UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended ~~September~~June 30, ~~2021~~2022

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

For the transition period from _________________ to _________________

ENB Financial Corp

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

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

Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files.)

Yes ☒ No ☐

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

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

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

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

Yes ☐No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of ~~November~~August 1, ~~2021,~~2022, the registrant had ~~5,575,451~~5,610,570 shares of $0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

~~September~~June 30, ~~2021~~2022


Part I – FINANCIAL INFORMATION

	Item 1.	Financial Statements

		Consolidated Balance Sheets at ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and December 31, ~~2020~~2021 (Unaudited)	3

		Consolidated Statements of Income (Loss) for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, 2022 and 2021 ~~and 2020~~ (Unaudited)	4

		Consolidated Statements of Comprehensive Income for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	5

		Consolidated Statements of Changes in Stockholders’ Equity for the Three and ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	6

		Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 (Unaudited)	7

		Notes to the Unaudited Consolidated Interim Financial Statements	~~8-33~~ 8-30


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~34-58~~31-53

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~59-63~~54-56

	Item 4.	Controls and Procedures	6457



Part II – OTHER INFORMATION	6558

	Item 1.	Legal Proceedings	65

	~~Item 1A.~~	~~Risk Factors~~	6558

Item 1A.Risk Factors	58

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6558

	Item 3.	Defaults upon Senior Securities	6558

	Item 4.	Mine Safety Disclosures	6558

	Item 5.	Other Information	6558

	Item 6.	Exhibits	6659


SIGNATURE PAGE	6760

Table of Contents

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	September 30,			December 31,			September 30,			June 30,			December 31,			June 30,
	2021			2020			2020			2022			2021			2021
	$			$			$			$			$			$
ASSETS
Cash and due from banks		16,100			21,665			19,979			22,571			19,930			19,033
Interest-bearing deposits in other banks		62,720			73,274			24,347			32,041			138,519			36,358
Total cash and cash equivalents		78,820			94,939			44,326			54,612			158,449			55,391
Securities available for sale (at fair value)		561,587			476,428			360,029			579,018			558,093			583,623
Equity securities (at fair value)		8,844			7,105			6,854			8,895			8,982			8,505
Loans held for sale		3,174			3,029			5,008			4,763			3,194			1,323
Loans (net of unearned income)		880,261			823,370			843,177			1,041,440			920,904			869,755
Less: Allowance for loan losses		12,454			12,327			11,996			13,606			12,931			12,703
Net loans		867,807			811,043			831,181			1,027,834			907,973			857,052
Premises and equipment		24,507			24,760			24,696			24,340			24,476			24,729
Regulatory stock		5,635			6,107			6,525			6,145			5,380			5,867
Bank owned life insurance		35,200			29,646			29,418			35,780			35,414			30,006
Other assets		12,478			9,256			8,964			28,958			15,269			12,288
Total assets		1,598,052			1,462,313			1,317,001			1,770,345			1,717,230			1,578,784

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		591,333			534,853			465,247			678,472			686,278			582,747
Interest-bearing		800,169			717,958			661,574			899,808			825,935			786,137
Total deposits		1,391,502			1,252,811			1,126,821			1,578,280			1,512,213			1,368,884
Short-term borrowings		0-			0-			1,500			20,000			0—			0—
Long-term debt		46,706			54,790			60,010			44,206			44,206			50,204
Subordinated debt		19,660			19,601			0-			19,720			19,680			19,640
Other liabilities		3,967			4,895			3,362			6,738			3,843			4,115
Total liabilities		1,461,835			1,332,097			1,191,693			1,668,944			1,579,942			1,442,843
Stockholders' equity:
Common stock, par value $0.10
Common stock, par value $0.10
Shares: Authorized 24,000,000
Issued 5,739,114 and Outstanding 5,575,451 as of 9/30/21, 5,566,230 as of 12/31/20, and 5,566,413 as of 9/30/20		574			574			574
Issued 5,739,114 and Outstanding 5,610,571 as of 6/30/22, 5,583,956 as of 12/31/21, and 5,569,978 as of 6/30/21											574			574			574
Capital surplus		4,498			4,444			4,456			4,502			4,520			4,480
Retained earnings		130,082			120,670			117,960			135,705			131,856			126,891
Accumulated other comprehensive income		4,326			7,958			5,756
Less: Treasury stock cost on 163,663 shares as of 9/30/21, 172,884 as of 12/31/20, and 172,701 as of 9/30/20		(3,263	)		(3,430	)		(3,438	)
Accumulated other comprehensive (loss) income											(36,816	)		3,441			7,362
Less: Treasury stock cost on 128,544 shares as of 6/30/22, 155,158 as of 12/31/21, and 169,137 as of 6/30/21											(2,564	)		(3,103	)		(3,366	)
Total stockholders' equity		136,217			130,216			125,308			101,401			137,288			135,941

Total liabilities and stockholders' equity		1,598,052			1,462,313			1,317,001
Total liabilities and stockholders' equity											1,770,345			1,717,230			1,578,784

See Notes to the Unaudited Consolidated Interim Financial Statements

Table of Contents

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months ended June 30,						Six Months ended June 30,
	2021			2020			2021		2020			2022			2021			2022			2021
	$			$			$		$			$			$			$			$
Interest and dividend income:
Interest and fees on loans		8,986			8,617			25,541		25,705			9,520			8,170			18,335			16,555
Interest on securities available for sale
Taxable		1,301			920			3,611		3,207			2,007			1,231			3,436			2,311
Tax-exempt		1,015			690			2,977		1,899			1,079			1,010			2,108			1,962
Interest on deposits at other banks		17			31			59		112			47			20			84			42
Dividend income		98			129			295		419			106			106			200			197

Total interest and dividend income		11,417			10,387			32,483		31,342			12,759			10,537			24,163			21,067

Interest expense:
Interest on deposits		278			430			877		1,782			308			285			560			599
Interest on borrowings		511			415			1,569		1,333			477			521			908			1,058

Total interest expense		789			845			2,446		3,115			785			806			1,468			1,657

Net interest income		10,628			9,542			30,037		28,227			11,974			9,731			22,695			19,410

(Credit) provision for loan losses		(250	)		1,250			125		2,575
Provision for loan losses													650			0-			750			375

Net interest income after (credit) provision for loan losses		10,878			8,292			29,912		25,652
Net interest income after provision for loan losses													11,324			9,731			21,945			19,035

Other income:
Trust and investment services income		540			442			1,746		1,480			628			537			1,299			1,207
Service fees		618			701			1,917		2,015			684			684			1,272			1,298
Commissions		945			781			2,761		2,116			952			952			1,821			1,816
Gains on the sale of debt securities, net		350			55			711		704			0-			274			139			362
Gains (losses) on equity securities, net		32			(54	)		256		(279	)
(Losses) gains on equity securities, net													(130	)		(24	)		(138	)		223
Gains on sale of mortgages		1,206			2,081			4,381		4,312			328			1,245			1,063			3,175
Earnings on bank-owned life insurance		218			209			636		620			235			202			425			418
Other income		230			159			1,126		241			322			207			814			896

Total other income		4,139			4,374			13,534		11,209			3,019			4,077			6,695			9,395

Operating expenses:
Salaries and employee benefits		6,142			5,860			17,800		16,522			6,707			5,959			13,219			11,658
Occupancy		654			598			1,972		1,805			694			635			1,412			1,318
Equipment		255			298			806		904			336			285			601			552
Advertising & marketing		282			184			717		676			295			245			574			435
Computer software & data processing		1,097			835			3,297		2,309			1,386			1,102			2,524			2,200
Shares tax		322			239			876		718			351			275			702			555
Professional services		535			549			1,572		1,679			633			598			1,263			1,036
Other expense		831			635			1,961		1,939			1,075			597			1,790			1,129

Total operating expenses		10,118			9,198			29,001		26,552			11,477			9,696			22,085			18,883

Income before income taxes		4,899			3,468			14,445		10,309			2,866			4,112			6,555			9,547

Provision for federal income taxes		760			533			2,251		1,610			308			561			806			1,492

Net income		4,139			2,935			12,194		8,699			2,558			3,551			5,749			8,055

Earnings per share of common stock		0.74			0.53			2.19		1.56			0.46			0.64			1.03			1.45

Cash dividends paid per share		0.17			0.16			0.50		0.48			0.17			0.17			0.34			0.33

Weighted average shares outstanding		5,570,416			5,564,158			5,565,777		5,591,027			5,595,728			5,564,712			5,590,196			5,563,420

See Notes to the Unaudited Consolidated Interim Financial Statements

Table of Contents

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months ended June 30,						Six Months ended June 30,
	2021			2020			2021			2020			2022			2021			2022			2021
	$			$			$			$			$			$			$			$

Net income		4,139			2,935			12,194			8,699			2,558			3,551			5,749			8,055

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

Unrealized gains (losses) arising during the period		(3,492	)		1,616			(3,884	)		5,962
Unrealized (losses) gains arising during the period														(20,909	)		5,892			(50,819	)		(391	)
Income tax effect		733			(339	)		814			(1,250	)		4,391			(1,238	)		10,672			81
		(2,759	)		1,277			(3,070	)		4,712			(16,518	)		4,654			(40,147	)		(310	)

Gains recognized in earnings		(350	)		(55	)		(711	)		(704	)		0-			(274	)		(139	)		(362	)
Income tax effect		73			12			149			148			0-			58			29			76
		(277	)		(43	)		(562	)		(556	)		0-			(216	)		(110	)		(286	)

Other comprehensive income (loss), net of tax		(3,036	)		1,234			(3,632	)		4,156
Other comprehensive (loss) income, net of tax														(16,518	)		4,438			(40,257	)		(596	)

Comprehensive Income		1,103			4,169			8,562			12,855
Comprehensive (Loss) Income														(13,960	)		7,989			(34,508	)		7,459

See Notes to the Unaudited Consolidated Interim Financial Statements

Table of Contents

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

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

									Accumulated																	Accumulated
									Other						Total											Other						Total
	Common		Capital			Retained			Comprehensive			Treasury			Stockholders'			Common		Capital			Retained			Comprehensive			Treasury			Stockholders'
	Stock		Surplus			Earnings			Income (Loss)			Stock			Equity			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			574		4,444			120,670			7,958			(3,430	)		130,216
Net income		-		-			4,504			-			-			4,504			—		—			4,504			—			—			4,504
Other comprehensive loss net of tax		-		-			-			(5,034	)		-			(5,034	)		—		—			—			(5,034	)		—			(5,034	)
Treasury stock purchased - 7,600 shares		-		-			-			-			(149	)		(149	)		—		—			—			—			(149	)		(149	)
Treasury stock issued - 7,936 shares		-		16			-			-			157			173			—		16			—			—			157			173
Cash dividends paid, $0.16 per share		-		-			(889	)		-			-			(889	)
Cash dividends paid, $0.16 per share																			—		—			(889	)		—			—			(889	)
Balances, March 31, 2021		574		4,460			124,285			2,924			(3,422	)		128,821			574		4,460			124,285			2,924			(3,422	)		128,821
Net income		-		-			3,551			-			-			3,551			—		—			3,551			—			—			3,551
Other comprehensive income net of tax		-		-			-			4,438			-			4,438			—		—			—			4,438			—			4,438
Treasury stock purchased - 7,200 shares		-		-			-			-			(155	)		(155	)		—		—			—			—			(155	)		(155	)
Treasury stock issued - 10,611 shares		-		20			-			-			211			231			—		20			—			—			211			231
Cash dividends paid, $0.17 per share		-		-			(945	)		-			-			(945	)
Cash dividends paid, $0.17 per share																			—		—			(945	)		—			—			(945	)
Balances, June 30, 2021		574		4,480			126,891			7,362			(3,366	)		135,941			574		4,480			126,891			7,362			(3,366	)		135,941


Balances, December 31, 2021																			574		4,520			131,856			3,441			(3,103	)		137,288
Net income		-		-			4,139			-			-			4,139			—		—			3,191			—			—			3,191
Other comprehensive loss net of tax		-		-			-			(3,036	)		-			(3,036	)		—		—			—			(23,739	)		—			(23,739	)
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
Treasury stock issued - 11,196 shares																			—		24			—			—			224			248
Cash dividends paid, $0.17 per share																			—		—			(949	)		—			—			(949	)
Balances, March 31, 2022																			574		4,544			134,098			(20,298	)		(2,879	)		116,039
Net income																			—		—			2,558			—			—			2,558
Other comprehensive loss net of tax																			—		—			—			(16,518	)		0—			(16,518	)
Treasury stock purchased - 3,000shares																			—		—			—			—			(53	)		(53	)
Treasury stock issued - 18,418 shares																			—		(42	)		—			—			368			326
Cash dividends paid, $0.17 per share																			—		—			(951	)		—			—			(951	)
Balances, June 30, 2022																			574		4,502			135,705			(36,816	)		(2,564	)		101,401

See Notes to the Unaudited Consolidated Interim Financial Statements

Table of Contents

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)	Nine Months Ended September 30,

							Six Months Ended June 30,
	2021			2020			2022			2021
	$			$			$			$
Cash flows from operating activities:
Net income		12,194			8,699			5,749			8,055
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		2,851			2,173			2,539			2,095
Amortization of operating leases right-of-use assets		60			134			132			92
Increase in interest receivable		(958	)		(586	)		(1,066	)		(1,058	)
Decrease in interest payable		146			(162	)
Increase (decrease) in interest payable								61			(43	)
Provision for loan losses		125			2,575			750			375
Gains on the sale of debt securities, net		(711	)		(704	)		(139	)		(362	)
(Gain) loss on equity securities, net		(256	)		279
Losses (gains) on equity securities, net								138			(223	)
Gains on sale of mortgages		(4,381	)		(4,312	)		(1,063	)		(3,175	)
Loans originated for sale		(71,607	)		(101,044	)		(23,563	)		(50,168	)
Proceeds from sales of loans		75,843			102,690			23,057			55,049
Earnings on bank-owned life insurance		(636	)		(620	)		(425	)		(418	)
Depreciation of premises and equipment and amortization of software		1,164			1,137			791			765
Deferred income tax		164			(586	)		(117	)		(2	)
Amortization of deferred fees on subordinated debt		59			0-			40			39
Other assets and other liabilities, net		(2,291	)		(111	)		934			(2,519	)
Net cash provided by operating activities		11,766			9,562			7,818			8,502

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		58,837			51,451			24,816			39,554
Proceeds from sales		77,259			50,819			8,576			59,303
Purchases		(228,981	)		(150,728	)		(107,711	)		(208,913	)
Equity securities
Proceeds from sales		460			0-			150			428
Purchases		(1,945	)		(425	)		(201	)		(1,605	)
Purchase of regulatory bank stock		(524	)		(1,225	)		(974	)		(512	)
Redemptions of regulatory bank stock		996			1,991			209			752
Purchase of bank-owned life insurance		(4,918	)		0-
Net increase in loans		(55,899	)		(89,270	)		(120,573	)		(46,010	)
Purchases of premises and equipment, net		(745	)		(705	)		(512	)		(639	)
Purchase of computer software		(471	)		(133	)		(123	)		(161	)
Net cash used for investing activities		(155,931	)		(138,225	)		(196,343	)		(157,803	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		141,428			165,296			66,369			118,093
Net decrease in time deposits		(2,737	)		(12,563	)		(302	)		(2,020	)
Net increase in short-term borrowings		0-			1,300
Proceeds from long-term debt		0-			12,984
Proceeds from short-term borrowings								20,000			0—
Repayments of long-term debt		(8,084	)		(30,846	)		0—			(4,586	)
Dividends paid		(2,782	)		(2,683	)		(1,900	)		(1,834	)
Proceeds from sale of treasury stock		593			477			574			404
Treasury stock purchased		(372	)		(2,029	)		(53	)		(304	)
Net cash provided by financing activities		128,046			131,936			84,688			109,753
(Decrease) Increase in cash and cash equivalents		(16,119	)		3,273
Decrease in cash and cash equivalents								(103,837	)		(39,548	)
Cash and cash equivalents at beginning of period		94,939			41,053			158,449			94,939
Cash and cash equivalents at end of period		78,820			44,326			54,612			55,391

Supplemental disclosures of cash flow information:
Interest paid		2,300			3,277			1,408			1,700
Income taxes paid		2,200			2,225			950			2,000
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		4,595			(5,258	)		(50,958	)		753
Recognition of lease operating right-of-use assets		80			0-			2,811			0—
Recognition of operating lease liabilities		80			0-			2,811			0—

See Notes to the Unaudited Consolidated Interim Financial Statements

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

1.Summary of Significant Accounting Policies

Basis of Presentation

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

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). Ephrata National Bank has one wholly-owned subsidiary, ENB Insurance, LLC which is consolidated into its financial statements. This Form 10-Q, for the ~~third~~second quarter of ~~2021,~~2022, is reporting on the results of operations and financial condition of ENB Financial Corp on a consolidated basis.

Operating results for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2021.~~2022. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, ~~2020.~~2021.

