UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, ~~2022~~2023

☐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~~	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~~

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

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

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

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

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

Yes ☒ No ☐

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

Yes ☒ No ☐

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

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

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

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

Yes ☐ No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of May 1, ~~2022,~~2023, the registrant had ~~5,595,152~~5,642,823 shares of $0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

March 31, ~~2022~~

2023


Part I – FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, ~~2022~~2023 and ~~2021,~~2022, and December 31, ~~2021~~2022 (Unaudited)		3

	Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)		4

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)		5

	Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)		6

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 ~~and 2021~~ (Unaudited)		7

	Notes to the Unaudited Consolidated Interim Financial Statements		~~8-27~~ 8-30

~~Table of Contents~~Index

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	March 31,			December 31,			March 31,			March 31,			December 31,			March 31,
	2022			2021			2021			2023			2022			2022
	$			$			$			$			$			$
ASSETS
Cash and due from banks		21,123			19,930			19,366			27,271			28,935			21,123
Interest-bearing deposits in other banks		58,031			138,519			69,248			19,179			8,637			58,031
Total cash and cash equivalents		79,154			158,449			88,614			46,450			37,572			79,154
Securities available for sale (at fair value)		589,493			558,093			531,600
Securities available for sale (at fair value, net of allowance for credit losses of $0)											494,683			529,142			589,493
Equity securities (at fair value)		8,994			8,982			7,217			9,014			9,118			8,994
Loans held for sale		2,223			3,194			2,018			875			5,927			2,223
Loans (net of unearned income)		950,571			920,904			841,934			1,256,599			1,191,117			950,571
Less: Allowance for loan losses		12,979			12,931			12,690
Less: Allowance for credit losses											16,054			14,151			12,979
Net loans		937,592			907,973			829,244			1,240,545			1,176,966			937,592
Premises and equipment		24,385			24,476			24,742			25,350			25,333			24,385
Regulatory stock		5,406			5,380			6,160			7,318			6,670			5,406
Bank owned life insurance		35,574			35,414			29,833			34,992			34,805			35,574
Other assets		22,327			15,269			12,461			29,624			33,183			22,327
Total assets		1,705,148			1,717,230			1,531,889			1,888,851			1,858,716			1,705,148

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		675,519			686,278			580,003			642,136			672,342			675,519
Interest-bearing		842,438			825,935			745,384			1,007,472			966,616			842,438
Total deposits		1,517,957			1,512,213			1,325,387			1,649,608			1,638,958			1,517,957
Short-term borrowings											5,000			16,000			—
Long-term debt		44,206			44,206			52,792			78,639			58,039			44,206
Subordinated debt		19,700			19,680			19,620			39,436			39,396			19,700
Other liabilities		7,246			3,843			5,269			10,169			8,988			7,246
Total liabilities		1,589,109			1,579,942			1,403,068			1,782,852			1,761,381			1,589,109
Stockholders' equity:
Common stock, par value $0.10
Shares: Authorized 24,000,000
Issued 5,739,114 and Outstanding 5,595,152 as of 3/31/22, 5,583,956 as of 12/31/21, and 5,566,566 as of 3/31/21		574			574			574
Issued 5,739,114 and Outstanding 5,646,154 as of 3/31/23, 5,635,533 as of 12/31/22, and 5,595,152 as of 3/31/22											574			574			574
Capital surplus		4,544			4,520			4,460			4,341			4,437			4,544
Retained earnings		134,098			131,856			124,285			143,542			142,677			134,098
Accumulated other comprehensive (loss) income		(20,298	)		3,441			2,924
Less: Treasury stock cost on 143,962 shares as of 3/31/22, 155,158 as of 12/31/21, and 172,548 as of 3/31/21		(2,879	)		(3,103	)		(3,422	)
Accumulated other comprehensive loss, net of tax											(40,633	)		(48,292	)		(20,298	)
Less: Treasury stock cost on 92,961 shares as of 3/31/23, 103,581 as of 12/31/22, and 143,962 as of 3/31/22											(1,825	)		(2,061	)		(2,879	)
Total stockholders' equity		116,039			137,288			128,821			105,999			97,335			116,039
Total liabilities and stockholders' equity		1,705,148			1,717,230			1,531,889			1,888,851			1,858,716			1,705,148

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three Months ended March 31,
	2023			2022
	$			$
Interest and dividend income:
Interest and fees on loans		13,697			8,815
Interest on securities available for sale
Taxable		3,042			1,429
Tax-exempt		789			1,029
Interest on deposits at other banks		34			37
Dividend income		255			94
Total interest and dividend income		17,817			11,404
Interest expense:
Interest on deposits		2,844			252
Interest on borrowings		1,169			431
Total interest expense		4,013			683
Net interest income		13,804			10,721
Provision for credit losses		1,257			100
Net interest income after provision for credit losses		12,547			10,621
Other income:
Trust and investment services income		785			671
Service fees		900			588
Commissions		895			869
(Losses) gains on the sale of debt securities, net		(410	)		139
Losses on equity securities, net		(196	)		(8	)
Gains on sale of mortgages		122			735
Earnings on bank-owned life insurance		226			190
Other income		332			492
Total other income		2,654			3,676
Operating expenses:
Salaries and employee benefits		7,455			6,512
Occupancy		736			718
Equipment		344			265
Advertising & marketing		274			279
Computer software & data processing		1,782			1,138
Shares tax		300			351
Professional services		663			630
Other expense		810			715
Total operating expenses		12,364			10,608
Income before income taxes		2,837			3,689
Provision for federal income taxes		396			498
Net income		2,441			3,191
Earnings per share of common stock		0.43			0.57
Cash dividends paid per share		0.17			0.17
Weighted average shares outstanding		5,631,499			5,584,603

See Notes to the Unaudited Consolidated Interim Financial Statements

~~Table of Contents~~Index

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

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

THOUSANDS)

Three Months ended March 31,
2022
2021
$
$
Interest and dividend income:
Interest and fees on loans
8,815
8,385
Interest on securities available for sale
Taxable
1,429
1,079
Tax-exempt
1,029
952
Interest on deposits at other banks
37
22
Dividend income
94
92

Total interest and dividend income
11,404
10,530

Interest expense:
Interest on deposits
252
314
Interest on borrowings
431
537

Total interest expense
683
851

Net interest income
10,721
9,679

Provision for loan losses
100
375

Net interest income after provision for loan losses
10,621
9,304

Other income:
Trust and investment services income
671
670
Service fees
588
614
Commissions
869
864
Gains on the sale of debt securities, net
139
87
(Losses) gains on equity securities, net
(8
)
248
Gains on sale of mortgages
735
1,930
Earnings on bank-owned life insurance
190
216
Other income
492
689

Total other income
3,676
5,318

Operating expenses:
Salaries and employee benefits
6,512
5,699
Occupancy
718
683
Equipment
265
267
Advertising & marketing
279
190
Computer software & data processing
1,138
1,098
Shares tax
351
280
Professional services
630
439
Other expense
715
531

Total operating expenses
10,608
9,187

Income before income taxes
3,689
5,435

Provision for federal income taxes
498
931

Net income
3,191
4,504

Earnings per share of common stock
0.57
0.81
Cash dividends paid per share
0.17
0.17
Weighted average shares outstanding
5,584,603
5,561,603

	Three Months ended March 31,
	2023			2022
	$			$
Net income		2,441			3,191
Other comprehensive income (loss), net of tax:
Securities available for sale not other-than-temporarily impaired:

Unrealized gains (losses) arising during the period		9,284			(29,909	)
Income tax effect		(1,949	)		6,280
		7,335			(23,629	)
Losses (gains) recognized in earnings		410			(139	)
Income tax effect		(86	)		29
		324			(110	)
Other comprehensive income (loss), net of tax		7,659			(23,739	)
Comprehensive Income/(Loss)		10,100			(20,548	)

See Notes to the Unaudited Consolidated Interim Financial Statements

~~Table of Contents~~Index

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF ~~COMPREHENSIVE INCOME (LOSS)~~CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

(DOLLARS IN ~~THOUSANDS)~~

THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

Three Months ended March 31,
2022
2021
$
$

Net income
3,191
4,504

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

Unrealized losses arising during the period
(29,909
)
(6,285
)
Income tax effect
6,280
1,320
(23,629
)
(4,965
)

Gains recognized in earnings
(139
)
(87
)
Income tax effect
29
18
(110
)
(69
)

Other comprehensive loss, net of tax
(23,739
)
(5,034
)

Comprehensive Loss
(20,548
)
(530
)

									Accumulated
									Other						Total
	Common		Capital			Retained			Comprehensive			Treasury			Stockholders'
	Stock		Surplus			Earnings			Income (Loss)			Stock			Equity
	$		$			$			$			$			$
Balances, December 31, 2021		574		4,520			131,856			3,441			(3,103	)		137,288
Net income		—		—			3,191			—			—			3,191
Other comprehensive loss net of tax		—		—			—			(23,739	)		—			(23,739	)
Treasury stock issued - 11,196 shares		—		24			—			—			224			248
Cash dividends paid, $0.17 per share		—		—			(949	)		—			—			(949	)
Balances, March 31, 2022		574		4,544			134,098			(20,298	)		(2,879	)		116,039

Balances, December 31, 2022		574		4,437			142,677			(48,292	)		(2,061	)		97,335
Cumulative effect of adoption of ASU 2016-13		—		—			(619	)		—			—			(619	)
Net income		—		—			2,441			—			—			2,441
Other comprehensive income net of tax		—		—			—			7,659			—			7,659
Stock-based compensation expense		—		14			—			—			—			14
Treasury stock purchased - 8,903 shares		—		—			—			—			(147	)		(147	)
Treasury stock issued - 19,523 shares		—		(110	)		—			—			383			273
Cash dividends paid, $0.17 per share		—		—			(957	)		—			—			(957	)
Balances, March 31, 2023		574		4,341			143,542			(40,633	)		(1,825	)		105,999

See Notes to the Unaudited Consolidated Interim Financial Statements

~~Table of Contents~~Index

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF ~~CHANGES IN STOCKHOLDERS' EQUITY~~CASH FLOWS (UNAUDITED)

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

THOUSANDS)

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

Balances, December 31, 2020
574
4,444
120,670
7,958
(3,430
)
130,216

Net income
—
—
4,504
—
—
4,504

Other comprehensive loss net of tax
—
—
—
(5,034
)
—
(5,034
)
Treasury stock purchased - 7,600 shares
—
—
—
—
(149
)
(149
)
Treasury stock issued - 7,936 shares
—
16
—
—
157
173

Cash dividends paid, $0.16 per share
—
—
(889
)
—
—
(889
)
Balances, March 31, 2021
574
4,460
124,285
2,924
(3,422
)
128,821

Balances, December 31, 2021
574
4,520
131,856
3,441
(3,103
)
137,288

Net income
—
—
3,191
—
—
3,191

Other comprehensive loss net of tax
—
—
—
(23,739
)
—
(23,739
)
Treasury stock issued - 11,196 shares
—
24
—
—
224
248

Cash dividends paid, $0.17 per share
—
—
(949
)
—
—
(949
)
Balances, March 31, 2022
574
4,544
134,098
(20,298
)
(2,879
)
116,039

	Three Months Ended March 31,
	2023			2022
	$			$
Cash flows from operating activities:
Net income		2,441			3,191
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		1,196			1,196
Decrease (increase) in interest receivable		91			(542	)
Decrease in interest payable		830			189
Provision for credit losses		1,257			100
Losses (gains) on the sale of debt securities, net		410			(139	)
Losses on equity securities, net		196			8
Gains on sale of mortgages		(122	)		(735	)
Loans originated for sale		(4,252	)		(14,483	)
Proceeds from sales of loans		9,426			16,189
Earnings on bank-owned life insurance		(226	)		(190	)
Depreciation of premises and equipment and amortization of software		467			388
Deferred income tax		(244	)		—
Amortization of deferred fees on subordinated debt		40			20
Stock-based compensation expense		14			—
Other assets and other liabilities, net		292			2,968
Net cash provided by operating activities		11,816			8,160

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		14,544			13,344
Proceeds from sales		28,116			8,575
Purchases		—			(84,513	)
Equity securities
Proceeds from sales		—			150
Purchases		(92	)		(170	)
Purchase of regulatory bank stock		(885	)		(128	)
Redemptions of regulatory bank stock		237			102
Proceeds from bank-owned life insurance		2,083			—
Net increase in loans		(65,567	)		(29,629	)
Purchases of premises and equipment, net		(395	)		(229	)
Purchase of computer software		(398	)		—
Net cash used for investing activities		(22,357	)		(92,498	)
Cash flows from financing activities:
Net (decrease) increase in demand, NOW, and savings accounts		(14,622	)		5,536
Net increase in time deposits		25,272			208
Net decrease in short-term borrowings		(11,000	)		—
Proceeds from long-term debt		20,600			—
Dividends paid		(957	)		(949	)
Proceeds from sale of treasury stock		273			248
Treasury stock purchased		(147	)		—
Net cash provided by financing activities		19,419			5,043
Increase (decrease) in cash and cash equivalents		8,878			(79,295	)
Cash and cash equivalents at beginning of period		37,572			158,449
Cash and cash equivalents at end of period		46,450			79,154

Supplemental disclosures of cash flow information:
Interest paid		3,183			494
Income taxes paid		—			450
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale		9,696			(30,048	)
Recognition of lease operating right-of-use assets		—			1,647
Recognition of operating lease liabilities		—			1,647

See Notes to the Unaudited Consolidated Interim Financial Statements

6Index

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)
Three Months Ended March 31,
2022
2021
$
$
Cash flows from operating activities:
Net income
3,191
4,504
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees
1,196
771
Amortization of operating leases right-of-use assets
64
45
Increase in interest receivable
(542
)
(565
)
Decrease in interest payable
189
176
Provision for loan losses
100
375
Gains on the sale of debt securities, net
(139
)
(87
)
Losses (gains) on equity securities, net
8
(248
)
Gains on sale of mortgages
(735
)
(1,930
)
Loans originated for sale
(14,483
)
(29,884
)
Proceeds from sales of loans
16,189
32,825
Earnings on bank-owned life insurance
(190
)
(216
)
Depreciation of premises and equipment and amortization of software
388
376
Deferred income tax
0-
(30
)
Amortization of deferred fees on subordinated debt
20
19
Other assets and other liabilities, net
2,904
(999
)
Net cash provided by operating activities
8,160
5,132

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments
13,344
20,943
Proceeds from sales
8,575
50,341
Purchases
(84,513
)
(133,849
)
Equity securities
Proceeds from sales
150
428
Purchases
(170
)
(292
)
Purchase of regulatory bank stock
(128
)
(400
)
Redemptions of regulatory bank stock
102
347
Net increase in loans
(29,629
)
(18,238
)
Purchases of premises and equipment, net
(229
)
(311
)
Purchase of computer software
0-
(139
)
Net cash used for investing activities
(92,498
)
(81,170
)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts
5,536
72,511
Net increase in time deposits
208
65
Repayments of long-term debt
0-
(1,998
)
Dividends paid
(949
)
(889
)
Proceeds from sale of treasury stock
248
173
Treasury stock purchased
0-
(149
)
Net cash provided by financing activities
5,043
69,713
Decrease in cash and cash equivalents
(79,295
)
(6,325
)
Cash and cash equivalents at beginning of period
158,449
94,939
Cash and cash equivalents at end of period
79,154
88,614

Supplemental disclosures of cash flow information:
Interest paid
494
675
Income taxes paid
450
0-
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale
(30,048
)
(6,369
)
Recognition of lease operating right-of-use assets
1,647
0-
Recognition of operating lease liabilities
1,647
0-

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

~~Table of Contents~~

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~~that is consolidated into its financial statements. This Form 10-Q, for the first quarter of ~~2022,~~2023, is reporting on the results of operations and financial condition of ENB Financial Corp on a consolidated basis.

