.

(b) Net interest spread is the arithmetic difference between the yield ~~resulting in a lower NIM of 2.86% for the first quarter of 2021, compared to 3.41% for the first quarter of 2020. The yield earned~~ on interest earning assets ~~decreased by 76 basis points during the three months ended March 31, 2021, while~~and the rate paid on ~~liabilities decreased~~interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by ~~30 basis points when comparing both years. This resulted~~dividing NII (FTE) by total interest earning assets.

(d) Securities recorded at amortized cost. Unrealized holding gains and losses are included in ~~a 46 basis point decrease in interest spread,~~non-interest earning assets.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and the effect of non-interest bearing deposits decreased by nine basis points during the three months ended March 31, 2021, compared to the prior year, resulting in the decrease in NIM of 55 basis points. Management anticipates a levelling out of NIM during the remainder of 2021 as Treasury rates have increased a little assisting with achieving higher yields in the securities portfolio and loan yields will benefit some by the remainder of the PPP fees that are accretive to loan interest income as PPP loans pay off or are forgiven. Loan yields decreased in the first three months of 2021 compared to the prior year primarily as a result of the 150 basis points of Prime decline in the first quarter of 2020 that did not fully impact the loan yields until the second quarter of 2020. Growth in the loan portfolio will help to offset a declining asset yield moving through 2021. Analysis

The Corporation’s ~~loan yield decreased 45 basis points in the first three months of 2021 compared to the first three months of 2020. Loan interest income decreased $75,000,~~average balance on securities increased by $225.0 million, or ~~0.9%~~63.7%, ~~for this time period as a result of the decline in yields.~~

Loan pricing was challenging in the first quarter of 2021 as a result of the very low rate environment and competition resulting in fixed-rate loans being priced at very low levels and variable-rate loans priced at the Prime rate or below. The Prime rate decreased by 1.50% in March of 2020 to 3.25%, which is now comparable to the typical rate of a five-year fixed-rate loan. The commercial or business fixed rates do increase with longer fixed terms or lower credit quality. In terms of the variable rate pricing, nearly all variable rate loans offered are Prime-based. Management is able to price loan customers with higher levels of credit risk at Prime plus pricing, such as Prime plus 0.75%, which amounted to 4.00% at March 31, 2021, still a relatively low rate. However, only a small minority of the loans in the commercial and agricultural portfolios are at these higher rates due to the strong credit quality of the Corporation’s borrowers and market competition. Competition in the immediate market area has been pricing select shorter-term fixed-rate commercial and agricultural lending rates below 3.25% for the strongest loan credits.

~~Tax equivalent yields on the Corporation’s securities decreased by 61 basis points~~ for the three months ended ~~March 31,~~September 30, 2021, and $212.2 million, or 63.9%, for the nine months ended September 30, 2021, compared to the same periods in 2020. The Corporation’s securities portfolio consists of approximately 75% fixed income debt instruments and 25% variable rate product as of March 31, 2021. The Corporation’s taxable securities experienced an 81 basis-point decrease intax equivalent yield on investments declined by 24 basis points for the ~~three months ended March 31, 2021, compared~~quarter-to-date period and 45 basis points for the year-to-date period when comparing both years. Interest income on securities increased due to ~~2020.~~the volume growth which offset the declining yield due to lower market rates. Security reinvestment in 2021 has been occurring at slightly higher rates due to the increase in U.S. Treasury rates, but reinvestment throughout the majority of 2020 was at much lower yields. The sharp growth in the investment portfolio during a period of very low rates also contributed to the decline in average security yield. This large amount of new investment was caused by the significant influx of deposits, which caused excess liquidity. ~~The sharpest growth~~

Average balances on loans increased by $39.6 million, or 4.7%, for the three months ended September 30, 2021, and $49.8 million, or 6.2%, for the nine months ended September 30, 2021, compared to the same periods in the ~~securities portfolio occurred~~prior year. Loan yields declined by two basis points for the quarter and 28 basis points for the year-to-date period when comparing both years. Loan interest income increased $367,000, or 4.2%, for the three-month period as a result of the increase in loan balances. However, loan interest income decreased $175,000, or 0.7%, for the ~~fourth quarter~~nine-month period as a result of ~~2020 and~~ the first quarter of 2021. In addition to these negative influences, the Corporation’s U.S. agency mortgage-backed securities and collateralized mortgage obligations experience faster principal prepayments as market rates decrease, causing the amortization of premium to increase, effectively decreasing the yield.decline in yields.

The ~~yield on tax-exempt securities decreased~~average balance of deposit accounts increased by ~~48 basis points~~$143.6 million, or 22.1%, and $129.0 million, or 20.3%, for the three and nine months ended September 30, 2021, respectively, compared to the same periods in the ~~first quarter of 2021 compared to 2020. For the Corporation, these bonds consist entirely of tax-free municipal bonds.~~prior year. While the ~~tax-exempt yields~~average balance of time deposits did decrease for both the quarter and year-to-date time periods, the average balance on ~~municipal bonds declined with~~demand and savings accounts increased significantly and more than offset the ~~tax rate change at the end of 2017, yields became more attractive again during 2020 and 2021. Management began investing~~decline in ~~more of these bonds in 2020 as yields stood out and provided better returns than other sectors of the portfolio.~~

time deposits. The interest rate paid on deposits decreased for the three months ended March 31, 2021, from the same period in 2020. Management follows a disciplined pricing strategy on core deposit products that are not rate sensitive, meaning that the balances do not fluctuate significantly when interest rates change. Rates on interest-bearing checking accounts and money market accounts were decreased in 2020, resultingboth of these time periods as well. This resulted in a decrease in interest expense on deposits of $154,000, or 35.7%, and $905,000, or 50.8%, for the cost of funds on these accounts of 41 basis points. Savings account rates were also decreased during 2020 resulting in a two basis point reduction in the cost of funds associated with these accounts. Additionally, the cost of funds on time deposits decreased by 56 basis points during the first quarter ofthree and nine months ended September 30, 2021, compared to the same ~~period~~periods in the prior year. Typically, the Corporation sees increases in core deposit products during periods when consumers are not confident in the stock market or economic conditions deteriorate. During these periods, there is a “flight to safety” to federally insured deposits. This trend occurred again in early 2020 as the federal, state and local governmental bodies began rapidly instituting social distancing measures in an effort to control the spread of the coronavirus. These measures had an immediate signicant negative impact to the economy, which also resulted in the Federal Reserve quickly dropping interest rates back to historic lows. This in turn resulted in market interest rates declining again to historic lows, with the Corporation reducing offering rates on deposit products. As the rate difference between time deposits and core deposits narrowed, many customers chose to transfer funds from maturing time deposits into checking and savings accounts.2020.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The Corporation’s average ~~deposits~~balance on borrowed funds increased ~~$293.7~~by $4.4 million, or 30.2%, with all types of interest-bearing deposits increasing $115.0 million, or 18.7%, while non-interest bearing demand deposits increased $178.7 million, or 50.2%. In the current rate environment, with short-term rates low and with small rate differences for longer-term deposits, the consumer generally elected to stay short and maintain funds in accessible deposit instruments. 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 non-interest checking, NOW, and savings accounts. The average balance of time deposits declined during the first three months of 2021 compared to 2020, 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 significantly. Time deposit balances had been growing throughout 2018 and 2019 due to the odd-month CD promotions available at those times, but with the recent sharp decline in rates, time deposits declined throughout 2020 and management expects these time deposit balances to decrease throughout the remainder of 2021 as a result of customers electing to allow maturing time deposit balances to roll off and hold them in a liquid account until there is some sign of rate increases.

~~Interest expense on deposits decreased by $495,000, or 61.2%~~6.7%, for the three months ended ~~March 31,~~September 30, 2021, but decreased by $2.4 million, or 3.2%, for the nine months ended September 30, 2021, compared to the same ~~period~~periods in 2020. Demand and savings deposits reprice in their entirety whenever the offering rates are changed, so with each successive rate drop in 2020, these deposits repriced lower. Interest rates on interest checking and money market accounts were decreased nine times in 2020. For the three months ended March 31, 2021, the average balances of interest bearing demand deposits increased by $58.5 million, or 22.0%, over the same period in 2020, while the average balance of savings accounts increased by $70.9 million, or 32.8%.

Time deposits reprice over time according to their maturity schedule. This enables management to both reduce and increase rates slowly over time. During the three months ended March 31, 2021, time deposit balances decreased compared to balances at March 31, 2020. The decrease can be attributed to the low rates paid 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 more balanced deposit funding position and maintain a lower cost of funds. The Corporation’s interest expense on time deposits decreased by $220,000, or 45.6%, for the first three months of 2021, compared to the same period in 2020. Management anticipates the interest expense on time deposits and annualized rate paid will decline throughout the remainder of 2021 as these higher-priced time deposits mature and reprice at lower levels or convert to non-maturity deposits.

~~The Corporation’s average rate on~~ borrowed funds ~~increased by 67 basis points from the first quarter~~consist of ~~2020 to the first quarter of 2021,~~FHLB advances as ~~an FHLB borrowing was paid off early during the first quarter of 2021 accelerating $50,000 of interest expense. In addition, the Corporation’s~~well as subordinated debt issued onin December ~~30, 2020, is included in this total borrowed funds amount and is at a rate of 4.00% for 5 years, so the increase in rate paid on borrowed funds is a direct result of this as well.~~

The Corporation historically uses both short-term and long-term borrowings to supplement liquidity generated by deposit growth. Average short-term advances of only $77,000 were utilized in the three months ended March 31, 2021, while average short-term advances of $1,806,000 were utilized in the three months ended March 31, 2020. Management has used FHLB long-term borrowings as part of an asset liability strategy to lengthen liabilities rather than as a source of liquidity. Average total long-term FHLB borrowings decreased by $25,589,000, or 31.9%, for the three months ended March 31, 2021, compared to the same period in 2020. The average balance of subordinated debt increased by $19,610,000, as subordinated debt was issued at the end of 2020 ~~as a vehicle~~which was used to support capital growth for the Corporation. ~~This growth in debt balances contributed to an~~The increase in ~~interest expense~~borrowed funds for the quarter-to-date period is a result of this subordinated debt issuance. However, the decrease for the year-to-date period is a result of paying off FHLB advances. The Corporation paid off $35.6 million of FHLB advances in the nine months ended September 30, 2020, compared to $8.1 million for the year-to-date period in 2021. The rate paid on borrowed funds increased by 39 basis points for the three months ended ~~March 31,~~September 30, 2021, and 52 basis points for the nine months ended September 30, 2021, compared to the same ~~period~~periods in the prior year. Interest expense on borrowed funds increased $76,000, or 16.5%, for the three-month period when comparing 2021 to 2020, driven higher by $50,000 of FHLB interest prepayment penalties on the early payoff of an advance as well as $200,000 of interest expense accrued on subordinated debt. Despite these increases, interest expenseThis increase in ~~total was held to a low level due~~rate can be attributed to the ~~prepayment~~issuance of ~~many~~subordinated debt which carries a 4.00% rate, significantly higher than the rate on FHLB ~~advances in 2020 which accelerated the interest expense to the prior year and will result in savings in 2021 and future years.~~advances.

For the three months ended ~~March 31,~~September 30, 2021, the net interest spread decreased by 4624 basis points to ~~2.68%~~2.71%, compared to ~~3.14%~~2.95% for the three months ended ~~March 31,~~September 30, 2020. For the nine months ended September 30, 2021, the net interest spread decreased by 40 basis points to 2.63%, compared to 3.03% for the nine months ended September 30, 2020. The effect of non-interest bearing funds decreased to 18 basis points from 2721 basis points for the three months ended ~~March 31, 2021.~~September 30, 2021, and decreased to 19 basis points from 23 basis points for the nine months ended September 30, 2021, compared to the same periods in 2020. 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 third quarter of 2021 was 2.89%, compared to 3.16% for the third quarter of 2020. For ~~example, if an interest checking account with $10,000 earns 1%~~the year-to-date period, the Corporation’s NIM was 2.82%, compared to 3.26% for the benefit for $10,000 of non-interest bearing deposits is equivalent to $100; but if the interest-checking rate is increased to 1.50%, then the benefit of the non-interest bearing funds is $150. This assumes dollar-for-dollar replacement, which is not realistic, but demonstrates the way the higher cost of funds affects the benefit to non-interest bearing deposits.same period in 2020.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

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~~changes in rates, refer to Item 7A: Quantitative and Qualitative Disclosures about Market Risk.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Provision for Loan Losses

The allowance for credit losses (ACL) provides for losses inherent in the loan portfolio as determined by a quarterly analysis and calculation of various factors related to the loan portfolio. The amount of the provision reflects the adjustment management determines necessary to ensure the ACL is adequate to cover any losses inherent in the loan portfolio. The Corporation recorded a credit provision of $250,000 for the third quarter of 2021, and provision expense of ~~$375,000~~$125,000 for the nine months ended September 30, 2021, compared to provision expense of $1,250,000 and $2,575,000, respectively, for the three and nine months ended ~~March 31,~~September 30, 2020. The provision expense was elevated in 2020 due to the onset of COVID-19 and the deteriorating economic conditions that were expected to impact credit risk moving forward. The Corporation also provided $1.1 million in a specific allocation to one commercial borrower in 2020. This loan paid off during the third quarter of 2021 ~~compared to $350,000~~resulting in a reversal of that specific allocation and the credit provision for the ~~three months ended March 31, 2020. The analysis of the ACL takes into consideration, among other things, the following factors:~~

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

~~trends within the loan portfolio,~~

~~changes in lending policies and procedures,~~

~~experience of lending personnel and management oversight,~~

~~national and local economic trends,~~

~~concentrations of credit,~~

~~external factors such as legal and regulatory requirements,~~

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

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

quarter. As of March 31, 2021, total delinquencies represented 0.31% of total loans, compared to 0.67% as of March 31, 2020. These ratios are very low compared to local and national peer groups. The vast majority of the Corporation’s loan customers have remained 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 level of classified loans has decreased from March 31, 2020, to March 31, 2021, from 20.7% of regulatory capital to 14.7% of regulatory capital. The delinquency and classified loan information is utilized in the quarterly ACL 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 minimal charge-offs and recoveries in the first three months of 2021.