Revenue from Contracts with Customers

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

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

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

2.Securities Available for Sale

The amortized cost, gross unrealized gains and losses, and fair value of securities held at ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, are as follows:

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
September 30, 2021
June 30, 2022
U.S. treasuries		4,981		17		0-			4,998		35,701		0—		(2,093	)		33,608
U.S. government agencies											27,607		2		(2,148	)		25,461
U.S. agency mortgage-backed securities											53,607		0—		(3,608	)		49,999
U.S. agency collateralized mortgage obligations											33,129		3		(1,942	)		31,190
Non-agency MBS/CMO											42,368		0—		(1,446	)		40,922
Asset-backed securities											89,119		31		(1,920	)		87,230
Corporate bonds											81,997		3		(5,122	)		76,878
Obligations of states and political subdivisions											262,092		147		(28,509	)		233,730
Total securities available for sale											625,620		186		(46,788	)		579,018

December 31, 2021
U.S. Treasuries											14,821		14		(22	)		14,813
U.S. government agencies		29,616		85		(420	)		29,281		29,613		50		(642	)		29,021
U.S. agency mortgage-backed securities		56,941		857		(336	)		57,462		51,964		502		(478	)		51,988
U.S. agency collateralized mortgage obligations		33,173		436		(16	)		33,593		30,917		241		(81	)		31,077
Asset-backed securities		100,722		868		(147	)		101,443		100,998		605		(384	)		101,219
Corporate bonds		84,264		854		(144	)		84,974		82,617		420		(528	)		82,509
Obligations of states and political subdivisions		246,413		5,127		(1,704	)		249,836		242,807		5,848		(1,189	)		247,466
Total securities available for sale		556,110		8,244		(2,767	)		561,587		553,737		7,680		(3,324	)		558,093

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

The amortized cost and fair value of securities available for sale at ~~September~~June 30, ~~2021,~~2022, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

CONTRACTUAL MATURITY OF DEBT SECURITIES

(DOLLARS IN THOUSANDS)

	Amortized				Amortized
	Cost		Fair Value		Cost		Fair Value
	$		$		$		$
Due in one year or less		35,395		35,774		26,828		26,096
Due after one year through five years		102,504		104,210		144,017		137,407
Due after five years through ten years		139,182		139,739		151,385		140,451
Due after ten years		279,029		281,864		303,390		275,064
Total debt securities		556,110		561,587		625,620		579,018

Securities available for sale with a par value of ~~$91,079,000~~$102,441,000 and ~~$86,849,000~~$94,283,000 at ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was ~~$94,538,000~~$97,516,000 at ~~September~~June 30, ~~2021,~~2022, and ~~$91,666,000~~$96,521,000 at December 31, ~~2020.~~2021.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

~~PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE~~

~~(DOLLARS IN THOUSANDS)~~

	Three Months Ended September 30,						Nine Months Ended September 30,					Three Months Ended June 30,					Six Months Ended June 30,
	2021			2020			2021			2020		2022		2021			2022		2021
	$			$			$			$		$		$			$		$
Proceeds from sales		17,957			7,001			77,259			50,819		0—		8,962			8,575		59,303
Gross realized gains		369			64			791			730		0—		280			139		422
Gross realized losses		(19	)		(9	)		(80	)		(26)		0—		(6	)		0—		(60	)

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. No securities in the portfolio had other-than-temporary impairment recorded in the first ~~nine~~six months of ~~2021~~2022 or ~~2020.~~2021.

Information pertaining to securities with gross unrealized losses at ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

TEMPORARY IMPAIRMENTS OF SECURITIES

(DOLLARS IN THOUSANDS)


	Less than 12 months					More than 12 months					Total					Less than 12 months					More than 12 months					Total
			Gross					Gross					Gross					Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses			Value		Losses
	$		$			$		$			$		$			$		$			$		$			$		$
As of September 30, 2021
As of June 30, 2022
U.S. Treasuries																	33,608		(2,093	)		0—		0—			33,608		(2,093	)
U.S. government agencies																	1,980		(29	)		22,281		(2,119	)		24,261		(2,148	)
U.S. agency mortgage-backed securities																	38,675		(2,154	)		11,324		(1,454	)		49,999		(3,608	)
U.S. agency collateralized mortgage obligations																	28,065		(1,910	)		2,372		(32	)		30,437		(1,942	)
Non-Agency MBS/CMO																	37,042		(1,446	)		0—		0—			37,042		(1,446	)
Asset-backed securities																	68,838		(1,604	)		13,730		(316	)		82,568		(1,920	)
Corporate bonds																	73,873		(5,122	)		0—		0—			73,873		(5,122	)
Obligations of states & political subdivisions																	206,651		(25,157	)		15,279		(3,352	)		221,930		(28,509	)

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


As of December 31, 2021
U.S. Treasuries																	4,959		(22	)		0—		0—			4,959		(22	)
U.S. government agencies		23,985		(420	)		0-		0-			23,985		(420	)		16,386		(519	)		7,375		(123	)		23,761		(642	)
U.S. agency mortgage-backed securities		24,270		(310	)		2,988		(26	)		27,258		(336	)		24,090		(468	)		2,458		(10	)		26,548		(478	)
U.S. agency collateralized mortgage obligations		3,243		(1	)		3,569		(15	)		6,812		(16	)		14,206		(66	)		2,965		(15	)		17,171		(81	)
Asset-backed securities		27,718		(123	)		4,919		(24	)		32,637		(147	)		50,466		(338	)		2,826		(46	)		53,292		(384	)
Corporate bonds		18,381		(144	)		0-		0-			18,381		(144	)		44,907		(528	)		0—		0—			44,907		(528	)
Obligations of states & political subdivisions		97,126		(1,704	)		0-		0-			97,126		(1,704	)		70,021		(1,043	)		6,023		(146	)		76,044		(1,189	)

Total temporarily impaired securities		194,723		(2,702	)		11,476		(65	)		206,199		(2,767	)		225,035		(2,984	)		21,647		(340	)		246,682		(3,324	)


As of December 31, 2020
U.S. government agencies		42,988		(7	)		0-		0-			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	)		0-		0-			12,933		(54	)
Asset-backed securities		8,465		(20	)		18,080		(325	)		26,545		(345	)
Corporate bonds		0-		0-			3,016		(12	)		3,016		(12	)
Obligations of states & political subdivisions		15,666		(77	)		0-		0-			15,666		(77	)

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

In the debt security portfolio there were ~~101~~374 positions ~~from 78 different issuers that were~~ carrying unrealized losses as of ~~September~~June 30, ~~2021.~~2022. There were no instruments considered to be other-than-temporarily impaired at ~~September~~June 30, ~~2021.~~2022.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

3.Equity Securities

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
September 30, 2021
June 30, 2022
CRA-qualified mutual funds		7,222		0-		0-			7,222		7,276		0-		0-			7,276
Bank stocks		1,518		119		(15	)		1,622		1,635		69		(85	)		1,619
Total equity securities		8,740		119		(15	)		8,844		8,911		69		(85	)		8,895

			Gross		Gross							Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair		Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value		Cost		Gains		Losses			Value
	$		$		$			$		$		$		$			$
December 31, 2020
December 31, 2021
CRA-qualified mutual funds		6,176		0-		0-			6,176		7,240		0-		0-			7,240
Bank stocks		982		53		(106	)		929		1,570		184		(12	)		1,742
Total equity securities		7,158		53		(106	)		7,105		8,810		184		(12	)		8,982

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020,~~2021, and the portion of unrealized gains and losses for the period that relates to equity investments held as of ~~September~~June 30, ~~2021~~2022 and ~~2020.~~2021.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,					Nine Months Ended September 30,					Three Months Ended June 30,						Six Months Ended June 30,
	2021		2020			2021		2020			2022			2021			2022			2021
	$		$			$		$			$			$			$			$

Net gains (losses) recognized in equity securities during the period		32		(54	)		256		(279	)
Net (losses) gains recognized in equity securities during the period												(130	)		(24	)		(138	)		223

Less: Net gains realized on the sale of equity securities during the period		3		0-			99		0-			0-			0-			51			95

Unrealized gains (losses) recognized in equity securities held at reporting date		29		(54	)		157		(279	)		(130	)		(24	)		(189	)		128

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

4.Loans and Allowance for Credit Losses

The following table presents the Corporation’s loan portfolio by category of loans as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020:~~2021:

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)

	September 30,			December 31,			June 30,			December 31,
	2021			2020			2022			2021
	$			$			$			$
Commercial real estate
Commercial mortgages		166,741			142,698			191,249			177,396
Agriculture mortgages		188,455			176,005			205,680			203,725
Construction		18,786			23,441			82,289			19,639
Total commercial real estate		373,982			342,144			479,218			400,760

Consumer real estate (a)
1-4 family residential mortgages		302,670			263,569			317,214			317,037
Home equity loans		11,889			10,708			13,711			11,181
Home equity lines of credit		74,919			71,290			87,251			75,698
Total consumer real estate		389,478			345,567			418,176			403,916

Commercial and industrial
Commercial and industrial		73,695			97,896			81,612			65,615
Tax-free loans		17,279			10,949			23,517			23,009
Agriculture loans		19,180			20,365			31,355			20,717
Total commercial and industrial		110,154			129,210			136,484			109,341

Consumer		5,211			5,155			5,376			5,132

Gross loans prior to deferred fees		878,825			822,076			1,039,254			919,149

Deferred loan costs, net		1,436			1,294			2,186			1,755
Allowance for credit losses		(12,454	)		(12,327	)		(13,606	)		(12,931	)
Total net loans		867,807			811,043			1,027,834			907,973


(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled ~~$274,892,000~~$304,841,000 and ~~$235,437,000~~$289,263,000 as of ~~September~~June 30, ~~2021,~~2022 and December 31, ~~2020,~~2021, respectively.

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

•

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

•

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

•

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

•

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

•

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

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)

							Commercial														Commercial
	Commercial		Agriculture				and		Tax-free		Agriculture				Commercial		Agriculture				and		Tax-free		Agriculture
September 30, 2021	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
June 30, 2022															Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		162,806		179,880		12,648		64,457		17,279		18,657		455,727		188,948		196,174		79,230		72,930		23,517		31,002		591,801
Special Mention		2,458		0-		6,138		5,082		0-		0-		13,678		0—		4,472		3,059		5,765		0—		73		13,369
Substandard		1,477		8,575		0-		4,156		0-		523		14,731		2,301		5,034		0—		2,917		0—		280		10,532
Doubtful		0-		0-		0-		0-		0-		0-		0-		0—		0—		0—		0—		0—		0—		0—
Loss		0-		0-		0-		0-		0-		0-		0-		0—		0—		0—		0—		0—		0—		0—

Total		166,741		188,455		18,786		73,695		17,279		19,180		484,136		191,249		205,680		82,289		81,612		23,517		31,355		615,702

							Commercial														Commercial
	Commercial		Agriculture				and		Tax-free		Agriculture				Commercial		Agriculture				and		Tax-free		Agriculture
December 31, 2020	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
December 31, 2021															Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Grade:
Pass		133,853		166,102		21,142		87,767		10,949		18,586		438,399		172,540		192,943		13,544		57,214		23,009		19,980		479,230
Special Mention		3,683		1,651		2,299		5,592		0-		774		13,999		2,443		2,542		6,095		4,657		0—		90		15,827
Substandard		5,162		8,252		0-		4,537		0-		1,005		18,956		2,413		8,240		0—		3,744		0—		647		15,044
Doubtful		0-		0-		0-		0-		0-		0-		0-		0—		0—		0—		0—		0—		0—		0—
Loss		0-		0-		0-		0-		0-		0-		0-		0—		0—		0—		0—		0—		0—		0—

Total		142,698		176,005		23,441		97,896		10,949		20,365		471,354		177,396		203,725		19,639		65,615		23,009		20,717		510,101

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing.

Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)

	1-4 Family				Home Equity						1-4 Family				Home Equity
	Residential		Home Equity		Lines of						Residential		Home Equity		Lines of
September 30, 2021	Mortgages		Loans		Credit		Consumer		Total
June 30, 2022											Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$		$		$		$		$		$

Performing		302,436		11,889		74,919		5,200		394,444		316,940		13,711		87,212		5,375		423,238
Non-performing		234		0-		0-		11		245		274		0—		39		1		314

Total		302,670		11,889		74,919		5,211		394,689		317,214		13,711		87,251		5,376		423,552

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

~~AGING OF LOANS RECEIVABLE~~

~~(DOLLARS IN THOUSANDS)~~

Loans
Greater
Receivable > 90 Days
30-59 Days
60-89 Days
than 90
Total Past
Total Loans
and
September 30, 2021
Past Due
Past Due
Days
Due
Current
Receivable
Accruing
$
$
$
$
$
$
$
Commercial real estate
Commercial mortgages
0-
0-
186
186
166,555
166,741
0-
Agriculture mortgages
756
0-
1,516
2,272
186,183
188,455
0-
Construction
0-
0-
0-
0-
18,786
18,786
0-
Consumer real estate
1-4 family residential mortgages
529
0-
234
763
301,907
302,670
172
Home equity loans
19
0-
0-
19
11,870
11,889
0-
Home equity lines of credit
47
0-
0-
47
74,872
74,919
0-
Commercial and industrial
Commercial and industrial
0-
0-
377
377
73,318
73,695
0-
Tax-free loans
0-
0-
0-
0-
17,279
17,279
0-
Agriculture loans
24
0-
95
119
19,061
19,180
0-
Consumer
5
0-
11
16
5,195
5,211
11
Total
1,380
0-
2,419
3,799
875,026
878,825
183

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

Performing		316,722		11,181		75,659		5,132		408,694
Non-performing		315		0—		39		0—		354

Total		317,037		11,181		75,698		5,132		409,048

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)


													Loans														Loans
													Receivable						Greater								Receivable > 90 Days
					Greater								> 90 Days		30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
	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
June 30, 2022															Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$		$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		0-		0-		208		208		142,490		142,698		0-		0—		0—		975		975		190,274		191,249		0—
Agriculture mortgages		0-		0-		0-		0-		176,005		176,005		0-		0—		0—		3,940		3,940		201,740		205,680		499
Construction		0-		0-		0-		0-		23,441		23,441		0-		0—		0—		0—		0—		82,289		82,289		0—
Consumer real estate
1-4 family residential mortgages		618		0-		1,384		2,002		261,567		263,569		1,336		330		0—		274		604		316,610		317,214		274
Home equity loans		1		0-		0-		1		10,707		10,708		0-		18		0—		0—		18		13,693		13,711		0—
Home equity lines of credit		0-		0-		23		23		71,267		71,290		23		36		0—		39		75		87,176		87,251		39
Commercial and industrial
Commercial and industrial		0-		0-		469		469		97,427		97,896		0-		0—		0—		211		211		81,401		81,612		0—
Tax-free loans		0-		0-		0-		0-		10,949		10,949		0-		0—		0—		0—		0—		23,517		23,517		0—
Agriculture loans		42		0-		0-		42		20,323		20,365		0-		0—		0—		39		39		31,316		31,355		0—
Consumer		23		3		14		40		5,115		5,155		14		11		21		1		33		5,343		5,376		1
Total		684		3		2,098		2,785		819,291		822,076		1,373		395		21		5,479		5,895		1,033,359		1,039,254		813

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

~~NONACCRUAL~~AGING OF LOANS ~~BY LOAN CLASS~~RECEIVABLE

(DOLLARS IN THOUSANDS)

	September 30,		December 31,
	2021		2020														Loans
	$		$														Receivable
									Greater								> 90 Days
					30-59 Days		60-89 Days		than 90		Total Past				Total Loans		and
December 31, 2021					Past Due		Past Due		Days		Due		Current		Receivable		Accruing
					$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		186		208		22		0—		184		206		177,190		177,396		0—
Agriculture mortgages		1,516		0-		232		0—		1,838		2,070		201,655		203,725		0—
Construction		0-		0-		0—		0—		0—		0—		19,639		19,639		0—
Consumer real estate
1-4 family residential mortgages		62		48		1,464		68		315		1,847		315,190		317,037		276
Home equity loans		0-		0-		19		0—		0—		19		11,162		11,181		0—
Home equity lines of credit		0-		0-		0—		0—		39		39		75,659		75,698		39
Commercial and industrial
Commercial and industrial		377		469		43		0—		395		438		65,177		65,615		10
Tax-free loans		0-		0-		0—		0—		0—		0—		23,009		23,009		0—
Agriculture loans		95		0-		0—		9		110		119		20,598		20,717		0—
Consumer		0-		0-		22		0—		0—		22		5,110		5,132		0—
Total		2,236		725		1,802		77		2,881		4,760		914,389		919,149		325

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

AsThe following table presents nonaccrual loans by classes of ~~September~~the loan portfolio as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021:

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)

	June 30,		December 31,
	2022		2021
	$		$

Commercial real estate
Commercial mortgages		975		184
Agriculture mortgages		3,441		1,838
Construction		0—		0—
Consumer real estate
1-4 family residential mortgages		0—		39
Home equity loans		0—		0—
Home equity lines of credit		0—		0—
Commercial and industrial
Commercial and industrial		211		385
Tax-free loans		0—		0—
Agriculture loans		39		110
Consumer		0—		0—
Total		4,666		2,556

As of June 30, 2022 and December 31, 2021, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, is as follows:

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,				Nine Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
	$		$		$		$		$		$		$		$

Average recorded balance of impaired loans		2,012		5,060		4,391		4,062		4,179		5,457		3,533		5,597
Interest income recognized on impaired loans		38		31		176		72		5		80		13		138

No loan modifications were made during the first ~~nine~~six months of 2022 or 2021 that would be considered a troubled debt restructuring (TDR). There was one loan modification made during the third quarter of 2020 that 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. A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments. Included in the impaired loan portfolio is one loan to a commercial borrower that is being reported as a TDR. The balance of this TDR ~~loans~~loan was ~~$776,000~~$469,000 as of ~~September~~June 30, ~~2021.~~2022. This TDR is not non-accrual.