Operating results for the three months ended March 31, ~~2022,~~2023, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~2023. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

Accounting Pronouncements Adopted in 2023

In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" and subsequent related updates. This ASU replaces the incurred loss methodology for recognizing credit losses and requires businesses and other organizations to measure the current expected credit losses (CECL) on financial assets measured at amortized cost, including loans and held-to-maturity securities, net investments in leases, off-balance sheet credit exposures such as unfunded commitments, and other financial instruments. In addition, ASC 326 requires credit losses on available-for-sale debt securities to be presented as an allowance rather than as a write-down when management does not intend to sell or believes that it is not more likely than not they will be required to sell. This guidance became effective on January 1, 2023 for the Corporation. The results reported for periods beginning after January 1, 2023 are presented under ASC 326 while prior period amounts continue to be reported in accordance with previously applicable accounting standards.

The Corporation adopted this guidance, and subsequent related updates, using the modified retrospective approach for all financial assets measured at amortized cost, including loans, available-for-sale debt securities and unfunded commitments. On January 1, 2023, the Corporation recorded a cumulative effect decrease to retained earnings of $619,000, net of tax, of which $537,000 related to loans, $82,000 related to unfunded commitments, and $0 related to available-for-sale securities.

The Corporation has elected to exclude accrued interest receivable from the measurement of its allowance for credit losses (ACL). When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against interest income.

The Corporation adopted the provisions of ASC 326 related to presenting other-than-temporary impairment on available-for-sale debt securities prior to January 1, 2023, using the prospective transition approach, though no such charges had been recorded on the securities held by the Corporation as of the date of adoption.

In connection with the adoption of ASU 2016-13, the Corporation made changes to the loan portfolio segments to align with the methodology applied in determining the allowance under CECL. Refer to Note 5 Loans and Allowance for Credit Losses for further discussion of these portfolio segments. The new segmentation consists of: Agriculture, Business Loans, Consumer Loans, Home Equity, Non-Owner Occupied Commercial Real Estate, and Residential Real Estate.

The impact of the change from the incurred loss model to the current expected credit loss model and the reclassification of loans for the identification of new portfolio loan segments under CECL is detailed below (in thousands).

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

	January 1, 2023
	Pre-adoption		Adoption Impact			As Reported
Assets	$		$			$
ACL on debt securities available for sale		—		—			—
ACL on loans
Commercial Real Estate		6,074		(6,074	)		—
Consumer Real Estate		5,442		(5,442	)		—
Commercial and Industrial		2,151		(2,151	)		—
Consumer		67		183			250
Agriculture		—		3,537			3,537
Business Loans		—		3,382			3,382
Home Equity		—		2,129			2,129
Non-Owner Occupied CRE		—		875			875
Residential Real Estate		—		4,658			4,658
Unallocated		417		(417	)		—
		14,151		680			14,831
Liabilities
ACL for unfunded commitments		1,017		103			1,120
	$	15,168	$	783		$	15,951

Investment Securities

Management determines the appropriate classification of debt securities at the time of purchase and re-evaluates such designation as of each balance sheet date.

Investment securities classified as available for sale are those securities that the Corporation intends to hold for an indefinite period of time but not necessarily to maturity. Securities available for sale are carried at fair value. Any decision to sell a security classified as available for sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Corporation’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Unrealized gains or losses are reported as increases or decreases in other comprehensive income (loss), net of the deferred tax effect. Realized gains or losses, determined on the basis of the cost of the specific securities sold, are included in earnings. Premiums and discounts are recognized in interest income using the interest method over the terms of the securities. The Corporation classifies all of its securities as available for sale. Equity securities are measured at fair value with changes in fair value recognized in net income.

Allowance for Credit Losses – Available for Sale Securities

The Corporation measures expected credit losses on available-for-sale debt securities when the Corporation does not intend to sell, or when it is not more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security's amortized cost basis is written down to fair value through income. For available-for-sale debt securities that do not meet the aforementioned criteria, the Corporation evaluates whether the decline in fair value has resulted from credit losses or other factors. In making this assessment, the Corporation considers the extent to which fair value is less than amortized cost, any changes to the rating of the security by a rating agency, and adverse conditions specifically related to the security, among other factors. If this evaluation indicates that a credit loss exists, the present value of cash flows expected to be collected from the security are compared to the amortized cost basis of the security. If the present value of cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and an allowance for credit losses is recorded for the credit loss, equal to the amount that the fair value is less than the amortized cost basis. Economic forecast data is utilized to calculate the present value of expected cash flows. Any impairment that has not been recorded through an allowance for credit losses is recognized in other comprehensive income (loss).

The allowance for credit losses on available-for-sale debt securities is included within investment securities available-for-sale on the consolidated balance sheet. Changes in the allowance for credit losses are recorded within the provision for credit losses on the consolidated statement of income. Losses are charged against the allowance when the Corporation believes the collectability of an available-for-sale security is in jeopardy or when either of the criteria regarding intent or requirement to sell is met.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Accrued interest receivable on available-for-sale debt securities totaled $3,700,000 at March 31, 2023, and is included within Other Assets on the consolidated balance sheet. This amount is excluded from the estimate of expected credit losses. Available-for-sale debt securities are typically classified as nonaccrual when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about the further collectability of principal or interest. When available-for-sale debt securities are placed on nonaccrual status, unpaid interest credited to income is reversed.

Loans Receivable

Loans receivable that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are stated at their outstanding unpaid principal balances, net of an allowance for credit losses and any deferred fees or costs. Accrued interest receivable totaled $2,764,000 at March 31, 2023, and was reported in Other Assets on the Consolidated Balance Sheets and is excluded from the estimate of credit losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the yield (interest income) of the related loans. The Corporation is amortizing these amounts over the contractual life of the loan. Premiums and discounts on purchased loans are amortized as adjustments to interest income using the effective yield method.

The loans receivable portfolio is segmented into Agriculture, Business Loans, Consumer Loans, Home Equity, Non-Owner Occupied Commercial Real Estate (CRE), and Residential Real Estate.

For all classes of loans receivable, the accrual of interest is discontinued when the contractual payment of principal or interest has become 90 days past due or management has serious doubts about further collectability of principal or interest, even though the loan is currently performing. A loan may remain on accrual status if it is in the process of collection and is either guaranteed or well secured. When a loan is placed on nonaccrual status, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in prior years is charged against the allowance for credit losses. Interest received on nonaccrual loans, including impaired loans, generally is either applied against principal or reported as interest income on a cash basis, according to management’s judgment as to the collectability of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time (generally six months), and the ultimate collectability of the total contractual principal and interest is no longer in doubt. The past due status of all classes of loans receivable is determined based on contractual due dates for loan payments.

Allowance for Credit Losses - Loans

The allowance for credit losses (ACL) is a valuation reserve established and maintained by charges against income and is deducted from the amortized cost basis of loans to present the net amount expected to be collected on the loans. Loans, or portions thereof, are charged off against the ACL when they are deemed uncollectible. Expected recoveries do not exceed the aggregate of amounts previously charged-off and expected to be charged-off.

The ACL is an estimate of expected credit losses, measured over the contractual life of a loan, that considers historical loss experience, current conditions, and forecasts of future economic conditions. Determination of an appropriate ACL is inherently subjective and may have significant changes from period to period. The methodology for determining the ACL has two main components: evaluation of expected credit losses for certain groups of homogeneous loans that share similar risk characteristics and evaluation of loans that do not share risk characteristics with other loans.

The ACL is measured on a collective (pool) basis when similar risk characteristics exist. The Corporation measures the ACL using the following methods. Historical credit loss experience is the basis for the estimation of expected credit losses. The Corporation applies historical loss rates to pools of loans with similar risk characteristics. After consideration of the historic loss calculation, management applies qualitative adjustments to reflect the current conditions and reasonable and supportable forecasts not already reflected in the historical loss information at the balance sheet date. Reasonable and supportable forecast adjustment is based on the unemployment forecast, BBB Rated Corporate Bond Spread, GDP Growth, Retail Sales, Asset Prices, and Management Judgement. The reasonable and supportable period is the life of the loan as credit loss models used produce reasonable estimates of losses over the life of the loan. The qualitative adjustments for current conditions are based upon changes in lending policies and procedures, loan portfolio trends, lending management experience, asset quality, loan review, underlying collateral, credit concentrations, and external factors. These modified historical loss rates are multiplied by the outstanding principal balance of each loan to calculate a required reserve.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The Corporation has elected to exclude accrued interest receivable from the measurement of its ACL. When a loan is placed on nonaccrual status, any outstanding accrued interest is reversed against interest income.

The ACL for individual loans begins with the use of normal credit review procedures to identify whether a loan no longer shares similar risk characteristics with other pooled loans and therefore should be individually assessed. Commercial loans are evaluated if they meet the following criteria: 1) when it is determined that foreclosure is probable, 2) substandard, doubtful and nonperforming loans when repayment is expected to be provided substantially through the operation or sale of the collateral, 3) when it is determined by management that a loan does not share similar risk characteristics with other loans.Specific reserves are established based on the following three acceptable methods for measuring the ACL: 1) the present value of expected future cash flows discounted at the loan’s original effective interest rate; 2) the loan’s observable market price; or 3) the fair value of the collateral when the loan is collateral dependent. Individual loan evaluations consist primarily of the fair value of collateral method because most of the Corporation’s loans are collateral dependent. Collateral values are discounted to consider disposition costs when appropriate. A specific reserve is established or a charge-off is taken if the fair value of the loan is less than the loan balance.

Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

The Corporation estimates expected credit losses over the contractual period in which the Corporation is exposed to credit risk via a contractual obligation to extend credit, unless that obligation is unconditionally cancellable by the Corporation. The allowance for credit losses on off-balance sheet credit exposures is adjusted through credit loss expense. The estimate includes consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life. The allowance is carried as a liability and is included in other liabilities on the Corporation’s Consolidated Balance Sheets. The liability was $1,232,000 as of March 31, 2023, and $1,017,000 as of December 31, 2022. As the unadvanced portion of lines of credit increases, this allowance will increase.

2. Revenue from Contracts with Customers

The ~~Company~~Corporation 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~~Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

3. Securities Available for Sale

The amortized cost, gross unrealized gains and losses, approximate fair value, and allowance for credit losses of investment securities held at March 31, 2023, are as follows:

			Gross		Gross			Allowance
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			for Credit		Fair
	Cost		Gains		Losses			Losses		Value
	$		$		$			$		$
March 31, 2023
U.S. treasuries		35,756		—		(2,562	)		—		33,194
U.S. government agencies		26,404		—		(2,406	)		—		23,998
U.S. agency mortgage-backed securities		48,494		—		(4,107	)		—		44,387
U.S. agency collateralized mortgage obligations		25,955		—		(2,343	)		—		23,612
Non-agency MBS/CMO		52,594		—		(3,829	)		—		48,765
Asset-backed securities		72,441		18		(2,341	)		—		70,118
Corporate bonds		70,541		—		(6,545	)		—		63,996
Obligations of states and political subdivisions		213,933		1		(27,321	)		—		186,613
Total securities available for sale		546,118		19		(51,454	)		—		494,683

The amortized cost, gross unrealized gains and losses, and approximate fair value of investment securities held at ~~March~~December 31, 2022, ~~and December 31, 2021,~~ are as follows:

Gross
Gross
(DOLLARS IN THOUSANDS)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
$
$
$
March 31, 2022
U.S. treasuries
35,683
0—
(1,392
)
34,291
U.S. government agencies
27,609
2
(1,720
)
25,891
U.S. agency mortgage-backed securities
56,150
50
(2,123
)
54,077
U.S. agency collateralized mortgage obligations
35,640
15
(1,207
)
34,448
Non-agency MBS/CMO
23,307
0—
(275
)
23,032
Asset-backed securities
91,795
96
(1,098
)
90,793
Corporate bonds
81,973
56
(3,244
)
78,785
Obligations of states and political subdivisions
263,028
698
(15,550
)
248,176
Total securities available for sale
615,185
917
(26,609
)
589,493

December 31, 2021
U.S. Treasuries
14,821
14
(22
)
14,813
U.S. government agencies
29,613
50
(642
)
29,021
U.S. agency mortgage-backed securities
51,964
502
(478
)
51,988
U.S. agency collateralized mortgage obligations
30,917
241
(81
)
31,077
Asset-backed securities
100,998
605
(384
)
101,219
Corporate bonds
82,617
420
(528
)
82,509
Obligations of states and political subdivisions
242,807
5,848
(1,189
)
247,466
Total securities available for sale
553,737
7,680
(3,324
)
558,093

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
December 31, 2022
U.S. Treasuries		35,737		—		(3,080	)		32,657
U.S. government agencies		27,605		—		(2,818	)		24,787
U.S. agency mortgage-backed securities		49,939		—		(4,632	)		45,307
U.S. agency collateralized mortgage obligations		30,193		—		(2,703	)		27,490
Non-agency MBS/CMO		53,900		—		(3,650	)		50,250
Asset-backed securities		76,110		16		(2,892	)		73,234
Corporate bonds		76,685		10		(7,064	)		69,631
Obligations of states and political subdivisions		240,102		10		(34,326	)		205,786
Total securities available for sale		590,271		36		(61,165	)		529,142

The amortized cost and fair value of securities available for sale at March 31, ~~2022,~~2023, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

~~CONTRACTUAL MATURITY OF DEBT SECURITIES~~

~~(DOLLARS IN THOUSANDS)~~

Amortized
Cost
Fair Value
$
$
Due in one year or less
29,664
29,220
Due after one year through five years
127,954
124,750
Due after five years through ten years
151,046
143,953
Due after ten years
306,521
291,570
Total debt securities
615,185
589,493

CONTRACTUAL MATURITY OF DEBT SECURITIES
(DOLLARS IN THOUSANDS)
	Amortized
	Cost		Fair Value
	$		$
Due in one year or less		13,005		12,797
Due after one year through five years		112,909		103,936
Due after five years through ten years		73,851		64,415
Due after ten years		346,353		313,535
Total debt securities		546,118		494,683

Securities available for sale with a par value of ~~$88,591,000~~$147,218,000 and ~~$94,283,000~~$116,179,000 at March 31, ~~2022,~~2023, and December 31, ~~2021,~~2022, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was ~~$86,576,000~~$137,441,000 at March 31, ~~2022,~~2023, and ~~$96,521,000~~$107,071,000 at December 31, ~~2021.~~2022.