Generally, management will evaluate and adjust, if necessary, the provision expense each quarter based upon completion of the quarterly ACL 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 ACL. 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. Second, management provides for estimated losses on pools of similar loans based on historical loss experience. Finally, management utilizes qualitative factors every quarter to adjust historical loss experience to take into consideration the current trends in loan volume, delinquencies, charge-offs, changes in lending practices, and the quality of the Corporation’s underwriting, credit analysis, lending staff, and Board oversight. National and local economic trends and conditions are also helpful to determine the amount of loan loss allowance the Corporation should be carrying on the various types of loans. Management evaluates and adjusts, if necessary, the qualitative factors on a quarterly basis.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

In the first three months of 2021, qualitative factors were adjusted by management based on current internal information regarding trends in the nature and volume of the loan portfolio and delinquency. An increase in qualitative factors was made across one loan pool related to trends in the nature and volume of the loan portfolio. This factor was increased by 5 basis points since December 31, 2020. Other factors remained unchanged in the first three months of 2021.

Management also monitors the allowance as a percentage of total loans. The percentage of the allowance to total loans has increased since March 31, 2020, and remains higher than the Bank’s national peer group from the Uniform Bank Performance Reports. As of March 31,September 30, 2021, the allowance as a percentage of total loans was ~~1.51%~~1.41%, ~~up from 1.28%~~compared to 1.42% at ~~March 31, 2020, and 1.50% at December 31,~~September 30, 2020. Management continues to evaluate the ACL 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 ACL is adequate to provide for future loan losses based on the current portfolio and the current economic environment. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the ~~first~~third quarter of 2021 was ~~$5,318,000, an increase~~$4,139,000, a decrease of ~~$2,551,000,~~$235,000, or ~~92.2%~~5.4%, compared to the ~~$2,767,000~~$4,374,000 earned during the ~~first~~third quarter of 2020. For the year-to-date period ended September 30, 2021, other income totaled $13,534,000, an increase of $2,325,000, or 20.7%, compared to the same period in 2020. The following ~~table details~~tables detail the categories that comprise other income. ~~As illustrated in the tables below the primary contributor to the increase was the gains on the sales of mortgages.~~

OTHER INCOME

(DOLLARS IN THOUSANDS)

Three Months Ended March 31, Increase (Decrease)
2021 2020
$ $ $ %

Trust and investment services 670 622 48 7.7
Service charges on deposit accounts 248 315 (67 ) (21.3 )
Other service charges and fees 366 364 2 0.5
Commissions 864 686 178 25.9
Gains on securities transactions, net 87 282 (195 ) (69.1 )
Gains (losses) on equity securities, net 248 (230 ) 478 >100%
Gains on sale of mortgages 1,930 541 1,389 256.7
Earnings on bank owned life insurance 216 206 10 4.9
Other miscellaneous income (loss) 689 (19 ) 708 >100%

Total other income 5,318 2,767 2,551 92.2

	Three Months Ended September 30,					Increase (Decrease)
	2021		2020
	$		$			$			%

Trust and investment services		540		442			98			22.2
Service charges on deposit accounts		282		250			32			12.8
Other service charges and fees		336		451			(115	)		(25.5	)
Commissions		945		781			164			21.0
Gains on securities transactions, net		350		55			295			536.4
Gains (losses) on equity securities, net		32		(54	)		86			>100%
Gains on sale of mortgages		1,206		2,081			(875	)		(42.0	)
Earnings on bank owned life insurance		218		209			9			4.3
Other miscellaneous income		230		159			71			44.7

Total other income		4,139		4,374			(235	)		(5.4	)

OTHER INCOME

(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,					Increase (Decrease)
	2021		2020
	$		$			$			%

Trust and investment services		1,746		1,480			266			18.0
Service charges on deposit accounts		776		770			6			0.8
Other service charges and fees		1,141		1,245			(104	)		(8.4	)
Commissions		2,761		2,116			645			30.5
Gains on securities transactions, net		711		704			7			1.0
Gains (losses) on equity securities, net		256		(279	)		535			>100%
Gains on sale of mortgages		4,381		4,312			69			1.6
Earnings on bank owned life insurance		636		620			16			2.6
Other miscellaneous income		1,126		241			885			>100%

Total other income		13,534		11,209			2,325			20.7

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Trust and investment services income increased ~~$48,000,~~$98,000, or ~~7.7%~~22.2%, and $266,000, or 18.0%, for the three and nine months ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods last year. This revenue consists of income from traditional trust services and income from ~~alternative~~non-deposit investment services provided through a third party. In the ~~first~~third quarter of 2021, traditional trust income increased by ~~$61,000,~~$17,000, or ~~16.1%~~6.3%, while income from ~~alternative~~non-deposit investments ~~decreased~~increased by ~~$13,000,~~$81,000, or ~~5.2%~~48.0%, compared to the ~~first~~third quarter of 2020. For the nine months ended September 30, 2021, traditional trust services income increased by $82,000, or 8.9%, while income from non-deposit investment services increased by $185,000, or 33.4%, compared to the same period in 2020. The ~~decline~~increase in income from the investment services area for both time periods can be partially attributed to ~~less~~transfer fees received from a new ~~business, which was impacted by COVID-19 and~~broker dealer that resulted in additional income of $89,000 in the ~~branch lobby closures during 2020. Management would expect activity to increase again going into the remainder~~first nine months of 2021. The trust and investment services area continues to be an area of strategic focus for the Corporation. Management believes there continues to be great need for retirement, estate, small business succession planning, and personal investment services in the Corporation’s service area. Management also sees these services as being a necessary part of a comprehensive line of financial solutions across the organization.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion~~Other service charges and ~~Analysis~~

~~Service charges on deposit accounts~~fees decreased by ~~$67,000,~~$115,000, or ~~21.3%~~25.5%, and $104,000, or 8.4%, for the three and nine months ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods in 2020. The ~~decrease is primarily due to a decrease in overdraft fees that were lower by $72,000, or 27.3%, for the three months ended March 31, 2021, compared to the same period in 2020. This~~ decline can be primarily attributed to loan administration fees which declined by $76,000, or 46.8%, and $95,000, or 23.3%, for the ~~current economic environment, which has necessitated changes in customer behaviors. Various other fee income categories increased or decreased to lesser degrees making up the remainder of the variance~~three and nine months ended September 30, 2021, compared to the same periods in the prior year. Loan administration fees were higher in 2020 with higher levels of mortgage volume at that time.

Commissions increased by ~~$178,000,~~$164,000, or ~~25.9%~~21.0%, and $645,000, or 30.5%, for the three and nine months ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods in 2020. ~~This~~The increase was primarily caused by an increase in debit card interchange income of ~~$164,000,~~$138,000, or ~~28.4%.~~21.0%, for the three months ended September 30, 2021, and $543,000, or 29.7%, for the nine months ended September 30, 2021, compared to the same periods in the prior year. The interchange income is a direct result of the volume of debit card transactions processed and this income ~~is increasing~~decreased during the second quarter of 2020 as ~~customers utilize electronic payments more.~~customer spending changed with lower levels of purchases impacted by COVID-19, but increased again in late 2020 and throughout 2021.

For the three and nine months ended ~~March 31,~~September 30, 2021, ~~$87,000~~$350,000 and $711,000 of gains on securities transactions were recorded, respectively, compared to gains of ~~$282,000~~$55,000 and $704,000, respectively, for the same ~~period~~periods in 2020. 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 ~~three~~nine months of 2021 and 2020 provided ~~fewer~~ opportunities to take gains out of the ~~portfolio than during the first three months of 2020.~~portfolio.

Gains or losses on equity securities amounted to ~~$248,000~~a gain of $32,000 during the ~~first three months of 2021, comared to a loss of $230,000 in the prior year. This represents an increase in income of $478,000 for the first~~third quarter of 2021, compared to a loss of $54,000 for the ~~first quarter~~same period in the prior year. For the year-to-date period, gains on equity securities amounted to $256,000 in 2021, compared to a loss of $279,000 in 2020. Gains or losses on equity securities are impacted by actual sales of securities as well as changes in the market value of these securities since market value gains and losses are recorded through income. In the first ~~three~~nine months of 2021, ~~$95,000~~$99,000 of gains were recorded on the sale of bank stocks and ~~$153,000~~$157,000 was recorded as an unrealized gain due to the increase in market value of the bank stock portfolio. During the first ~~three~~nine months of 2020, unrealized losses of ~~$230,000~~$279,000 were recorded due to the decline in bank stock prices as the COVID-19 pandemic began and negatively impacted the market.

Gains on the sale of mortgages were ~~$1,930,000~~$1,206,000 for the three-month period ended ~~March 31,~~September 30, 2021, compared to ~~$541,000~~$2,081,000 for the same period in 2020, a ~~$1,389,000,~~$875,000, or ~~256.7%~~42.0% decrease. For the nine-month period ended September 30, 2021, mortgage gains amounted to $4,381,000, compared to $4,312,000 for the same period in 2020, a $69,000, or 1.6% increase. ~~Mortgage~~While mortgage activity was ~~significantly higher in~~slower for the ~~first three months~~third quarter of 2021 compared to 2020, year-to-date activity was still higher resulting in the ~~prior year as a~~year-to-date increase in mortgage gains. The increased mortgage activity is the result of historically low interest rates and a surge in mortgage refinancing activity. Even with market rates increasing slightly in the first quarter of 2021, refinance activity continued at record levels. Management currently anticipates that gains throughout the remainder of 2021 may decrease slightly compared to the prior year, due to the increase in market rates that will likely result in a slowdown of mortgage activity, as well as lower margins received on mortgages sold.

For the three months ended March 31, 2021, earnings on bank-owned life insurance (BOLI) increased by $10,000, or 4.9%, compared to the same period in 2020. The amount of BOLI income is generally dependent upon the actual return of the policies, the insurance cost components, and any benefits paid upon death that exceed the policy’s cash surrender value. Increases in cash surrender value are a function of the return of the policy net of all expenses.

The miscellaneous income category increased by ~~$708,000,~~$71,000 for the three months ended ~~March 31,~~September 30, 2021, and $885,000 for the nine months ended September 30, 2021, compared to the same ~~period~~periods in 2020. ~~The quarterly increase can be primarily attributed to net~~Net mortgage servicing income ~~which~~ increased by ~~$263,000 in~~$88,000 for the three months ended September 30, 2021, and $443,000 for the nine months ended September 30, 2021, compared to ~~2020~~the same periods in the prior year. This was due to much lower levels of mortgage servicing asset amortization in 2021. ~~The slightly higher interest rate environment resulted in this lower level of amortization.~~ Other miscellaneous income categories increased as well making up the remainder of the variance in this category.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Operating Expenses

Operating expenses for the ~~first~~third quarter of 2021 were ~~$9,187,000,~~$10,118,000, an increase of ~~$77,000,~~$920,000, or ~~0.8%~~10.0%, compared to the ~~$9,110,000~~$9,198,000 for the ~~first~~third quarter of 2020. For the year-to-date period ended September 30, 2021, operating expenses totaled $29,001,000, an increase of $2,449,000, or 9.2%, compared to the same period in 2020. The following ~~table provides~~tables provide details of the Corporation’s operating expenses for the ~~three-month period~~three and nine-month periods ended ~~March 31,~~September 30, 2021, compared to the same ~~period~~periods in 2020.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

Three Months Ended March 31,
2021 2020 Increase (Decrease)
$ $ $ %
Salaries and employee benefits 5,699 5,696 3 0.1
Occupancy expenses 683 591 92 15.6
Equipment expenses 267 290 (23 ) (7.9 )
Advertising & marketing expenses 190 274 (84 ) (30.7 )
Computer software & data processing expenses 1,098 706 392 55.5
Bank shares tax 280 239 41 17.2
Professional services 439 623 (184 ) (29.5 )
Other operating expenses 531 691 (160 ) (23.2 )
Total Operating Expenses 9,187 9,110 77 0.8

	Three Months Ended September 30,
	2021		2020		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		6,142		5,860		282			4.8
Occupancy expenses		654		598		56			9.4
Equipment expenses		255		298		(43	)		(14.4	)
Advertising & marketing expenses		282		184		98			53.3
Computer software & data processing expenses		1,097		835		262			31.4
Bank shares tax		322		239		83			34.7
Professional services		535		549		(14	)		(2.6	)
Other operating expenses		831		635		196			30.9
Total Operating Expenses		10,118		9,198		920			10.0

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,
	2021		2020		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		17,800		16,522		1,278			7.7
Occupancy expenses		1,972		1,805		167			9.3
Equipment expenses		806		904		(98	)		(10.8	)
Advertising & marketing expenses		717		676		41			6.1
Computer software & data processing expenses		3,297		2,309		988			42.8
Bank shares tax		876		718		158			22.0
Professional services		1,572		1,679		(107	)		(6.4	)
Other operating expenses		1,961		1,939		22			1.1
Total Operating Expenses		29,001		26,552		2,449			9.2

Salaries and employee benefits are the largest category of operating expenses. In general, they comprise approximately 62% of the Corporation’s total operating expenses. For the three months ended March 31, 2021, salaries and benefit costs remained nearly the same as 2020. This has resulted in better operational efficiency as the Corporation’s total assets have grown dramatically since the prior year, but salaries and benefit costs have remained static resulting in overall improvements in efficiency.