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information regarding impaired loans by loan portfolio class as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020, and for the nine months ended September 30, 2021, and the twelve months ended December 31, 2020:~~2021:

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

			Unpaid				Average		Interest				Unpaid
	Recorded		Principal		Related		Recorded		Income		Recorded		Principal		Related
September 30, 2021	Investment		Balance		Allowance		Investment		Recognized
June 30, 2022											Investment		Balance		Allowance
	$		$		$		$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		247		285		0-		2,802		116		975		1,021		0—
Agriculture mortgages		1,720		1,721		0-		1,158		45		3,377		3,428		0—
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		1,967		2,006		0-		3,960		161		4,352		4,449		0—

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

Total with no related allowance		2,344		2,434		0-		4,389		176		4,352		4,449		0—

With an allowance recorded:
Commercial real estate
Commercial mortgages		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture mortgages		572		572		57		2		0-		533		548		18
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		572		572		57		2		0-		533		548		18

Commercial and industrial
Commercial and industrial		0-		0-		0-		0-		0-		211		214		17
Tax-free loans		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture loans		95		95		95		0-		0-		39		39		39
Total commercial and industrial		95		95		95		0-		0-		250		253		56

Total with a related allowance		667		667		152		2		0-		783		801		74

Total by loan class:
Commercial real estate
Commercial mortgages		247		285		0-		2,802		116		975		1,021		0—
Agriculture mortgages		2,292		2,293		57		1,160		45		3,910		3,976		18
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		2,539		2,578		57		3,962		161		4,885		4,997		18

Commercial and industrial
Commercial and industrial		377		428		0-		429		15		211		214		17
Tax-free loans		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture loans		95		95		95		0-		0-		39		39		39
Total commercial and industrial		472		523		95		429		15		250		253		56

Total		3,011		3,101		152		4,391		176		5,135		5,250		74

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)

			Unpaid				Average		Interest				Unpaid
	Recorded		Principal		Related		Recorded		Income		Recorded		Principal		Related
December 31, 2020	Investment		Balance		Allowance		Investment		Recognized
December 31, 2021											Investment		Balance		Allowance
	$		$		$		$		$		$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		256		318		0-		798		0-		223		263		0—
Agriculture mortgages		806		835		0-		1,170		46		2,055		2,066		0—
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		1,062		1,153		0-		1,968		46		2,278		2,329		0—

Commercial and industrial
Commercial and industrial		469		504		0-		513		23		385		438		0—
Tax-free loans		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture loans		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial and industrial		469		504		0-		513		23		385		438		0—

Total with no related allowance		1,531		1,657		0-		2,481		69		2,663		2,767		0—

With an allowance recorded:
Commercial real estate
Commercial mortgages		3,581		3,581		1,110		1,468		57		0—		0—		0—
Agriculture mortgages		651		651		21		679		34		551		559		37
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		4,232		4,232		1,131		2,147		91		551		559		37

Commercial and industrial
Commercial and industrial		0-		0-		0-		0-		0-		0—		0—		0—
Tax-free loans		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture loans		0-		0-		0-		0-		0-		110		111		110
Total commercial and industrial		0-		0-		0-		0-		0-		110		111		110

Total with a related allowance		4,232		4,232		1,131		2,147		91		661		670		147

Total by loan class:
Commercial real estate
Commercial mortgages		3,837		3,899		1,110		2,266		57		223		263		0—
Agriculture mortgages		1,457		1,486		21		1,849		80		2,606		2,625		37
Construction		0-		0-		0-		0-		0-		0—		0—		0—
Total commercial real estate		5,294		5,385		1,131		4,115		137		2,829		2,888		37

Commercial and industrial
Commercial and industrial		469		504		0-		513		23		385		438		0—
Tax-free loans		0-		0-		0-		0-		0-		0—		0—		0—
Agriculture loans		0-		0-		0-		0-		0-		110		111		110
Total commercial and industrial		469		504		0-		513		23		495		549		110

Total		5,763		5,889		1,131		4,628		160		3,324		3,437		147

Table of Contents

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for credit losses by portfolio segment for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021:~~2022:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)


	Commercial			Consumer			Commercial												Commercial			Consumer		Commercial
	Real Estate			Real Estate			and Industrial			Consumer			Unallocated			Total			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
Beginning balance - December 31, 2021																				6,263			3,834		2,112			87			635			12,931

Charge-offs		0-			0-			0-			(14	)		0-			(14	)		(65	)		0—		0—			(1	)		0—			(66	)
Recoveries		0-			0-			1			1			0-			2			0—			3		10			1			0—			14
Provision		173			(41	)		(15	)		20			238			375			(90	)		41		193			(16	)		(28	)		100

Balance - March 31, 2021		6,502			3,408			1,958			59			763			12,690
Balance - March 31, 2022																				6,108			3,878		2,315			71			607			12,979

Charge-offs		0-			0-			0-			(9	)		0-			(9	)		0—			0—		(41	)		0—			0—			(41	)
Recoveries		0-			0-			16			6			0-			22			2			3		12			1			0—			18
Provision		48			83			19			10			(160	)		0-			(239	)		834		255			(28	)		(172	)		650

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
Balance - June 30, 2022																				5,871			4,715		2,541			44			435			13,606

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, management charged off ~~$30,000~~$107,000 in loans while recovering ~~$32,000~~$32,000 and added ~~$125,000~~$750,000 to the provision. The unallocated portion of the allowance ~~increased~~decreased from ~~4.3%~~4.9% of total reserves as of December 31, ~~2020,~~2021, to ~~7.8%~~3.2% as of ~~September~~June 30, ~~2021.~~2022. Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.

During the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, net provision expense was recorded for ~~all loan~~the consumer real estate and commercial and industrial sectors ~~except for~~while the commercial real estate ~~sector.~~and consumer sectors recorded a credit provision. The ~~lower~~provision expense recorded for consumer real estate and commercial and industrial loans was primarily related to growth in those sectors of the loan portfolio through June 30, 2022 while the credit provision in ~~the~~ commercial real estate ~~sector~~and consumer was ~~due~~primarily related to ~~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~~declining qualitative factors in ~~a credit provision for the nine months ended September~~several areas at June 30, 2021. There were minimal charge-offs and recoveries recorded during the nine months ended September 30, 2021, as well as minimal provision expense due to the improving economic conditions and the reversal of specific allocation from the previous time periods.2022.

~~Outside of the above measurements and indicators, management~~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.

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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~~six months ended ~~September~~June 30, ~~2020:~~2021:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)


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

Charge-offs		0-		0-		0-			(6	)		0-			(6	)		0—		0—			0—			(14	)		0—			(14	)
Recoveries		11		0-		1			0-			0-			12			0—		0—			1			1			0—			2
Provision		252		296		171			21			(390	)		350			173		(41	)		(15	)		20			238			375

Balance - March 31, 2020		4,582		3,151		1,956			56			58			9,803
Balance - March 31, 2021																		6,502		3,408			1,958			59			763			12,690

Charge-offs		0-		0-		0-			(10	)		0-			(10	)		0—		0—			0—			(9	)		0—			(9	)
Recoveries		0-		0-		1			1			0-			2			0—		0—			16			6			0—			22
Provision		356		146		175			5			293			975			48		83			19			10			(160	)		0—

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

During the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, management charged off ~~$42,000~~$23,000 in loans while recovering ~~$16,000~~$24,000 and added ~~$2,575,000~~$375,000 to the provision. The unallocated portion of the allowance ~~decreased~~increased from ~~4.7%~~4.3% of total reserves as of December 31, ~~2019,~~2020, to ~~2.1%~~4.7% as of ~~September~~June 30, ~~2020.~~

~~During the nine months ended September 30, 2020, net~~2021. Net provision expense was recorded for all loan sectors. The higher provision in the commercial real estate sector was due to ~~a specific allocation~~growth in this portfolio of ~~$1.1 million for a customer with ongoing business concerns. The higher provisions across the other categories were primarily caused by increasing~~loans since December 31, 2020, as well as an increase in the qualitative ~~factors across all industry lines~~factor related to ~~various degrees as a result~~the trends in the nature and volume of ~~the impact and effect from COVID-19 and the declining economic conditions.~~this sector. There were minimal charge-offs and recoveries recorded during the ~~nine~~six months ended ~~September~~June 30, ~~2020,~~2021, so the provision expense was primarily related to ~~the specific allocation~~an increase in loan balances as well as ~~the change in economic conditions and potential for credit declines moving forward. The total amount of substandard loans at the end~~slightly higher unallocated portion of the ~~third quarter of 2020 was slightly higher resulting in slightly more provision expense.~~allowance.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)


	Commercial		Consumer		Commercial								Commercial		Consumer		Commercial
As of September 30, 2021:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
As of June 30, 2022:													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		18		0—		56		0—		0—		74
Ending balance: collectively evaluated for impairment		5,584		3,707		1,981		62		968		12,302		5,853		4,715		2,485		44		435		13,532

Loans receivable:
Ending balance		373,982		389,478		110,154		5,211				878,825		479,218		418,176		136,484		5,376				1,039,254
Ending balance: individually evaluated for impairment		2,539		0-		472		0-				3,011		4,885		0—		250		0—				5,135
Ending balance: collectively evaluated for impairment		371,443		389,478		109,682		5,211				875,814		474,333		418,176		136,234		5,376				1,034,119

~~forg~~


	Commercial		Consumer		Commercial								Commercial		Consumer		Commercial
As of December 31, 2020:	Real Estate		Real Estate		and Industrial		Consumer		Unallocated		Total
As of December 31, 2021:													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		37		0—		110		0—		0—		147
Ending balance: collectively evaluated for impairment		5,198		3,449		1,972		52		525		11,196		6,226		3,834		2,002		87		635		12,784

Loans receivable:
Ending balance		342,144		345,567		129,210		5,155				822,076		400,760		403,916		109,341		5,132				919,149
Ending balance: individually evaluated for impairment		5,294		0-		469		0-				5,763		2,829		0—		495		0—				3,324
Ending balance: collectively evaluated for impairment		336,850		345,567		128,741		5,155				816,313		397,931		403,916		108,846		5,132				915,825

5.Fair Value Presentation

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

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

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

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of ~~September~~June 30, ~~2021,~~2022, and December 31, ~~2020,~~2021, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

	September 30, 2021								June 30, 2022
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$

U.S. treasuries		0-		4,998		0-		4,998		0—		33,608		0—		33,608
U.S. government agencies		0-		29,281		0-		29,281		0—		25,461		0—		25,461
U.S. agency mortgage-backed securities		0-		57,462		0-		57,462		0—		49,999		0—		49,999
U.S. agency collateralized mortgage obligations		0-		33,593		0-		33,593		0—		31,190		0—		31,190
Non-agency MBS/CMO										0—		40,922		0—		40,922
Asset-backed securities		0-		101,443		0-		101,443		0—		87,230		0—		87,230
Corporate bonds		0-		84,974		0-		84,974		0—		76,878		0—		76,878
Obligations of states & political subdivisions		0-		249,836		0-		249,836		0—		233,730		0—		233,730
Equity securities		8,844		0-		0-		8,844		8,895		0—		0—		08,895

Total securities		8,844		561,587		0-		570,431		8,895		579,018		0—		587,913

On ~~September~~June 30, ~~2021,~~2022, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of ~~September~~June 30, ~~2021,~~2022, the CRA fund investments had a ~~$7,222,000~~$7,276,000 book and fair market value and the bank stock portfolio had a book value of ~~$1,518,000,~~$1,635,000, and fair market value of ~~$1,622,000.~~$1,619,000.

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

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

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

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

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

~~ASSETS MEASURED ON A RECURRING BASIS~~

~~(DOLLARS IN THOUSANDS)~~

December 31, 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,~~2021, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, ~~2020,~~2021, the CRA fund investments had a ~~$6,176,000~~$7,240,000 book and market value and the bank stocks had a book value of ~~$982,000~~$1,570,000 and a market value of ~~$929,000.~~$1,742,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(DOLLARS IN THOUSANDS)

	September 30, 2021								June 30, 2022
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$
Assets:
Impaired Loans	$	0-	$	0-	$	2,859	$	2,859	$	0—	$	0—	$	5,061	$	5,061
Total	$	0-	$	0-	$	2,859	$	2,859	$	0—	$	0—	$	5,061	$	5,061

	December 31, 2020								December 31, 2021
	Level I		Level II		Level III		Total		Level I		Level II		Level III		Total
	$		$		$		$		$		$		$		$
Assets:
Impaired Loans	$	0-	$	0-	$	4,632	$	4,632	$	0—	$	0—	$	3,177	$	3,177
Total	$	0-	$	0-	$	4,632	$	4,632	$	0—	$	0—	$	3,177	$	3,177

The Corporation had a total of ~~$3,011,000~~$5,135,000 of impaired loans as of ~~September~~June 30, ~~2021,~~2022, with ~~$152,000~~$74,000 of specific allocation against these loans and ~~$5,763,000~~$3,324,000 of impaired loans as of December 31, ~~2020,~~2021, with ~~$1,131,000~~$147,000 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:

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)

	~~September~~June 30, ~~2021~~2022
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Avg)

Impaired loans		~~2,859~~5,061		Appraisal of collateral (1)		Appraisal adjustments (2)		~~-20% (-20%~~0% to -20% (-20%)
						Liquidation expenses (2)		~~-10% (-10%~~0% to -10% (-10%)

	December 31, ~~2020~~2021
	Fair Value		Valuation		Unobservable		Range
	Estimate		Techniques		Input		(Weighted Avg)

Impaired loans		~~4,632~~3,177		Appraisal of collateral (1)		Appraisal adjustments (2)		~~-20% (-20%~~0% to -20% (-20%)
						Liquidation expenses (2)		~~-10% (-10%~~0% to -10% (-10%)

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

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of ~~September~~June 30, ~~2021~~2022 and December 31, ~~2020:~~2021:

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

(DOLLARS IN THOUSANDS)

	September 30, 2021										June 30, 2022
					Quoted Prices in 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 I)		(Level II)		(Level III)		Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$		$		$		$		$		$
Financial Assets:
Cash and cash equivalents		78,820		78,820		78,820		0-		0-		54,612		54,612		54,612		0—		0—
Regulatory stock		5,635		5,635		5,635		0-		0-		6,145		6,145		6,145		0—		0—
Loans held for sale		3,174		3,155		3,155		0-		0-		4,763		4,763		4,763		0—		0—
Loans, net of allowance		867,807		879,942		0-		0-		879,942		1,027,834		999,129		0—		0—		999,129
Mortgage servicing assets		1,591		2,003		0-		0-		2,003		2,012		2,803		0—		0—		2,803
Accrued interest receivable		5,504		5,504		5,504		0-		0-		6,219		6,219		6,219		0—		0—
Bank owned life insurance		35,200		35,200		35,200		0-		0-		35,780		35,780		35,780		0—		0—

Financial Liabilities:
Demand deposits		591,333		591,333		591,333		0-		0-		678,472		678,472		678,472		0—		0—
Interest-bearing demand deposits		58,425		58,425		58,425		0-		0-		69,711		69,711		69,711		0—		0—
NOW accounts		133,443		133,443		133,443		0-		0-		127,622		127,622		127,622		0—		0—
Money market deposit accounts		162,050		162,050		162,050		0-		0-		215,781		215,781		215,781		0—		0—
Savings accounts		329,900		329,900		329,900		0-		0-		373,060		373,060		373,060		0—		0—
Time deposits		116,351		117,050		0-		0-		117,050		113,634		110,956		0—		0—		110,956
Total deposits		1,391,502		1,392,201		1,275,151		0-		117,050		1,578,280		1,575,602		1,464,646		0—		110,956

Long-term debt		46,706		44,912		0-		0-		44,912		44,206		44,205		0—		0—		44,205
Short-term borrowings												20,000		20,000
Subordinated debt		19,660		19,227		0-		0-		19,227		19,720		18,800		0—		0—		18,800
Accrued interest payable		470		470		470		0-		0-		316		316		316		0—		0—

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										December 31, 2021
					Quoted Prices in 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 I)		(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		0-		0-		158,449		158,449		158,449		0—		0—
Regulatory stock		6,107		6,107		6,107		0-		0-		5,380		5,380		5,380		0—		0—
Loans held for sale		3,029		3,029		3,029		0-		0-		3,194		3,194		3,194		0—		0—
Loans, net of allowance		811,043		829,902		0-		0-		829,902		907,973		914,251		0—		0—		914,251
Mortgage servicing assets		1,076		1,083		0-		0-		1,083		1,768		2,129		0—		0—		2,129
Accrued interest receivable		4,546		4,546		4,546		0-		0-		5,152		5,152		5,152		0—		0—
Bank owned life insurance		29,646		29,646		29,646		0-		0-		35,414		35,414		35,414		0—		0—