~~Table of Contents~~

~~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.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

Three Months Ended March 31,
2022
2021
$
$
Proceeds from sales
8,575
50,341
Gross realized gains
139
141
Gross realized losses
0—
(54
)

	Three Months Ended March 31,
	2023			2022
	$			$
Proceeds from sales		28,116			8,575
Gross realized gains		4			139
Gross realized losses		(414	)		—

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. NaN securities in the portfolio had other-than-temporary impairment recorded in the first three months of 2022 or 2021.

Information pertaining to securities with gross unrealized losses at March 31, ~~2022, and December 31, 2021,~~2023, for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

TEMPORARY IMPAIRMENTS OF SECURITIES

(DOLLARS IN THOUSANDS)

Less than 12 months
More than 12 months
Total
Gross
Gross
Gross
Fair
Unrealized
Fair
Unrealized
Fair
Unrealized
Value
Losses
Value
Losses
Value
Losses
$
$
$
$
$
$
As of March 31, 2022
U.S. Treasuries
34,291
(1,392
)
0—
0—
34,291
(1,392
)
U.S. government agencies
2,001
(9
)
22,689
(1,711
)
24,690
(1,720
)
U.S. agency mortgage-backed securities
32,444
(1,122
)
12,274
(1,001
)
44,718
(2,123
)
U.S. agency collateralized mortgage obligations
28,325
(1,193
)
2,884
(14
)
31,209
(1,207
)
Non-Agency MBS/CMO
9,275
(275
)
0—
0—
9,275
(275
)
Asset-backed securities
73,552
(1,005
)
5,973
(93
)
79,525
(1,098
)
Corporate bonds
54,102
(3,244
)
0—
0—
54,102
(3,244
)
Obligations of states & political subdivisions
188,073
(14,222
)
9,645
(1,328
)
197,718
(15,550
)

Total temporarily impaired securities
422,063
(22,462
)
53,465
(4,147
)
475,528
(26,609
)

As of December 31, 2021
U.S. Treasuries
4,959
(22
)
0—
0—
4,959
(22
)
U.S. government agencies
16,386
(519
)
7,375
(123
)
23,761
(642
)
U.S. agency mortgage-backed securities
24,090
(468
)
2,458
(10
)
26,548
(478
)
U.S. agency collateralized mortgage obligations
14,206
(66
)
2,965
(15
)
17,171
(81
)
Asset-backed securities
50,466
(338
)
2,826
(46
)
53,292
(384
)
Corporate bonds
44,907
(528
)
0—
0—
44,907
(528
)
Obligations of states & political subdivisions
70,021
(1,043
)
6,023
(146
)
76,044
(1,189
)

Total temporarily impaired securities
225,035
(2,984
)
21,647
(340
)
246,682
(3,324
)

	Less than 12 months					More than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	$		$			$		$			$		$
As of March 31, 2023
U.S. Treasuries		—		—			33,194		(2,562	)		33,194		(2,562	)
U.S. government agencies		—		—			23,998		(2,406	)		23,998		(2,406	)
U.S. agency mortgage-backed securities		1,312		(82	)		43,075		(4,025	)		44,387		(4,107	)
U.S. agency collateralized mortgage obligations		650		(19	)		22,962		(2,324	)		23,612		(2,343	)
Non-Agency MBS/CMO		33,907		(2,165	)		14,858		(1,664	)		48,765		(3,829	)
Asset-backed securities		10,247		(242	)		58,201		(2,099	)		68,448		(2,341	)
Corporate bonds		12,320		(432	)		51,676		(6,113	)		63,996		(6,545	)
Obligations of states & political subdivisions		1,025		(26	)		185,019		(27,295	)		186,044		(27,321	)

Total temporarily impaired securities		59,461		(2,966	)		432,983		(48,488	)		492,444		(51,454	)

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

TEMPORARY IMPAIRMENTS OF SECURITIES

(DOLLARS IN THOUSANDS)

	Less than 12 months					More than 12 months					Total
			Gross					Gross					Gross
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
	Value		Losses			Value		Losses			Value		Losses
	$		$			$		$			$		$
As of December 31, 2022
U.S. Treasuries		19,721		(1,169	)		12,936		(1,911	)		32,657		(3,080	)
U.S. government agencies		1,953		(52	)		21,634		(2,766	)		23,587		(2,818	)
U.S. agency mortgage-backed securities		24,667		(1,653	)		20,640		(2,979	)		45,307		(4,632	)
U.S. agency collateralized mortgage obligations		9,984		(500	)		17,453		(2,203	)		27,437		(2,703	)
Non-Agency MBS/CMO		50,250		(3,650	)		—		—			50,250		(3,650	)
Asset-backed securities		29,283		(1,028	)		42,032		(1,864	)		71,315		(2,892	)
Corporate bonds		15,197		(1,230	)		43,417		(5,834	)		58,614		(7,064	)
Obligations of states & political subdivisions		103,200		(10,949	)		100,575		(23,377	)		203,775		(34,326	)

Total temporarily impaired securities		254,255		(20,231	)		258,687		(40,934	)		512,942		(61,165	)

In the debt security portfolio there were ~~289~~337 positions ~~that were~~ carrying unrealized losses as of March 31, ~~2022. There were no instruments considered~~2023.

Management evaluates all of the Corporation’s securities for expected credit losses. No securities in the portfolio required an allowance for credit losses to be ~~other-than-temporarily impaired at March 31,~~recorded in the first three months of 2023 and no impairment was recorded in the first three months of 2022.

10Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Unrealized losses on the Corporation’s available-for-sale debt securities have not been recognized into income because the bonds are of high credit quality, management does not intend to sell and it is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is solely due to changes in interest rates and other market conditions. The ~~Corporation evaluates fixed maturity positions for other-than-temporary impairment at least~~issuers continue to make timely principal and interest payments 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~~bonds. The fair value is expected to ~~be collected from~~recover as 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.bonds approach maturity.

4. Equity Securities

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at March 31, ~~2022~~2023 and December 31, ~~2021.~~2022.

Gross
Gross
(DOLLARS IN THOUSANDS)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
$
$
$
March 31, 2022
CRA-qualified mutual funds
7,258
0—
0—
7,258
Bank stocks
1,623
120
(7
)
1,736
Total equity securities
8,881
120
(7
)
8,994

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
March 31, 2023
CRA-qualified mutual funds		7,419		—		—			7,419
Bank stocks		1,703		60		(168	)		1,595
Total equity securities		9,122		60		(168	)		9,014

Gross
Gross
(DOLLARS IN THOUSANDS)
Amortized
Unrealized
Unrealized
Fair
Cost
Gains
Losses
Value
$
$
$
$
December 31, 2021
CRA-qualified mutual funds
7,240
—
—
7,240
Bank stocks
1,570
184
(12
)
1,742
Total equity securities
8,810
184
(12
)
8,982

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
December 31, 2022
CRA-qualified mutual funds		7,345		—		—			7,345
Bank stocks		1,685		162		(74	)		1,773
Total equity securities		9,030		162		(74	)		9,118

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, and the portion of unrealized gains and losses for the period that relates to equity investments held as of March 31, ~~2022~~2023 and ~~2021.~~2022.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)

Three Months Ended March 31,
2022
2021
$
$

Net (losses) gains recognized in equity securities during the period
(8
)
248

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

Unrealized gains (losses) recognized in equity securities held at reporting date
(59
)
153

	Three Months Ended
	March 31,
	2023			2022
	$			$

Net losses recognized in equity securities during the period		(196	)		(8	)

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

Unrealized losses recognized in equity securities held at reporting date		(196	)		(59	)

~~Table of Contents~~Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

4.5. Loans and Allowance for Credit Losses

The following table presents the Corporation’s loan portfolio by category of loans as of March 31, ~~2022,~~2023 (in thousands):

	March 31,
	2023
	$

Agriculture		240,006
Business Loans		353,537
Consumer		6,061
Home Equity		100,743
Non-Owner Occupied Commercial Real Estate		119,412
Residential Real Estate (a)		434,215

Gross loans prior to deferred costs		1,253,974

Deferred loan costs, net		2,625
Allowance for credit losses		(16,054	)
Total net loans (b)		1,240,545

(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $295,917,000 as of March 31, 2023.

(b)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

The following table presents the Corporation’s loan portfolio, prior to the adoption of ASC 326, by category of loans and ~~December 31, 2021:~~the impact of the change from the adoption of the standard (in thousands):

~~LOAN PORTFOLIO~~

							Post Adoption
	December 31,			Adoption			January, 1
	2022			Impact			2023
	$			$			$
Agriculture		—			238,734			238,734
Business Loans		—			336,340			336,340
Home Equity		—			98,854			98,854
Non-Owner Occupied CRE		—			111,333			111,333
Residential Real Estate (a)		—			397,260			397,260
Commercial real estate
Commercial mortgages		210,823			(210,823	)		—
Agriculture mortgages		221,167			(221,167	)		—
Construction		86,793			(86,793	)		—
Total commercial real estate		518,783			(518,783	)		—

Consumer real estate (a)
1-4 family residential mortgages		410,301			(410,301	)		—
Home equity loans		11,937			(11,937	)		—
Home equity lines of credit		98,349			(98,349	)		—
Total consumer real estate		520,587			(520,587	)		—

Commercial and industrial
Commercial and industrial		87,528			(87,528	)		—
Tax-free loans		28,664			(28,664	)		—
Agriculture loans		27,122			(27,122	)		—
Total commercial and industrial		143,314			(143,314	)		—

Consumer		5,769			163			5,932

Gross loans prior to deferred fees		1,188,453			—			1,188,453

Deferred loan costs, net		2,664
Allowance for credit losses		(14,151	)
Total net loans		1,176,966

(a)	Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $298,375,000 as of December 31, 2022.

Index

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

Notes to the Unaudited Consolidated Interim Financial Statements

March 31,
December 31,
2022
2021
$
$
Commercial real estate
Commercial mortgages
180,792
177,396
Agriculture mortgages
200,406
203,725
Construction
56,934
19,639
Total commercial real estate
438,132
400,760

Consumer real estate (a)
1-4 family residential mortgages
303,409
317,037
Home equity loans
11,819
11,181
Home equity lines of credit
77,499
75,698
Total consumer real estate
392,727
403,916

Commercial and industrial
Commercial and industrial
67,146
65,615
Tax-free loans
23,295
23,009
Agriculture loans
22,151
20,717
Total commercial and industrial
112,592
109,341

Consumer
5,141
5,132

Gross loans prior to deferred fees
948,592
919,149

Deferred loan costs, net
1,979
1,755
Allowance for credit losses
(12,979
)
(12,931
)
Total net loans
937,592
907,973

~~(a) Real estate~~Age Analysis of Past-Due Loans Receivable

The performance and credit quality of the loan portfolio is monitored by analyzing the age of the loans ~~serviced for others, which are not included in~~receivable as determined by the ~~Consolidated Balance Sheets, totaled $304,290,000 and $289,263,000~~length of time a recorded payment is past due. The following table presents the classes of the loan portfolio summarized by the past-due status as of March 31, ~~2022 and~~2023 (in thousands):

	March 31, 2023
			31-60		61-90		Greater Than
			Days		Days		90 Days		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans

Agriculture	$	239,264	$	473	$	—	$	269	$	742	$	240,006
Business Loans		353,325		58		—		154		212		353,537
Consumer		5,994		31		1		35		67		6,061
Home Equity		100,566		154		23		—		177		100,743
Non-Owner Occupied CRE		119,412		—		—		—		—		119,412
Residential Real Estate		433,737		341		—		137		478		434,215
Total (a)	$	1,252,298	$	1,057	$	24	$	595	$	1,676	$	1,253,974

(a)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

The following table presents the classes of the loan portfolio summarized by the past-due status as of December 31, ~~2021, respectively.~~2022 (in thousands):

	December 31, 2022
													Loans
					Greater								Receivable >
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		—		—		554		554		210,269		210,823		—
Agriculture mortgages		—		—		2,787		2,787		218,380		221,167		—
Construction		—		—		—		—		86,793		86,793		—
Consumer real estate
1-4 family residential mortgages		905		—		447		1,352		408,949		410,301		139
Home equity loans		17		—		339		356		11,581		11,937		—
Home equity lines of credit		165		16		—		181		98,168		98,349		—
Commercial and industrial
Commercial and industrial		—		—		190		190		87,338		87,528		—
Tax-free loans		—		—		—		—		28,664		28,664		—
Agriculture loans		—		—		—		—		27,122		27,122		—
Consumer		9		5		30		44		5,725		5,769		30
Total		1,096		21		4,347		5,464		1,182,989		1,188,453		169

Nonperforming Loans

The following table presents the amortized cost basis of loans on nonaccrual status and loans past due

over 90 days still accruing interest as of March 31, 2023, (in thousands):

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements


	Nonaccrual		Nonaccrual				Loans Past
	with no		with		Total		Due Over 90 Days		Total
	ACL		ACL		Nonaccrual		Still Accruing		Nonperforming

Agriculture	$	1,005	$	—	$	1,005	$	269	$	1,274
Business Loans		2,509		—		2,509		—		2,509
Consumer Loans		—		—		—		35		35
Home Equity		—		—		—		—		—
Non-Owner Occupied CRE		—		—		—		—		—
Residential Real Esate		—		—		—		137		137
Total (a)	$	3,514	$	—	$	3,514	$	441	$	3,955

(a)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

The following table presents nonaccrual loans by classes of the loan portfolio as of December 31, 2022 (in thousands):