~~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 by ~~$92,000,~~$282,000, or ~~15.6%~~4.8%, for the ~~three months~~third quarter of 2021, and $1,278,000, or 7.7%, for the year-to-date period ended ~~March 31,~~September 30, 2021, compared to the same period in the prior year. Snow removal costs alone increased by $43,000, or 300.6%, and utilities costs increased by $20,000, or 10.9%, for the first quarter of 2021, compared to the same period in the prior year. In addition, building repair and maintenance costs increased $16,000, or 44.9% for the same time period. Other occupancy costs increased or decreased by smaller amounts making up the remainder of the variance in this category.

~~Equipment expenses decreased by $23,000, or 7.9%, for the three months ended March 31, 2021, compared to the same period~~periods in the prior year. The ~~decrease~~growth in ~~this category is~~salaries can primarily ~~related to depreciation on existing furniture and equipment which decreased by $28,000, or 15.0%. This decline can~~ be attributed to ~~depreciation streams ending on furniture~~merit and ~~equipment purchased in prior years with new purchases~~cost of ~~furniture~~living increases, additions to staff, and ~~equipment only partially offsetting this decline.~~

Advertising and marketing expenses decreased by $84,000, or 30.7%, for the three months ended March 31, 2021, compared to the same period in 2020. These expenses can be further broken down into two categories, marketing expenses and public relations. The marketing expenses decreased by $60,000, or 34.9%, for the quarter-to-date period ended March 31, 2021, compared to the same periodhigher deferred salaries costs in the prior year. Public relations expenses decreased by $24,000, or 23.9%, for the three months ended March 31, 2021, compared to the same period in 2020. Marketing expenses support the overall business strategiessecond and third quarters of ~~the Corporation; therefore, the timing~~2020 stemming from higher levels of ~~these expenses is highly dependent upon the execution of those strategies.~~Paycheck Protection Program (PPP) loan production.

Computer software and data processing expenses increased by ~~$392,000,~~$262,000, or ~~55.5%~~31.4%, for the ~~first~~third quarter of 2021 compared to 2020, and $988,000, or 42.8%, for the nine months ended September 30, 2021, compared to the same periods in 2020. Software-related expenses were up by ~~$336,000,~~$285,000, or ~~81.3%~~60.1%, asfor the three months ended September 30, 2021, and by $941,000, or 70.6%, for the nine months ended September 30, 2021, compared to the same periods in the prior year. The increases were primarily a result of ~~purchasess~~increased amortization on existing software as well as purchases of new software platforms to support the strategic initiatives of the Corporation as well as higher amortization on software purchased in the prior year. Software expenses are likely to continue to increase in 2021, but the actual increase will be dependent on how quickly new software platforms are identified, analyzed, approved and placed into service. Data processing fees were up $56,000, or 19.1%, for the three months ended March 31, 2021, compared to the same period in 2020.Corporation.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Bank shares tax expense was ~~$280,000~~$322,000 for the ~~first~~third quarter of 2021, an increase of ~~$41,000,~~$83,000, or ~~17.2%~~34.7%, from the ~~first~~third quarter of 2020. For the year-to-date period, shares tax increased by $158,000, or 22.0%, compared to the prior year. Two main factors determine the amount of bank shares tax: the ending value of shareholders’ equity and the ending value of tax-exempt U.S. obligations. The shares tax calculation uses a period-end balance of shareholders’ equity and a tax rate of 0.95%. The increase in 2021 can be primarily attributed to the Corporation’s growing value of shareholders’ equity.

~~Professional services expense decreased~~44

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Other operating expenses increased by ~~$184,000,~~$196,000, or ~~29.5%~~30.9%, and $22,000, or 1.1%, for the ~~three-month~~three and nine months ended September 30, 2021, compared to the same periods in 2020. The quarter-to-date increase can be primarily attributed to loan related expenses which increased by $111,000, or 63.2%, for the three months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020. ~~These services include accounting~~FDIC insurance charges increased by $27,000, or 33.6%, and auditing fees, legal fees, and fees for other third-party services. These fees were elevated in the first quarter of 2020 due to implementation expenses related to a consumer loan platform. Several other professional services expensestravel-related costs increased by $25,000, or ~~decreased slightly making up the remainder of the variance.~~

~~Other operating expenses decreased by $160,000, or 23.2%~~133.5%, for the ~~three-month period~~three months ended ~~March 31,~~September 30, 2021, compared to the same period in 2020. Contributing to this decrease, fraud-related charges-offs decreased by $88,000, operating supplies decreased by $44,000, or 43.8%, loan-related expenses decreased by $35,000, or 35.8%, and travel costs decreased by $34,000, or 74.1%. Partially offsetting these decreases, FDIC insurance costs increased by $86,000 for the three months ended March 31, 2021, compared to the first quarter of the prior year. ~~Several other operating expense categories increased or decreased by smaller amounts making up the remainder of this variance.~~

Income Taxes

Federal income tax expense was $760,000 for the third quarter of 2021 compared to $533,000 for the same period in 2020. For the ~~three~~nine months ended ~~March 31,~~September 30, 2021, the Corporation recorded Federal income tax expense of ~~$931,000,~~$2,251,000, compared to ~~$358,000~~$1,610,000 for the ~~three~~nine months ended ~~March 31,~~September 30, 2020. The effective tax rate for the Corporation was ~~17.1%~~15.6% for the ~~three~~nine months ended ~~March 31,~~September 30, 2021 and ~~14.2% for the three months ended March 31,~~ 2020. 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 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.

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 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 $280,000 in the first three months of 2021 compared to $239,000 in 2020. The Bank Shares Tax expense appears on the Corporation’s Consolidated Statements of Income, under operating expenses.

46 45

~~Index~~Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Financial Condition

Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of ~~March 31,~~September 30, 2021, the Corporation had ~~$538.8~~$561.6 million of securities available for sale, which accounted for ~~35.2%~~35.1% of assets, compared to ~~33.1%~~32.6% as of December 31, 2020, and ~~27.8%~~27.3% as of ~~March 31,~~September 30, 2020. Based on ending balances, the securities portfolio increased ~~64.7%~~56.0% from ~~March 31,~~September 30, 2020, and ~~11.4%~~17.9% from December 31, 2020.

The debt securities portfolio was showing a net unrealized gain of ~~$3,703,000~~$5,477,000 as of ~~March 31,~~September 30, 2021, compared to an unrealized gain of $10,072,000 as of December ~~31, 2020, and an unrealized gain of $1,396,000 as of March~~ 31, 2020. 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 0.70% as of March 31, 2020, 0.93% as of December 31, 2020, and 1.74% as of March 31, 2021. The lower Treasury rates have caused an increase in market valuation, which has resulted in the unrealized gains recorded at March 31, 2021, December 31, 2020, and March 31, 2020. Gains were lower as of March 31, 2021, compared to the end of 2020 due to the increase in Treasury rates experienced in the first quarter of 2021. Additionally, with the Federal Reserve’s sudden overnight rate decreases in March of 2020, the variable rate portion of the Corporation’s security portfolio lost market value due to the market’s recognition that these instruments would yield materially less going forward which resulted in the lower levels of unrealized gains at March 31, 2020.

The table below summarizes the Corporation’s amortized cost, unrealized gain or loss position, and fair value for each sector of the securities portfolio for the periods ended ~~March 31,~~September 30, 2021 ~~December 31, 2020,~~ and ~~March~~December 31, 2020.

AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD

(DOLLARS IN THOUSANDS)

Net
Amortized Unrealized Fair
Cost Gains (Losses) Value
$ $ $
March 31, 2021
U.S. government agencies 29,623 (443 ) 29,180
U.S. agency mortgage-backed securities 67,875 708 68,583
U.S. agency collateralized mortgage obligations 40,214 572 40,786
Asset-backed securities 96,592 408 97,000
Corporate bonds 66,376 768 67,144
Obligations of states and political subdivisions 227,217 1,690 228,907
Total debt securities, available for sale 527,897 3,703 531,600
Equity securities 7,117 100 7,217
Total securities 535,014 3,803 538,817

December 31, 2020
U.S. government agencies 54,224 137 54,361
U.S. agency mortgage-backed securities 69,777 1,275 71,052
U.S. agency collateralized mortgage obligations 34,449 586 35,035
Asset-backed securities 60,387 88 60,475
Corporate bonds 60,387 1,336 61,723
Obligations of states and political subdivisions 187,132 6,650 193,782
Total debt securities 466,356 10,072 476,428
Equity securities 7,158 (53 ) 7,105
Total securities 473,514 10,019 483,533

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Net
Amortized Unrealized Fair
Cost Gains (Losses) Value
$ $ $
March 31, 2020
U.S. government agencies 10,378 150 10,528
U.S. agency mortgage-backed securities 60,464 1,052 61,516
U.S. agency collateralized mortgage obligations 55,834 787 56,621
Asset-backed securities 28,969 (1,854 ) 27,115
Corporate bonds 64,429 (1,623 ) 62,806
Obligations of states and political subdivisions 99,098 2,884 101,982
Total debt securities 319,172 1,396 320,568
Equity securities 6,847 (207 ) 6,640
Total securities available for sale 326,019 1,189 327,208

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. During the second half of 2019, the Federal Reserve decreased short-term rates three times for a total of 75 basis points, and during the first quarter of 2020, the Federal Reserve decreased short-term rates two times for a total of 150 basis points. Market conditions in the first quarter of 2020 were very unpredictable and fast changing due to the start of COVID-19 and the declaration of a global pandemic on March 11, 2020. The Fed’s reduction of interest rates was in response to this pandemic and caused short-term and long-term Treasury rates to decline at a rapid pace to reach all-time lows. During the first quarter of 2021, rates on the longer end of the yield curve did increase causing slight declines in the unrealized gains on the investment portfolio. The COVID-19 pandemic continues to have significant impacts on rates and the economy and management believes this will continue throughout 2021, but the absolute value and direction of Treasury rates could fluctuate as the pandemic recovery reaches new levels. Beyond interest rate movements, there are also a number of other factors that influence bond pricing including regulatory changes, financial performance of issuers, changes to credit rating of insurers of bonds, changes in market perception of certain classes of securities, and many more. Management monitors the changes in interest rates and other market influences to assist in management of the securities portfolio.

Any material increase in market interest rates would have a negative impact on the market value of the Corporation’s fixed income debt securities. As of March 31, 2021, approximately 75% of the Corporation’s debt securities were fixed rate securities with the other 25% variable rate. The variable rate instruments generally experience very little impact to valuation based on a change in rates because they trade on a spread over overnight rates such as LIBOR. However, with the Federal Reserve drastically reducing the Federal Funds rate by 1.50% in March of 2020 to 0.25%, caused the market to view floating rate bonds differently, as the new effective yields on those securities would be significantly reduced upon the next rate reset. Whereas fixed rate securities without call options could maintain their effective yield in a new bond market with sharply lower yields. Therefore, the valuation of the fixed rate securities held up better when the securities portfolio was valued for March 31, 2020. Since that time, the pricing of variable rate instruments has become more rational and most bonds have experienced an increase in unrealized gain since March of 2020. Generally the longer the bond and the longer the call protection, the better the bond did in terms of valuation. 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. The change in value of unrealized gains and losses for the remainder of 2021 will be impacted by movements in U.S. Treasury rates and could increase and decrease throughout the remainder of the year as Treasury rates fluctuate.

The Corporation’s effective duration increased in the first quarter of 2021 to 3.5, from 2.7 at December 31, 2020. 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 2.2 as of March 31, 2020. Duration is expected to remain stable or increase slightly throughout the remainder of 2021. The Corporation increased effective duration by purchasing longer asset backed and municipal securities in the first quarter of 2021. Additionally, with increasing rates, pass-through structures of MBS and CMO instruments typically lengthen in duration as principal payments decrease.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Management’s actions to maintain reasonable effective duration of the securities portfolio are part of a broader asset liability plan to continually work to mitigate future interest rate risk and fair value risk to the Corporation. Part of that strategy is to retain higher levels of cash and cash equivalents to increase liquidity and provide an immediate hedge against higher interest rates and fair value risk. However, despite taking actions to mitigate the Corporation’s future risk, these risks are inherent to the banking model. Unrealized gains and losses on securities will vary significantly according to market forces. Management’s focus will continue to be on the long-term performance of these securities. While management has and will continue to take gains from the portfolio when opportunities exist, the broader securities strategy remains to buy and hold debt securities until maturity. Because market interest rates were declining rapidly in 2020, there was some opportunity to realize gains from the sales of securities. As a result, gains from the sales of debt securities were higher in the first quarter of 2020 than the first quarter of 2021.

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 and variable rate bonds, the Corporation’s equity holdings consist of a small CRA-qualified mutual fund with a book and fair market value of $6.2 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 $927,000 and fair market value of $1,027,000 as of March 31, 2021. The fair value of the bank stocks was significantly impacted by the COVID-19 pandemic and the drastic devaluation of bank stocks during 2020 but has rebounded as of March 31, 2021, and is responsible for the large increase in gains on equity securities reported as of March 31, 2021.

All securities and bonds 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.