Financial Liabilities:
Demand deposits		534,853		534,853		534,853		0-		0-		686,278		686,278		686,278		0—		0—
Interest-bearing demand deposits		47,092		47,092		47,092		0-		0-		63,015		63,015		63,015		0—		0—
NOW accounts		137,279		137,279		137,279		0-		0-		139,366		139,366		139,366		0—		0—
Money market deposit accounts		140,113		140,113		140,113		0-		0-		168,327		168,327		168,327		0—		0—
Savings accounts		274,386		274,386		274,386		0-		0-		341,291		341,291		341,291		0—		0—
Time deposits		119,088		121,470		0-		0-		121,470		113,936		113,919		0—		0—		113,919
Total deposits		1,252,811		1,255,193		1,133,723		0-		121,470		1,512,213		1,512,196		1,398,277		0—		113,919

Long-term debt		54,790		51,800		0-		0-		51,800		44,206		43,060		0—		0—		43,060
Subordinated debt		19,601		19,601		0-		0-		19,601		19,680		19,088		0—		0—		19,680
Accrued interest payable		325		325		325		0-		0-		255		255		255		0—		0—

7.6.Commitments and Contingent Liabilities

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of ~~September~~June 30, ~~2021,~~2022, firm loan commitments were ~~$103.9~~$103.4 million, unused lines of credit were ~~$364.7~~$430.1 million, and open letters of credit were ~~$13.1~~$11.2 million. The total of these commitments was ~~$481.7~~$544.7 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

8.7.Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021~~2022 and ~~2020~~2021 is as follows:

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

(DOLLARS IN THOUSANDS)

	Unrealized
	Gains (Losses)
	on Securities
	Available-for-Sale
	$
Balance at December 31, ~~2020~~2021		~~7,958~~3,441
Other comprehensive loss before reclassifications		(~~4,964~~23,629	)
Amount reclassified from accumulated other comprehensive income (loss)		(70110	)
Period change		(~~5,034~~23,739	)

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

~~Other comprehensive income before reclassifications~~		~~4,654~~
~~Amount reclassified from accumulated other comprehensive income (loss)~~Balance at March 31, 2022		(~~216~~20,298	)
~~Period change~~		~~4,438~~

~~Balance at June 30, 2021~~		~~7,362~~

Other comprehensive loss before reclassifications		(~~2,759~~16,518	)
Amount reclassified from accumulated other comprehensive income (loss)		~~(277~~0—	)
Period change		(~~3,036~~16,518	)

Balance at ~~September~~June 30, ~~2021~~2022		~~4,326~~(36,816	)

Balance at December 31, ~~2019~~2020		~~1,600~~7,958
Other comprehensive loss before reclassifications		(~~274~~4,964	)
Amount reclassified from accumulated other comprehensive income (loss)		(~~223~~70	)
Period change		(~~497~~5,034	)

Balance at March 31, ~~2020~~2021		~~1,103~~2,924

Other comprehensive loss before reclassifications		~~3,709~~4,654
Amount reclassified from accumulated other comprehensive income (loss)		(~~290~~216	)
Period change		~~3,419~~4,438

Balance at June 30, ~~2020~~2021		~~4,522~~
7,362
~~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%.

(2) Amounts in parentheses indicate debits.

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

(DOLLARS IN THOUSANDS)

	Amount Reclassified from							Amount Reclassified from
	Accumulated Other Comprehensive							Accumulated Other Comprehensive
	Income (Loss)							Income (Loss)
	For the Three Months							For the Three Months
	Ended September 30,							Ended June 30,
	2021			2020			Affected Line Item in the	2022		2021			Affected Line Item in the
	$			$			Consolidated Statements of Income	$		$			Consolidated Statements of Income
Securities available-for-sale:
Net securities gains, reclassified into earnings		350			55		Gains on the sale of debt securities, net		0—		274		Gains on the sale of debt securities, net
Related income tax expense		(73	)		(12	)	Provision for federal income taxes		0—		(58	)	Provision for federal income taxes
Net effect on accumulated other comprehensive income (loss) for the period		277			43				0—		216

(1) Amounts in parentheses indicate debits.

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

(1) Amounts in parentheses indicate debits.

Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss)
For the Nine Months
Ended September 30,
2021
2020
Affected Line Item in the
$
$
Consolidated Statements of Income
Securities available-for-sale:
Net securities gains, reclassified into earnings
711
704
Gains on the sale of debt securities, net
Related income tax expense
(149
)
(148
)
Provision for federal income taxes
Net effect on accumulated other comprehensive income for the period
562
556

~~(1) Amounts in parentheses indicate debits.~~8. Subsequent Events

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~~ENB FINANCIAL CORP~~

~~Notes~~Subsequent to June 30, 2022, but prior to the ~~Unaudited Consolidated Interim Financial Statements~~

9.~~Risks and Uncertainties~~

~~COVID-19 Update~~

filing of this report, on July 22, 2022, the Corporation completed the sale of a subordinated debt note offering. The ~~following table provides information~~Corporation sold $20 million of subordinated debt notes with ~~respect to concentrations within our commercial loan portfolio that may be more significantly impacted by the effects~~a maturity date of ~~the COVID-19 pandemic at~~ September 30, ~~2021.~~

2032. These notes are all non-callable for ~~At Risk~~5

(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~~ years and carry 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) anfixed interest rate of ~~1.0%, (b)~~5.75% per year for the 5 years and then convert to a ~~two-year or five-year loan term to maturity; and (c) principal and interest payments deferred~~floating rate for ~~six months from~~ the ~~date of disbursement. The SBA will guarantee 100%~~remainder of the ~~PPP loans made to eligible borrowers.~~term. The ~~entire principal amount of the PPP loan, including any accrued interest, is eligible to~~notes can 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~~redeemed at par beginning 5 years prior to ~~the end of April 2020. Congress then passed an additional allocation of funds~~maturity. The notes are structured to qualify as Tier 2 capital for the ~~PPP loans, allowing a second round of applications to begin.~~Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. The Corporation ~~generated PPP loans under this initial plan in the amount~~paid an issuance fee 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, all rounds of PPP loans became eligible for forgiveness. As a result of the forgiveness of some of the original PPP loans, the initiation of additional PPP loans, and the forgiveness of a portion of these loans, the total balance of PPP loans at September 30, 2021, was $23.2 million. Management’s focus has been to serve the customers and market area that the Corporation serves.

In accordance with the SBA terms and conditions on these PPP loans, as of September 30, 2021, the Corporation received approximately $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~~2

Throughout 2020 and into 2021, 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 $43.4 million, or 4.9%% of the total loan portfolio as of September 30, 2021. The 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 were not considered troubled debt restructurings (TDRs) unlessissue that will be amortized to the ~~borrower was previously experiencing financial difficulty. In addition, the risk-rating~~call date on COVID-19 modified loans did not change, and these loans would not be considered past due until after the deferral period ended and scheduled payments resumed. The vast majority of the COVID-19 loan payment deferrals were for a 90-day period. As of September 30, 2021, there were no commercial loans remaining on deferment and the Corporation’s delinquent and non-performing levels were not materially impacted by the weaker economic conditions brought on by COVID-19.pro-rata basis.

~~10.~~9.Recently Issued Accounting Standards

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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~~ENB FINANCIAL CORP~~

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

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

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

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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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 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,~~March 2022, the FASB issued ASU ~~2021-04,~~2022-01 ~~Earnings Per Share (Topic 260)~~, ~~Debt – Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and~~ Derivatives and Hedging ~~– Contracts~~(ASC 815): Fair Value Hedging - Portfolio Layer Method. ASC 815 currently permits only prepayable financial assets and one or more beneficial interests secured by a portfolio of prepayable financial instruments to be included in ~~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.last-of-layer closed portfolio. The amendments in this Update ~~are~~allow non-prepayable financial assets to also be included in a closed portfolio hedged using the portfolio layer method. That expanded scope permits an entity to apply the same portfolio hedging method to both prepayable and non-prepayable financial assets, thereby allowing consistent accounting for similar hedges. The guidance is effective for ~~all~~public business entities for fiscal years, and interim periods within those 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.2022. This Update is not expected to have a significant impact on the Corporation’s financial statements.

In ~~July 2021,~~March 2022, the FASB issued ASU ~~2021-05,~~2022-02, ~~Leases (Topic 842),~~ Financial Instruments - Credit Losses (ASC 326): Troubled Debt Restructurings (TDRs) and Vintage Disclosures~~which~~. The guidance amends ASC ~~842 so that lessors~~326 to eliminate the accounting guidance for TDRs by creditors, while enhancing disclosure requirements for certain loan refinancing and restructuring activities by creditors when a borrower is experiencing financial difficulty. Specifically, rather than applying TDR recognition and measurement guidance, creditors will determine whether a modification results in a new loan or continuation of existing loan. These amendments are ~~no longer required~~intended to ~~recognize a selling loss upon commencement~~enhance existing disclosure requirements and introduce new requirements related to certain modifications of ~~a lease with variable lease payments that, prior~~receivables made to borrowers experiencing financial difficulty. Additionally, the amendments ~~would have been classified as a sales-type or direct~~to ASC 326 require that an entity disclose current-period gross writeoffs by year of origination within the vintage disclosures, which requires that an entity disclose the amortized cost basis of financing ~~lease. Furthermore, a lessor must classify as an operating lease any lease that would otherwise be classified as a sales-type or direct~~receivables by credit quality indicator and class of financing ~~lease and that would result in the recognition~~receivable by year 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 effectiveorigination. The guidance is only 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~~in Update 2016-13 for fiscal years, ~~beginning after December 15, 2021,~~ and ~~for~~ interim periods within those fiscal years, beginning after December 15, 2022. ~~All entities that have adopted ASC 842 are permitted to early adopt~~Early adoption using prospective application, including adoption in an interim period where the ~~amendments in ASU 2021-05. The amendments in ASU 2021-05 are effective~~guidance should be applied as of the ~~same date as~~beginning of the ~~guidance in ASC 842 for entities that have not adopted ASC 842.~~fiscal year. This Update is not expected to have a significant impact on the Corporation’s financial statements.

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~~ENB FINANCIAL CORP~~

~~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~~2021 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

Forward-Looking Statements

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

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

National and local economic conditions

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

Health of the housing market

Real estate valuations and its impact on the loan portfolio

~~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

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Business and competitive disruptions caused by new market and industry entrants

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

Results of Operations

Overview

The ~~nine months ended September 30, 2021 were~~first half of 2022 was positively impacted by a number of items resulting in 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 achieve positivesolid financial results, ~~now~~but in comparison to the prior year, the results were not as strong due to a number of non-recurring income items in the first half of 2021. The prior year was positively impacted by greater amounts of Paycheck Protection Program (PPP) fees on forgiven loans as well as record mortgage gains due to increased refinance activity stemming from the low interest rate environment. The first half of 2022 experienced a sharp increase in market interest rates, less income earned from PPP fees, and ~~in future time periods.~~a slowing of mortgage gains.

The Corporation recorded net income of ~~$4,139,000~~$2,558,000 for the three-month period ended ~~September~~June 30, ~~2021,~~2022, a ~~$1,204,000,~~$993,000, or ~~41.0% increase over~~28.0% decrease from the three months ended ~~September~~June 30, ~~2020.~~2021. Net income for the ~~nine-month~~six-month period was ~~$12,194,000,~~$5,749,000, a ~~$3,495,000,~~$2,306,000, or ~~40.2% increase over~~28.6% decrease from earnings in the ~~nine-month~~six-month period ended ~~September~~June 30, ~~2020.~~2021. The earnings per share, basic and diluted, were ~~$0.74~~$0.46 for the three months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$0.53~~$0.64 for the same period in ~~2020,~~2021, and for the year-to-date period, earnings per share were ~~$2.19 in 2021,~~$1.03 compared to ~~$1.56~~$1.45 in ~~2020, a 40.4% increase.~~2021.

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

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

~~Gains on securities~~Other income was lower in ~~total increased by $381,000,~~2022 compared to the prior year primarily as a result of lower levels of mortgage and security gains. The gains from the sale of mortgages were $328,000 for the three months ended ~~September~~June 30, 2022, compared to gains of $1,245,000 for the three months ended June 30, 2021, ~~and increased~~a decrease of $917,000, or 73.7%. For the six-month period, gains were $1,063,000, a decrease of $2,112,000, or 66.5%, from the six months ended June 30, 2021. The decrease in mortgage gains can be primarily attributed to the rapid rise in mortgage rates during the first half of 2022 which has caused customer activity to shift from fixed-rate mortgages that were sold on the secondary market, to adjustable rate mortgages held on the Corporation’s balance sheet. Gains/losses on securities in total decreased by ~~$542,000, or 127.5%,~~$380,000, for the ~~nine~~three months ended ~~September~~June 30, ~~2021,~~2022, and $584,000, for the six months ended June 30, 2022, compared to the same periods in the prior year. Outside of mortgage and security gains, other non-interest income increased by ~~$259,000,~~$239,000, or ~~11.3%~~9.3%, and ~~$1,714,000,~~decreased by $4,000, or ~~26.5%~~0.1%, for the three and ~~nine~~six months ended ~~September~~June 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 net interest income (NII)~~2022. Operating expenses increased by ~~$1,086,000,~~$1,781,000, or ~~11.4%~~18.4%, and ~~$1,810,000,~~$3,202,000, or ~~6.4%~~17.0%, for the three and ~~nine~~six months ended ~~September~~June 30, 2021, compared to the same periods in 2020. The increase in NII primarily resulted from an increase in interest on securities available for sale of $706,000, or 43.9%, for the three-month period ended September 30, 2021, 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 decreased by $56,000, or 6.6%, and $669,000, or 21.5%, for the three and nine months ended September 30, 2021,2022, 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~~This increase can be primarily attributed to the rising cost of ~~funds, which has resulted in these much lower levels~~salaries and employee benefits.

Table of ~~interest expense.~~Contents

ENB FINANCIAL CORP

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-19Management’s Discussion and ~~a higher specific allocation related to one commercial borrower.~~Analysis

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The latter measurement typically receives more attention from shareholders. The ROA and ROE ~~increased~~decreased for ~~both periods~~the quarter-to-date period and the year-to-date period ended ~~September~~June 30, ~~2021,~~2022, compared to the same ~~periods~~period in the prior year, due to ~~higher~~lower earnings in ~~2021.~~

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~2022.

Key Ratios	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021

Return on Average Assets		1.03%		0.89%		1.06%		0.93%		0.60%		0.92%		0.68%		1.07%
Return on Average Equity		11.91%		9.46%		12.25%		9.72%		9.55%		10.86%		9.70%		12.43%

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

Net interest income

Provision for loan losses

Other income

Operating expenses

Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income (NII)

NII represents the largest portion of the Corporation’s operating income. In the first ~~nine~~six months of ~~2021,~~2022, NII generated ~~68.9%~~77.2% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to ~~71.6%~~67.4% in the first ~~nine~~six months of ~~2020.~~2021. This ~~decrease~~increase is a result of ~~much~~ higher levels of NII in the first ~~nine~~six months of ~~2021~~2022 as well as lower non-interest income compared to ~~2020.~~2021. The overall performance of the Corporation is highly dependent on the changes in NII since it comprises such a significant portion of operating income.

The following table shows a summary analysis of NII on a fully taxable equivalent (FTE) basis. For analytical purposes and throughout this discussion, yields, rates, and measurements such as NII, net interest spread, and net yield on interest earning assets are presented on an FTE basis. The FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income, which is not shown on an FTE basis. The amount of FTE adjustment totaled ~~$291,000~~$317,000 for the three months ended ~~September~~June 30, ~~2021,~~2022, and ~~$848,000~~$621,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~$209,000~~$289,000 and ~~$579,000~~$556,000 for the same periods in ~~2020.~~2021.

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended				Nine Months Ended				Three Months Ended				Six Months Ended
	September 30,				September 30,				June 30,				June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
	$		$		$		$		$		$		$		$
Total interest income		11,417		10,387		32,483		31,342		12,759		10,537		24,163		21,067
Total interest expense		789		845		2,446		3,115		785		806		1,468		1,657

Net interest income		10,628		9,542		30,037		28,227		11,974		9,731		22,695		19,410
Tax equivalent adjustment		291		209		848		579		317		289		621		556

Net interest income (fully taxable equivalent)		10,919		9,751		30,885		28,806		12,291		10,020		23,316		19,966

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

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

The average balance of interest earning assets and interest bearing liabilities

NII is impacted by yields earned on assets and rates paid on liabilities. ~~With the decrease in the short-term Federal Reserve rates in 2020, asset yields have declined significantly and the U.S. Treasury curve has been relatively flat.~~ During 2021, longer-term U.S. Treasury rates ~~did increase~~increased adding some slope to the yield curve, but asset yields ~~are~~were still ~~compressed,~~constrained. In the first six months of 2022, interest rates increased much more dramatically in anticipation of a Federal Reserve rate movement which ~~adds strain to NII and~~happened in mid-March. The two through five year Treasury securities experienced the most rate increases, with the longer term rates increasing less. Management believes that higher market rates should help the net interest margin (NIM).

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~ moving forward.