Nonaccrual Loans

	December 31,
	2022
	$

Commercial real estate
Commercial mortgages		554
Agriculture mortgages		2,787
Construction		—
Consumer real estate
1-4 family residential mortgages		308
Home equity loans		339
Home equity lines of credit		—
Commercial and industrial
Commercial and industrial		190
Tax-free loans		—
Agriculture loans		—
Consumer		—
Total		4,178

Credit Quality Indicators

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of March 31, ~~2022~~2023 and December 31, ~~2021.~~2022. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

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

●

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

●

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

●

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

~~Table of Contents~~Index

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.~~

•

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

•

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

~~COMMERCIAL CREDIT EXPOSURE~~

~~CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE~~

~~(DOLLARS IN THOUSANDS)~~

Commercial
Commercial
Agriculture
and
Tax-free
Agriculture
March 31, 2022
Mortgages
Mortgages
Construction
Industrial
Loans
Loans
Total
$
$
$
$
$
$
$
Grade:
Pass
177,935
187,837
50,429
57,449
23,295
21,698
518,643
Special Mention
521
4,537
6,505
6,380
0—
71
18,014
Substandard
2,336
8,032
0—
3,317
0—
382
14,067
Doubtful
0—
0—
0—
0—
0—
0—
0—
Loss
0—
0—
0—
0—
0—
0—
0—

Total
180,792
200,406
56,934
67,146
23,295
22,151
550,724

Commercial
Commercial
Agriculture
and
Tax-free
Agriculture
December 31, 2021
Mortgages
Mortgages
Construction
Industrial
Loans
Loans
Total
$
$
$
$
$
$
$
Grade:
Pass
172,540
192,943
13,544
57,214
23,009
19,980
479,230
Special Mention
2,443
2,542
6,095
4,657
0—
90
15,827
Substandard
2,413
8,240
0—
3,744
0—
647
15,044
Doubtful
0—
0—
0—
0—
0—
0—
0—
Loss
0—
0—
0—
0—
0—
0—
0—

Total
177,396
203,725
19,639
65,615
23,009
20,717
510,101

●

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

Based on the most recent analysis performed, the following table presents the recorded investment by internal risk rating system for Commercial Credit exposure as of March 31, 2023 (in thousands):


													Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year												Loans		Loans
													Amortized		Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Agriculture
Risk Rating
Pass	$	9,568	$	45,812	$	52,338	$	21,590	$	16,144	$	65,217	$	23,566	$	—	$	234,235
Special Mention		—		74		505		—		199		1,246		76		—		2,100
Substandard		—		—		—		763		288		2,585		35		—		3,671
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	9,568	$	45,886	$	52,843	$	22,353	$	16,631	$	69,048	$	23,677	$	—	$	240,006

Agriculture
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Business Loans
Risk Rating
Pass	$	18,194	$	104,502	$	72,834	$	40,876	$	17,883	$	54,141	$	37,884	$	—	$	346,314
Special Mention		—		—		—		—		—		—		—		—		—
Substandard		3,036		1,622		—		317		—		1,308		940		—		7,223
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	21,230	$	106,124	$	72,834	$	41,193	$	17,883	$	55,449	$	38,824	$	—	$	353,537

Business Loans
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Non-Owner Occupied CRE
Risk Rating
Pass	$	7,587	$	42,243	$	26,412	$	13,336	$	8,062	$	13,887	$	4,605	$	—	$	116,132
Special Mention		—		548		—		—		—		—		—		—		548
Substandard		—		—		—		—		2,413		319		—		—		2,732
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	7,587	$	42,791	$	26,412	$	13,336	$	10,475	$	14,206	$	4,605	$	—	$	119,412

Non-Owner Occupied CRE
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total
Risk Rating
Pass	$	35,349	$	192,557	$	151,584	$	75,802	$	42,089	$	133,245	$	66,055	$	—	$	696,681
Special Mention		—		622		505		—		199		1,246		76		—		2,648
Substandard		3,036		1,622		—		1,080		2,701		4,212		975		—		13,626
Doubtful		—		—		—		—		—		—		—		—		—
Total (a)	$	38,385	$	194,801	$	152,089	$	76,882	$	44,989	$	138,703	$	67,106	$	—	$	712,955

(a)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table presents the recorded investment in loans by internal risk rating system for Commercial Credit Exposure as of December 31, 2022 in accordance with ASC 310 (in thousands):

December 31, 2022	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		209,534		214,905		83,240		85,977		28,664		26,749		649,069
Special Mention		—		1,966		3,553		893		—		132		6,544
Substandard		1,289		4,296		—		658		—		241		6,484
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—

Total		210,823		221,167		86,793		87,528		28,664		27,122		662,097

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~~table presents the balances of consumer loans by classes of the loan portfolio based on payment performance as of March 31, ~~2022 and December 31, 2021~~2023 (in thousands):


													Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year												Loans		Loans
													Amortized		Converted
March 31, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Consumer
Payment Performance
Performing	$	1,670	$	1,756	$	747	$	336	$	82	$	8	$	1,427	$	—	$	6,026
Nonperforming		—		7		21		—		—		7		—		—		35
Total	$	1,670	$	1,763	$	768	$	336	$	82	$	15	$	1,427	$	—	$	6,061

Consumer
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	1	$	—	$	—	$	—	$	1

Home equity
Payment Performance
Performing	$	—	$	20,660	$	1,151	$	659	$	618	$	2,393	$	72,563	$	2,699	$	100,743
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	—	$	20,660	$	1,151	$	659	$	618	$	2,393	$	72,563	$	2,699	$	100,743

Home equity
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Residential Real Estate
Payment Performance
Performing	$	30,002	$	161,355	$	111,396	$	46,244	$	34,016	$	51,065	$	—	$	—	$	434,078
Nonperforming		—		—		—		—		—		137		—		—		137
Total	$	30,002	$	161,355	$	111,396	$	46,244	$	34,016	$	51,202	$	—	$	—	$	434,215

Residential Real Estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Total
Payment Performance
Performing	$	34,373	$	183,771	$	113,294	$	47,239	$	34,716	$	53,466	$	73,990	$	—	$	540,849
Nonperforming		—		7		21		—		—		144		—		—		172
Total (a)	$	34,373	$	183,778	$	113,315	$	47,239	$	34,716	$	53,610	$	73,990	$	—	$	541,021

(a)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

13Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

~~CONSUMER CREDIT EXPOSURE~~

~~CREDIT RISK PROFILE BY PAYMENT PERFORMANCE~~

~~(DOLLARS IN THOUSANDS)~~

1-4 Family
Home Equity
Residential
Home Equity
Lines of
March 31, 2022
Mortgages
Loans
Credit
Consumer
Total
Payment performance:
$
$
$
$
$

Performing
303,372
11,447
77,460
5,132
397,411
Non-performing
37
372
38
9
456

Total
303,409
11,819
77,498
5,141
397,867

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

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

~~AGING OF LOANS RECEIVABLE~~

~~(DOLLARS IN THOUSANDS)~~

Loans
Receivable >
30-59 Days
60-89 Days
Greater
than 90
Total Past
Total Loans
90 Days
and
March 31, 2022
Past Due
Past Due
Days
Due
Current
Receivable
Accruing
$
$
$
$
$
$
$
Commercial real estate
Commercial mortgages
0—
0—
171
171
180,621
180,792
0—
Agriculture mortgages
0—
0—
2,744
2,744
197,662
200,406
0—
Construction
0—
0—
0—
0—
56,934
56,934
0—
Consumer real estate
1-4 family residential mortgages
1,050
283
37
1,370
302,039
303,409
0—
Home equity loans
18
0—
372
390
11,429
11,819
0—
Home equity lines of credit
8
17
38
63
77,436
77,499
38
Commercial and industrial
Commercial and industrial
3
32
249
284
66,862
67,146
39
Tax-free loans
0—
0—
0—
0—
23,295
23,295
0—
Agriculture loans
0—
0—
19
19
22,132
22,151
0—
Consumer
0—
1
9
10
5,131
5,141
9
Total
1,079
333
3,639
5,051
943,541
948,592
86

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

~~AGING OF LOANS RECEIVABLE~~

~~(DOLLARS IN THOUSANDS)~~

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

The following table presents ~~nonaccrual~~the balances of consumer loans by classes of the loan portfolio based on payment performance as of ~~March~~December 31, 2022 ~~and December 31, 2021:~~in accordance with ASC 310 (in thousands):

~~NONACCRUAL LOANS BY LOAN CLASS~~

~~(DOLLARS IN THOUSANDS)~~

March 31,
December 31,
2022
2021
$
$

Commercial real estate
Commercial mortgages
171
184
Agriculture mortgages
2,744
1,838
Construction
0—
0—
Consumer real estate
1-4 family residential mortgages
37
39
Home equity loans
372
0—
Home equity lines of credit
0—
0—
Commercial and industrial
Commercial and industrial
210
385
Tax-free loans
0—
0—
Agriculture loans
19
110
Consumer
0—
0—
Total
3,553
2,556

December 31, 2022	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		409,854		11,598		98,349		5,739		525,539
Non-performing		447		339		—		30		816

Total		410,301		11,937		98,349		5,769		526,355

As of ~~March~~December 31, 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 months ended March 31, 2022, ~~and March 31, 2021,~~in accordance with ASC 310 is as follows:

~~IMPAIRED LOANS~~

~~(DOLLARS IN THOUSANDS)~~

Three Months Ended March 31,
2022
2021
$
$

Average recorded balance of impaired loans
2,878
5,739
Interest income recognized on impaired loans
8
66

	Three Months Ended March 31
	2022
	$

Average recorded balance of impaired loans		2,878
Interest income recognized on impaired loans		8

15Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

No loan modifications were made during the first three months of 2021 or 2022 that would be considered a troubled debt restructuring (TDR). A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments. Included in the impaired loan portfolio is one loan to a commercial borrower that is being reported as a TDR. The balance of this TDR loan was $483,000 as of March 31, 2022. This TDR is not non-accrual.

The following tables summarize information regarding impaired loans by loan portfolio class as of ~~March~~December 31, 2022, ~~and December 31, 2021:~~in accordance with ASC 310:

~~IMPAIRED LOAN ANALYSIS~~

~~(DOLLARS IN THOUSANDS)~~

Unpaid
Recorded
Principal
Related
March 31, 2022
Investment
Balance
Allowance
$
$
$

With no related allowance recorded:
Commercial real estate
Commercial mortgages
579
619
0—
Agriculture mortgages
2,690
2,720
0—
Construction
0—
0—
0—
Total commercial real estate
3,269
3,339
0—

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

Total with no related allowance
3,269
3,339
0—

With an allowance recorded:
Commercial real estate
Commercial mortgages
0—
0—
0—
Agriculture mortgages
537
550
23
Construction
0—
0—
0—
Total commercial real estate
537
550
23

Commercial and industrial
Commercial and industrial
210
210
209
Tax-free loans
0—
0—
0—
Agriculture loans
19
20
19
Total commercial and industrial
229
230
228

Total with a related allowance
766
780
251

Total by loan class:
Commercial real estate
Commercial mortgages
579
619
0—
Agriculture mortgages
3,227
3,270
23
Construction
0—
0—
0—
Total commercial real estate
3,806
3,889
23

Commercial and industrial
Commercial and industrial
210
210
209
Tax-free loans
0—
0—
0—
Agriculture loans
19
20
19
Total commercial and industrial
229
230
228

Total
4,035
4,119
251

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2022	Recorded Investment		Unpaid Principal Balance		Related Allowance
	$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		1,201		1,271		—
Agriculture mortgages		3,229		3,348		—
Construction		—		—		—
Total commercial real estate		4,430		4,619		—

Commercial and industrial
Commercial and industrial		190		199		—
Tax-free loans		—		—		—
Agriculture loans		—		—		—
Total commercial and industrial		190		199		—

Total with no related allowance		4,620		4,818		—

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

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

Total with a related allowance		—		—		—

Total by loan class:
Commercial real estate
Commercial mortgages		1,201		1,271		—
Agriculture mortgages		3,229		3,348		—
Construction		—		—		—
Total commercial real estate		4,430		4,619		—

Commercial and industrial
Commercial and industrial		190		199		—
Tax-free loans		—		—		—
Agriculture loans		—		—		—
Total commercial and industrial		190		199		—

Total		4,620		4,818		—

16Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

~~IMPAIRED LOAN ANALYSIS~~

~~(DOLLARS IN THOUSANDS)~~

Unpaid
Recorded
Principal
Related
December 31, 2021
Investment
Balance
Allowance
$
$
$

With no related allowance recorded:
Commercial real estate
Commercial mortgages
223
263
0—
Agriculture mortgages
2,055
2,066
0—
Construction
0—
0—
0—
Total commercial real estate
2,278
2,329
0—

Commercial and industrial
Commercial and industrial
385
438
0—
Tax-free loans
0—
0—
0—
Agriculture loans
0—
0—
0—
Total commercial and industrial
385
438
0—

Total with no related allowance
2,663
2,767
0—

With an allowance recorded:
Commercial real estate
Commercial mortgages
0—
0—
0—
Agriculture mortgages
551
559
37
Construction
0—
0—
0—
Total commercial real estate
551
559
37

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

Total with a related allowance
661
670
147

Total by loan class:
Commercial real estate
Commercial mortgages
223
263
0—
Agriculture mortgages
2,606
2,625
37
Construction
0—
0—
0—
Total commercial real estate
2,829
2,888
37

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

Total
3,324
3,437
147

~~Table~~Allowance for Credit Losses

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2023 (in thousands):

			Impact of
	Beginning		adopting								Provisions			Ending
	Balance		ASC 326			Charge-offs			Recoveries		(Reductions)			Balance
Allowance for credit losses:
Commercial Real Estate	$	6,074	$	(6,074	)	$	—		$	—	$	—		$	—
Consumer Real Estate		5,442		(5,442	)		—			—		—			—
Commerical & Industrial		2,151		(2,151	)		—			—		—			—
Consumer		67		(67	)		—			—		—			—
Agriculture		—		3,537			—			63		(9	)		3,591
Business Loans		—		3,382			—			13		78			3,473
Consumer Loans		—		250			(1	)		—		21			270
Home Equity		—		2,129			—			—		189			2,318
Non-Owner Occupied CRE		—		875			—			—		67			942
Residential Real Estate		—		4,658			—			1		801			5,460
Unallocated		417		(417	)		—			—		—			—

Total (a)	$	14,151	$	680		$	(1	)	$	77	$	1,147		$	16,054

(a)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of reclassification of the portfolio segments related to adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

During the three months ended March 31, 2023, management charged off $1,000 in loans while recovering $77,000 and added $1,147,000 to the provision for credit losses related to loans and added $110,000 to the provision for off-balance sheet credit exposure for a combined provision of ~~Contents~~$1,257,000.