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

December 31, 2020
U.S. government agencies			54,224		137			54,361
U.S. agency mortgage-backed securities			69,777		1,275			71,052
U.S. agency collateralized mortgage obligations			34,449		586			35,035
Asset-backed securities			60,387		88			60,475
Corporate bonds			60,387		1,336			61,723
Obligations of states and political subdivisions			187,132		6,650			193,782
Total debt securities			466,356		10,072			476,428
Equity securities			7,158		(53	)		7,105
Total securities			473,514		10,019			483,533

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

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

The composition of the securities portfolio based on fair market value is shown in the following table.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

SECURITIES PORTFOLIO

(DOLLARS IN THOUSANDS)

Period Ending
March 31, 2021 December 31, 2020 March 31, 2020
$ % $ % $ %

U.S. government agencies 29,180 5.4 54,361 11.2 10,528 3.2
U.S. agency mortgage-backed securities 68,583 12.7 71,052 14.7 61,516 18.8
U.S. agency collateralized mortgage obligations 40,786 7.6 35,035 7.2 56,621 17.3
Asset-backed securities 97,000 18.0 60,475 12.5 27,115 8.3
Corporate debt securities 67,144 12.5 61,723 12.8 62,806 19.2
Obligations of states and political subdivisions 228,907 42.5 193,782 40.1 101,982 31.2
Total debt securities, available for sale 531,600 98.7 476,428 98.5 320,568 98.0

Marketable equity securities 7,217 1.3 7,105 1.5 6,640 2.0

Total securities 538,817 100.0 483,533 100.0 327,208 100.0

	Period Ending
	September 30, 2021				December 31, 2020
	$		%		$		%

U.S. treasuries		4,998		0.9		—		—
U.S. government agencies		29,281		5.1		54,361		11.2
U.S. agency mortgage-backed securities		57,462		10.1		71,052		14.7
U.S. agency collateralized mortgage obligations		33,593		5.9		35,035		7.2
Asset-backed securities		101,443		17.8		60,475		12.5
Corporate debt securities		84,974		14.9		61,723		12.8
Obligations of states and political subdivisions		249,836		43.8		193,782		40.1
Total debt securities, available for sale		561,587		98.5		476,428		98.5

Marketable equity securities		8,844		1.5		7,105		1.5

Total securities		570,431		100.0		483,533		100.0

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

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 tax-free states and political subdivisions.

The Corporation purchased $5.0 million of U.S. treasuries during the second quarter of 2021 and held no treasuries in 2020, resulting in the increase in this sector which represents a safe credit at a market appropriate yield which added some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased by ~~$25.2~~$25.1 million, or ~~46.3%~~46.1%, since December 31, 2020, with the weighting decreased from 11.2% of the portfolio to ~~5.4%~~5.1%. Management had purchased $35.5 million of short-term discount notes at the end of 2020 to offset the Corporation’s shares tax expense. These bonds were sold in the first quarter of 2021 and are responsible for the decline in this category. In the past, management’s goal was to maintain agency securities at approximately 10% of the securities portfolio. In the current rate environment, management is comfortable maintaining agencies below this level. In the past, this sector was important in maintaining adequate risk weightings of the portfolio and to ensure sufficient U.S. government securities for pledging purposes, as was utilizing both mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs) to do the same. Instead, Management has increased the allocations of both asset-backed securities (ABS) and obligations of states and political subdivisions (municipals) since ~~March~~December 31, ~~2020.~~2020, in order to better structure the portfolio to achieve higher yields while also protecting in preparation for a rates-up environment.

The Corporation’s ABS and municipal sectors have increased significantly since ~~March~~December 31, 2020, with ABS increasing ~~$69.9~~$41.0 million, or ~~257.7%~~67.7%, and municipals increasing ~~$126.9~~$56.1 million, or ~~124.5%~~28.9%. ABS securities are floating rate student loan pools which are instruments that will perform well in a rates-up environment and offset the interest rate risk of the longer fixed-rate municipal bonds. These securities provide a variable rate return materially above the overnight Federal funds rate in a safe investment with a risk rating very similar to that of U.S. Agency bonds. The asset-backed securities generally provide monthly principal and interest payments to complement the Corporation’s ongoing cash flows. With liquidity and cash levels remaining high, management views the ABS sector as a safe, higher yielding option than cash, with the qualities of cash in a rates-up environment.

Obligations of states and political subdivisions, or municipal bonds, ~~are~~consist of both tax-free and taxable securities that generally provide the highest yield in the securities portfolio. They also carry the longest duration on average of any instrument in the securities portfolio. Municipal tax-equivalent yields generally start well above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and ~~the first quarter of~~ 2021 due to market conditions that led to favorable yields on some instruments. The Corporation also began purchasing some taxable municipal securities that added to the value of this sector. Municipal bonds represented ~~42.5%~~43.8% of the securities portfolio as of ~~March 31,~~September 30, 2021, compared to ~~31.2%~~40.1% as of ~~March~~December 31, 2020. The Corporation’s investment policy limits municipal holdings to 150% of Tier 2 capital. As of ~~March 31,~~September 30, 2021, municipal holdings amounted to ~~153%~~155% of Tier 2 capital, ~~slightly~~ above this limit. The Corporation plans to ~~sell some municipal bonds to~~ be back within policy guidelines by ~~June 30,~~December 31, 2021.

50 47

~~Index~~Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s U.S. agency MBS and CMO sectors have fluctuated since ~~March~~December 31, 2020, with MBS ~~increasing $7.1~~decreasing $13.6 million, or ~~11.5%~~19.1%, and CMOs decreasing ~~$15.8~~$1.4 million, or ~~28.0%~~4.1%. 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 reasonably stable base cash flow of approximately ~~$2.5~~$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 securities increases, the duration of the security shortens, and the yield declines as more amortization is required on premium bonds. When interest rates increase, the opposite of this occurs. Despite the fluctuations that occur in terms of monthly cash flow as a result of changing prepayment speeds, the monthly cash flow generated by U.S. agency MBS and CMO securities is reasonably stable and as a group is material, and helps to soften or smooth out the Corporation’s total monthly cash flow from all securities.

As of ~~March 31,~~September 30, 2021, the fair value of the Corporation’s corporate bonds increased by ~~$4.3~~$23.3 million, or ~~6.9%~~37.7%, from balances at ~~March~~December 31, 2020. 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.

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 March 31, 2021, no securities have fallen below investment grade.

As of March 31, 2021, two of the 35 corporate securities held by the Corporation showed an unrealized holding loss. These securities with unrealized holding losses were valued at 99.7% of book value. The Corporation’s investment policy requires that corporate bonds have a minimum credit rating of A3 by Moody’s or A- by S&P or Fitch at the time of purchase, or an average or composite rating of A-. As of March 31, 2021, all but one 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. One corporate bond had a total book value of $2.0 million, and did not have an A3 or A- rating as of March 31, 2021. The bond was 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 this security and has chosen to continue to hold the bond with Board approval. In addition, there are fifteen 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 fifteen bonds have a book value of $24.4 million with a $391,000 unrealized gain as of March 31, 2021. Management conducts ongoing monitoring of these bonds with the Board approving holding these securities on a quarterly basis. In addition, the Corporation purchased $1,000,000 of a 4% subordinated debt note in the fourth quarter of 2020 and $750,000 of a $3.5% subordinated debt note in the first quarter of 2021, both of which are unrated. These are considered corporate bonds as they each are subordinated debt of a domestic community bank but are unrated because they are not a typical corporate issuance. 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 any insurance coverage have a minimum credit rating of A3 by Moody’s or A- by S&P or Fitch at the time of purchase. As of March 31, 2021, one municipal bond with a par value of $500,000 was unrated, and no other municipal bonds carried a credit rating under these levels.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

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 continues to closely monitor all corporate and municipal securities.

Loans

Net loans outstanding increased by ~~9.9%~~4.4%, to ~~$829.2~~$867.8 million at ~~March 31,~~September 30, 2021, from ~~$754.3~~$831.2 million at ~~March 31,~~September 30, 2020. Net loans increased by ~~2.2%~~7.0%, an annualized rate of ~~9.0%~~9.3%, from $811.0 million at December 31, 2020. The following table shows the composition of the loan portfolio as of ~~March 31,~~September 30, 2021, December 31, 2020, and ~~March 31,~~September 30, 2020.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)

March 31 December 31, March 31
2021 2020 2020
$ % $ % $ %

Commercial real estate
Commercial mortgages 144,939 17.2 142,698 17.4 120,080 15.8
Agriculture mortgages 178,070 21.2 176,005 21.4 177,368 23.2
Construction 21,317 2.5 23,441 2.9 18,778 2.5
Total commercial real estate 344,326 40.9 342,144 41.7 316,226 41.5

Consumer real estate (a)
1-4 family residential mortgages 265,127 31.5 263,569 32.0 259,937 34.1
Home equity loans 10,614 1.3 10,708 1.3 10,741 1.4
Home equity lines of credit 70,898 8.4 71,290 8.7 68,633 9.0
Total consumer real estate 346,639 41.2 345,567 42.0 339,311 44.5

Commercial and industrial
Commercial and industrial 111,036 13.2 97,896 11.9 63,670 8.4
Tax-free loans 16,233 1.9 10,949 1.3 16,582 2.2
Agriculture loans 18,466 2.2 20,365 2.5 20,733 2.7
Total commercial and industrial 145,735 17.3 129,210 15.7 100,985 13.3

Consumer 4,827 0.6 5,155 0.6 5,557 0.7

Total loans 841,527 100.0 822,076 100.0 762,079 100.0
Less:
Deferred loan fees (costs), net (407 ) (1,294 ) (2,041 )
Allowance for credit losses 12,690 12,327 9,803
Total net loans 829,244 811,043 754,317

	September 30,					December 31,					September 30,
	2021					2020					2020
	$			%		$			%		$			%

Commercial real estate
Commercial mortgages		166,741			19.0		142,698			17.4		136,125			16.2
Agriculture mortgages		188,455			21.4		176,005			21.4		174,150			20.7
Construction		18,786			2.1		23,441			2.9		22,380			2.7
Total commercial real estate		373,982			42.5		342,144			41.7		332,655			39.6

Consumer real estate (a)
1-4 family residential mortgages		302,670			34.4		263,569			32.0		260,465			30.9
Home equity loans		11,889			1.4		10,708			1.3		10,788			1.3
Home equity lines of credit		74,919			8.5		71,290			8.7		68,368			8.1
Total consumer real estate		389,478			44.3		345,567			42.0		339,621			40.3

Commercial and industrial				��
Commercial and industrial		73,695			8.4		97,896			11.9		128,414			15.2
Tax-free loans		17,279			2.0		10,949			1.3		16,423			1.9
Agriculture loans		19,180			2.2		20,365			2.5		20,494			2.4
Total commercial and industrial		110,154			12.6		129,210			15.7		165,331			19.5

Consumer		5,211			0.6		5,155			0.6		5,190			0.6

Total loans		878,825			100.0		822,076			100.0		842,797			100.0
Less:
Deferred loan fees (costs), net		(1,436	)				(1,294	)				(380	)
Allowance for credit losses		12,454					12,327					11,996
Total net loans		867,807					811,043					831,181

(a)	Residential real estate loans do not include mortgage loans serviced for others which totaled ~~$253,527,000~~$274,892,000 as of ~~March 31,~~September 30, 2021, $235,437,000 as of December 31, 2020, and ~~$162,246,000~~$217,812,000 as of ~~March 31,~~September 30, 2020.

There was ~~significant~~moderate growth in the loan portfolio since ~~March 31,~~September 30, 2020, and ~~moderate growth since~~ December 31, 2020. Most major loan categories showed an increase in balances from both time ~~periods. Loan growth was significant in 2020~~periods with the exception of the commercial and ~~continued with moderate growth in the first three months of 2021, primarily~~industrial loans which showed a decline due to the forgiveness of PPP loans ~~which were put on the books beginning in the second quarter of 2020 and continued into the first quarter of 2021.~~since September 30, 2020.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The consumer residential real estate category represents the largest group of loans for the Corporation. The consumer residential real estate category of total loans increased from ~~$339.3~~$339.6 million on ~~March 31,~~September 30, 2020, to ~~$346.6~~$389.5 million on ~~March 31,~~September 30, 2021, a ~~2.2%~~14.7% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages account for the vast majority of residential real estate loans with fixed and floating home equity loans making up the remainder. Historically, the entire consumer residential real estate component of the loan portfolio has averaged close to 40% of total loans. As of ~~March 31,~~September 30, 2020, this percentage was ~~44.5%~~40.3%, and as of ~~March 31,~~September 30, 2021, it ~~decreased~~increased to ~~41.2%~~44.3%. Management expects the consumer residential real estate category to increase throughout the remainder of 2021 due to a continued effort to increase mortgage volume, and the strategic decision to keep some shorter-term mortgages on the books as opposed to selling them on the secondary market. Although economic conditions for consumers ~~have~~had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market ~~continues~~continued to remain relatively strong as consumers ~~refinance~~refinanced existing debt to lower rates. Market conditions have been changing rapidly throughout the first quarter of 2021 and the rest of the year is unpredictable, but management would expect mortgage volume to continue at fairly high levels from a historic perspective.