As a result of a larger balance sheet in ~~2021,~~the first half of 2022, even with ~~much lower~~low asset yields, the Corporation’s NII on a tax equivalent basis increased ~~while~~and the Corporation’s margin ~~decreased~~increased to ~~2.89%~~2.96% for the quarter and ~~2.82%~~2.85% for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to ~~3.16%~~2.72% in the ~~third~~second quarter of ~~2020~~2021 and ~~3.26%~~2.79% for the year-to-date period. ~~Loan yields were lower in 2021 due to the 150 basis point Fed rate decline during the first quarter of 2020 as well as competitive pressure throughout 2020 and 2021.~~ The Corporation’s NII for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, increased over the same ~~periods~~period in ~~2020,~~2021 by ~~$1,168,000,~~$2,243,000, or ~~12.0%,~~23.1% and ~~$2,079,000,~~$3,285,000, or ~~7.2%~~16.9%, respectively. Management’s asset liability sensitivity shows a small benefit to both margin and NII given Federal Reserve rate increases. Actual results over the past two years have confirmed the asset sensitivity of the Corporation’s balance sheet, however there was some decline in this asset sensitivity inthroughout 2021 and through the first ~~nine months~~half of ~~2021.~~2022. In a down-rate environment, the margin and NII would suffer unless balance sheet growth is enough to offset lower asset yields.

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in ~~2020,~~2021, security reinvestment had generally been occurring at lower yields. With ~~slightly~~ higher Treasury rates in ~~2021,~~2022, security yields have increased ~~slightly, but still remain compressed compared~~and have helped to ~~years prior to 2020.~~increase NII during the first half of 2022.

The Corporation’s overall cost of funds, including non-interest bearing funds, ~~remained stable~~was 18 basis points through the first ~~nine months~~half of ~~2021 between 22 and 16 basis points.~~2022. Core deposit interest rates ~~were reduced throughout 2020~~are at historic lows and time deposit rates ~~have also decreased~~are not much higher than core deposit rates resulting in maturing time deposits repricing at lower levels or moving into core deposit products. The Corporation’s costs on borrowings included $140,000 of prepayment penalties recorded on Federal Home Loan Bank (FHLB) long-term advances paid off early during the first 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 periods. While the average balance of borrowings was slightly lower in the first ~~nine~~six months of 2022 than 2021, than 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,resulting in the total cost of borrowings ~~increased $236,000 when comparing the nine months ended September 30, 2021, to the same period in the prior year.~~decreasing by $150,000.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

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

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,									Nine Months Ended September 30,									Three Months Ended June 30,									Six Months Ended June 30,
	2021 vs. 2020									2020 vs. 2019									2022 vs. 2021									2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)									Increase (Decrease)									Increase (Decrease)
	Due To Change In									Due To Change In									Due To Change In									Due To Change In
							Net									Net									Net									Net
	Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase			Average			Interest			Increase
	Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)			Balances			Rates			(Decrease)
	$			$			$			$			$			$			$			$			$			$			$			$
INTEREST INCOME

Interest on deposits at other banks		55			(108	)		(53	)		98			(280	)		(182	)		(11	)		39			28			4			39			43

Securities available for sale:
Taxable		1,448			(1,041	)		407			382			(928	)		(546	)		196			587			783			473			670			1,143
Tax-exempt		1,803			(445	)		1,358			149			(92	)		57			124			(37	)		87			285			(97	)		188
Total securities		3,251			(1,486	)		1,765			531			(1,020	)		(489	)		320			550			870			758			573			1,331

Loans		1,539			(1,714	)		(175	)		2,989			(2,131	)		858			1,324			35			1,359			2,210			(409	)		1,801
Regulatory stock		(54	)		(73	)		(127	)		21			(76	)		(55	)		(3	)		(4	)		(7	)		(10	)		(4	)		(14	)

Total interest income		4,791			(3,381	)		1,410			3,639			(3,507	)		132			1,630			620			2,250			2,962			199			3,161

INTEREST EXPENSE

Deposits:
Demand deposits		94			(447	)		(353	)		82			(874	)		(792	)		7			70			77			13			75			88
Savings deposits		13			(15	)		(2	)		11			(40	)		(29	)		3			—			3			6			—			6
Time deposits		(97	)		(453	)		(550	)		(71	)		48			(23	)		(7	)		(50	)		(57	)		(18	)		(115	)		(133	)
Total deposits		10			(915	)		(905	)		22			(866	)		(844	)		3			20			23			1			(40	)		(39	)

Borrowings:
Total borrowings		(36	)		272			236			(13	)		188			175			13			(57	)		(44	)		(62	)		(88	)		(150	)

Total interest expense		(26	)		(643	)		(669	)		9			(678	)		(669	)		16			(37	)		(21	)		(61	)		(128	)		(189	)

NET INTEREST INCOME		4,817			(2,738	)		2,079			3,630			(2,829	)		801			1,614			657			2,271			3,023			327			3,350

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

38 35

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 September 30,												For the Three Months Ended June 30,
	2021						2020						2022						2021
					(c)						(c)						(c)						(c)
	Average				Annualized		Average				Annualized		Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%		$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		44,259		17		0.15		33,928		31		0.36		29,899		48		0.65		49,710		20		0.16

Securities available for sale:
Taxable		385,330		1,333		1.38		243,765		941		1.54		426,130		2,042		1.92		373,610		1,259		1.35
Tax-exempt		192,614		1,269		2.64		109,198		859		3.15		207,379		1,349		2.60		188,390		1,262		2.68
Total securities (d)		577,944		2,602		1.80		352,963		1,800		2.04		633,509		3,391		2.14		562,000		2,521		1.79

Loans (a)		879,836		9,023		4.09		840,252		8,656		4.11		996,100		9,566		3.86		858,183		8,207		3.83

Regulatory stock		5,807		65		4.45		6,871		109		6.33		5,776		71		4.90		6,054		78		5.15

Total interest earning assets		1,507,846		11,707		3.10		1,234,014		10,596		3.43		1,665,284		13,076		3.15		1,475,947		10,826		2.94

Non-interest earning assets (d)		86,494						77,629						57,983						80,235

Total assets		1,594,340						1,311,643						1,723,267						1,556,182

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		352,448		43		0.05		275,279		59		0.09		388,334		117		0.12		338,060		40		0.05
Savings deposits		325,018		16		0.02		251,130		13		0.02		368,095		18		0.02		312,504		15		0.02
Time deposits		117,041		218		0.74		124,479		359		1.15		114,026		173		0.62		117,887		230		0.78
Borrowed funds		69,247		511		2.93		64,877		415		2.54		74,011		477		2.61		72,235		521		2.89
Total interest bearing liabilities		863,754		788		0.39		715,765		846		0.48		944,466		785		0.34		840,686		806		0.39

Non-interest bearing liabilities:

Demand deposits		588,125						467,030						664,435						579,007
Other		4,616						5,377						6,940						5,379

Total liabilities		1,456,495						1,188,172						1,615,841						1,425,072

Stockholders' equity		137,845						123,471						107,426						131,110

Total liabilities & stockholders' equity		1,594,340						1,311,643						1,723,267						1,556,182

Net interest income (FTE)				10,919						9,750						12,291						10,020

Net interest spread (b)						2.71						2.95						2.81						2.55
Effect of non-interest
bearing deposits						0.18						0.21						0.15						0.17
Net yield on interest earning assets (c)						2.89						3.16						2.96						2.72

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of ~~$872,000~~ $2,111,000 as of ~~September~~June 30, ~~2021,~~2022, and ~~$171,000~~$435,000 as of ~~September~~June 30, ~~2020.~~2021. Such fees and costs recognized through income and included in the interest amounts totaled ~~$617,000~~$52,000 in ~~2021,~~2022, and ~~$265,000~~$36,000 in ~~2020.~~2021.

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

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

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

39 36

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,												For the Six Months Ended June 30,
	2021						2020						2022						2021
					(c)						(c)						(c)						(c)
	Average				Annualized		Average				Annualized		Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%		$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		50,598		59		0.16		28,205		112		0.53		58,307		85		0.29		53,820		42		0.16

Securities available for sale:
Taxable		359,530		3,696		1.38		234,121		3,289		1.87		409,125		3,505		1.70		346,417		2,362		1.36
Tax-exempt		184,663		3,720		2.69		97,843		2,362		3.22		202,298		2,639		2.61		180,622		2,451		2.72
Total securities (d)		544,193		7,416		1.82		331,964		5,651		2.27		611,423		6,144		2.01		527,039		4,813		1.82

Loans (a)		859,141		25,646		3.98		809,325		25,821		4.26		963,808		18,424		3.83		848,622		16,623		3.93

Regulatory stock		5,964		210		4.69		7,255		337		6.19		5,594		131		4.67		6,043		145		4.80

Total interest earning assets		1,459,896		33,331		3.02		1,176,749		31,921		3.62		1,639,132		24,784		3.03		1,435,524		21,623		3.02

Non-interest earning assets (d)		82,233						73,691						72,762						80,066

Total assets		1,542,129						1,250,440						1,711,894						1,515,590

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		338,365		120		0.05		271,836		473		0.23		379,971		165		0.09		331,207		77		0.05
Savings deposits		308,245		46		0.02		235,084		48		0.03		361,471		36		0.02		299,719		30		0.02
Time deposits		118,071		711		0.81		128,749		1,261		1.31		113,965		359		0.63		118,594		492		0.84
Borrowed funds		71,945		1,569		2.92		74,314		1,333		2.40		68,982		908		2.66		73,317		1,058		2.91
Total interest bearing liabilities		836,626		2,446		0.39		709,983		3,115		0.59		924,389		1,468		0.32		822,837		1,657		0.41

Non-interest bearing liabilities:

Demand deposits		567,408						416,379						661,746						556,878
Other		5,006						4,570						6,204						5,204

Total liabilities		1,409,040						1,130,932						1,592,339						1,384,919

Stockholders' equity		133,089						119,508						119,555						130,671

Total liabilities & stockholders' equity		1,542,129						1,250,440						1,711,894						1,515,590

Net interest income (FTE)				30,885						28,806						23,316						19,966

Net interest spread (b)						2.63						3.03						2.71						2.61
Effect of non-interest
bearing deposits						0.19						0.23						0.14						0.18
Net yield on interest earning assets (c)						2.82						3.26						2.85						2.79

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The year-to-date average balances include net deferred loan costs of ~~$834,000~~$1,972,000 as of ~~September~~June 30, ~~2021,~~2022, and ~~$1,424,000~~$815,000 as of ~~September~~June 30, ~~2020.~~2021. Such fees and costs recognized through income and included in the interest amounts totaled ~~$990,000~~$38,000 in ~~2021,~~2022, and ~~$315,000~~$374,000 in ~~2020.~~2021.

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

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

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

40 37

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s average ~~balance~~balances on securities increased by ~~$225.0~~$71.5 million, or ~~63.7%~~12.7%, for the three months ended ~~September~~June 30, ~~2021,~~2022, and ~~$212.2~~$84.4 million, or ~~63.9%~~16.0%, for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in ~~2020.~~2021. The tax equivalent yield on investments ~~declined~~increased by 2435 basis points for the quarter-to-date period and 4519 basis points for the year-to-date period when comparing both years. Interest income on securities increased due to 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 an excess of liquidity in 2021 and 2022 as a result of the ~~significant~~low-rate environment that caused a large influx of ~~deposits, which caused excess liquidity.~~deposits.

Average balances on loans increased by ~~$39.6~~$137.9 million, or ~~4.7%~~16.1%, for the three months ended ~~September~~June 30, ~~2021,~~2022, and ~~$49.8~~$115.2 million, or ~~6.2%~~13.6%, for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in the prior year. Loan yields ~~declined~~increased by ~~two~~3 basis points for the quarter, ~~and 28~~but declined by 10 basis points for the year-to-date period ~~when comparing both years. Loan~~and loan interest income increased ~~$367,000, or 4.2%,~~ for ~~the three-month period as a result of~~both time frames due to the increase in loan balances. ~~However,~~The quarter-to-date increase in loan interest income ~~decreased $175,000,~~was $1,359,000, or ~~0.7%~~16.6%, ~~for~~and the ~~nine-month period as a result of the decline in yields.~~year-to-date increase was $1,801,000, or 10.8%.

The average balance of interest-bearing deposit accounts increased by ~~$143.6~~$102.0 million, or ~~22.1%~~13.3%, and ~~$129.0~~$105.9 million, or ~~20.3%~~14.1%, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, respectively, compared to the same periods in the prior year. While the average balance of time deposits did decrease for both the quarter and year-to-date time periods, the average balance on demand and savings accounts increased significantly and more than offset the decline in time deposits. The interest rate paid on demand deposits ~~decreased~~increased marginally for both of these time periods, ~~as well. This~~while the interest rate on savings accounts remained the same and the rate on time deposits declined. The combination of these changes resulted in an increase in interest expense of $23,000, or 8.1% for the three months ended June 30, 2022, and a decrease in interest expense ~~on deposits~~ of ~~$154,000,~~$39,000, or ~~35.7%, and $905,000, or 50.8%~~6.5%, for the ~~three and nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in ~~2020.~~2021.

The Corporation’s average balance on borrowed funds increased by ~~$4.4~~$1.8 million, or ~~6.7%~~2.5%, for the three months ended ~~September~~June 30, ~~2021,~~2022, but decreased by ~~$2.4~~$4.3 million, or ~~3.2%~~5.9%, for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in ~~2020.~~2021. The Corporation’s borrowed funds consist of FHLB advances as well as subordinated debt issued in December of 2020 which was used to support capital growth for the Corporation. The increase in borrowed funds for the quarter-to-date period is ~~a result~~due to $20 million of ~~this subordinated debt issuance. However,~~short-term advances initiated in the second quarter of 2022 to support loan growth. The decrease for the year-to-date period is a result of paying off FHLB ~~advances. The Corporation paid off $35.6 million of FHLB~~ advances in the ~~nine months ended September 30, 2020, compared~~prior year to ~~$8.1 million for~~take advantage of the ~~year-to-date period in 2021.~~low rate environment. The rate paid on borrowed funds ~~increased~~decreased by 3928 basis points for the three months ended ~~September~~June 30, ~~2021,~~2022, and 5225 basis points for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in the prior year. This ~~increase~~decrease in rate can be attributed to the pay off of higher-rate FHLB advances in 2021 as well as the issuance of ~~subordinated debt which carries a 4.00% rate, significantly higher than the rate on FHLB advances.~~lower-rate short-term advances in 2022.

For the three months ended ~~September~~June 30, ~~2021,~~2022, the net interest spread ~~decreased~~increased by 24twenty-six basis points to 2.81%, compared to 2.55% for the three months ended June 30, 2021. For the six months ended June 30, 2022, the net interest spread increased by 10 basis points to 2.71%, compared to ~~2.95%~~2.61% for the ~~three~~six months ended ~~September~~June 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.~~2022. The effect of non-interest bearing funds decreased to 1815 basis points from 2117 basis points for the three months ended ~~September~~June 30, ~~2021,~~2022, and decreased to 1914 basis points from 2318 basis points for the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in ~~2020.~~2021. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s NIM for the ~~third~~second quarter of ~~2021~~2022 was ~~2.89%~~2.96%, compared to ~~3.16%~~2.72% for the ~~third~~second quarter of ~~2020.~~2021. For the year-to-date period, the Corporation’s NIM was ~~2.82%~~2.85%, compared to ~~3.26%~~2.79% for the same period in ~~2020.~~2021.

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

~~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 ~~$125,000~~$650,000 for the ~~nine months ended September 30, 2021,~~second quarter of 2022, compared to no provision expense recorded for the second quarter of 2021. For the year-to-date period, the Corporation recorded

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

provision expense of ~~$1,250,000 and $2,575,000, respectively, for the three and nine months ended September 30, 2020.~~$750,000 compared to $375,000 in 2021. The provision expense was ~~elevated~~higher in ~~2020~~both time periods due to ~~the onset~~loan growth partially offset by a lower balance 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 resulting in a reversal of that specific allocation and the credit provision for the quarter.classified loans. As of ~~September~~June 30, ~~2021,~~2022, the allowance as a percentage of total loans was ~~1.41%~~1.31%, compared to ~~1.42%~~1.46% at ~~September~~June 30, ~~2020.~~2021. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the ~~third~~second quarter of ~~2021~~2022 was ~~$4,139,000,~~$3,019,000, a decrease of ~~$235,000,~~$1,058,000, or ~~5.4%~~26.0%, compared to the ~~$4,374,000~~$4,077,000 earned during the ~~third~~second quarter of ~~2020.~~2021. For the year-to-date period ended ~~September~~June 30, ~~2021,~~2022, other income totaled ~~$13,534,000, an increase~~$6,695,000, a decrease of ~~$2,325,000,~~$2,700,000, or ~~20.7%~~28.7%, compared to the same period in ~~2020.~~2021. The following ~~tables detail~~table details the categories that comprise other income.