The ACL is maintained at a level determined to be adequate to absorb estimated expected credit losses within the loan portfolio over the contractual life of an instrument that considers our historical loss experience, current conditions, and forecasts of future economic conditions as of the balance sheet date. The Corporation develops and documents a systematic ACL methodology based on the following portfolio segments: Agriculture, Business Loans, Consumer Loans, Home Equity, Non-Owner Occupied CRE, and Residential Real Estate. The following are key risks within each portfolio segment:

Agriculture – Loans made to individuals or operating companies within the Agricultural industry. These loans are generally secured by a first lien mortgage on agricultural land. The primary source of repayment is the income and assets of the borrower. The condition of the agriculture industry as well as the condition of the national economy is an important indicator of risk for this segment.

Business Loans —Loans made to operating companies or manufacturers for the purpose of production, operating capacity, accounts receivable, inventory or equipment financing. The primary source of repayment for these loans is cash flow from the operations of the company. The condition of the national economy is an important indicator of risk, but there are also more specific risks depending on the industry of the company. This segment also includes loans made to finance construction of buildings or other structures, as well as to finance the acquisition and development of raw land for various purposes. While the risk of these loans is generally confined to the construction period, if there are problems, the project may not be completed, and as such, may not provide sufficient cash flow on its own to service the debt or have sufficient value in a liquidation to cover the outstanding principal. The condition of the national economy is an important indicator of risk, but there are also more specific risks depending on the type of project and the experience and resources of the developer.

Consumer - Loans made to individuals that may be secured by assets other than 1-4 family residences, as well as unsecured loans. This segment includes personal loans and lines of credit that may be secured or unsecured. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the national economy, in particular the unemployment rate, is an important indicator of risk for this segment. The value of the collateral, if there is any, is less likely to be a source of repayment due to less certain collateral values.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Home Equity – This segment generally includes lines of credit and term loans secured by the equity in the borrower’s residence.The primary source of repayment for these facilities is the income and assets of the borrower. The condition of the national economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the national housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

Non-Owner Occupied CRE - Loans secured by commercial purpose real estate for various purposes such as hotels, retail, multifamily and health care. The primary sources of repayment for these loans are the operations of the individual projects and global cash flows of the debtors. The condition of the national economy is an important indicator of risk, but there are also more specific risks depending on the collateral type and the business prospects of the lessee.

Residential Real Estate—Loans secured by first liens on 1-4 family residential mortgages. The primary source of repayment for these loans is the income and assets of the borrower. The condition of the national economy, in particular the unemployment rate, is an important indicator of risk for this segment. The state of the national housing market can also have a significant impact on this segment because low demand and/or declining home values can limit the ability of borrowers to sell a property and satisfy the debt.

The following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2022:

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

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

Charge-offs
(65
)
0—
0—
(1
)
0—
(66
)
Recoveries
0—
3
10
1
0—
14
Provision
(90
)
41
193
(16
)
(28
)
100

Balance - March 31, 2022
6,108
3,878
2,315
71
607
12,979

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

Charge-offs		(65	)		—		—		(1	)		—			(66	)
Recoveries		—			3		10		1			—			14
Provision		(90	)		41		193		(16	)		(28	)		100

Balance - March 31, 2022		6,108			3,878		2,315		71			607			12,979

During the three months ended March 31, 2022, management charged off $66,000 in loans while recovering $14,000 and added $100,000 to the provision. The unallocated portion of the allowance decreased from 4.9% of total reserves as of December 31, 2021, to 4.7% as of March 31, 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 three months ended March 31, 2022, net provision expense was recorded for the consumer real estate and commercial and industrial sectors while the commercial real estate and consumer sectors recorded a credit in provision. All of these amounts were minimal as total provision expense for the first quarter of 2022 was only $100,000 due to improved economic conditions as well as lower levels of classified loans.

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 following table details activity in the allowance for credit losses by portfolio segment for the three months ended March 31, 2021:~~

~~ALLOWANCE FOR CREDIT LOSSES~~

~~(DOLLARS IN THOUSANDS)~~

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

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

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

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

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

~~During the three months ended March 31, 2021,~~ net provision expense was recorded for the commercial real estate sector as well as the consumer sector with credit provisions recorded for the consumer real estate and commercial and industrial sectors. The higher provision in the commercial real estate sector was due to growth in this portfolio of loans since December 31, ~~2020,~~2021, as well as an increase in the qualitative factor related to the trends in the nature and volume of this sector. There were minimal charge-offs and recoveries recorded during the three months ended March 31, ~~2021,~~2022, so the provision expense was primarily related to an increase in loan balances as well as slightly higher unallocated portion of the allowance.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following ~~tables present~~table presents the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of March 31, ~~2022 and December 31, 2021:~~2023:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

Commercial
Consumer
Commercial
As of March 31, 2022:
Real Estate
Real Estate
and Industrial
Consumer
Unallocated
Total
$
$
$
$
$
$
Allowance for credit losses:
Ending balance: individually evaluated for impairment
23
0—
228
0—
0—
251
Ending balance: collectively evaluated for impairment
6,085
3,878
2,087
71
607
12,728

Loans receivable:
Ending balance
438,132
392,727
112,592
5,141
948,592
Ending balance: individually evaluated for impairment
3,806
0—
229
0—
4,035
Ending balance: collectively evaluated for impairment
434,326
392,727
112,363
5,141
944,557

As of March 31, 2023:	Agriculture		Business Loans		Consumer Loans		Home Equity		Non- Owner Occupied CRE		Residential Real Estate		Total
	$		$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated		—		—		—		—		—		—		—
Ending balance: collectively evaluated		3,591		3,473		270		2,318		942		5,460		16,054

Loans receivable:
Ending balance		240,006		353,537		6,061		100,743		119,412		434,215		1,253,974
Ending balance: individually evaluated		2,591		1,351		—		—		—		—		3,942
Ending balance: collectively evaluated		237,415		352,186		6,061		100,743		119,412		434,215		1,250,032

The following table presents the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of December 31, 2022:

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

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

5.ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

As of December 31, 2022:	Commercial Real Estate		Consumer Real Estate		Commercial and Industrial		Consumer		Unallocated		Total
	$		$		$		$		$		$
Allowance for credit losses:
Ending balance: individually evaluated for impairment		—		—		—		—		—		—
Ending balance: collectively evaluated for impairment		6,074		5,442		2,151		67		417		14,151
Loans receivable:
Ending balance		518,783		520,587		143,314		5,769				1,188,453
Ending balance: individually evaluated for impairment		4,430		—		190		—				4,620
Ending balance: collectively evaluated for impairment		514,353		520,587		143,124		5,769				1,183,833

6. 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.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

Level II:

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


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

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of March 31, ~~2022,~~2023, and December 31, ~~2021,~~2022, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

~~ASSETS MEASURED ON A RECURRING BASIS~~

~~(DOLLARS IN THOUSANDS)~~

March 31, 2022
Level I
Level II
Level III
Total
$
$
$
$

U.S. treasuries
0—
34,291
0—
34,291
U.S. government agencies
0—
25,891
0—
25,891
U.S. agency mortgage-backed securities
0—
54,077
0—
54,077
U.S. agency collateralized mortgage obligations
0—
34,448
0—
34,448
Non-agency MBS/CMO
0—
23,032
0—
23,032
Asset-backed securities
0—
90,793
0—
90,793
Corporate bonds
0—
78,785
0—
78,785
Obligations of states & political subdivisions
0—
248,176
0—
248,176
Equity securities
8,994
0—
0—
8,994

Total securities
8,994
589,493
0—
598,487

ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
	March 31, 2023
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. treasuries		33,194		—		—		33,194
U.S. government agencies		—		23,998		—		23,998
U.S. agency mortgage-backed securities		—		44,387		—		44,387
U.S. agency collateralized mortgage obligations		—		23,612		—		23,612
Non-agency MBS/CMO		—		48,765		—		48,765
Asset-backed securities		—		70,118		—		70,118
Corporate bonds		—		63,996		—		63,996
Obligations of states & political subdivisions		—		186,613		—		186,613
Equity securities		9,014		—		—		9,014

Total securities		42,208		461,489		—		503,697

On March 31, ~~2022,~~2023, 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 U.S. Treasury bonds, CRA fund investments, and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of March 31, ~~2022,~~2023, the CRA fund investments had a ~~$7,258,000~~$7,419,000 book and fair market value and the bank stock portfolio had a book value of ~~$1,623,000,~~$1,703,000, and fair market value of ~~$1,736,000.~~$1,595,000.

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.

20Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A RECURRING BASIS
(DOLLARS IN THOUSANDS)
	December 31, 2022
	Level I		Level II		Level III		Total
	$		$		$		$

U.S. Treasuries		32,657		—				32,657
U.S. government agencies		—		24,787		—		24,787
U.S. agency mortgage-backed securities		—		45,307		—		45,307
U.S. agency collateralized mortgage obligations		—		27,490		—		27,490
Non-agency MBS/CMO		—		50,250		—		50,250
Asset-backed securities		—		73,234		—		73,234
Corporate bonds		—		69,631		—		69,631
Obligations of states & political subdivisions		—		205,786		—		205,786
Equity securities		9,118		—		—		9,118

Total securities		41,775		496,485		—		538,260

~~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

On December 31, ~~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 U.S. Treasury bonds, CRA fund investments, and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, ~~2021,~~2022, the CRA fund investments had a ~~$7,240,000~~$7,345,000 book and market value and the bank stocks had a book value of ~~$1,570,000~~$1,685,000 and a market value of ~~$1,742,000.~~$1,773,000.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

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

March 31, 2022
Level I
Level II
Level III
Total
$
$
$
$
Assets:
Impaired Loans
$
0—
$
0—
$
3,784
$
3,784
Total
$
0—
$
0—
$
3,784
$
3,784

	March 31, 2023
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Individually analyzed loans	$	—	$	—	$	3,942	$	3,942
Total	$	—	$	—	$	3,942	$	3,942

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

	December 31, 2022
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Impaired Loans	$	—	$	—	$	4,620	$	4,620
Total	$	—	$	—	$	4,620	$	4,620

The Corporation had a total of ~~$4,035,000~~$3,942,000 of ~~impaired~~individually analyzed loans as of March 31, ~~2022, with $251,000 of specific allocation against these loans~~2023, and ~~$3,324,000~~$4,620,000 of impaired loans as of December 31, ~~2021, with $147,000 of specific allocation against these loans.~~2022. The value of ~~impaired~~individually analyzed loans is generally determined through independent appraisals of the underlying collateral.

21Index

~~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)

					March 31, ~~2022~~ 2023
		Fair Value			Valuation	~~Valuation~~ Unobservable		~~Unobservable~~			Range
	Estimate	~~Estimate~~ Techniques	Input	~~Techniques~~		~~Input~~			(Weighted Avg)

~~Impaired loans~~			~~3,784~~				~~Appraisal of~~ ~~collateral (1)~~			~~Appraisal~~ ~~adjustments (2)~~		~~-20% (-20%)~~
Individually analyzed loans	3,942										~~Liquidation~~ ~~expenses (2)~~		~~-10% (-10%)~~

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

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

					Liquidation expenses (2)	-10% (-10%)

	December 31, 2022
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)

Impaired loans	4,620	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -20% (-20%)

			Liquidation expenses (2)	0% to -10% (-10%)

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

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

~~(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.

22Index

~~Table of Contents~~

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of March 31, ~~2022~~2023 and December 31, ~~2021:~~2022:

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

~~(DOLLARS IN THOUSANDS)~~

March 31, 2022
Quoted Prices in
Active Markets
Significant Other
Significant
for Identical
Observable
Unobservable
Carrying
Assets
Inputs
Inputs
Amount
Fair Value
(Level I)
(Level II)
(Level III)
$
$
$
$
$
Financial Assets:
Cash and cash equivalents
79,154
79,154
79,154
0—
0—
Regulatory stock
5,406
5,406
5,406
0—
0—
Loans held for sale
2,223
2,223
2,223
0—
0—
Loans, net of allowance
937,592
933,932
0—
0—
933,932
Mortgage servicing assets
1,958
2,737
0—
0—
2,737
Accrued interest receivable
5,694
5,694
5,694
0—
0—
Bank owned life insurance
35,574
35,574
35,574
0—
0—

Financial Liabilities:
Demand deposits
675,519
675,519
675,519
0—
0—
Interest-bearing demand deposits
66,083
66,083
66,083
0—
0—
NOW accounts
134,018
134,018
134,018
0—
0—
Money market deposit accounts
164,893
164,893
164,893
0—
0—
Savings accounts
363,300
363,300
363,300
0—
0—
Time deposits
114,144
112,113
0—
0—
112,113
Total deposits
1,517,957
1,515,926
1,403,813
0—
112,113

Long-term debt
44,206
44,042
0—
0—
44,042
Subordinated debt
19,700
18,675
0—
0—
18,675
Accrued interest payable
444
444
444
0—
0—

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

(DOLLARS IN THOUSANDS)

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

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

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

	March 31, 2023
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		46,450		46,450		46,450		—		—
Regulatory stock		7,318		7,318		7,318		—		—
Loans held for sale		875		875		875		—		—
Loans, net of allowance		1,240,545		1,191,004		—		—		1,191,004
Mortgage servicing assets		2,010		2,831		—		—		2,831
Accrued interest receivable		6,464		6,464		6,464		—		—
Bank owned life insurance		34,992		34,992		34,992		—		—

Financial Liabilities:
Demand deposits		642,136		642,136		642,136		—		—
Interest-bearing demand deposits		206,668		206,668		206,668		—		—
NOW accounts		121,684		121,684		121,684		—		—
Money market deposit accounts		168,991		168,991		168,991		—		—
Savings accounts		351,027		351,027		351,027		—		—
Time deposits		159,102		155,728		—		—		155,728
Total deposits		1,649,608		1,646,234		1,490,506		—		155,728

Short-term borrowings		5,000		4,967		—		—		4,967
Long-term debt		78,639		78,120		—		—		78,120
Subordinated debt		39,436		35,564		—		—		35,564
Accrued interest payable		1,427		1,427		1,427		—		—

23Index

~~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, 2022
					Quoted Prices in
					Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level 1)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		37,572		37,572		37,572		—		—
Regulatory stock		6,670		6,670		6,670		—		—
Loans held for sale		5,927		5,927		5,927		—		—
Loans, net of allowance		1,176,966		1,112,400		—		—		1,112,400
Mortgage servicing assets		2,030		2,894		—		—		2,894
Accrued interest receivable		6,555		6,555		6,555		—		—
Bank owned life insurance		34,805		34,805		34,805		—		—