The first lien 1-4 family mortgages increased by ~~$5.2~~$42.2 million, or ~~2.0%~~16.2%, from ~~March 31,~~September 30, 2020, to ~~March 31,~~September 30, 2021. These first lien 1-4 family loans made up ~~76.6%~~76.7% of the residential real estate total as of ~~March 31,~~September 30, 2020, and ~~76.5%~~77.7% as of ~~March 31,~~September 30, 2021. The vast majority of the first lien 1-4 family closed end loans consist of single family personal first lien residential mortgages and home equity loans, with the remainder consisting of 1-4 family residential non-owner-occupied mortgages. In the ~~first~~third quarter of 2021, mortgage production ~~increased 3% over~~decreased 17% from the previous quarter and was ~~up 76% over~~down 10% from the ~~first~~third quarter of 2020. Purchase money origination constituted ~~55%~~69% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up ~~51%~~37% of that mix. With ~~continued heavy refinance activity,~~a lower volume of new construction business, the percentage of mortgage originations ~~going in~~being added into the Corporation’s ~~held for investment~~held-for-investment mortgage portfolio ~~declined quarter-over-quarter, with more customers opting for held-for-sale fixed rate products.~~decreased quarter-over-quarter. In the ~~first~~third quarter of 2021, ~~47%~~65% of all mortgage originations were held in the mortgage portfolio, ~~46%~~49% of which were adjustable rate mortgages. As of ~~March 31,~~September 30, 2021, ARM balances were ~~$124.7~~$133.5 million, representing ~~47.0%~~44.1% of the 1-4 family residential loan portfolio of the Corporation. ~~The ARM product is beneficial to~~With the ~~Corporation as it limits~~dollar volume being delivered into the ~~interest rate risk to a much shorter time period. Low rates continued to drive overall strong production volume and~~secondary market remaining stable, the gains on the sale of mortgages ~~increased by 25%~~remained consistent quarter-over-quarter.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

As of ~~March 31,~~September 30, 2021, the remainder of the residential real estate loans consisted of ~~$10.6~~$11.5 million of fixed rate junior lien home equity loans, and ~~$70.9~~$71.7 million of variable rate home equity lines of credit (HELOCs). This compares to ~~$10.7~~$10.8 million of fixed rate junior lien home equity loans, and ~~$68.6~~$68.4 million of HELOCs as of ~~March 31,~~September 30, 2020. Therefore, combined, these two types of home equity loans increased from ~~$79.3~~$79.2 million to ~~$81.5~~$83.2 million, an increase of ~~2.8%~~5.1%. The majority of borrowers have been choosing variable rate HELOC loans in the historically low rate environment. With no sign of the Federal Reserve moving to increase rates, management expects HELOC activity to increase with customers choosing variable rate product over fixed rate product until rates begin to increase again.

Commercial real estate makes up ~~40.9%~~42.5% of total loans as of ~~March 31,~~September 30, 2021, compared to ~~41.5%~~39.6% of total loans as of ~~March 31,~~September 30, 2020. Within the commercial real estate segment, the increase has primarily been in commercial ~~mortgages, with agriculture mortgages~~ and construction loans remaining fairly stable. Agricultural mortgages increased marginally, by $0.7 million, or 0.4%, from $177.4 million as of March 31, 2020, to $178.1 million as of March 31, 2021. Dairy lending remains constrained with milk prices at three-year lows and it does not appear pricing will improve materially in the immediate future. There have been overcapacity issues resulting in some consolidation of the area’s larger milk producers. Several dairy farmers have left the industry or are in the process of doing so. While dairy remains the largest agricultural loan concentration, management believes dairy loans will decline as a percentage of total agricultural loans with other non-dairy agricultural areas growing. Currently, management is experiencing more growth in specialty crops and other areas outside of dairy like poultry and layers. Management anticipates that agricultural mortgages may increase through the remainder of 2021 as the economy stabilizes and more farmers move forward with capital improvements or expansion of current operations.

mortgages. Commercial mortgages increased ~~$24.9~~$30.6 million, or ~~20.7%~~22.5%, from balances at ~~March 31,~~September 30, 2020. Commercial mortgages as a percentage of the total loan portfolio increased to ~~17.2%~~19.0% as of ~~March 31,~~September 30, 2021, compared to ~~15.8%~~16.2% at ~~March 31,~~September 30, 2020. ~~New loan production in this segment is currently outpacing normal principal payments, pay downs, and payoffs. Commercial real estate loans have shown solid growth~~Agricultural mortgages increased by $14.3 million, or 8.2%, from $174.2 million as ~~a number~~ of ~~businesses move ahead on commercial projects. Management expects commercial real estate loans~~September 30, 2020, to ~~remain stable~~$188.5 million as ~~a percentage~~of September 30, 2021. Agricultural mortgages were 21.4% of the ~~Corporation’s loans for the remainder~~portfolio as of ~~2021.~~September 30, 2021, compared to 20.7% as of September 30, 2020.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The Corporation’s commercial construction loan balances ~~increased~~decreased by ~~$2.5~~$3.6 million, or ~~13.5%~~16.1%, from ~~March 31,~~September 30, 2020 to ~~March 31,~~September 30, 2021. Management was experiencing some demand for smaller residential builds like construction on existing lots but no new large scale projects. Commercial construction loans were ~~2.5%~~2.1% of the total loan portfolio as of ~~March 31, 2020~~September 30, 2021, and ~~2021.~~2.7% as of September 30, 2020.

The other area of commercial lending is non-real estate secured commercial lending, referred to as commercial and industrial lending. Commercial and industrial loans not secured by real estate accounted for ~~17.3%~~12.6% of total loans as of ~~March 31,~~September 30, 2021, compared to ~~13.3%~~19.5% as of ~~March 31,~~September 30, 2020. In scope, the commercial and industrial loan sector, at 17.3% of total loans, is significantly smaller than the commercial real estate sector at 40.9% of total loans. This is consistent with management’s credit preference for obtaining real estate collateral when making commercial loans. The balance of total commercial and industrial loans ~~increased~~decreased from ~~$101.0~~$165.3 million at ~~March 31,~~September 30, 2020, to ~~$145.7~~$110.2 million at ~~March 31,~~September 30, 2021, a ~~44.3% increase.~~33.3% decrease. This category of loans generally includes unsecured lines of credit, truck, equipment, and receivable and inventory loans, in addition to tax-free loans to municipalities. The balance at ~~March 31,~~September 30, 2021 and September 30, 2020, also includes the PPP loans, which ~~has~~have declined rapidly as these loans are forgiven by the SBA after businesses prove they used the funds for qualified expenses. ~~Management anticipates that these loans will experience a significant decline in the remainder of 2021.~~

The Corporation provides credit to many small and medium-sized businesses. Much of this credit is in the form of Prime-based lines of credit to local businesses where the line may not be secured by real estate, but is based on the health of the borrower with other security interests on accounts receivable, inventory, equipment, or through personal guarantees. Commercial and industrial loans, including PPP loans, increased to $111.0 million at March 31, 2021, a $47.3 million, or 74.3% increase, from the $63.7 million at March 31, 2020. This increase was driven solely by the generationtotal balance of PPP loans during the second and third quarters of 2020 and then again during the first quarter of 2021. The outstanding PPP loan balances were impacted by the forgiveness of some of the first round of PPP loans during the fourth quarter of 2020 and the first quarter of 2021, but new loan generation during the first quarter of 2021 offset some of the forgiven balances. The tax-free loans declined by ~~$0.3~~$54.5 million, or ~~2.1%,~~70.1% from ~~balances at March 31,~~September 30, 2020, ~~and the commercial and industrial agricultural loans declined by $2.3 million, or 10.9%.~~to September 30, 2021.

The consumer loan portfolio ~~decreased~~remained the same from September 30, 2020, to ~~$4.8~~September 30, 2021, at $5.2 million ~~at March 31, 2021, from $5.6 million at March 31, 2020. Consumer loans made up~~and 0.6% of total ~~loans on March 31 2021, and 0.7% on March 31, 2020.~~loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans that are generally unsecured. ~~Slightly higher demand~~Demand for unsecured credit is being ~~outpaced~~matched by principal payments on existing loans resulting in ~~the decrease 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

Non-performing troubled debt restructurings

Other real estate owned

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Management’s Discussion and Analysis

NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)

March 31, December 31, March 31,
2021 2020 2020
$ $ $

Nonaccrual loans 681 725 1,953
Loans past due 90 days or more and still accruing 152 1,373 146
Troubled debt restructurings, non-performing — — 1,117
Total non-performing loans 833 2,098 3,216

Other real estate owned — — —

Total non-performing assets 833 2,098 3,216

Non-performing assets to net loans 0.10% 0.25% 0.43%

	September 30,		December 31,		September 30,
	2021		2020		2020
	$		$		$

Nonaccrual loans		2,236		725		846
Loans past due 90 days or more and still accruing		183		1,373		284
Troubled debt restructurings, non-performing		—		—		5,513
Total non-performing loans		2,419		2,098		6,643

Other real estate owned		—		—		—

Total non-performing assets		2,419		2,098		6,643

Non-performing assets to net loans		0.28%		0.25%		0.80%

The total balance of non-performing assets decreased by ~~$2.4~~$4.2 million, or ~~74.1%,~~63.6% from balances at September 30, 2020, and ~~$1.3~~increased by $0.3 million, or ~~60.3%~~15.3%, from balances at ~~March 31, 2020 and~~ December 31, ~~2020, respectively.~~2020. The decrease from ~~the prior periods~~September 30, 2020 was primarily due to ~~lower levels of loans past due 90 days or more as well as~~ a decrease in non-performing troubled debt restructurings (TDRs). related to the payoff of one commercial borrower. There were no non-performing TDR loans as of ~~March 31,~~September 30, 2021 or December 31, 2020. As of September 30, 2020, there were four non-performing TDR loans that totaled $5.5 million. A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. There were two non-performing TDRs as of March 31, 2020; an agriculture mortgage with a balance of $677,000 which had cash flow difficulties and a modification in payment terms; and a $439,000 real estate secured loan with a payment modification to allow annual interest and principal payments. Non-accrual loans ~~decreased,~~increased by ~~$1.3~~$1.4 million, or ~~65.1%~~164.3%, since ~~March~~September 30, 2020, and increased $1.5 million, or 208.4% since December 31, 2020. The increase that occurred between September 30, 2021 and December 31, 2020 ~~and loans~~was due to three agricultural relationships that were added to non-accrual in the third quarter of 2021. Loans past due 90 days or more and still accruing were updown slightly from the prior year period, and down more significantly, by $1.2 million, or ~~89.0%~~86.7% since December 31, 2020. The $1.3 million of non-accrual reduction that occurred between March 31, 2020 and December 31, 2020 was due to two commercial borrowers paying off their loans during the remainder of 2020. One commercial borrower with three non-accrual loans totaling over $1.0 million paid them off in the second quarter of 2020, while another commercial borrower with a $92,000 non-accrual loan was paid off in December 2020.

Management continues to monitor delinquency trends and the level of non-performing loans closely. At this time, management believes that the potential for material losses related to non-performing loans is decreasing with the level of delinquencies and non-performing loans lower than what was experienced throughout 2020.

There was no other real estate owned (OREO) as of ~~March 31,~~September 30, 2021, December 31, 2020, or ~~March 31,~~September 30, 2020.

Allowance for Credit Losses

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

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 Credit Losses table below shows the activity in the allowance for credit losses for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2021 and ~~March 31,~~September 30, 2020. At the bottom of the table, two benchmark percentages are shown. The first is net charge-offs as a percentage of average loans outstanding for the year. The second is the total allowance for credit losses as a percentage of total loans.

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Management’s Discussion and Analysis

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

Three Months Ended
March 31
2021 2020
$ $

Balance at January 1, 12,327 9,447
Loans charged off:
Real estate — —
Commercial and industrial — —
Consumer 14 6
Total charged off 14 6

Recoveries of loans previously charged off:
Real estate — (11 )
Commercial and industrial (1 ) (1 )
Consumer (1 ) —
Total recovered (2 ) (12 )
Net loans charged off (recovered) 12 (6 )

Provision charged to operating expense 375 350

Balance at March 31, 12,690 9,803

Net charge-offs as a % of average total loans outstanding 0.00% 0.00%

Allowance at end of period as a % of total loans 1.51% 1.28%

	Nine Months Ended
	September 30
	2021			2020
	$			$

Balance at January 1,		12,327			9,447
Loans charged off:
Real estate		—			—
Commercial and industrial		—			23
Consumer		30			19
Total charged off		30			42

Recoveries of loans previously charged off:
Real estate		—			(11	)
Commercial and industrial		(19	)		(3	)
Consumer		(13	)		(2	)
Total recovered		(32	)		(16	)
Net loans charged off (recovered)		(2	)		26

Provision charged to operating expense		125			2,575

Balance at September 30,		12,454			11,996

Net charge-offs as a % of average total loans outstanding		0.00%			0.00%

Allowance at end of period as a % of total loans		1.41%			1.42%

Charge-offs for the ~~three~~nine months ended ~~March 31,~~September 30, 2021, were ~~$14,000,~~$30,000, compared to ~~$6,000~~$42,000 for the same period in 2020. Management typically charges off unsecured debt over 90 days delinquent with little likelihood of recovery. In the first ~~three~~nine months of 2021 and 2020, the Corporation charged off several smaller amounts related to consumer ~~loans.~~loans and a commercial and industrial loan in 2020. Recoveries were also low in ~~the first three months of~~ 2020 and ~~2021 with only~~2021with total recoveries of ~~$2,000~~$32,000 in the first ~~quarter~~nine months of 2021 and ~~$12,000~~$16,000 in the first ~~quarter~~nine months of 2020.