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

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

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

~~OTHER INCOME~~

~~(DOLLARS IN THOUSANDS)~~

OTHER INCOME
(DOLLARS IN THOUSANDS)
	Three Months Ended September 30,					Increase (Decrease)						Six Months Ended June 30,				Increase (Decrease)
	2021		2020									2022		2021
	$		$			$			%			$		$		$			%

Trust and investment services		540		442			98			22.2			1,299		1,207		92			7.6
Service charges on deposit accounts		282		250			32			12.8			627		494		133			26.9
Other service charges and fees		336		451			(115	)		(25.5	)
Other fees													645		804		(159	)		(19.8	)
Commissions		945		781			164			21.0			1,821		1,816		5			0.3
Gains on securities transactions, net		350		55			295			536.4
Gains (losses) on equity securities, net		32		(54	)		86			>100%
Net gains (losses) on debt and equity securities													1		585		(584	)		(99.8	)
Gains on sale of mortgages		1,206		2,081			(875	)		(42.0	)		1,063		3,175		(2,112	)		(66.5	)
Earnings on bank owned life insurance		218		209			9			4.3			425		418		7			1.7
Other miscellaneous income		230		159			71			44.7			814		896		(82	)		(9.2	)

Total other income		4,139		4,374			(235	)		(5.4	)		6,695		9,395		(2,700	)		(28.7	)

~~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 ~~$98,000, or 22.2%~~for both time periods primarily as a result of higher fees on trust accounts partially offset by lower income related to the investment services area. Service charges on deposit accounts increased by 35.8% for the quarter and 26.9% for the year-to-date period, primarily as a result of higher overdraft charges and higher excess transaction charges in both time periods. Other fees decreased by 20.1% and 19.8%, ~~and $266,000, or 18.0%,~~respectively, for the three and ~~nine~~six months ended ~~September~~June 30, ~~2021, compared to the same periods last year. This revenue consists of income from traditional trust services~~2022, driven by lower loan-related fees. Gains and ~~income from non-deposit investment services provided through a third party. In the third quarter of 2021, traditional trust income increased~~losses on debt and equity securities were lower in 2022 driven by $17,000, or 6.3%, while income from non-deposit investments increased by $81,000, or 48.0%, compared to the 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 increase in income from the investment services area for both time periods can be partially attributed to transfer fees received from a new broker dealer thathigher interest rates which has resulted in ~~additional income of $89,000 in the first nine months of 2021. The trust and~~fewer opportunities to sell investment ~~services area continues to be an area of strategic focus for the Corporation.~~

~~Other service charges and fees decreased~~securities at gains. Mortgage gains declined by ~~$115,000,~~$917,000, or ~~25.5%~~73.7%, and ~~$104,000,~~$2,112,000, or ~~8.4%~~66.5%, ~~for the three and nine months ended September 30, 2021, compared to the same periods~~ in 2020. The 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 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 $164,000, or 21.0%, and $645,000, or 30.5%, for the three and nine months ended September 30, 2021, compared to the same periods in 2020. The increase was primarily caused by an increase in debit card interchange income of $138,000, or 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 decreased during the second quarter ~~of 2020 as 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 September 30, 2021, $350,000 and $711,000 of gains on securities transactions were recorded, respectively, compared to gains of $55,000 and $704,000, respectively,~~ for the ~~same 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~~first half of management’s asset liability goals to improve liquidity or reduce interest rate risk or fair value risk. The gains or losses recorded by the Corporation depend heavily on market pricing and the volume of security sales. Generally, the lower U.S. Treasury yields go, the more management will be motivated to pursue taking gains from the sale of securities. However, these market opportunities are evaluated subject to the Corporation’s other asset liability measurements and goals. The yield curve in the first nine months of 2021 and 2020 provided opportunities to take gains out of the portfolio.

Gains or losses on equity securities amounted to a gain of $32,000 during the third quarter of 2021, compared to a loss of $54,000 for the 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 nine months of 2021, $99,000 of gains were recorded on the sale of bank stocks and $157,000 was recorded as an unrealized gain due to the increase in market value of the bank stock portfolio. During the first nine months of 2020, unrealized losses of $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 $1,206,000 for the three-month period ended September 30, 2021, compared to $2,081,000 for the same period in 2020, a $875,000, or 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. While mortgage activity was slower for the third quarter of 2021 compared to 2020, year-to-date activity was still higher resulting in the 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.

The miscellaneous income category increased by $71,000 for the three months ended September 30, 2021, and $885,000 for the nine months ended September 30, 2021, compared to the same periods in 2020. Net mortgage servicing income increased by $88,000 for the three months ended September 30, 2021, and $443,000 for the nine months ended September 30, 2021,2022 compared to the same periods in the prior year. This was ~~due~~primarily a result of the rapid increase in interest rates during 2022 that resulted in very low margins on mortgages sold and fewer mortgages sold on the secondary market as customers turned to ~~much lower levels~~adjustable rate mortgages in 2022. Earnings on bank-owned life insurance increased as a result of ~~mortgage servicing asset amortization in 2021. Other~~the purchase of additional BOLI policies. The miscellaneous income ~~categories increased~~category was higher for the quarter but lower for the year-to-date period in 2022 as a result of non-recurring income items that impacted the second quarter of 2022 as well ~~making up~~as the ~~remainder~~first quarter of ~~the variance in this category.~~

2021.

43 39

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Operating Expenses

Operating expenses for the ~~third~~second quarter of ~~2021~~2022 were ~~$10,118,000,~~$11,477,000, an increase of ~~$920,000,~~$1,781,000, or ~~10.0%~~18.4%, compared to the ~~$9,198,000~~$9,696,000 for the ~~third~~second quarter of ~~2020.~~2021. For the year-to-date period ended ~~September~~June 30, ~~2021,~~2022, operating expenses totaled ~~$29,001,000,~~$22,085,000, an increase of ~~$2,449,000,~~$3,202,000, or ~~9.2%~~17.0%, compared to the same period in ~~2020.~~2021. The following ~~tables provide~~table provides details of the Corporation’s operating expenses for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2021,~~2022, compared to the same periods in ~~2020.~~2021.

~~OPERATING EXPENSES~~

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

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

~~(DOLLARS IN THOUSANDS)~~

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)~~

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,										Six Months Ended June 30,
	2021		2020		Increase (Decrease)						2022		2021		Increase (Decrease)
	$		$		$			%			$		$		$		%
Salaries and employee benefits		17,800		16,522		1,278			7.7			13,219		11,658		1,561		13.4
Occupancy expenses		1,972		1,805		167			9.3			1,412		1,318		94		7.1
Equipment expenses		806		904		(98	)		(10.8	)		601		552		49		8.9
Advertising & marketing expenses		717		676		41			6.1			574		435		139		32.0
Computer software & data processing expenses		3,297		2,309		988			42.8			2,524		2,200		324		14.7
Bank shares tax		876		718		158			22.0			702		555		147		26.5
Professional services		1,572		1,679		(107	)		(6.4	)		1,263		1,036		227		21.9
Other operating expenses		1,961		1,939		22			1.1			1,790		1,129		661		58.5
Total Operating Expenses		29,001		26,552		2,449			9.2			22,085		18,883		3,202		17.0

Salaries and employee ~~benefit costs~~benefits are the largest category of operating expenses. For the three months ended June 30, 2022, salaries and benefits increased $748,000, or 12.6%, compared to 2021. For the six months ended June 30, 2022, salaries and benefits increased by ~~$282,000,~~$1,561,000, or ~~4.8%~~13.4%, ~~for the third quarter of 2021, and $1,278,000, or 7.7%, for~~from the year-to-date period ~~ended September 30, 2021, compared to the same periods~~ in the prior year. ~~The growth in~~This was primarily due to higher costs to replace employees who retired or left the organization due to nationwide, regional, and local staffing challenges, a realignment of salaries ~~can~~company-wide with market norms, and an accrual for the Corporation’s bank-wide incentive program. Occupancy and equipment expenses are higher than the prior year primarily ~~be attributed~~due to ~~merit~~the addition of a community lending office as well as a full service branch office. Advertising and ~~cost of living increases, additions~~marketing expenses increased by 20.4%, and 32.0%, respectively, for the quarter and year-to-date periods, due to ~~staff,~~promoting new market areas as well as new products and ~~higher deferred salaries costs in the second and third quarters of 2020 stemming from higher levels of Paycheck Protection Program (PPP) loan production.~~

services. Computer software and data processing expenses increased by $262,000, or 31.4%, for the 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 $285,000, or 60.1%, for 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 primarilyas a result of ~~increased amortization on existing software~~higher technology costs as ~~well as purchases of~~ new ~~software platforms~~systems are implemented to support the ~~strategic initiatives~~ongoing growth and efficiency of the ~~Corporation.~~

~~Bank shares~~Corpration and increased volumes due to a larger customer base. Shares tax expense ~~was $322,000 for~~is based on the ~~third~~Corporation’s level of shareholders’ equity and has grown substantially, commensurate with the growth in shareholders’ equity. Professional services expenses increased in the second quarter and the first half of ~~2021, an increase of $83,000, or 34.7%, from the third quarter of 2020. For the year-to-date period, shares tax increased by $158,000, or 22.0%,~~2022 compared to the prior ~~year. Two main factors determine~~year driven by higher legal fees and other outside services. Other operating expenses increased over the ~~amount~~prior year primarily as a result of ~~bank shares tax: the ending value of shareholders’ equity~~higher FDIC and ~~the ending value of tax-exempt U.S. obligations. The shares tax calculation uses~~OCC assessment costs, higher fraud-related charges-offs, higher travel costs, and miscellaneous other operating costs that are increasing to 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.~~lesser degree.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Other operating expenses increased by $196,000, or 30.9%, and $22,000, or 1.1%, for the 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 September 30, 2021, compared to the same period in 2020. FDIC insurance charges increased by $27,000, or 33.6%, and travel-related costs increased by $25,000, or 133.5%, for the three months ended September 30, 2021, compared to the same period in the prior year.

Income Taxes

Federal income tax expense was ~~$760,000~~$308,000 for the ~~third~~second quarter of ~~2021~~2022 compared to ~~$533,000~~$561,000 for the same period in ~~2020.~~2021. For the ~~nine~~six months ended ~~September~~June 30, ~~2021,~~2022, the Corporation recorded Federal income tax expense of ~~$2,251,000,~~$806,000, compared to ~~$1,610,000~~$1,492,000 for the ~~nine~~six months ended ~~September~~June 30, ~~2020.~~2021. The effective tax rate for the Corporation was 12.3% for the six months ended June 30, 2022, and 15.6% for the ~~nine~~six months ended ~~September~~June 30, ~~2021 and 2020.~~2021. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax ~~rate.~~rate and the effective tax rate for the first half of 2022 was lower than the prior year due to an increased level of tax-free assets.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Financial Condition

Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of ~~September~~June 30, ~~2021,~~2022, the Corporation had ~~$561.6~~$579 million of securities available for sale, which accounted for ~~35.1%~~32.7% of assets, compared to ~~32.6%~~32.5% as of December 31, ~~2020,~~2021, and ~~27.3%~~37.0% as of ~~September~~June 30, ~~2020.~~2021. Based on ending balances, the securities portfolio decreased 0.9% from June 30, 2021, and increased ~~56.0% from September 30, 2020, and 17.9%~~3.7% from December 31, ~~2020.~~2021.

The debt securities portfolio was showing a net unrealized ~~gain~~loss of ~~$5,477,000~~$46,602,000 as of ~~September~~June 30, ~~2021,~~2022, compared to an unrealized gain of ~~$10,072,000~~$4,356,000 as of December 31, ~~2020.~~2021, and $9,319,000 as of June 30, 2021. The valuation of the Corporation’s securities portfolio, predominately debt securities, is impacted by both the U.S. Treasury rates and the perceived forward direction of interest rates.

The table below summarizes the Corporation’s amortized cost, unrealized gain or loss position, and fair value for each sector of the securities portfolio for the periods ended ~~September~~June 30, 2022, December 31, 2021 and ~~December 31, 2020.~~June 30, 2021.

~~AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD~~

~~(DOLLARS IN THOUSANDS)~~

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

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

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

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

ALCO positions as to liquidity, credit risk, interest rate risk, and fair value risk

Growth of the loan portfolio

Slope of the U.S. Treasury curve

Relative performance of the various instruments, including spread to U.S. Treasuries

Duration and average length of the portfolio

Volatility of the portfolio

Direction of interest rates

Economic factors impacting debt securities

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

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

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

~~SECURITIES PORTFOLIO~~

~~(DOLLARS IN THOUSANDS)~~

Period Ending
September 30, 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~~Corporation’s U.S. Treasury sector increased $18.8 million ~~of U.S. treasuries~~ during the ~~second quarter~~first half of ~~2021 and held no treasuries in 2020,~~2022, resulting in ~~the~~a 126.9% increase in this sector. This sector ~~which~~ represents a safe credit at a ~~market appropriate~~market-appropriate yield which added some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased by ~~$25.1~~$3.6 million, or ~~46.1%~~12.3%, since December 31, ~~2020, with the weighting decreased from 11.2% of~~2021. Management has purchased Non-agency MBS and CMO securities since December 31, 2021 which has brought the portfolio to ~~5.1%. Management had purchased $35.5~~$41 million as of ~~short-term discount notes at~~June 30, 2022, or 7% of 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. Management has increased the allocations of both asset-backed securities (ABS) and obligations of states and political subdivisions (municipals) since December 31, 2020, in order tototal portfolio. This sector will better structure the portfolio to achieve higher yields and shorten the duration while also protecting ~~in preparation for a rates-up environment.~~

The Corporation’s ABS and municipal sectors have increased significantly since December 31, 2020, with ABS increasing $41.0 million, or 67.7%, and municipals increasing $56.1 million, or 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, 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 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 43.8% of the securities portfolio as of September 30, 2021, compared to 40.1% as of December 31, 2020. The Corporation’s investment policy limits municipal holdings to 150% of Tier 2 capital. As of September 30, 2021, municipal holdings amounted to 155% of Tier 2 capital, above this limit. The Corporation plans to be back within policy guidelines by December 31, 2021.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

The Corporation’s U.S. agency MBS and CMO sectors have ~~fluctuated~~decreased slightly since December 31, ~~2020,~~2021, with MBS decreasing ~~$13.6~~$2 million, or ~~19.1%~~3.8%, and CMOs ~~decreasing $1.4 million, or 4.1%.~~staying relatively flat at $31 million. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain a substantial amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. U.S. agency MBS and CMO securities pay contractual monthly principal and interest, but are also subject to additional prepayment of principal. The combined effect of all of these instruments paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month. Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield.

The Corporation’s asset-backed securities declined by $14 million, or 13.8%, from December 31, 2021, to June 30, 2022. Many of the bonds in this sector receive regular monthly principal payments which caused the value to decline. Additionally, some asset-backed securities were sold at gains in the first quarter of 2022 to support the Corporation’s earnings and liquidity position.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

As of ~~September~~June 30, ~~2021,~~2022, the fair value of the Corporation’s corporate bonds ~~increased~~decreased by ~~$23.3~~$5.6 million, or ~~37.7%~~6.8%, from balances at December 31, ~~2020.~~2021. Like any security, corporate bonds have both positive and negative qualities and management must evaluate these securities on a risk versus reward basis. Corporate bonds add diversity to the portfolio and provide strong yields for short maturities; however, by their very nature, corporate bonds carry a high level of credit risk should the entity experience financial difficulties. As a result of the higher level of credit risk taken by purchasing a corporate bond, management has in place procedures to closely analyze the financial health of the company as well as policy guidelines. The guidelines include both maximum investment by issuer and minimal credit ratings that must be met in order for management to purchase a corporate bond. Financial analysis is conducted prior to every corporate bond purchase with ongoing monitoring performed on all securities held.

Obligations of states and political subdivisions, or municipal bonds, consist of both tax-free and taxable securities. They carry the longest duration on average of any instrument in the securities portfolio. Municipal tax-equivalent yields generally start well above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and 2021 due to market conditions that led to favorable yields on some instruments. Municipal bonds represented 39.8% of the securities portfolio as of June 30, 2022, compared to 43.6% as of December 31, 2021.

Loans

Net loans outstanding increased by ~~4.4%~~19.9%, to ~~$867.8~~$1,027.8 million at ~~September~~June 30, ~~2021,~~2022, from ~~$831.2~~$857.1 million at ~~September~~June 30, ~~2020.~~2021. Net loans increased by ~~7.0%~~13.2%, an annualized rate of ~~9.3%~~26.4%, from ~~$811.0~~$908.0 million at December 31, ~~2020.~~2021. The following table shows the composition of the loan portfolio as of ~~September~~June 30, ~~2021,~~2022, December 31, ~~2020,~~2021, and ~~September~~June 30, ~~2020.~~2021.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

~~LOANS BY MAJOR CATEGORY~~

~~(DOLLARS IN THOUSANDS)~~

LOANS BY MAJOR CATEGORY
(DOLLARS IN THOUSANDS)
	September 30,					December 31,					September 30,					June 30,					December 31,					June 30,
	2021					2020					2020					2022					2021					2021
	$			%		$			%		$			%		$			%		$			%		$			%

Commercial real estate
Commercial mortgages		166,741			19.0		142,698			17.4		136,125			16.2		191,249			18.4		177,396			19.3		156,022			17.9
Agriculture mortgages		188,455			21.4		176,005			21.4		174,150			20.7		205,680			19.8		203,725			22.2		178,573			20.5
Construction		18,786			2.1		23,441			2.9		22,380			2.7		82,289			7.9		19,639			2.1		21,347			2.5
Total commercial real estate		373,982			42.5		342,144			41.7		332,655			39.6		479,218			46.1		400,760			43.6		355,942			40.9

Consumer real estate (a)
1-4 family residential mortgages		302,670			34.4		263,569			32.0		260,465			30.9		317,214			30.5		317,037			34.5		288,301			33.2
Home equity loans		11,889			1.4		10,708			1.3		10,788			1.3		13,711			1.3		11,181			1.2		11,525			1.3
Home equity lines of credit		74,919			8.5		71,290			8.7		68,368			8.1		87,251			8.4		75,698			8.2		71,694			8.2
Total consumer real estate		389,478			44.3		345,567			42.0		339,621			40.3		418,176			40.2		403,916			43.9		371,520			42.7

Commercial and industrial				��
Commercial and industrial		73,695			8.4		97,896			11.9		128,414			15.2		81,612			7.9		65,615			7.1		102,533			11.8
Tax-free loans		17,279			2.0		10,949			1.3		16,423			1.9		23,517			2.3		23,009			2.5		16,268			1.9
Agriculture loans		19,180			2.2		20,365			2.5		20,494			2.4		31,355			3.0		20,717			2.3		17,824			2.1
Total commercial and industrial		110,154			12.6		129,210			15.7		165,331			19.5		136,484			13.2		109,341			11.9		136,625			15.8

Consumer		5,211			0.6		5,155			0.6		5,190			0.6		5,376			0.5		5,132			0.6		5,133			0.6

Total loans		878,825			100.0		822,076			100.0		842,797			100.0		1,039,254			100.0		919,149			100.0		869,220			100.0
Less:
Deferred loan fees (costs), net		(1,436	)				(1,294	)				(380	)				2,186					1,755					535
Allowance for credit losses		12,454					12,327					11,996					(13,606	)				(12,931	)				(12,703	)
Total net loans		867,807					811,043					831,181					1,027,834					907,973					857,052

(a)

Residential real estate loans do not include mortgage loans serviced for others which totaled ~~$274,892,000~~$304,841,000 as of ~~September~~June 30, ~~2021, $235,437,000~~2022, $289,263,000 as of December 31, ~~2020,~~2021, and ~~$217,812,000~~$263,005,000 as of ~~September~~June 30, ~~2020.~~2021.