Financial Liabilities:
Demand deposits		672,342		672,342		672,342		—		—
Interest-bearing demand deposits		164,208		164,208		164,208		—		—
NOW accounts		139,846		139,846		139,846		—		—
Money market deposit accounts		163,836		163,836		163,836		—		—
Savings accounts		364,897		364,897		364,897		—		—
Time deposits		133,829		129,422		—		—		129,422
Total deposits		1,638,958		1,634,551		1,505,129		—		129,422

Short-term debt		16,000		15,721		—		—		15,721
Long-term debt		58,039		56,431		—		—		56,431
Subordinated debt		39,396		35,975		—		—		35,975
Accrued interest payable		597		597		597		—		—

7. Commitments and Contingent Liabilities

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of March 31, ~~2022,~~2023, firm loan commitments were ~~$100.5~~$105.0 million, unused lines of credit were ~~$390.9~~$474.6 million, and open letters of credit were ~~$12.1~~$11.1 million. The total of these commitments was ~~$503.5~~$590.7 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

8. Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three months ended March 31, ~~2022~~2023 and ~~2021~~2022 is as follows:

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

(DOLLARS IN THOUSANDS)

	Unrealized
	Gains (Losses)
	on Securities
	Available-for-Sale
	$
Balance at December 31, ~~2021~~ 2022		~~3,441~~ (48,292	)
Other comprehensive ~~loss~~income before reclassifications		~~(23,629~~ 7,335	)
Amount reclassified from accumulated other comprehensive ~~income (loss)~~ loss		~~(110~~ 324	)
Period change		~~(23,739~~ 7,659	)

Balance at March 31, ~~2022~~ 2023		(~~20,298~~ 40,633	)


Balance at December 31, ~~2020~~ 2021		~~7,958~~ 3,441
Other comprehensive loss before reclassifications		(~~4,965~~ 23,629	)
Amount reclassified from accumulated other comprehensive ~~income (loss)~~ loss		(69 110	)
Period change		(~~5,034~~ 23,739	)

Balance at March 31, ~~2021~~ 2022		~~2,924~~ (20,298	)

~~(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.~~

(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.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

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

(DOLLARS IN THOUSANDS)

Amount Reclassified from
Accumulated Other Comprehensive
Income (Loss)
For the Three Months
Ended March 31,
2022
2021
Affected Line Item in the
$
$
Consolidated Statements of Income
Securities available-for-sale:
  Net securities gains, reclassified into earnings
139
87
Gains on the sale of debt securities, net
    Related income tax expense
(29
)
(18
)
Provision for federal income taxes
  Net effect on accumulated other comprehensive income (loss) for the period
110
69

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Three Months
	Ended March 31,
	2023			2022			Affected Line Item in the
	$			$			Consolidated Statements of Income
Securities available-for-sale:
Net securities (losses) gains,reclassified into earnings		(410	)		139		Gains on the sale of debt securities, net
Related income tax (benefit) expense		86			(29	)	Provision for federal income taxes

Net effect on accumulated other comprehensive income (loss) for the period		(324	)		110

(1)	Amounts in parentheses indicate debits.

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

8.9. Recently Issued Accounting Standards

In ~~June 2016,~~March 2023, the FASB issued ASU ~~2016-13,~~ ~~Financial Instruments –~~No. 2023-02, “Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit ~~Losses: Measurement of Credit Losses on Financial Instruments, which changes~~Structures Using 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 premiseProportional Amortization Method (a consensus of the ~~Update~~Emerging Issues Task Force)”. The ASU allows entities to elect the proportional amortization method, on a tax-credit-program-by-tax-credit-program basis, for all equity investments in tax credit programs meeting the eligibility criteria in Accounting Standards Codification (ASC) 323-740-25-1. While the ASU does not significantly alter the existing eligibility criteria, it does provide clarifications to address existing interpretive issues. It also prescribes specific information reporting entities must disclose about tax credit investments each period. This ASU is ~~that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance~~effective 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~~periods 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~~2023, 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~~public business entities, or ~~the overall impact of the new guidance on the consolidated financial statements.~~

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

~~In May 2019, the FASB issued ASU 2019-05,~~ ~~Financial Instruments – Credit Losses (Topic 326), which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible~~January 1, 2024 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.~~Corporation. 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.~~

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

~~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.~~

~~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~~Corporation's financial statements.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

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

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

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

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

~~Table of Contents~~Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

The following discussion and analysis represents management’s view of the financial condition and results of operations of the Corporation. This discussion and analysis should be read in conjunction with the consolidated financial statements and other financial schedules included in this quarterly report, and in conjunction with the ~~2021~~2022 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

Forward-Looking Statements

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

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

·●

National and local economic conditions

·●

~~Effects of economic conditions particularly with regard to the negative impact of severe, wide-ranging and~~The continuing ~~disruptions~~banking crisis caused by the ~~spread~~recent failure and continuous financial instability of ~~coronavirus (COVID-19)~~certain banks which may adversely impact the corporation and ~~any other pandemic, epidemic, or health-related crisis~~its securities values, deposit stability, capital adequacy, financial condition, operations, liquidity, and ~~government and business responses thereto, specifically the effect on loan customers to repay loans~~results of operations

·●

Interest rate and monetary policies of the Federal Reserve Board

●

Inflation and monetary fluctuations and volatility

●

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~~
	·	~~Inflation and monetary fluctuations and volatility~~

·●

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

·●

Effects of economic conditions particularly with regard to any pandemic, epidemic, or health-related crisis, (such as COVID-19) and government and business responses thereto, specifically the effect on loan customers to repay loans

●

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

·●

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

Index

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.

Critical Accounting Policies

See Note 1, "Basis of Presentation" for additional information on the adoption of ASC 326, which changes the methodology under which management calculates its reserve for loans and investment securities, now referred to as the allowance for credit losses. Management considers the measurement of the allowance for credit losses to be a critical accounting policy.

Results of Operations

Overview

The three months ended March 31, 2022 were positively impacted by a number of items resulting in solid financial results, but in comparison to the prior year, the results were not as strong due to a number of non-recurring income items in the first quarter of 2021. The prior year was positively impacted by high amounts of 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 quarter of 2022 experienced a sharp increase in market interest rates, a slower balance sheet growth rate, and less income earned from PPP fees and mortgage gains.

The Corporation recorded net income of ~~$3,191,000~~$2,441,000 for the three-month period ended March 31, ~~2022,~~2023, a ~~$1,313,000,~~$750,000, or ~~29.2%~~23.5% decrease from the ~~$4,504,000~~$3,191,000 earned during the three months ended March 31, ~~2021.~~2022. The earnings per share, basic and diluted, were ~~$0.57~~$0.43 for the first quarter of ~~2022,~~2023, compared to ~~$0.81~~$0.57 for the same period in ~~2021,~~2022, a ~~29.6%~~24.6% decrease. The decrease in the Corporation’s ~~2022~~2023 earnings was caused primarily by ~~declines in other~~higher interest expense, higher provision for credit losses, lower operating income, and ~~increases in~~higher operating expenses ~~partially offset by increases in net interest income and a lower provision for loan losses.~~as discussed below.

The Corporation’s net interest income (NII) increased by ~~$1,042,000,~~$3,083,000, or ~~10.8%~~28.8%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. The increase in NII primarily resulted from an increase in ~~the balance of interest-earning assets which caused~~ interest ~~and fees~~income on loans ~~to increase by $430,000,~~of $4,882,000, or ~~5.1%~~55.4%, and an increase in interest income on securities ~~available for sale to increase by $427,000,~~of $1,373,000, or ~~21.0%. In addition, interest expense on deposits and borrowings decreased by $168,000, or 19.7%~~55.9%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in the prior year. ~~The low~~Conversely, interest ~~rate environment has caused a rapid decline in asset yield, but also has resulted in a decline~~expense on deposits and borrowings increased by $3,330,000, or 487.6%, for the three months ended March 31, 2023, compared to the same period in the ~~cost of funds. This decline in~~prior year due to the ~~cost of funds has resulted in these lower levels of interest expense.~~rapid market rate increases causing pressure on deposit retention and rates.

The Corporation recorded a ~~$100,000~~$1,257,000 provision for ~~loan~~credit losses in the first quarter of ~~2022,~~2023, compared to ~~$375,000~~$100,000 for the first quarter of ~~2021.~~2022. The ~~lower provision in 2022 was primarily caused by lower non-performing and classified loans~~Corporation adopted ASU 2016-13 Financial Instruments – Credit Losses: Measurement of Credit Losses on Financial Instruments as of January 1, 2023. This standard implements a methodology that reflects credit losses that are expected to occur over the remaining life of the financial asset. This new current expected credit loss model (CECL) is based on possible economic scenarios as well as ~~slight decreases to several~~ qualitative factors specific to the Corporation. During the first quarter of 2023, there was a significant change in the forward credit outlook due to a high interest rate environment and due to the Corporation downgrading a $5 million loan relationship to substandard requiring a higher provision related to this relationship. Due to the more subjective methodology of the CECL standard, provision expense in subsequent quarters is expected to be much more volatile than historical experience. The allowance as a ~~result~~percentage of ~~improved economic conditions.~~total loans was 1.28% as of March 31, 2023, 1.19% as of December 31, 2022, and 1.37% as of March 31, 2022. While the allowance as a percentage of total loans declined from the first quarter in the prior year, it did increase from December 31, 2022.

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The latter measurement typically receives more attention from shareholders. The ROA and ROE decreased for the three months ended March 31, ~~2022,~~2023, compared to the same period in the prior year, due to lower earnings in ~~2022.~~2023.

Key Ratios Three Months Ended
March 31,
2022 2021

Return on Average Assets 0.76 % 1.24 %
Return on Average Equity 9.82 % 14.03 %

Key Ratios	Three Months Ended
	March 31,
	2023		2022

Return on Average Assets		0.53%		0.76%
Return on Average Equity		9.76%		9.82%

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

·●

Net interest income

·●

Provision for ~~loan~~credit losses

·●

Other income

·●

Operating expenses

·●

Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income

NII represents the largest portion of the Corporation’s operating income. In the first three months of ~~2022,~~2023, NII generated ~~74.5%~~83.9% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to ~~64.5%~~74.5% in the first three months of ~~2021.~~2022. This increase is a result of higher levels of NII in the first three months of ~~2022~~2023 as well as lower non-interest income compared to ~~2021.~~2022. 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 ~~$304,000~~$196,000 for the three months ended March 31, ~~2022,~~2023, compared to ~~$268,000~~$304,000 for the same period in ~~2021.~~2022.

NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
	Three Months Ended
	March 31,
	2023		2022
	$		$
Total interest income		17,817		11,404
Total interest expense		4,013		683

Net interest income		13,804		10,721
Tax equivalent adjustment		196		304

Net interest income (fully taxable equivalent)		14,000		11,025

NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
Three Months Ended
March 31,
2022 2021
$ $
Total interest income 11,404 10,530
Total interest expense 683 851

Net interest income 10,721 9,679
Tax equivalent adjustment 304 268

Net interest income (fully taxable equivalent) 11,025 9,947

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

·●

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

·●

The average balance of interest earning assets and interest bearing liabilities

NII is impacted by yields earned on assets and rates paid on liabilities. During ~~2021, longer-term U.S. Treasury rates~~2022, asset yields increased ~~adding some slope~~with the Federal Reserve rate movements, but liability costs were still low due to the ~~yield curve, but asset yields were still constrained.~~ability to slowly raise deposit rates. In the first quarter of ~~2022,~~2023, interest rates on deposits increased more dramatically ~~in anticipation~~as a result of ~~a Federal Reserve rate movement which happened in mid-March. The two through five year Treasury rates increased~~competitive pressure and the ~~most, with~~desire to retain existing deposits and attract new ones to add to the ~~longer rates increasing less. Management believes that although~~Corporation’s liquidity position. While higher market rates have helped the Corporation’s NIM through March 31, 2023, management believes that compression will start to happen with the continued higher ~~market rates should help the net interest margin (NIM) moving forward, the first quarter still saw~~cost of liabilities without a ~~decline due to the low~~similar-sized increase in asset ~~yields for the majority of the quarter.~~yield.

As a result of a larger balance sheet and improved asset yields in the first quarter of ~~2022, even with low asset yields,~~2023, the Corporation’s NII on a tax equivalent basis increased while the Corporation’s margin ~~decreased~~increased to ~~2.73%~~3.08% for the quarter ended March 31, ~~2022,~~2023, compared to ~~2.86%~~2.73% in the first quarter of ~~2021.~~2022. The Corporation’s NII on a fully-taxable basis for the three months ended March 31, ~~2022,~~2023, increased over the same period in ~~2021~~2022 by ~~$1,078,000,~~$2,975,000, or ~~10.8%~~27.0%. 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

~~Table of Contents~~Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

~~sensitivity throughout 2021 and through the first quarter of 2022. In a down-rate environment, the margin and NII would suffer unless balance sheet growth is enough to offset lower asset yields.~~

Security yields will generally fluctuate more rapidly than loan yields based on changes to the U.S. Treasury rates and yield curve. With ~~lower Treasury rates in 2021, security reinvestment had generally been occurring at lower yields. With~~ higher Treasury rates in 2022 and 2023, security yields have increased and have helped to increase NII during the first quarter of ~~2022.~~2023.

The Corporation’s overall cost of funds ~~including non-interest bearing funds, remained stable~~has risen significantly through the first three months of ~~2022 at 17 basis points.~~2023. Core deposit interest rates ~~are at historic lows and~~have risen over the past year; however, time deposit rates ~~are not~~have risen much higher and faster than core deposit rates. The change in deposit rates ~~resulting~~has resulted in ~~maturing~~some movement from low interest bearing core deposits to time deposits ~~repricing at lower levels~~ or ~~moving into core deposit products.~~other higher yielding money market deposits. The average balance of borrowings was ~~slightly lower~~higher in the first three months of ~~2022~~2023 than ~~2021,~~2022, and interest rates were also ~~lower,~~higer, resulting in the total cost of borrowings ~~decreasing~~increasing by ~~$106,000.~~$738,000, or 171.2%.