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 ~~$21.9~~$17.9 million on ~~March 31,~~September 30, 2021, compared to ~~$25.8~~$26.1 million on ~~March 31,~~September 30, 2020. Total classified loans ~~increased~~have decreased during ~~2020 but then decreased by December 31, 2020, and into the first quarter of~~ 2021. 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 ~~$1.1~~$0.2 million of specifically allocated allowance against the classified loans as of ~~March 31,~~September 30, 2021, $1.1 million of specific allocation as of December 31, 2020, and ~~$114,000~~$1.1 million of specific allocation as of ~~March 31,~~September 30, 2020. The higher specific allocation at ~~March 31, 2021~~December 30, 2020 and ~~December 31,~~September 30, 2020, iswas related to a commercial customer with ongoing business concerns. ~~Typically, as~~This loan paid off during the ~~classified loan balances fluctuate, the associated specific allowance applied to them fluctuates,~~third quarter of 2021, resulting in a ~~lower or higher required allowance.~~

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 low net charge-off percentages due to strong credit practices. Management continually monitors delinquencies, classified loans, and non-performing loans closely in regard to how they may impact charge-offsdecline in the future. The actual charge-offs have been running at low levels, and management expects this to continue through the remainder of 2021. Management practices are in place to reduce the number and severity ofprovision for loan losses. In regard to severely delinquent loans, management attempts to improve the Corporation’s collateral or credit position and, in the case of a loan workout, intervene to minimize additional charge-offs.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The allowance as a percentage of total loans was ~~1.51%~~1.41% as of ~~March 31,~~September 30, 2021, ~~1.50%~~and 1.42% as of ~~December 31, 2020, and 1.28% as of March 31,~~September 30, 2020. Management anticipates that the allowance percentage will remain fairly stable during the remainder of 2021, as the allowance balance is increased with additional provision expense to account for loan growth throughout the year. It is typical for the allowance for credit losses to contain a small amount of excess reserves. Over the long term, management targets ~~and~~an excess reserve at approximately 5%-10% knowing that the reserve can fluctuate. The excess reserve stood at ~~6.0%~~8.4% as of ~~March 31, 2021. Management would anticipate that this unallocated portion of the allowance will decrease throughout the remainder of~~September 30, 2021.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Premises and Equipment

Premises and equipment, net of accumulated depreciation, decreased by ~~$0.3~~$0.2 million, or ~~1.2%~~0.8%, to $24.5 million as of September 30, 2021, from $24.7 million as of ~~March 31, 2021, from $25.0 million as of March 31,~~September 30, 2020. As of ~~March 31,~~September 30, 2021, ~~$335,000~~$261,000 was classified as construction in process compared to ~~$239,000~~$220,000 as of ~~March 31,~~September 30, 2020. Fixed assets declined as a result of depreciation outpacing new purchases in 2021.

Regulatory Stock

The Corporation owns multiple forms of regulatory stock that is required in order to be a member of the Federal Reserve Bank (FRB) and members of banks such as the Federal Home Loan Bank (FHLB) and Atlantic Community Bankers Bank (ACBB). The Corporation’s ~~$6.2~~$5.6 million of regulatory stock holdings as of ~~March 31,~~September 30, 2021, consisted of ~~$5.6~~$5.0 million of FHLB of Pittsburgh stock, ~~$531,000~~$601,000 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 ~~$5.6~~$5.0 million on ~~March 31,~~September 30, 2021, $5.9 million on December 31, 2020, and ~~$7.0~~$6.3 million on ~~March 31,~~September 30, 2020, 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 2021 first quarter dividend declaration made on FHLB stock by FHLB of Pittsburgh was at a 5.75% annualized yield on activity stock and 2.50% annualized yield on membership stock. Most of the Corporation’s dividend is based on the activity stock, which is based on the amount of borrowings and mortgage activity with FHLB.

Deposits

The Corporation’s total ending deposits at ~~March 31,~~September 30, 2021, increased by ~~$72.6~~$138.7 million, or ~~5.8%~~11.1%, and by ~~$342.5~~$264.7 million, or ~~34.9%~~23.5%, from December 31, 2020, and ~~March 31,~~September 30, 2020, 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 ~~March 31,~~September 30, 2020, with the changes being a ~~$216.2~~$126.1 million, or ~~59.4%~~27.1% increase in non-interest bearing demand deposit accounts, ~~an $18.0~~a $12.9 million, or ~~63.3%~~28.4% increase in interest bearing demand balances, a ~~$29.5~~$21.6 million, or ~~30.9%~~19.3% increase in NOW balances, a ~~$10.5~~$36.4 million, or ~~7.5%~~29.0% increase in money market account balances, ~~an $81.1~~a $74.0 million, or ~~36.5%~~28.9% increase in savings account balances, and a ~~$12.8~~$6.3 million, or ~~9.7%~~5.1% decrease in time deposit balances.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The growth across most categories of core deposit accounts is a direct result of the PPP funding, government stimulus payments, and the change in customer’s spending habits during the uncertain economic conditions brought on by COVID-19. Due to limited safe investment options outside of banks, the Corporation saw customers bring deposit funds back to regular core checking and savings accounts in an effort to provide safety and financial flexibility. With the decrease in rates that occurred during 2020, customer deposits increased with few options in the market to earn a higher return. Customers view demand deposit, money market and savings accounts as the safest, most convenient place to maintain funds for maximum flexibility. ~~Management believes deposit balances may continue to increase, but at a slower pace, through the remainder of 2021.~~

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Deposits by Major Classification table, shown below, provides the balances of each category for ~~March 31,~~September 30, 2021, December 31, 2020, and ~~March 31,~~September 30, 2020.

DEPOSITS BY MAJOR CLASSIFICATION

(DOLLARS IN THOUSANDS)

March 31, December 31, March 31,
2021 2020 2020
$ $ $

Non-interest bearing demand 580,003 534,853 363,766
Interest bearing demand 46,509 47,092 28,479
NOW accounts 125,101 137,279 95,604
Money market deposit accounts 151,297 140,113 140,781
Savings accounts 303,324 274,386 222,241
Time deposits 119,153 119,088 131,981
Total deposits 1,325,387 1,252,811 982,852

	September 30,		December 31,		September 30,
	2021		2020		2020
	$		$		$

Non-interest bearing demand		591,333		534,853		465,247
Interest bearing demand		58,425		47,092		45,502
NOW accounts		133,443		137,279		111,849
Money market deposit accounts		162,050		140,113		125,665
Savings accounts		329,900		274,386		255,936
Time deposits		116,351		119,088		122,622
Total deposits		1,391,502		1,252,811		1,126,821

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

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

Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution. As of ~~March 31,~~September 30, 2021, time deposit balances had decreased ~~$12.8~~$6.3 million, or ~~9.7%~~5.1%, from ~~March 31,~~September 30 2020, and ~~increased slightly~~$2.7 million, or 2.3% from December 31, 2020. 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 the Federal Reserve rate decreases in 2020, there is minimal differences between shorter term CD rates and interest bearing non-maturity deposits, influencing customers 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.

~~Index~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Borrowings

Total borrowings were ~~$72.4~~$66.4 million, $74.4 million, and ~~$75.0~~$61.5 million as of ~~March 31,~~September 30, 2021, December 31, 2020, and ~~March 31,~~September 30, 2020, respectively. Of these amounts, ~~$3.5 million reflect short-term funds as of March 31, 2020, with~~there were no short-term funds outstanding as of ~~March 31,~~September 30, 2021 and December 31, 2020 and $1.5 million outstanding as of September 30, 2020. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year.

Total long-term borrowings, borrowings initiated for terms longer than one year, were ~~$52.8~~$46.7 million as of ~~March 31,~~September 30, 2021, $54.8 million as of December 31, 2020, and ~~$71.5~~$60.0 million as of ~~March 31,~~September 30, 2020. The long-term borrowings for the Corporation were made up entirely of FHLB long-term ~~advances at March 31, 2021, December 31, 2020, and March 31, 2020.~~advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. The decrease in FHLB borrowings since ~~March 31,~~September 30, 2020, can be attributed to management taking advantage of declining rates by prepaying FHLB advances and incurring penalties in order to save on interest expense in future years.

~~In order to limit the Corporation’s exposure~~54

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ENB FINANCIAL CORP

Management’s Discussion 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 March 31, 2021, the Corporation was significantly under this policy guideline at 6.4% of asset size with $52.8 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 March 31, 2021, the Corporation was significantly under this policy guideline at 56.2% of capital with $72.4 million total borrowings from all sources. The Corporation has maintained FHLB borrowings and total borrowings well within these policy guidelines throughout all of 2020 and through the first three months of 2021.Analysis

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently ~~$449.3~~$478.2 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% 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 ~~March 31,~~September 30, 2021, $15.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

Stockholders’ Equity

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

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

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

REGULATORY CAPITAL RATIOS:
Regulatory Requirements
Adequately Well
As of March 31, 2021 Capital Ratios Capitalized Capitalized
Total Capital to Risk-Weighted Assets
Consolidated 16.8% 8.0% 10.0%
Bank 16.2% 8.0% 10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated 13.4% 6.0% 8.0%
Bank 14.9% 6.0% 8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated 13.4% 4.5% 6.5%
Bank 14.9% 4.5% 6.5%

Tier 1 Capital to Average Assets
Consolidated 8.6% 4.0% 5.0%
Bank 9.5% 4.0% 5.0%

As of December 31, 2020
Total Capital to Risk-Weighted Assets
Consolidated 16.1% 8.0% 10.0%
Bank 15.3% 8.0% 10.0%

Tier I Capital to Risk-Weighted Assets
Consolidated 12.8% 6.0% 8.0%
Bank 14.0% 6.0% 8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
Consolidated 12.8% 4.5% 6.5%
Bank 14.0% 4.5% 6.5%

Tier I Capital to Average Assets
Consolidated 9.0% 4.0% 5.0%
Bank 9.8% 4.0% 5.0%

As of March 31, 2020
Total Capital to Risk-Weighted Assets
Consolidated 14.3% 8.0% 10.0%
Bank 14.2% 8.0% 10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated 13.1% 6.0% 8.0%
Bank 13.0% 6.0% 8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated 13.1% 4.5% 6.5%
Bank 13.0% 4.5% 6.5%

Tier 1 Capital to Average Assets
Consolidated 9.9% 4.0% 5.0%
Bank 9.8% 4.0% 5.0%

On December 30, 2020, the Corporation issued $20 million of subordinated debt in order to support capital levels which had declined due to the sharp balance sheet growth that had occurred during 2020. The $20 million of subordinated debt qualifies as Tier 2 capital at the Holding Company level. Amounts of the subordinated debt can be transferred to the Bank where it qualifies as Tier 1 Capital. As of ~~March 31, 2021, $15.0 million of this subordinated debt funding was transferred down to the Bank to rebuild the Bank’s capital levels. As of March 31,~~September 30, 2021 the Bank’s Tier 1 Leverage Ratio stood at ~~9.5%~~9.2% while the Corporation’s Tier 1 Leverage Ratio was ~~8.6%~~8.3%. The Bank’s Tier 1 Leverage Ratio policy range is 9.0% to 12.0% while the Corporation’s Tier 1 Leverage Ratio policy range is 8.0% - 12.0%. 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~~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 occurred at the Bank level.

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 three months ended March 31, 2021, were $0.16, the same as the dividend paid out in the first three months of 2020. 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 8.0% and 12.0%. As a secondary measurement, the capital plan also targets a long-term dividend payout ratio in the range of 30% to 45%. 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 three months ended March 31, 2021, the payout ratio was 19.8%. This dividend payout ratio is low as a result of the higher earnings in the first quarter of 2021, some of which are non-recurring. Management currently anticipates that the payout ratio will return to more normal levels as 2021 progresses. 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 March 31, 2021, the Corporation showed an unrealized gain, net of tax, of $2,924,000, compared to an unrealized gain of $7,958,000 at December 31, 2020, and an unrealized gain of $1,103,000 as of March 31, 2020. These unrealized gains, 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 three months ended March 31, 2021, 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.

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 ~~March 31,~~September 30, 2021.

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:

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.

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.

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.

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.

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.

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.

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.

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.

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.

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

Liquidity 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.

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

Management uses a cumulative maturity gap analysis to measure the amount of assets maturing within various periods versus liabilities maturing in those same periods. A gap ratio of 100% represents an equal amount of assets and liabilities maturing in the same stated period. Management monitors six-month, one-year, three-year, and five-year cumulative gaps to assist in determining liquidity risk. As of ~~March 31,~~September 30, 2021, all maturity gap ratios were higher than corporate policy guidelines, due to a larger amount of loans, securities, and ~~securities~~cash balances now maturing in less than ~~five years, influenced very directly by the PPP loans that will mature in the next one to~~ five years. The six-month gap ratio was ~~321.1%~~267.2%, compared to an upper policy guideline of 155%; the one-year gap ratio was ~~238.8%~~241.0%, compared to an upper policy guideline of 140%; the three-year gap ratio was ~~202.4%~~196.9%, compared to an upper guideline of 125%; and the five-year gap ratio was ~~178.6%~~177.5%, compared to an upper policy guideline of 115%. ~~The results show asset sensitivity.~~ In a rising interest rate cycle higher gap ratios would be more beneficial to the Corporation. However, in a declining rate environment, being asset sensitive is unfavorable. Even though the Corporation shows asset sensitivity above policy guidelines for the longer-term gap measurements, it is likely we would be back in a rising rate environment for those longer three and five-year periods and having asset sensitivity would be beneficial in that case. The current asset sensitivity of the Corporation’s balance sheet does negatively impact performance in the current rates-down interest rate scenario as there are more assets repricing to lower rates than liabilities. This asset sensitivity will be beneficial in the next rates-up cycle. Management will continue to monitor and manage the length of the balance sheet in order to sustain reasonable asset yields in a declining rate environment, while still positioning for a likely rising rate environment out in the future.

Gap ratios have been increasing for the Corporation throughout 2020 and 2021. The Corporation’s assets are moderately long, but the length of the securities portfolio and the loan portfolio is more than offset by the length of the Corporation’s core deposit liabilities in conjunction with holding high levels of cash and cash equivalents. Beyond the non-maturity deposits, management is able to utilize the length of wholesale funding instruments to offset the declining length of the CD portfolio. Management believes that the Federal Reserve rate decreases early in 2020 will negatively impact net interest income for the remainder of 2021 as assets continue to reprice to lower levels. However, some savings can be achieved through deposits, primarily the CD portfolio, as the maturing CDs reprice to significantly lower levels.