Table of Contents

ENB FINANCIAL CORP

Management’s Discussion and Analysis

There was ~~moderate~~significant growth in the loan portfolio since ~~September~~June 30, ~~2020,~~2021 and December 31, ~~2020.~~2021. Most major loan categories showed an increase in balances from both time periods with the exception of the commercial and industrial loans which showed an increase since December 31, 2021, but a decline since June 30, 2021, due to the forgiveness of PPP loans since ~~September~~June 30, ~~2020.~~2021.

The ~~consumer residential~~commercial real estate category represents the largest group of loans for the Corporation. Commercial real estate makes up 46.1% of total loans as of June 30, 2022, compared to 40.9% of total loans as of June 30, 2021. Within the commercial real estate segment, the increase has primarily been construction loans which was a direct result of reclassification from 1-4 family residential loans in the first half of 2022. The Corporation’s commercial construction loan balances increased by $60.9 million, or 285.5%, from June 30, 2021 to June 30, 2022. Commercial construction loans were 7.9% of the total loan portfolio as of June 30, 2022, and 2.5% as of June 30, 2021.

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

The consumer residential real estate category of total loans increased from ~~$339.6~~$371.5 million on ~~September~~June 30, ~~2020,~~2021, to ~~$389.5~~$418.2 million on ~~September~~June 30, ~~2021,~~2022, a ~~14.7%~~12.6% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages account for the vast majority of residential real estate loans with fixed and floating home equity loans making up the remainder. Historically, the entire consumer residential real estate component of the loan portfolio has averaged close to 40% of total loans. As of ~~September~~June 30, ~~2020,~~2021, this percentage was ~~40.3%~~42.7%, and as of ~~September~~June 30, ~~2021,~~2022, it ~~increased~~decreased to ~~44.3%~~40.2%. Although economic conditions for consumers had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market ~~continued to remain~~was relatively strong as consumers refinanced existing debt to lower ~~rates.~~rates throughout 2021. During the first half of 2022, mortgage activity remained strong with the majority of consumers choosing adjustable rate mortgages which remain in the Corporation’s loan portfolio as opposed to the 30-year fixed rate mortgages that were being generated in the past couple of years and sold on the secondary market.

The first lien 1-4 family mortgages increased by ~~$42.2~~$28.9 million, or ~~16.2%~~10.0%, from ~~September~~June 30, ~~2020,~~2021, to ~~September~~June 30, ~~2021.~~2022. These first lien 1-4 family loans made up ~~76.7%~~77.6% of the residential real estate total as of ~~September~~June 30, ~~2020,~~2021, and ~~77.7%~~75.9% as of ~~September~~June 30, ~~2021.~~2022. The vast majority of the first lien 1-4 family closed end loans consist of single family personal first lien residential mortgages and home equity loans, with the remainder consisting of 1-4 family residential non-owner-occupied mortgages. In the ~~third~~second quarter of ~~2021,~~2022, mortgage production ~~decreased 17%~~increased 9% from the previous quarter ~~and~~but was down ~~10%~~13% from the ~~third~~second quarter of ~~2020.~~2021. Purchase money origination constituted ~~69%~~82% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up ~~37%~~58% of that mix. With ~~a lower~~the continued higher volume of new construction business in combination with a rising interest rate environment, the percentage of mortgage originations being added into the Corporation’s held-for-investment mortgage portfolio ~~decreased~~increased quarter-over-quarter. In the ~~third~~second quarter of ~~2021, 65%~~2022, 78% of all mortgage originations were held in the mortgage portfolio, ~~49%~~52% of which were adjustable rate mortgages. As of ~~September~~June 30, ~~2021,~~2022, ARM balances were ~~$133.5~~$159.5 million, representing ~~44.1%~~50.3% of the 1-4 family residential loan portfolio of the Corporation. With ~~the~~a continued decline in dollar volume of loans being delivered into the secondary market ~~remaining stable,~~along with a continued increase in mortgage rates, the gains on the sale of mortgages ~~remained consistent~~declined quarter-over-quarter.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

As of ~~September~~June 30, ~~2021,~~2022, the remainder of the residential real estate loans consisted of $13.7 million of fixed rate junior lien home equity loans, and $87.3 million of variable rate home equity lines of credit (HELOCs). This compares to $11.5 million of fixed rate junior lien home equity loans, and $71.7 million of ~~variable rate home equity lines of credit (HELOCs). This compares to $10.8 million of fixed rate junior lien home equity loans, and $68.4 million of~~ HELOCs as of ~~September~~June 30, ~~2020.~~2021. Therefore, combined, these two types of home equity loans increased from ~~$79.2~~$83.2 million to ~~$83.2~~$101.0 million, an increase of ~~5.1%~~21.4%.

Commercial real estate makes up 42.5% of total loans as of September 30, 2021, compared to 39.6% of total loans as of September 30, 2020. Within the commercial real estate segment, the increase has primarily been in commercial and agricultural mortgages. Commercial mortgages increased $30.6 million, or 22.5%, from balances at September 30, 2020. Commercial mortgages as a percentage of the total loan portfolio increased to 19.0% as of September 30, 2021, compared to 16.2% at September 30, 2020. Agricultural mortgages increased by $14.3 million, or 8.2%, from $174.2 million as of September 30, 2020, to $188.5 million as of September 30, 2021. Agricultural mortgages were 21.4% of the portfolio as of September 30, 2021, compared to 20.7% as of September 30, 2020.

The Corporation’s commercial construction loan balances decreased by $3.6 million, or 16.1%, from September 30, 2020 to 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 2.1% of the total loan portfolio as of September 30, 2021, and 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 ~~12.6%~~13.2% of total loans as of ~~September~~June 30, ~~2021, compared to 19.5% as of September~~2022, a decline from the 15.8% at June 30, ~~2020.~~2021. The balance of total commercial and industrial loans ~~decreased~~remained stable from ~~$165.3 million at September 30, 2020, to $110.2 million at September~~June 30, 2021 ~~a 33.3% decrease.~~to June 30, 2022. This category of loans generally includes unsecured lines of credit, truck, equipment, and receivable and inventory loans, in addition to tax-free loans to municipalities. The balance at ~~September~~June 30, ~~2021~~2022 and ~~September~~June 30, ~~2020,~~2021, also includes the PPP loans, which have declined rapidly as these loans are forgiven by the SBA after businesses prove they used the funds for qualified expenses. The total balance of PPP loans declined by ~~$54.5~~$47.0 million, or ~~70.1%~~96.1% from ~~September~~June 30, ~~2020, to September~~2021, and represents $1.9 million as of June 30, ~~2021.~~2022.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The consumer loan portfolio ~~remained the same~~increased slightly from ~~September 30, 2020, to September~~$5.1 million at June 30, 2021, to $5.4 million at ~~$5.2 million and 0.6%~~June 30, 2022, a 5.9% increase. The consumer loan portfolio represents 0.5% of total loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans that are generally unsecured. Demand for unsecured credit is being matched by principal payments on existing loans resulting in stable balances.

Non-Performing Assets

Non-performing assets include:

Nonaccrual loans

Loans past due 90 days or more and still accruing

Non-performing troubled debt restructurings

Other real estate owned

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

~~NON-PERFORMING ASSETS~~

~~(DOLLARS IN THOUSANDS)~~

NON-PERFORMING ASSETS
(DOLLARS IN THOUSANDS)
	September 30,		December 31,		September 30,		June 30		December 31,		June 30
	2021		2020		2020		2022		2021		2021
	$		$		$		$		$		$

Nonaccrual loans		2,236		725		846		4,666		2,556		651
Loans past due 90 days or more and still accruing		183		1,373		284		813		325		287
Troubled debt restructurings, non-performing		—		—		5,513		—		—		—
Total non-performing loans		2,419		2,098		6,643		5,479		2,881		938

Other real estate owned		—		—		—		—		—		—

Total non-performing assets		2,419		2,098		6,643		5,479		2,881		938

Non-performing assets to net loans		0.28%		0.25%		0.80%		0.53%		0.31%		0.11%

The total balance of non-performing assets ~~decreased~~increased by ~~$4.2~~$4.5 million, or ~~63.6%~~484.1% from balances at ~~September~~June 30, ~~2020,~~2021, and increased by ~~$0.3~~$2.6 million, or ~~15.3%~~90.2%, from balances at December 31, ~~2020. The decrease from September 30, 2020 was primarily due to a decrease in non-performing troubled debt restructurings (TDRs) related to the payoff of one commercial borrower.~~2021. There were no non-performing TDR loans asin any of ~~September 30, 2021 or December 31, 2020. As of September 30, 2020, there were four non-performing TDR loans that totaled $5.5 million.~~the periods presented. A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. Non-accrual loans increased by ~~$1.4~~$4.0 million, or ~~164.3%~~616.9%, since ~~September~~June 30, ~~2020,~~2021, and increased ~~$1.5~~$2.1 million, or ~~208.4%~~82.6% since December 31, ~~2020.~~2021. The increase that occurred between ~~September 30,~~December 31, 2021 and ~~December 31, 2020~~June 30, 2022 was primarily due to three agricultural relationships, ~~that were~~a business loan, a commercial real estate loan, and a business mortgage of unrelated borrowers all added to non-accrual in the ~~third quarter~~first half of ~~2021.~~2022. Loans past due 90 days or more and still accruing were ~~down slightly~~up $488,000 from the prior year period, and ~~down more significantly, by $1.2 million, or 86.7%~~$526,000, since December 31, ~~2020.~~2021, as a result of an agriculture mortgage and two residential real estate loans that entered the category during the first half of 2022.

There was no other real estate owned (OREO) as of ~~September~~June 30, ~~2021,~~2022, December 31, ~~2020,~~2021, or ~~September~~June 30, ~~2020.~~2021.

Allowance for Credit Losses

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Historical loan losses

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

Growth trends of the loan portfolio

Recovery of loans previously charged off

Provision for loan losses

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

Net Charge-Offs
(DOLLARS IN THOUSANDS)

	2022			2021
	$			$

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

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

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

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

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

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

~~ALLOWANCE FOR CREDIT LOSSES~~

~~(DOLLARS IN THOUSANDS)~~

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 nine months ended September 30, 2021, were $30,000, compared to $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 nine months of 2021 and 2020, the Corporation charged off several smaller amounts related to consumer loans and a commercial and industrial loan in 2020. Recoveries were also low in 2020 and 2021with total recoveries of $32,000 in the first nine months of 2021 and $16,000 in the first 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 ~~$17.9~~$14.0 million on ~~September~~June 30, ~~2021,~~2022, compared to ~~$26.1~~$23.4 million on ~~September~~June 30, ~~2020.~~2021. Total classified loans have decreased ~~during 2021.~~from the prior year. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans. In addition to this impact, management performs a specific allocation test on these classified loans. There was ~~$0.2 million~~$74,000 of specifically allocated allowance against the classified loans as of ~~September~~June 30, ~~2021, $1.1 million~~2022, $147,000 of specific allocation as of December 31, ~~2020,~~2021, and $1.1 million of specific allocation as of ~~September~~June 30, ~~2020.~~2021. The higher specific allocation at ~~December~~June 30, ~~2020 and September 30, 2020,~~2021, was related to a commercial customer with ongoing business concerns. This loan paid off during the third quarter of 2021, resulting in a decline in the provision for loan losses.

The allowance as a percentage of total loans was ~~1.41%~~1.31% as of ~~September~~June 30, ~~2021,~~2022, and ~~1.42%~~1.46% as of ~~September~~June 30, ~~2020.~~2021. It is typical for the allowance for credit losses to contain a small amount of excess reserves. Over the long term, management targets an excess reserve at approximately 5%-10% knowing that the reserve can fluctuate. The excess reserve stood at ~~8.4%~~3.2% as of ~~September~~June 30, ~~2021.~~2022.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Premises and Equipment

Premises and equipment, net of accumulated depreciation, decreased by ~~$0.2~~$0.4 million, or ~~0.8%~~1.6%, to ~~$24.5~~$24.3 million as of ~~September~~June 30, ~~2021,~~2022, from $24.7 million as of ~~September~~June 30, ~~2020.~~2021. As of ~~September~~June 30, ~~2021, $261,000~~2022, $380,000 was classified as construction in process compared to ~~$220,000~~$379,000 as of ~~September~~June 30, ~~2020.~~2021. Fixed assets declined as a result of depreciation outpacing new purchases ~~in 2021.~~year over year.

Regulatory Stock

The Corporation owns multiple forms of regulatory stock that is required in order to be a member of the Federal Reserve Bank (FRB) and members of banks such as the Federal Home Loan Bank (FHLB) and Atlantic Community Bankers Bank (ACBB). The Corporation’s ~~$5.6~~$6.1 million of regulatory stock holdings as of ~~September~~June 30, ~~2021,~~2022, consisted of ~~$5.0~~$5.4 million of FHLB of Pittsburgh stock, ~~$601,000~~$631,000 of FRB stock, and $37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding Company of ACBB. All of these stocks are valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the investment is carried at book value and there is no fair market value adjustment.

The Corporation’s investment in FHLB stock is required for membership in the organization. The amount of stock required is dependent upon the relative size of outstanding FHLB borrowings and mortgage activity. Excess stock is typically repurchased from the Corporation at par if the borrowings decline to a predetermined level. The Corporation’s FHLB stock position was $5.0 million on September 30, 2021, $5.9 million on December 31, 2020, and $6.3 million on 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.

Deposits

The Corporation’s total ending deposits at ~~September~~June 30, ~~2021,~~2022, increased by ~~$138.7~~$66.1 million, or ~~11.1%~~4.4%, and by ~~$264.7~~$209.4 million, or ~~23.5%~~15.3%, from December 31, ~~2020,~~2021, and ~~September~~June 30, ~~2020,~~2021, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates. The mix of the Corporation’s deposit categories has changed moderately since ~~September~~June 30, ~~2020,~~2021, with the changes being a ~~$126.1~~$95.7 million, or ~~27.1%~~16.4% increase in non-interest bearing demand deposit accounts, a ~~$12.9~~$14.3 million, or ~~28.4%~~25.8% increase in interest bearing demand balances, a ~~$21.6~~$3.5 million, or ~~19.3% increase~~2.7% decrease in NOW balances, a ~~$36.4~~$53.5 million, or ~~29.0%~~33.0% increase in money market account balances, a ~~$74.0~~$52.8 million, or ~~28.9%~~16.5% increase in savings account balances, and a ~~$6.3~~$3.4 million, or ~~5.1%~~2.9% decrease in time deposit balances.

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. Customers view demand deposit, money market and savings accounts as the safest, most convenient place to maintain funds for maximum flexibility.

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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 ~~September~~June 30, ~~2021,~~2022, December 31, ~~2020,~~2021, and ~~September~~June 30, ~~2020.~~2021.

~~DEPOSITS BY MAJOR CLASSIFICATION~~

~~(DOLLARS IN THOUSANDS)~~

DEPOSITS BY MAJOR CLASSIFICATION
(DOLLARS IN THOUSANDS)

	September 30,		December 31,		September 30,		June 30,		December 31,		June 30,
	2021		2020		2020		2022		2021		2021
	$		$		$		$		$		$

Non-interest bearing demand		591,333		534,853		465,247		678,472		686,278		582,747
Interest bearing demand		58,425		47,092		45,502		69,711		63,015		55,419
NOW accounts		133,443		137,279		111,849		127,622		139,366		131,151
Money market deposit accounts		162,050		140,113		125,665		215,781		168,327		162,247
Savings accounts		329,900		274,386		255,936		373,060		341,291		320,252
Time deposits		116,351		119,088		122,622		113,634		113,936		117,068
Total deposits		1,391,502		1,252,811		1,126,821		1,578,280		1,512,213		1,368,884

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

Convenience and service provided

Current rates paid on deposits relative to competitor rates

Level of and perceived direction of interest rates

Financial condition and perceived safety of the institution

Possible risks associated with other investment opportunities

Level of fees on deposit products

Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution. As of ~~September~~June 30, ~~2021,~~2022, time deposit balances had decreased ~~$6.3~~$3.4 million, or ~~5.1%~~2.9%, from ~~September~~June 30, ~~2020,~~2021, and ~~$2.7~~$0.3 million, or ~~2.3%~~0.3% from December 31, ~~2020.~~2021. The Corporation has experienced a slow and steady shift in deposit trends over the past five years as customers have moved money from time deposits into core checking and savings accounts. ~~With~~The low rate environment has caused this shift due to the ~~Federal Reserve rate decreases~~small variance in ~~2020, there is minimal differences~~rates between ~~shorter term CD rates~~time deposits and ~~interest bearing non-maturity deposits, influencing customers to accumulate their funds~~other deposit products resulting in a ~~liquid account that can be accessed at any time. This has resulted~~change in ~~declining time deposit balances and more significant growth in the core deposit areas.~~customer behavior.