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

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

Three Months Ended March 31, Three Months Ended March 31,
2022 vs. 2021 2021 vs. 2020
Increase (Decrease) Increase (Decrease)
Due To Change In Due To Change In
Net Net
Average Interest Increase Average Interest Increase
Balances Rates (Decrease) Balances Rates (Decrease)
$ $ $ $ $ $
INTEREST INCOME

Interest on deposits at other banks 14 1 15 48 (86 ) (38 )

Securities available for sale:
Taxable 268 92 360 399 (552 ) (153 )
Tax-exempt 161 (61 ) 100 606 (117 ) 489
Total securities 429 31 460 1,005 (669 ) 336

Loans 892 (450 ) 442 837 (912 ) (75 )
Regulatory stock (7 ) — (7 ) (24 ) (54 ) (78 )

Total interest income 1,328 (418 ) 910 1,866 (1,721 ) 145

INTEREST EXPENSE

Deposits:
Demand deposits 6 5 11 55 (322 ) (267 )
Savings deposits 4 — 4 6 (15 ) (9 )
Time deposits (11 ) (66 ) (77 ) (47 ) (172 ) (219 )
Total deposits (1 ) (61 ) (62 ) 14 (509 ) (495 )

Borrowings:
Total borrowings (72 ) (34 ) (106 ) (41 ) 116 75

Total interest expense (73 ) (95 ) (168 ) (27 ) (393 ) (420 )

NET INTEREST INCOME 1,401 (323 ) 1,078 1,893 (1,328 ) 565

	Three Months Ended March 31,									Three Months Ended March 31,
	2023 vs. 2022									2022 vs. 2021
	Increase (Decrease)									Increase (Decrease)
	Due To Change In									Due To Change In
							Net									Net
	Average			Interest			Increase			Average			Interest			Increase
	Balances			Rates			(Decrease)			Balances			Rates			(Decrease)
	$			$			$			$			$			$
INTEREST INCOME

Interest on deposits at other banks		(58	)		55			(3	)		14			1			15

Securities available for sale:
Taxable		55			1,636			1,691			268			92			360
Tax-exempt		(187	)		(178	)		(365	)		161			(61	)		100
Total securities		(132	)		1,458			1,326			429			31			460

Loans		3,138			1,763			4,901			892			(450	)		442
Regulatory stock		25			56			81			(7	)		—			(7	)

Total interest income		2,973			3,332			6,305			1,328			(418	)		910

INTEREST EXPENSE

Deposits:
Demand deposits		18			2,034			2,052			6			5			11
Savings deposits		—			59			59			4			—			4
Time deposits		63			418			481			(11	)		(66	)		(77	)
Total deposits		81			2,511			2,592			(1	)		(61	)		(62	)

Borrowings:
Total borrowings		584			154			738			(72	)		(34	)		(106	)

Total interest expense		665			2,665			3,330			(73	)		(95	)		(168	)

NET INTEREST INCOME		2,308			667			2,975			1,401			(323	)		1,078

~~Table of Contents~~Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The following tables show a more detailed analysis of NII on an FTE basis with all the major elements of the Corporation’s balance sheet, which consists of interest earning and non-interest earning assets and interest bearing and non-interest bearing liabilities.

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

~~(DOLLARS IN THOUSANDS)~~

For the Three Months Ended March 31,
2022 2021
(c) (c)
Average Annualized Average Annualized
Balance Interest Yield/Rate Balance Interest Yield/Rate
$ $ % $ $ %
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks 94,688 37 0.16 57,975 22 0.15

Securities available for sale:
Taxable 391,931 1,464 1.49 318,921 1,104 1.38
Tax-exempt 197,160 1,289 2.62 172,768 1,189 2.75
Total securities (d) 589,091 2,753 1.87 491,689 2,293 1.87

Loans (a) 931,158 8,858 3.82 838,954 8,416 4.03

Regulatory stock 5,410 60 4.42 6,033 67 4.45

Total interest earning assets 1,620,347 11,708 2.90 1,394,651 10,798 3.11

Non-interest earning assets (d) 80,048 79,897

Total assets 1,700,395 1,474,548

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits 371,516 49 0.05 324,277 38 0.05
Savings deposits 354,773 18 0.02 286,793 14 0.02
Time deposits 113,904 185 0.66 119,309 262 0.89
Borrowed funds 63,877 431 2.74 74,411 537 2.93
Total interest bearing liabilities 904,070 683 0.31 804,790 851 0.43

Non-interest bearing liabilities:

Demand deposits 659,028 534,503
Other 5,478 5,028

Total liabilities 1,568,576 1,344,321

Stockholders' equity 131,819 130,227

Total liabilities & stockholders' equity 1,700,395 1,474,548

Net interest income (FTE) 11,025 9,947

Net interest spread (b) 2.59 2.68
Effect of non-interest
bearing deposits 0.14 0.18
Net yield on interest earning assets (c) 2.73 2.86

(a) Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of $1,832,000 as of March 31, 2022, and $1,199,000 as of March 31, 2021. Such fees and costs recognized through income and included in the interest amounts totaled $90,000 in 2022, and $338,000 in 2021.

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

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

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

	For the Three Months Ended March 31,
	2023						2022
					(c)						(c)
	Average				Annualized		Average				Annualized
	Balance		Interest		Yield/Rate		Balance		Interest		Yield/Rate
	$		$		%		$		$		%
ASSETS
Interest earning assets:
Federal funds sold and interest
on deposits at other banks		11,818		34		1.18		94,688		37		0.16

Securities available for sale:
Taxable		406,215		3,155		3.11		391,931		1,464		1.49
Tax-exempt		166,080		924		2.23		197,160		1,289		2.62
Total securities (d)		572,295		4,079		2.85		589,091		2,753		1.87

Loans (a)		1,227,153		13,758		4.51		931,158		8,858		3.82

Regulatory stock		7,272		141		7.76		5,410		60		4.42

Total interest earning assets		1,818,538		18,012		3.97		1,620,347		11,708		2.90

Non-interest earning assets (d)		43,042						80,048

Total assets		1,861,580						1,700,395

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		476,473		2,102		1.79		371,516		49		0.05
Savings deposits		358,368		76		0.09		354,773		18		0.02
Time deposits		145,400		666		1.86		113,904		185		0.66
Borrowed funds		131,377		1,169		3.61		63,877		431		2.74
Total interest bearing liabilities		1,111,618		4,013		1.46		904,070		683		0.31

Non-interest bearing liabilities:

Demand deposits		638,766						659,028
Other		9,772						5,478

Total liabilities		1,760,156						1,568,576

Stockholders' equity		101,424						131,819

Total liabilities & stockholders' equity		1,861,580						1,700,395

Net interest income (FTE)				13,999						11,025

Net interest spread (b)						2.51						2.59
Effect of non-interest
bearing deposits						0.57						0.14
Net yield on interest earning assets (c)						3.08						2.73

(a)

Includes balances of nonaccrual loans and the recognition of any related interest income. The quarter-to-date average balances include net deferred loan costs of $2,653,000 as of March 31, 2023, and $1,832,000 as of March 31, 2022. Such fees and costs recognized through income and included in the interest amounts totaled $(112,000) in 2023, and $90,000 in 2022.

(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.

~~Table of Contents~~Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s average balance on securities ~~increased~~decreased by ~~$97.4~~$16.8 million, or ~~19.8%~~2.9%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. The tax equivalent yield on investments ~~remained~~was 2.85% for the ~~same at~~first three months ended March 31, 2023, compared to 1.87% for ~~both~~ the three months ended March 31, ~~2022, and 2021, respectively.~~2022. Interest income on securities increased due to the ~~volume growth which was caused by an excess of liquidity in 2021 and 2022 as a result of the low-rate environment that caused a large influx of deposits.~~Fed rate increases causing variable rate bonds to reprice to higher rates.

Average balances on loans increased by ~~$92.2~~$296.0 million, or ~~11.0%~~31.8%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in the prior year. Loan yields ~~declined~~increased by 2169 basis points for the quarter ~~but~~and loan interest income increased ~~$442,000,~~$4,900,000, or ~~5.3%~~55.3%, as a result of the increase in loan ~~balances.~~balances and higher yields on loans.

The average balance of interest-bearing deposit accounts increased by ~~$109.8~~$140.0 million, or ~~15.0%~~16.7%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in the prior year. ~~While~~All deposit categories showed an increase since the ~~average balance of~~prior year. Demand deposits and time deposits ~~did decrease, the average balance on interest-bearing demand and savings accounts~~ increased significantly ~~and more than offset the decline in time deposits.~~while savings deposits increased minimally. The interest rate paid on deposits ~~decreased~~increased for this time period as well. This resulted in a ~~decrease~~significant increase in interest expense on deposits of ~~$62,000,~~$2,592,000, or ~~19.7%~~1,028.5%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022.

The Corporation’s average balance on borrowed funds ~~decreased~~increased by ~~$10.5~~$67.5 million, or ~~14.2%~~105.7%, for the three months ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022. The Corporation’s borrowed funds consist of overnight borrowings, FHLB advances, and subordinated debt which is used to support capital growth for the Bank. The ~~decrease~~increase in borrowed funds for the period is a result of ~~paying off FHLB advances during 2021. The Corporation paid off $10.6~~$20 million of subordinated debt issued in July of 2022 as well as higher levels of FHLB advances ~~in 2021, resulting in~~to support the ~~decrease in average balance.~~Corporation’s balance sheet growth. The rate paid on borrowed funds ~~decreased~~increased by 1987 basis points for the three months ended March 31, ~~2022,~~2023, compared to the same period in the prior year ~~attributed to the payoff of FHLB advances.~~and interest expense increased by $738,000, or 171.2%.

For the three months ended March 31, ~~2022,~~2023, the net interest spread decreased by ~~nine~~eight basis points to ~~2.59%~~2.51%, compared to ~~2.68%~~2.59% for the three months ended March 31, ~~2021.~~2022. The effect of non-interest bearing funds ~~decreased~~increased to 1457 basis points from 1814 basis points in the prior year. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go 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 first quarter of ~~2022~~2023 was ~~2.73%~~3.08%, compared to ~~2.86%~~2.73% for the first quarter of ~~2021.~~2022.

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

Provision for ~~Loan~~Credit Losses

The ~~allowance~~provision for credit losses ~~(ACL)~~includes a provision for losses on loans, available-for-sale debt securities, and unfunded loan commitments. The provision provides for losses inherent in the ~~loan portfolio~~financial assets as determined by a quarterly analysis and calculation of various factors related to the ~~loan portfolio.~~financial assets. The amount of the provision reflects the adjustment management determines necessary to ensure the ~~ACL~~allowance for credit losses (ACL) is adequate to cover any losses inherent in the ~~loan portfolio.~~financial assets. The Corporation recorded a provision expense of ~~$100,000~~$1,147,000 for credit losses related to loans, $110,000 for unfunded commitments and $0 related to available-for-sale securities for the first quarter of ~~2022,~~2023, compared to ~~$375,000~~$100,000 related to loans for the three months ended March 31, ~~2021.~~2022. The provision expense was ~~lower~~higher in the first quarter of ~~2022~~2023 due to the Corporation’s adoption of ASU 2016-13 which requires a ~~lower balance of classified loans~~reliance on forward economic indicators to project expected credit losses as well as a ~~small decrease in some qualititative factors related to collateral value stabilization and improvements in the dairy industry.~~higher balance of classified loans. As of March 31, ~~2022,~~2023, the allowance as a percentage of total loans was ~~1.37%~~1.28%, compared to ~~1.51%~~1.37% at March 31, ~~2021.~~2022. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

Other Income

Other income for the first quarter of ~~2022~~2023 was ~~$3,676,000,~~$2,654,000, a decrease of ~~$1,642,000,~~$1,022,000, or ~~30.9%~~27.8%, compared to the ~~$5,318,000~~$3,676,000 earned during the first quarter of ~~2021.~~2022. The following table details the categories that comprise other income.

~~Table of Contents~~Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

~~OTHER INCOME~~

~~(DOLLARS IN THOUSANDS)~~

Three Months Ended March 31,
2022 2021 Increase (Decrease)
$ $ $ %

Trust and investment services 671 670 1 0.1
Service charges on deposit accounts 293 248 45 18.1
Other fees 295 366 (71 ) (19.4 )
Commissions 869 864 5 0.6
Net gains on debt and equity securities 131 335 (204 ) (60.9 )
Gains on sale of mortgages 735 1,930 (1,195 ) (61.9 )
Earnings on bank owned life insurance 190 216 (26 ) (12.0 )
Other miscellaneous income 492 689 (197 ) (28.6 )

Total other income 3,676 5,318 (1,642 ) (30.9 )

OTHER INCOME
(DOLLARS IN THOUSANDS)
	Three Months Ended March 31,
	2023			2022		Increase (Decrease)
	$			$		$			%

Trust and investment services		785			671		114			17.0
Service charges on deposit accounts		287			293		(6	)		(2.0	)
Other fees		613			295		318			107.8
Commissions		895			869		26			3.0
Net (losses) gains on debt and equity securities		(606	)		131		(737	)		(562.6	)
Gains on sale of mortgages		122			735		(613	)		(83.4	)
Earnings on bank owned life insurance		226			190		36			18.9
Other miscellaneous income		332			492		(160	)		(32.5	)

Total other income		2,654			3,676		(1,022	)		(27.8	)

~~Service charges on deposit accounts~~Trust and investment services income increased by ~~18.1% primarily~~17.0% as a result of a larger level of assets under management and higher ~~overdraft charges in the first quarter of 2022.~~fees. Other fees ~~decreased~~increased by ~~19.4%~~107.8%, driven by ~~lower loan-related fees. Gains~~fees earned on an off-balance-sheet sweep product. The Corporation incurred $606,000 of losses on debt and equity securities ~~were lower~~ in ~~2022 driven by~~2023 as a result of strategic sales of debt securities to fund higher ~~interest rates which has resulted in fewer opportunities to sell investment securities at gains.~~yielding loan growth and depreciation of bank stock values causing an unrealized loss on equity securities. Mortgage gains declined by ~~$1,195,000,~~$613,000, or ~~61.9%~~83.4%, in the first quarter of ~~2022~~2023 compared to the first quarter of ~~2021.~~2022. This was primarly a result of the rapid increase in interest rates during the last three quarters of 2022 that resulted in very low margins on mortgages ~~sold.~~sold and a switch to mortgages held on the Corporation’s balance sheet as opposed to sold on the secondary market. Earnings on bank-owned life insurance ~~decreased~~increased by ~~12.0% as a result of a decrease in value of an old BOLI policy where expenses exceed the income on the policy.~~18.9%. The miscellaneous income category was lower in ~~2022~~2023 by ~~28.6%~~32.5% as a result of non-recurring income items that impacted the first quarter of ~~2021.~~2022.