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

Management desires to show ~~reductions~~improvements to ~~the cost of funds~~asset yields and improve the loan-to-deposit ratio and does have a large securities portfolio to draw liquidity from in the event deposit growth slows or reverses. With gap ratios that are already sufficiently high, management can put more of the available cash to work earning higher returns than overnight ~~funds earn.~~cash.

Management may desire to have higher gap ratios when factoring in future loan growth or other funding changes to the balance sheet. Management has been actively working to increase the Corporation’s loan-to-deposit ratio. As the loan-to-deposit ratio increases and more loans go on to the Corporation’s balance sheet, the asset mix will generally lengthen and the gap ratios will decline. However, in 2020 and 2021, the Corporation’s deposits have experienced very strong growth attributable to the very low interest rates and a desire by consumers to safeguard more cash during uncertain times. This has caused the loan-to-deposit ratio to decline during 2020 and 2021 even with moderate loan growth. As of ~~March 31,~~September 30, 2021, the loan-to-deposit ratio was ~~63.5%~~63.3%, compared to 65.7%, at December 31, 2020, and ~~77.7%~~74.8% at ~~March 31,~~September 30, 2020.

Management’s desired gap levels will also change due to the direction of interest rates. In March 2020, the Federal Reserve cut the overnight interest rate by 150 basis points at two separate special Federal Reserve Board meetings. Cash and other short term assets were directly impacted by this change in overnight rates. If the Corporation’s liquid assets cannot be deployed into higher yielding longer term assets, then management will reduce the amount of cash and short-term assets to reduce the exposure to future decreases in the overnight rate. Management believes the overnight Federal funds rate will not decline further in 2021, but the economic environment is unpredictable and future rate changes will be dependent on the national and global economic conditions.

The risk of liabilities repricing at higher interest rates is low in the present environment as the Corporation does not foresee the need to raise deposit interest rates any time in the near future. A number of the Corporation’s maturing time deposits have already repriced to lower rates due to the rapid rate declines during March of 2020. However, a large portion of the Corporation’s deposits are core deposits with little repricing expected to occur in the near future. The Corporation’s maturing time deposits and borrowings are generally repricing to lower interest rates and will continue to do so throughout 2021. The Corporation’s average cost of funds was 2119 basis points as of ~~March 31,~~September 30, 2021, which is low from an historic perspective. The Corporation’s average cost of funds was 20 basis points as of December 31, 2020, and 49 basis points as of March 31, 2020. This cost of funds will likely remain around the current level throughout the remainder of 2021. The average cost of funds includes the benefit of non-interest bearing demand deposit accounts.

Deposits had not been very rate sensitive for a number of years as a result of the limited desirable rates available to ~~the~~ deposit customers. The Corporation had experienced a steady growth in both non-interest bearing and interest bearing funds during this last prolonged and historically low interest rate cycle, but in 2018 and through 2019, deposit growth had been slower than in prior years. With the Federal Reserve rate declines in the first quarter of 2020, deposit growth has ~~once again~~ been strong with customers choosing to keep their funds in banks as opposed to investing in other instruments that are more susceptible to market fluctuations. Additionally, with the government aid ~~direct deposits and checks sent out~~issued in 2020 and 2021, the Corporation has experienced significant deposit growth throughout the latter part of 2020 and the first ~~quarter~~nine months of 2021.

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. This became even more apparent with the COVID-19 pandemic and the volatility in the equity markets caused by this event. Investors have grown weary of the fluctuations in the equity markets. In 2019, the equity markets had very strong gains, which did not adversely impact the Corporation’s deposit growth. In March 2020, with the outbreak of COVID-19, the equity markets recorded their biggest decline in recent history with the market down between 30% and 35% after huge sell-offs. The equity market has since recovered and has steadily grown to new historic highs, well ahead of the expected continued COVID-19 recovery. But the previous history of unprecedented equity declines following a fueled bull market is causing many customers to keep a large percentage of their excess funds in banks which has caused the increase in the Corporation’s deposits through 2020 and the first quarter of 2021.

The Corporation’s net interest margin is down materially from levels in the previous quarter and previous year. 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 or decreases. Management expects that the gap ratios will remain above the established guidelines throughout the remainder of 2021.

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.

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

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 ~~March 31,~~September 30, 2021, the Corporation was within guidelines for all of the above measurements except for securities portfolio liquidity as a percentage of total assets. This ratio was 3.3% as of September 30, 2021, compared to a policy range of 4% - 8%. This was primarily due to a much higher balance sheet at September 30, 2021. Investment liquidity is strong in the current low-rate environment and having higher levels of liquidity is not necessarily a good thing because it then gets reinvested at lower rates.

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

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, or 300 basis points, or decrease 25, 50, or 75 basis points. ~~Currently, the flat-rate scenario seems more likely for the remainder of 2021, with the Federal funds rate at 0.25% as of March 31, 2021.~~ The rates-down scenarios are much less likely now with the Federal Reserve rate cuts that already occurred in 2020. For that reason, management believes it appropriate to model rates down 25, 50, and 75 basis points to most adequately cover all the reasonably possible declining rate scenarios that the Corporation could face, while continuing to model rates up scenarios of 100, 200, and 300 basis points. While management had previously turned its focus to rates-down scenarios, with each Federal Reserve rate reduction, the ability to further reduce interest rates diminishes and the exposure to higher interest rates increases. The overnight Federal funds rate and the current U.S. Treasury rates are presently at low historical levels. Because of this historical perspective, if management would take a neutral position in terms of the direction of forward interest rates, there is clearly more long term risk of rates going up than down. So while in the near term it is likely we may see no Federal Reserve rate increases or decreases, management remains guarded about the impact of higher interest rates and continues to prepare for rate increases on a larger scale than decreases.

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:

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 ~~March 31,~~September 30, 2021. 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 2020. The purpose was to conduct a comprehensive evaluation of the model input, assumptions, and output and this study concluded that the model is managed appropriately and generating acceptable results. Back testing of the model to actual results is performed quarterly to ensure the validity of the assumptions in the model. The internal and external validations as well as the back testing indicate that the model assumptions are reliable.

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

The ~~first~~third quarter 2021 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of ~~March 31,~~September 30, 2021, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios. All up-rate scenarios show a positive impact to net interest income. The increase in net interest income in the up-rate scenarios is largely due to the increase in variable rate ~~loans~~securities and ~~the recent purchases of variable rate securities~~loans and the cash balances held on the Corporation’s balance sheet. On the liability side, when interest rates do increase, it is typical for management to react more slowly in increasing deposit ~~rates.~~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 200 or 300 basis points where variable loan rates will still increase by the same amount as the Prime rate. With the Federal Reserve acting to decrease interest rates by 225 basis points over five meetings held since June 30, 2019, the Corporation has had more exposure to all maturing fixed-rate loans and securities. These assets have been maturing and repricing to lower market rates, 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.

For the rates-up 100 basis point scenario, net interest income increases by ~~1.3%~~1.1% compared to the rates unchanged scenario. 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 and 300 basis point scenarios, net interest income increases by ~~1.9%~~1.3% and 2.7%, respectively, compared to the rates unchanged scenario. Management’s maximum permitted net interest income declines by policy are -5%, -10%, and -15%, for the rates-up 100, 200, and 300 basis point scenarios, respectively.

The positive impact of 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, where they are only repricing by a fraction of the rate change. The Corporation’s short term borrowings do price up faster than deposits, generally equivalent to the U.S. Treasury market. However, as of ~~March 31,~~September 30, 2021, the Corporation had no overnight or short term borrowings but had ~~$52.8~~$46.7 million of long-term fixed-rate advances. Additionally, total borrowings only make up approximately ~~3.8%~~4.6% of the total funding provided by deposits and borrowings. The more aggressive rates-up scenarios also benefit from known historical experience of deposit rate increases lagging and a slowing in the pace of the actual rate increase as interest rates continue to rise. ~~This allows management~~The increase in net interest income in the ~~ability~~up-rate scenarios has declined since prior quarters due to ~~benefit from higher rates by controlling~~ the ~~amount~~lengthening of the ~~interest rate increases~~Corporation’s assets and the lower yields on ~~large amounts~~these assets. The model still shows a benefit in the rates-up environment, although less of ~~liabilities that could reprice.~~a benefit than prior timeframes.

As of ~~March 31,~~September 30, 2021, in the down scenarios of -25, -50, and -75 basis points, net interest income decreases by ~~0.6%~~0.8%, ~~1.8%~~2.0%, and ~~3.0%~~3.1%, respectively, compared to policy guidelines of -1.25%, -2.5% and -3.75%. Management does not expect the Corporation’s exposure to interest rate changes to increase or change significantly during the remainder of 2021.

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.

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 ~~March 31,~~September 30, 2021, the Corporation was within guidelines for all up-rate scenarios and out of policy guidelines for the down-rate scenarios. The Corporation shows a very favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the very low market rates and the elevated amount of core deposits on the Corporation’s balance sheet as of ~~March 31,~~September 30, 2021. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.

The results as of ~~March 31,~~September 30, 2021, indicate that the Corporation’s net portfolio value would experience valuation gains of ~~10.6%~~14.1%, ~~14.9%~~19.3%, and ~~14.9%~~24.1% in the rates-up 100, 200, and 300 basis point scenarios. Management’s maximum permitted declines in net portfolio value by policy are -5% for rates-up 100 basis points, graduating up to -15% for rates-up 300 basis points. A valuation loss would indicate that the value of the Corporation’s assets is declining at a faster pace than the decrease in the value of the Corporation’s liabilities. The analysis does show a valuation loss in the down 25, 50, and 75 basis point scenarios of ~~-6.4%~~-7.2%, ~~-14.7%~~-15.9%, and ~~-23.3%~~-25.1%, respectively, compared to policy guidelines of -3.75%, -7.5%, and -11.25%. The Corporation’s expected valuation loss was outside of guidelines for all down-rate scenarios. With the significant declines in the overnight and Prime rate since 2019, the Corporation’s exposure to valuation changes based on lower rates has also changed materially. Management does not anticipate any further Federal Reserve rate reductions as another 0.25% move down would cause the Federal funds rate range to be in negative territory at -0.25% to 0.00%. The Federal Reserve has signaled that their preferred course of action would be to use other tools available to support the economy before resorting to a further rate reduction. Management also does not anticipate that market interest rates decline materially from the present levels. Currently the two-year U.S. Treasury yield has been around 0.16%. This has been the case for much of 2020 and 2021. While interest rates are unlikely to materially decline, thereductions. The behavior of the Corporation’s deposits will continue to have an impact on the Corporation’s net portfolio value. With the recent rapid increase in the Corporation’s core deposits, management is guarded against further valuation declines in the rates-down interest rate scenarios throughout the remainder of 2021, even though the likelihood of lower interest rates is remote.

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.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~March 31,~~September 30, 2021, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of ~~March 31,~~September 30, 2021, 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.

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.

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.

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, 2020 Form 10-K filing.

The following table details the Corporation’s purchase of its own common stock during the three months ended ~~March 31,~~September 30, 2021.

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By ~~March 31,~~September 30, 2021, a total of ~~17,600~~27,900 shares were repurchased at a total cost of ~~$335,000~~$560,000 for an average cost per share of ~~$19.03.~~$20.07.

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

Pennsylvania	000-53297	51-0661129
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No)


31 E. Main St., Ephrata, PA	~~17522-0457~~	17522-0457
(Address of principal executive offices)		(Zip Code)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
None.		N/A		N/A

Large accelerated filer	☐		Accelerated filer	☐
Non-accelerated filer	☒		Smaller reporting company	☒
		Emerging growth company	☐


Part I – FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets at ~~March 31,~~September 30, 2021 and 2020, and December 31, 2020 (Unaudited)	3

			3
	Consolidated Statements of Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)		4

			4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)		5

			5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)		6

		Consolidated Statements of Cash Flows for the ~~Three~~Nine Months Ended ~~March 31,~~September 30, 2021 and 2020 (Unaudited)	7

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

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~33-63~~34-58

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~64-69~~59-63

	Item 4.	Controls and Procedures	7064



Part II – OTHER INFORMATION			7165

	Item 1.	Legal Proceedings	7165

	Item 1A.	Risk Factors	65

	Item ~~1A.~~2.	~~Risk Factors~~Unregistered Sales of Equity Securities and Use of Proceeds	7165

	Item 2.3.	~~Unregistered Sales of Equity~~Defaults upon Senior Securities ~~and Use of Proceeds~~	7165

	Item 3.4.	~~Defaults upon Senior Securities~~Mine Safety Disclosures	7165

	Item 4.5.	~~Mine Safety Disclosures~~Other Information	7165

	~~Item 5.~~	~~Other Information~~	71

	Item 6.	Exhibits	7266


SIGNATURE PAGE			7367

	Three Months ended March 31,
	2021		2020
	$		$
Interest and dividend income:
Interest and fees on loans		8,385		8,452
Interest on securities available for sale
Taxable		1,079		1,221
Tax-exempt		952		566
Interest on deposits at other banks		22		60
Dividend income		92		188

Total interest and dividend income		10,530		10,487

Interest expense:
Interest on deposits		314		809
Interest on borrowings		537		462

Total interest expense		851		1,271

Net interest income		9,679		9,216

Provision for loan losses		375		350

Net interest income after provision for loan losses		9,304		8,866

Other income:
Trust and investment services income		670		622
Service fees		614		679
Commissions		864		686
Gains on the sale of debt securities, net		87		282
Gains (losses) on equity securities, net		248		(230	)
Gains on sale of mortgages		1,930		541
Earnings on bank-owned life insurance		216		206
Other income (loss)		689		(19	)

Total other income		5,318		2,767

Operating expenses:
Salaries and employee benefits		5,699		5,696
Occupancy		683		591
Equipment		267		290
Advertising & marketing		190		274
Computer software & data processing		1,098		706
Shares tax		280		239
Professional services		439		623
Other expense		531		691