Borrowings

Total borrowings were ~~$66.4~~$83.9 million, ~~$74.4~~$63.9 million, and ~~$61.5~~$69.8 million as of ~~September~~June 30, 2022, December 31, 2021, and June 30, 2021, ~~December 31, 2020,~~respectively. There was $20.0 million of short-term funds outstanding at June 30, 2022, and ~~September 30, 2020, respectively. Of these amounts, there were~~ no short-term funds outstanding ~~as of September 30, 2021 and~~at December 31, ~~2020 and $1.5 million outstanding as of September~~2021, or June 30, ~~2020.~~2021. Short-term funds are used for immediate liquidity needs and are not typically part of an ongoing liquidity or interest rate risk strategy; therefore, they fluctuate more rapidly. When short-term funds are used, they are purchased through correspondent and member bank relationships as overnight borrowings or through the FHLB for terms less than one year. The $20.0 million of short-term borrowings at June 30, 2022, consisted entirely of short-term FHLB advances.

Total long-term borrowings, borrowings initiated for terms longer than one year, were ~~$46.7~~$44.2 million as of ~~September~~June 30, ~~2021, $54.8~~2022, $44.2 million as of December 31, ~~2020,~~2021, and ~~$60.0~~$50.2 million as of ~~September~~June 30, ~~2020.~~2021. The long-term borrowings for the Corporation were made up entirely of FHLB long-term advances. FHLB advances are used as a secondary source of funding and to mitigate interest rate risk. These long-term funding instruments are typically a more effective funding instrument in terms of selecting the exact amount, rate, and term of funding rather than trying to source the same through deposits. In this manner, management can efficiently meet known liquidity and interest rate risk needs. The decrease in long-term FHLB borrowings since ~~September~~June 30, ~~2020,~~2021, can be attributed to management taking advantage of declining rates by prepaying FHLB advances and incurring penalties in order to save on interest expense in future years.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently ~~$478.2~~$518.6 million. The Corporation’s internal policy limits are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

In addition to the long-term advances funded through the FHLB, on December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4%4.00% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of ~~September~~June 30, ~~2021, $15.0~~2022, $16.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

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

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 September 30, 2021 Capital Ratios Capitalized Capitalized
Total Capital to Risk-Weighted Assets
Consolidated 15.9% N/A N/A
Bank 15.4% 8.0% 10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.8% N/A N/A
Bank 14.1% 6.0% 8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.8% N/A N/A
Bank 14.1% 4.5% 6.5%

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

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

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

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

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

As of September 30, 2020
Total Capital to Risk-Weighted Assets
Consolidated 13.4% N/A N/A
Bank 13.3% 8.0% 10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.2% N/A N/A
Bank 12.1% 6.0% 8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.2% N/A N/A
Bank 12.1% 4.5% 6.5%

Tier 1 Capital to Average Assets
Consolidated 9.2% N/A N/A
Bank 9.1% 4.0% 5.0%

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

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

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

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

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

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

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

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


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

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

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

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

As of ~~September~~June 30, ~~2021~~2022 the Bank’s Tier 1 Leverage Ratio stood at ~~9.2%~~8.7% while the Corporation’s Tier 1 Leverage Ratio was ~~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%~~7.8%. Tier 1 Capital levels at the Corporation level were not impacted by the subordinated debt issue since subordinated debt only qualifies as Tier 2 Capital at the corporate level. As such, in terms of the Corporation’s regulatory capital ratios, only the Total Capital to Risk-Weighted Assets ratio was enhanced as a result of the $20 million subordinated debt issue. Most of the marked improvement in capital ratios from 2020 to 2021 occurred at the Bank level. In 2022, the Corporation’s earnings, net of dividends paid, positively impacted the level of stockholders’ equity, but a devaluation of the investment portfolio, resulted in a higher level of unrealized losses, and a negative impact.

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Management’s Discussion and Analysis

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of ~~September~~June 30, ~~2021.~~

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~(DOLLARS IN THOUSANDS)~~2022.

OFF-BALANCE SHEET ARRANGEMENTS
(DOLLARS IN THOUSANDS)
	~~September~~
	June 30,
	~~2021~~2022
	$
Commitments to extend credit:
~~Revolving home equity~~		~~144,709~~173,740
Construction loans		~~1,534~~53,139
Real estate loans		~~130,204~~92,400
Business loans		~~185,596~~207,262
Consumer loans		~~1,383~~1,404
Other		~~5,154~~5,582
Standby letters of credit		~~13,125~~11,185

Total		~~481,705~~544,712

Significant Legislation

Dodd-Frank Wall Street Reform and Consumer Protection Act

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into law. Dodd-Frank is intended to affect a fundamental restructuring of federal banking regulation. Among other things, Dodd-Frank creates a new Financial Stability Oversight Council to identify systemic risks in the financial system and gives federal regulators new authority to take control of and liquidate financial firms. Dodd-Frank additionally creates a new independent federal regulator to administer federal consumer protection laws. Among the provisions that have already or are likely to affect the Corporation are the following:

Holding Company Capital Requirements

Dodd-Frank requires the Federal Reserve to apply consolidated capital requirements to bank holding companies that are no less stringent than those currently applied to depository institutions. Under these standards, trust preferred securities will be excluded from tier I capital unless such securities were issued prior to May 19, 2010, by a bank holding company with less than $15 billion in assets. Dodd-Frank additionally requires that bank regulators issue countercyclical capital requirements so that the required amount of capital increases in times of economic expansion and decreases in times of economic contraction, are consistent with safety and soundness.

Deposit Insurance

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

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Management’s Discussion and Analysis

Corporate Governance

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

Consumer Financial Protection Bureau

Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which is granted broad rulemaking, supervisory and enforcement powers under various federal consumer financial protection laws, including the Equal Credit Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy Provisions of the Gramm-Leach-Bliley Act, and certain other statutes. The CFPB has examination and primary enforcement authority with respect to depository institutions with $10 billion or more in assets. Smaller institutions will be subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. The CFPB will have authority to prevent unfair, deceptive, or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorizes the CFPB to establish certain minimum standards for the origination of residential mortgages including a determination of the borrower’s ability to repay. In addition, Dodd-Frank will allow borrowers to raise certain defenses to foreclosure if they receive any loan other than a “qualified mortgage” as defined by the CFPB. Dodd-Frank permits states to adopt consumer protection laws and standards that are more stringent than those adopted at the federal level and, in certain circumstances, permits state attorneys general to enforce compliance with both the state and federal laws and regulations.

Interstate Branching

Dodd-Frank authorizes national and state banks to establish branches in other states to the same extent as a bank chartered by that state would be permitted. Previously, banks could only establish branches in other states if the host state expressly permitted out-of-state banks to establish branches in that state. Accordingly, banks will be able to enter new markets more freely.

Limits on Interstate Acquisitions and Mergers

Dodd-Frank precludes a bank holding company from engaging in an interstate acquisition – the acquisition of a bank outside its home state – unless the bank holding company is both well capitalized and well managed. Furthermore, a bank may not engage in an interstate merger with another bank headquartered in another state unless the surviving institution will be well capitalized and well managed. The previous standard in both cases was adequately capitalized and adequately managed.

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Item 3. Quantitative and Qualitative Disclosures about Market Risk

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

Credit risk

Liquidity risk

Interest rate risk

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

Credit Risk

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

Liquidity Risk

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

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

~~Management uses~~The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a ~~cumulative maturity gap analysis~~30 and 90-day interval. The Bank stresses the measurements by assuming a level of deposit out-flows that have not historically been realized. In addition to ~~measure~~this forecast, other funding sources are reviewed as a method to provide emergency funding if necessary. The objective of this measurement is to identify the amount of assets maturing within various periods versus liabilities maturing 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 September 30, 2021, all maturity gap ratios were higher than corporate policy guidelines, due to a larger amount of loans, securities, and cash balances now maturing in less than five years. The six-month gap ratio was 267.2%, compared to an upper policy guideline of 155%; the one-year gap ratio was 241.0%, compared to an upper policy guideline of 140%; the three-year gap ratio was 196.9%, compared to an upper guideline of 125%; and the five-year gap ratio was 177.5%, compared to an upper policy guideline of 115%. In a rising interest rate cycle higher gap ratios wouldthat could 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.

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 improvements to 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 cash.

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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 September 30, 2021, the loan-to-deposit ratio was 63.3%, compared to 65.7%, at December 31, 2020, and 74.8% at September 30, 2020.

~~The risk of liabilities repricing at higher interest rates is low in the present environment as the Corporation does not foresee~~raised quickly without the need to ~~raise~~liquidate assets. The Bank also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit ~~interest rates any time~~flows in ~~the near future. The Corporation’s average cost~~its local market, reduce access to wholesale funding and limit access of funds ~~was 19 basis points as~~available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of ~~September 30, 2021, which is low from~~time horizons to ensure the Bank has adequate funding resources. Assumptions used for liquidity stress testing are subjective. Should an ~~historic perspective.~~evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The ~~average cost of funds includes the benefit of non-interest bearing demand deposit accounts.~~Corporation believes it can meet all anticipated liquidity demands.

Deposits had not been very rate sensitive for a number of years as a result of the limited desirable rates available to deposit customers. With the Federal Reserve rate declines in the first quarter of 2020, deposit growth has 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 issued in 2020 and 2021,Historically, the Corporation has ~~experienced significant~~satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth ~~throughout the latter part~~and its ability to access existing lines of ~~2020~~credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered can be used as collateral for borrowings and ~~the first nine months~~are an additional source 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.readily available liquidity.

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

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

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

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

Net Short-term ~~Funds Availability~~Liabilities/Total Assets – ~~Readily available~~Short-term liabilities minus short-term ~~funds as a percentage of~~ assets

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

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

~~Borrowing Limits~~Loan to Deposit Ratio – ~~Internal borrowing limits in terms~~Total loans as a percentage of ~~both FHLB and~~ total ~~borrowings~~

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

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These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of ~~September~~June 30, ~~2021,~~2022, 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.measurements.

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

Interest Rate Risk

Interest rate risk is measured using two analytical tools:

Changes in net interest income

Changes in net portfolio value

Financial modeling is used to forecast net interest income and earnings, as well as net portfolio value, also referred to as fair value. The modeling is generally conducted under seven different interest rate scenarios that can vary according to the present level of interest rates. The scenarios consist of a projection of net interest income if rates remain flat, increase 100, 200, 300, or ~~300~~400 basis points, or decrease ~~25, 50,~~100, or 75200 basis points. 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 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:

Projected forward interest rates

Slope of the U.S. Treasury curve

Spreads available on securities over the U.S. Treasury curve

Prepayment speeds on loans held and mortgage-backed securities

Anticipated calls on securities with call options

Deposit and loan balance fluctuations

Competitive pressures affecting loan and deposit rates

Economic conditions

Consumer reaction to interest rate changes

For the interest rate sensitivity analysis and net portfolio value analysis discussed below, results are based on a static balance sheet reflecting no projected growth from balances as of September 30, 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.

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

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Changes in Net Interest Income

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

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As of ~~September~~June 30, ~~2021,~~2022, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios. ~~All~~The majority of up-rate scenarios show a positive impact to net interest ~~income. The increase in net interest~~ income ~~in the up-rate scenarios is~~ largely due to the ~~increase in~~ variable rate securities and 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 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.~~

For the rates-up 100 basis point scenario, net interest income increases by 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 1.3% 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 September 30, 2021, the Corporation had no overnight or short term borrowings but had $46.7 million of long-term fixed-rate advances. Additionally, total borrowings only make up approximately 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. The increase in net interest income in the up-rate scenarios has declined since prior quarters due to the lengthening of the Corporation’s assets and the lower yields on these assets. The model still shows a benefit in the rates-up environment, although less of a benefit than prior timeframes.

As of September 30, 2021, in the down scenarios of -25, -50, and -75 basis points, net interest income decreases by 0.8%, 2.0%, and 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.

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Changes in Net Portfolio Value

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of ~~September~~June 30, ~~2021,~~2022, the Corporation was within guidelines for all ~~up-rate~~rate scenarios ~~and out of policy guidelines for~~except the ~~down-rate scenarios.~~down-200 basis point scenario. 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~~large amount of core deposits on the Corporation’s balance ~~sheet as of September 30, 2021.~~sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the ~~discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.~~

The results as of September 30, 2021, indicate that the Corporation’s net portfolio value would experience valuation gains of 14.1%, 19.3%, and 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~~core deposits also decreases resulting in exposure to fair value loss in the ~~value of the Corporation’s liabilities.~~ down-rate scenarios.

The analysis does show a valuation loss in the ~~down 25, 50,~~down-100 and 75200 rate scenarios. Policy allows for a valuation decline of 25% for the down-200 basis point ~~scenarios~~scenario and actual projected results show a valuation decline of ~~-7.2%, -15.9%, and -25.1%, respectively, compared to~~45%. While this loss is outside of 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~~is to ~~use other tools available to support the economy before resorting to further~~have several additional rate ~~reductions.~~hikes in 2022 making a down-200 rate scenario unlikely. The ~~behavior of the Corporation’s deposits~~Corporation will continue to ~~have an impact on the Corporation’s net portfolio value. With the recent rapid increase~~monitor these measurements in the ~~Corporation’s core deposits, management is guarded against further valuation declines in the rates-down interest rate~~down-rate scenarios ~~throughout the remainder of 2021, even though the likelihood of~~and adjust balance sheet structure as necessary to prepare for future potential lower ~~interest rates is remote.~~rates.

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

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Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of ~~September~~June 30, ~~2021,~~2022, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, the Chief Executive Officer (Principal Executive Officer) along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure controls and procedures as of ~~September~~June 30, ~~2021,~~2022, are effective to ensure that information required to be disclosed in the reports that the company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.

(b) Changes in Internal Controls.

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

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PART II – OTHER INFORMATION

~~September~~June 30, ~~2021~~2022

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

The Corporation continually monitors the risks related to the Corporation’s business, other events, the Corporation’s Common Stock, and the Corporation’s industry. Management has not identified any new risk factors since the December 31, ~~2020~~2021 Form 10-K filing.

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

Purchases

The following table details the Corporation’s purchase of its own common stock during the three months ended ~~September~~June 30, ~~2021.~~2022.

Issuer Purchase of Equity Securites

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

July 2021 — — — 175,200
August 2021 — — — 175,200
September 2021 3,100 21.95 3,100 172,100

Total 3,100

Issuer Purchase of Equity Securites

Total Number of

Maximum Number

Total Number

Average

Shares Purchased

of Shares that May

of Shares

Price Paid

as Part of Publicly

Yet be Purchased

Period

Purchased

Per Share

Announced Plans *

Under the Plan *

April 2022

—

167,100

May 2022

—

167,100

June 2022

3,000

17.75

3,000

164,100

Total

3,000

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By ~~September~~June 30, ~~2021,~~2022, a total of ~~27,900~~35,900 shares were repurchased at a total cost of ~~$560,000~~$723,000 for an average cost per share of ~~$20.07.~~$20.14.

Item 3. Defaults Upon Senior Securities – Nothing to Report

Item 4. Mine Safety Disclosures – Not Applicable

Item 5. Other Information – Nothing to Report

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Item 6. Exhibits:

Exhibit
No.

Description

3(i)

Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K filed with the SEC on June 7, 2019)

3 (ii)

By-Laws of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on July 21, 2021.)

10.1

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

10.2

~~2020~~2022 Employee Stock Purchase Plan (Incorporated herein by reference to ~~Exhibit 99.1 of~~Appendix A to the Corporation’s ~~Form S-8,~~Definitive Proxy Statement filed with the SEC on ~~October 1, 2020.~~April 4, 2022.)

10.3

2020 Non-Employee Directors’ Stock Plan. (Incorporated herein by reference to Exhibit 99.1 of the Corporation’s Form S-8 filed with the SEC on June 3, 2020.)

~~10.4~~

~~2020 Nonqualified Employee Stock Purchase Plan (Incorporated by reference to Exhibit 99.1 of the Corporation’s Form S-8 filed with the SEC on October 1, 2020.)~~

31.1

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

31.2

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

32.1

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

32.2

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

66 59

Table of Contents

ENB FINANCIAL CORP

SIGNATURES

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

	ENB Financial Corp
	(Registrant)


Dated: ~~November~~August 12, ~~2021~~2022	By:	/s/ Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer


Dated: ~~November~~August 12, ~~2021~~2022	By:	/s/ Rachel G. Bitner
		Rachel G. Bitner
		Treasurer
		Principal Financial Officer

(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%

	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

	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%