Total operating expenses		9,187		9,110

Income before income taxes		5,435		2,523

Provision for federal income taxes		931		358

Net income		4,504		2,165

Earnings per share of common stock		0.81		0.38

Weighted average shares outstanding		5,561,603		5,627,257

									Accumulated
									Other						Total
	Common		Capital			Retained			Comprehensive			Treasury			Stockholders'
	Stock		Surplus			Earnings			Income (Loss)			Stock			Equity
	$		$			$			$			$			$

Balances, December 31, 2019		574		4,482			111,944			1,600			(1,912	)		116,688
Net income		-		-			2,165			-			-			2,165
Other comprehensive loss net of tax		-		-			-			(497	)		-			(497	)
Treasury stock purchased - 49,911 shares		-		-			-			-			(1,098	)		(1,098	)
Treasury stock issued - 7,670 shares		-		(6	)		-			-			156			150
Cash dividends paid, $0.16 per share		-		-			(902	)		-			-			(902	)
Balances, March 31, 2020		574		4,476			113,207			1,103			(2,854	)		116,506
Net income		-		-			3,599			-			-			3,599
Other comprehensive income net of tax		-		-			-			3,419			-			3,419
Treasury stock purchased - 32,966 shares		-		-			-			-			(627	)		(627	)
Treasury stock issued - 8,354 shares		-		(10	)		-			-			167			157
Cash dividends paid, $0.16 per share		-		-			(892	)		-			-			(892	)
Balances, June 30, 2020		574		4,466			115,914			4,522			(3,314	)		122,162
Net income		-		-			2,935			-			-			2,935
Other comprehensive income net of tax		-		-			-			1,234			-			1,234
Treasury stock purchased - 16,526 shares		-		-			-			-			(304	)		(304	)
Treasury stock issued - 9,050 shares		-		(10	)		-			-			180			170
Cash dividends paid, $0.16 per share		-		-			(889	)		-			-			(889	)
Balances, September 30, 2020		574		4,456			117,960			5,756			(3,438	)		125,308


Balances, December 31, 2020		574		4,444			120,670			7,958			(3,430	)		130,216
Net income		-		-			4,504			-			-			4,504
Other comprehensive loss net of tax		-		-			-			(5,034	)		-			(5,034	)
Treasury stock purchased - 7,600 shares		-		-			-			-			(149	)		(149	)
Treasury stock issued - 7,936 shares		-		16			-			-			157			173
Cash dividends paid, $0.16 per share		-		-			(889	)		-			-			(889	)
Balances, March 31, 2021		574		4,460			124,285			2,924			(3,422	)		128,821
Net income		-		-			3,551			-			-			3,551
Other comprehensive income net of tax		-		-			-			4,438			-			4,438
Treasury stock purchased - 7,200 shares		-		-			-			-			(155	)		(155	)
Treasury stock issued - 10,611 shares		-		20			-			-			211			231
Cash dividends paid, $0.17 per share		-		-			(945	)		-			-			(945	)
Balances, June 30, 2021		574		4,480			126,891			7,362			(3,366	)		135,941
Net income		-		-			4,139			-			-			4,139
Other comprehensive loss net of tax		-		-			-			(3,036	)		-			(3,036	)
Treasury stock purchased - 3,100 shares		-		-			-			-			(68	)		(68	)
Treasury stock issued - 8,574 shares		-		18			-			-			171			189
Cash dividends paid, $0.17 per share		-		-			(948	)		-			-			(948	)
Balances, September 30, 2021		574		4,498			130,082			4,326			(3,263	)		136,217

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)	Nine Months Ended September 30,
	2021			2020
	$			$
Cash flows from operating activities:
Net income		12,194			8,699
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		2,851			2,173
Amortization of operating leases right-of-use assets		60			134
Increase in interest receivable		(958	)		(586	)
Decrease in interest payable		146			(162	)
Provision for loan losses		125			2,575
Gains on the sale of debt securities, net		(711	)		(704	)
(Gain) loss on equity securities, net		(256	)		279
Gains on sale of mortgages		(4,381	)		(4,312	)
Loans originated for sale		(71,607	)		(101,044	)
Proceeds from sales of loans		75,843			102,690
Earnings on bank-owned life insurance		(636	)		(620	)
Depreciation of premises and equipment and amortization of software		1,164			1,137
Deferred income tax		164			(586	)
Amortization of deferred fees on subordinated debt		59			0-
Other assets and other liabilities, net		(2,291	)		(111	)
Net cash provided by operating activities		11,766			9,562

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		58,837			51,451
Proceeds from sales		77,259			50,819
Purchases		(228,981	)		(150,728	)
Equity securities
Proceeds from sales		460			0-
Purchases		(1,945	)		(425	)
Purchase of regulatory bank stock		(524	)		(1,225	)
Redemptions of regulatory bank stock		996			1,991
Purchase of bank-owned life insurance		(4,918	)		0-
Net increase in loans		(55,899	)		(89,270	)
Purchases of premises and equipment, net		(745	)		(705	)
Purchase of computer software		(471	)		(133	)
Net cash used for investing activities		(155,931	)		(138,225	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		141,428			165,296
Net decrease in time deposits		(2,737	)		(12,563	)
Net increase in short-term borrowings		0-			1,300
Proceeds from long-term debt		0-			12,984
Repayments of long-term debt		(8,084	)		(30,846	)
Dividends paid		(2,782	)		(2,683	)
Proceeds from sale of treasury stock		593			477
Treasury stock purchased		(372	)		(2,029	)
Net cash provided by financing activities		128,046			131,936
(Decrease) Increase in cash and cash equivalents		(16,119	)		3,273
Cash and cash equivalents at beginning of period		94,939			41,053
Cash and cash equivalents at end of period		78,820			44,326

Supplemental disclosures of cash flow information:
Interest paid		2,300			3,277
Income taxes paid		2,200			2,225
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		4,595			(5,258	)
Recognition of lease operating right-of-use assets		80			0-
Recognition of operating lease liabilities		80			0-

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
March 31, 2021
U.S. government agencies		29,623		119		(562	)		29,180
U.S. agency mortgage-backed securities		67,875		1,194		(486	)		68,583
U.S. agency collateralized mortgage obligations		40,214		651		(79	)		40,786
Asset-backed securities		96,592		707		(299	)		97,000
Corporate bonds		66,376		841		(73	)		67,144
Obligations of states and political subdivisions		227,217		4,237		(2,547	)		228,907
Total securities available for sale		527,897		7,749		(4,046	)		531,600

December 31, 2020
U.S. government agencies		54,224		144		(7	)		54,361
U.S. agency mortgage-backed securities		69,777		1,441		(166	)		71,052
U.S. agency collateralized mortgage obligations		34,449		640		(54	)		35,035
Asset-backed securities		60,387		433		(345	)		60,475
Corporate bonds		60,387		1,348		(12	)		61,723
Obligations of states and political subdivisions		187,132		6,727		(77	)		193,782
Total securities available for sale		466,356		10,733		(661	)		476,428

	Less than 12 months					More than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	$		$			$		$			$		$
As of March 31, 2021
U.S. government agencies		23,848		(562	)		—		—			23,848		(562	)
U.S. agency mortgage-backed securities		26,442		(479	)		588		(7	)		27,030		(486	)
U.S. agency collateralized mortgage obligations		8,038		(63	)		2,969		(16	)		11,007		(79	)
Asset-backed securities		36,047		(179	)		10,669		(120	)		46,716		(299	)
Corporate bonds		14,137		(73	)		—		—			14,137		(73	)
Obligations of states & political subdivisions		105,959		(2,547	)		—		—			105,959		(2,547	)

Total temporarily impaired securities		214,471		(3,903	)		14,226		(143	)		228,697		(4,046	)


As of December 31, 2020
U.S. government agencies		42,988		(7	)		—		—			42,988		(7	)
U.S. agency mortgage-backed securities		15,995		(157	)		2,221		(9	)		18,216		(166	)
U.S. agency collateralized mortgage obligations		12,933		(54	)		—		—			12,933		(54	)
Asset-backed securities		8,465		(20	)		18,080		(325	)		26,545		(345	)
Corporate bonds		—		—			3,016		(12	)		3,016		(12	)
Obligations of states & political subdivisions		15,666		(77	)		—		—			15,666		(77	)

Total temporarily impaired securities		96,047		(315	)		23,317		(346	)		119,364		(661	)

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Three Months
	Ended March 31,
	2021			2020			Affected Line Item in the
	$			$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains,		87			282		Gains on the sale of
reclassified into earnings							debt securities, net
Related income tax expense		(18	)		(59	)	Provision for federal income taxes
Net effect on accumulated other comprehensive
income (loss) for the period		69			223

Lease Consolidated Balance Sheets Classification
(Dollars in Thousands)	Classification	March 31, 2021		December 31, 2020
Lease Right-of-Use Assets

Operating lease right-of use assets	Other Assets	$	683		728

Lease Liabilities
Operating lease liabilties	Other Liabilities	$	695		740

	March 31, 2021		December 31, 2020
Weighted-average remaining lease term
Operating leases		4.2 years		4.4 years
Weighted-average discount rate
Operating leases		3.11%		3.11%

Lease Payment Schedule
(Dollars in Thousands)	Operating Leases
Twelve Months Ended:
March 31, 2022	$	206
March 31, 2023		155
March 31, 2024		154
March 31, 2025		155
March 31, 2026		61
Thereafter		12
Total Future Minimum Lease Payments		743
Amounts Representing Interests		(48	)
Present Value of Net Future Minimum Lease Payments	$	695

	March 31					December 31,					March 31
	2021					2020					2020
	$			%		$			%		$			%

Commercial real estate
Commercial mortgages		144,939			17.2		142,698			17.4		120,080			15.8
Agriculture mortgages		178,070			21.2		176,005			21.4		177,368			23.2
Construction		21,317			2.5		23,441			2.9		18,778			2.5
Total commercial real estate		344,326			40.9		342,144			41.7		316,226			41.5

Consumer real estate (a)
1-4 family residential mortgages		265,127			31.5		263,569			32.0		259,937			34.1
Home equity loans		10,614			1.3		10,708			1.3		10,741			1.4
Home equity lines of credit		70,898			8.4		71,290			8.7		68,633			9.0
Total consumer real estate		346,639			41.2		345,567			42.0		339,311			44.5

Commercial and industrial
Commercial and industrial		111,036			13.2		97,896			11.9		63,670			8.4
Tax-free loans		16,233			1.9		10,949			1.3		16,582			2.2
Agriculture loans		18,466			2.2		20,365			2.5		20,733			2.7
Total commercial and industrial		145,735			17.3		129,210			15.7		100,985			13.3

Consumer		4,827			0.6		5,155			0.6		5,557			0.7

Total loans		841,527			100.0		822,076			100.0		762,079			100.0
Less:
Deferred loan fees (costs), net		(407	)				(1,294	)				(2,041	)
Allowance for credit losses		12,690					12,327					9,803
Total net loans		829,244					811,043					754,317

REGULATORY CAPITAL RATIOS:
			Regulatory Requirements
			Adequately	Well
As of March 31, 2021		Capital Ratios	Capitalized	Capitalized
Total Capital to Risk-Weighted Assets
	Consolidated	16.8%	8.0%	10.0%
	Bank	16.2%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	13.4%	6.0%	8.0%
	Bank	14.9%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	13.4%	4.5%	6.5%
	Bank	14.9%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	8.6%	4.0%	5.0%
	Bank	9.5%	4.0%	5.0%

As of December 31, 2020
Total Capital to Risk-Weighted Assets
	Consolidated	16.1%	8.0%	10.0%
	Bank	15.3%	8.0%	10.0%

Tier I Capital to Risk-Weighted Assets
	Consolidated	12.8%	6.0%	8.0%
	Bank	14.0%	6.0%	8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
	Consolidated	12.8%	4.5%	6.5%
	Bank	14.0%	4.5%	6.5%

Tier I Capital to Average Assets
	Consolidated	9.0%	4.0%	5.0%
	Bank	9.8%	4.0%	5.0%


As of March 31, 2020
Total Capital to Risk-Weighted Assets
	Consolidated	14.3%	8.0%	10.0%
	Bank	14.2%	8.0%	10.0%

Tier 1 Capital to Risk-Weighted Assets
	Consolidated	13.1%	6.0%	8.0%
	Bank	13.0%	6.0%	8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
	Consolidated	13.1%	4.5%	6.5%
	Bank	13.0%	4.5%	6.5%

Tier 1 Capital to Average Assets
	Consolidated	9.9%	4.0%	5.0%
	Bank	9.8%	4.0%	5.0%

	~~March 31,~~September 30,
	2021
	$
Commitments to extend credit:
Revolving home equity		~~133,009~~144,709
Construction loans		~~2,634~~1,534
Real estate loans		~~123,820~~130,204
Business loans		~~163,725~~185,596
Consumer loans		~~1,273~~1,383
Other		~~5,064~~5,154
Standby letters of credit		~~9,696~~13,125

Total		~~439,221~~481,705

Issuer Purchase of Equity Securites

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

January 2021		—		—		—		190,000
February 2021		7,600		19.53		7,600		182,400
March 2021		—		—		—		182,400
July 2021										—		—		—		175,200
August 2021										—		—		—		175,200
September 2021										3,100		21.95		3,100		172,100

Total		7,600								3,100

	ENB Financial Corp
	(Registrant)


Dated: ~~May 14,~~ November 12, 2021	By:	/s/ Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer


Dated: ~~May 14,~~November 12, 2021	By:	/s/ ~~Scott E. Lied~~Rachel G. Bitner
		~~Scott E. Lied, CPA~~Rachel G. Bitner
		Treasurer
		Principal Financial Officer