Operating Expenses

Operating expenses for the first quarter of ~~2022~~2023 were ~~$10,608,000,~~$12,364,000, an increase of ~~$1,421,000,~~$1,756,000, or ~~15.5%~~16.6%, compared to the ~~$9,187,000~~$10,608,000 for the first quarter of ~~2021.~~2022. The following table provides details of the Corporation’s operating expenses for the three-month period ended March 31, ~~2022,~~2023, compared to the same period in ~~2021.~~2022.

~~OPERATING EXPENSES~~

~~(DOLLARS IN THOUSANDS)~~

OPERATING EXPENSES
(DOLLARS IN THOUSANDS)

	Three Months Ended March 31,
	2023		2022		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		7,455		6,512		943			14.5
Occupancy expenses		736		718		18			2.5
Equipment expenses		344		265		79			29.8
Advertising & marketing expenses		274		279		(5	)		(1.8	)
Computer software & data processing expenses		1,782		1,138		644			56.6
Shares tax		300		351		(51	)		(14.5	)
Professional services		663		630		33			5.2
Other operating expenses		810		715		95			13.3
Total Operating Expenses		12,364		10,608		1,756			16.6

Three Months Ended March 31,
2022 2021 Increase (Decrease)
$ $ $ %
Salaries and employee benefits 6,512 5,699 813 14.3
Occupancy expenses 718 683 35 5.1
Equipment expenses 265 267 (2 ) (0.7 )
Advertising & marketing expenses 279 190 89 46.8
Computer software & data processing expenses 1,138 1,098 40 3.6
Shares tax 351 280 71 25.4
Professional services 630 439 191 43.5
Other operating expenses 715 531 184 34.7
Total Operating Expenses 10,608 9,187 1,421 15.5

Salaries and employee benefits are the largest category of operating expenses. For the first quarter of ~~2022,~~2023, salaries and benefits increased ~~$813,000,~~$943,000, or ~~14.3%~~14.5%, compared to ~~2021.~~2022. This was primarily due to ~~merit and cost of living increases,~~a competitive labor market that resulted in higher costs to ~~replace employees who retired or left the organization due to nationwide staffing challenges,~~attract and ~~an accrual for the Corporation’s bank-wide incentive program.~~retain employees. Occupancy and equipment expenses in total ~~did not change significantly~~increased by 9.9% from the prior ~~year. Advertising~~year as a result of new branch and ~~marketing expenses increased by 46.8%, due to promoting new market areas as well as new products and services.~~leased office locations. Computer software and data processing expenses increased ~~marginally,~~by $644,000, or 56.6%, as a result of higher technology costs ~~and increased volumes due~~caused primarily by a debit card conversion scheduled to ~~a larger customer base.~~take place in 2023 that resulted in amortized contract costs. Shares tax expense is based on the Corporation’s level of shareholders’ equity and has ~~grown substantially, commensurate with~~decreased by 14.5% due to the ~~growth~~decline in the Corporation’s level of shareholders’ equity. Professional services expenses increased by ~~43.5%~~5.2% in the first

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

quarter of ~~2022~~2023 compared to the prior year driven by higher ~~legal~~ fees ~~and other outside services.~~associated with the issuance of subordinated debt. Other operating expenses increased by ~~34.7%~~13.3% quarter-over-quarter primarily as a result of higher FDIC ~~and OCC~~ assessment costs, higher ~~fraud-related charges-offs,~~insurance costs, higher travel costs, and miscellaneous other operating costs that are increasing to a lesser degree.

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Income Taxes

Federal income tax expense was ~~$498,000~~$396,000 for the first quarter of ~~2022~~2023 compared to ~~$931,000~~$498,000 for the same period in ~~2021.~~2022. The effective tax rate for the Corporation was 14.0% for the three months ended March 31, 2023 and 13.5% for the three months ended March 31, ~~2022 and 17.1% for the three months ended March 31, 2021.~~2022. Certain items of income are not subject to Federal income tax, such as tax-exempt interest income on loans and securities, and Bank Owned Life Insurance (BOLI) income; therefore, the effective income tax rate for the Corporation is lower than the stated tax ~~rate and the effective tax rate for the first quarter of 2022 was lower than the prior year due to an increased level of tax-free assets.~~rate.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Financial Condition

Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of March 31, ~~2022,~~2023, the Corporation had ~~$589.5~~$494.7 million of securities available for sale, which accounted for ~~34.6%~~26.2% of assets, compared to ~~32.5%~~28.5% as of December 31, ~~2021,~~2022, and ~~34.7%~~34.6% as of March 31, ~~2021.~~2022. Based on ending balances, the securities portfolio ~~increased 10.9%~~decreased 16.1% from March 31, ~~2021,~~2022, and ~~5.6%~~6.5% from December 31, ~~2021.~~2022.

The debt securities portfolio was showing a net unrealized loss of ~~$25,692,000~~$51,435,000 as of March 31, ~~2022,~~2023, compared to an unrealized ~~gain~~loss of ~~$4,356,000~~$61,129,000 as of December 31, ~~2021.~~2022, and an unrealized loss of $25,692,000 at March 31, 2022. 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,~~

Index

ENB FINANCIAL CORP

Management’s Discussion and ~~fair value for each sector of the securities portfolio for the periods ended March 31, 2022 and December 31, 2021.~~Analysis

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

~~(DOLLARS IN THOUSANDS)~~

Net
Amortized Unrealized Fair
Cost Gains (Losses) Value
$ $ $
March 31, 2022
U.S. treasuries 35,683 (1,392 ) 34,291
U.S. government agencies 27,609 (1,718 ) 25,891
U.S. agency mortgage-backed securities 56,150 (2,073 ) 54,077
U.S. agency collateralized mortgage obligations 35,640 (1,192 ) 34,448
Non-agency MBS/CMO 23,307 (275 ) 23,032
Asset-backed securities 91,795 (1,002 ) 90,793
Corporate bonds 81,973 (3,188 ) 78,785
Obligations of states and political subdivisions 263,028 (14,852 ) 248,176
Total debt securities, available for sale 615,185 (25,692 ) 589,493
Equity securities 8,881 113 8,994
Total securities 624,066 (25,579 ) 598,487

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

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 establishes guidelines to promote diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk.

~~The Corporation~~There were no investment securities purchased ~~$19.5 million of U.S. Treasuries during~~in the first quarter of ~~2022,~~2023 and ~~held $14.8~~$7.2 million atwas called or matured with an additional $28.1 million of investments being sold to support the ~~end of 2021, resulting~~Corporation’s liquidity position and fund higher yielding loan growth. All bond sectors, except U.S. Treasuries have declined in ~~a 131.5% increase~~market value. U.S. Treasuries have increased slightly in ~~this sector. This sector represents~~market value since December 31, 2022. U.S. Treasuries represent a safe credit at a market-appropriate yield which ~~added~~adds some diversity to the portfolio. The Corporation’s U.S. government agency sector decreased ~~by $3.1 million, or 10.8%,~~slightly since December 31, 2021. Management has purchased Non-agency MBS and CMO securities since December 31, 2021, totaling $23.0 million, or 3.8% of the total portfolio. This sector will better structure the portfolio to achieve higher yields and shorten the duration while also protecting in a rates-up environment.2022.

The Corporation’s U.S. agency MBS and CMO sectors have ~~increased slightly~~decreased since December 31, ~~2021,~~2022, with MBS ~~increasing $2.1 million,~~decreasing $920,000, or ~~4.0%~~2.0%, and CMOs ~~increasing $3.4~~decreasing $3.9 million, or ~~10.8%~~14.1%. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain ~~a substantial amount of~~some 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.~~flow. 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.

Non-agency MBS and CMO securities have decreased $1.5 million since December 31, 2022, or 3.0%. This sector provides better structure to the portfolio helping to achieve higher yields and shorten the duration while also adding rates-up protection. This sector also pays contractual monthly principal and interest which is the primary reason for the decline in balance since December 31, 2022.

The Corporation’s asset-backed securities declined by ~~$10.4~~$3.1 million, or ~~10.3%~~4.3%, from December 31, ~~2021,~~2022, to March 31, ~~2022.~~2023. Many of the bonds in this sector receive regular monthly principal payments which caused the value to decline. Most of the asset-backed bonds are variable rate instruments which has helped to stabilize the overall portfolio yield in the rising rate environment.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

~~Additionally, some asset-backed securities were sold at gains in~~

During the first quarter of ~~2022 to support the Corporation’s earnings and liquidity position.~~

~~As of March 31, 2022, the fair value of the Corporation’s~~2023, three corporate bonds ~~decreased by $3.7~~totaling $6 million in par value were either called or ~~4.5%, from~~matured. This caused a decrease in the ending balances atof Corporate bonds compared to December 31, ~~2021.~~2022. 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~~The municipal bond sector decreased by $19.2 million, or 9.3%, from December 31, 2022 to ~~market conditions that led~~March 31, 2023, as a result of sales of a number of bonds to ~~favorable yields~~fund loan growth offset by an improvement in the unrealized losses on ~~some instruments.~~the sector as a whole. Municipal bonds represented ~~41.5%~~37.7% of the securities portfolio as of March 31, ~~2022,~~2023, compared to ~~43.6%~~38.9% as of December 31, ~~2021.~~2022.

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Loans

Net loans outstanding increased by ~~13.1%~~$303.0 million, or 32.3%, to $1.24 billion at March 31, 2023, from $937.6 million at March 31, ~~2022, from $829.2 million at March 31, 2021.~~2022. Net loans increased by ~~3.3%~~5.4%, an annualized rate of ~~13.0%~~21.6%, from ~~$908.0 million~~$1.18 billion at December 31, ~~2021.~~2022. The following table shows the composition of the loan portfolio as of March 31, ~~2022,~~2023 and December 31, ~~2021, and March 31, 2021.~~2022.

LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)

March 31, December 31, March 31,
2022 2021 2021
$ % $ % $ %

Commercial real estate
Commercial mortgages 180,792 19.1 177,396 19.3 144,939 17.2
Agriculture mortgages 200,406 21.1 203,725 22.2 178,070 21.2
Construction 56,934 6.0 19,639 2.1 21,317 2.5
Total commercial real estate 438,132 46.2 400,760 43.6 344,326 40.9

Consumer real estate (a)
1-4 family residential mortgages 303,409 32.0 317,037 34.5 265,127 31.5
Home equity loans 11,819 1.2 11,181 1.2 10,614 1.3
Home equity lines of credit 77,499 8.2 75,698 8.2 70,898 8.4
Total consumer real estate 392,727 41.4 403,916 43.8 346,639 41.2

Commercial and industrial
Commercial and industrial 67,146 7.1 65,615 7.1 111,036 13.2
Tax-free loans 23,295 2.5 23,009 2.5 16,233 1.9
Agriculture loans 22,151 2.3 20,717 2.3 18,466 2.2
Total commercial and industrial 112,592 11.9 109,341 11.9 145,735 17.3

Consumer 5,141 0.5 5,132 0.6 4,827 0.6

Total loans 948,592 100.0 919,149 100.0 841,527 100.0
Less:
Deferred loan fees (costs), net 1,979 1,755 407
Allowance for credit losses (12,979 ) (12,931 ) (12,690 )
Total net loans 937,592 907,973 829,244

	March 31,					December 31,
	2023					2022
	$			%		$			%

Agriculture		240,006			19.1		238,734			20.1
Business Loans		353,537			28.2		336,340			28.3
Consumer		6,061			0.5		5,932			0.5
Home Equity		100,743			8.0		98,854			8.3
Non-Owner Occupied CRE		119,412			9.6		111,333			9.4
Residential Real Estate (a)		434,215			34.6		397,260			33.4

Total loans		1,253,974			100		1,188,453			100
Less:
Deferred loan fees (costs), net		2,625					2,664
Allowance for credit losses		(16,054	)				(14,151	)
Total net loans (b)		1,240,545					1,176,966

(a)	Residential real estate loans do not include mortgage loans serviced for others which totaled ~~$304,290,000~~$295,917,000 as of March 31, ~~2022, $289,263,000~~2023 and $298,375,000 as of December 31, ~~2021, and $253,527,000 as~~2022.

(b)	Refer to Note 1, Accounting Pronouncements Adopted in 2023 for details of ~~March 31, 2021.~~reclassification of the portfolio segments related to the adoption of ASU 2016-13 Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

There was moderate growth in the loan portfolio since December 31, ~~2021, and March 31, 2021. Most major~~2022. All of the loan categories showed an increase in balances from both time periods with the exception of the consumer real estate which showed a decline due to a reclassification of balances to commercial construction during the first quarter of 2022, representing loans now properly coded as construction that were previously included in the consumer real estate segment. Additionally, commercial and industrial loans showed a decline due to the forgiveness of PPP loans since ~~March~~December 31, ~~2021.~~2022.

~~The commercial real estate category represents the largest group of loans for the Corporation. Commercial real estate makes up 46.2% of total loans as of March~~From December 31, 2022, ~~compared to 40.9%~~the Agriculture Loan segment increased 1,272,000, or 0.5%, the Business Loan segment increased 17,197,000, of ~~total loans as of March 31, 2021. Within~~5.1%, the ~~commercial real estate~~Consumer Loan segment increased $129,000, or 2.2%, the ~~increase has primarily been construction loans which was a direct result of reclassification from 1-4 family residential loans in~~Home Equity segment increased $1,889,000, or 1.9%, the ~~first quarter of 2022. The Corporation’s commercial construction loan balances~~Non-Owner Occupied segment increased ~~by $35.6 million,~~$8,079,000, or ~~167.1%, from March 31, 2021 to March 31, 2022. Commercial construction loans were 6.0% of the total loan portfolio as of March 31, 2022, and 2.5% as of March 31, 2021.~~

Commercial mortgages increased $35.9 million, or 24.7%, from balances at March 31, 2021. Commercial mortgages as a percentage of the total loan portfolio increased to 19.1% as of March 31, 2022, compared to 17.2% at March 31, 2021. Agricultural mortgages increased by $22.3 million, or 12.5%, from $178.1 million as of March 31, 2021, to $200.4 million as of March 31, 2022. Agricultural mortgages were 21.1% of the portfolio as of March 31, 2022, compared to 21.2% as of March 31, 2021.

The consumer residential real estate category of total loans increased from $346.6 million on March 31, 2021, to $392.7 million on March 31, 2022, a 13.3% increase. This category includes closed-end fixed rate or adjustable-rate residential real estate loans secured by 1-4 family residential properties, including first and junior liens, and floating rate home equity loans. The 1-4 family residential mortgages account for the vast majority of residential real estate loans with fixed and floating home equity loans making up the remainder. Historically, the entire consumer residential real estate component of the loan portfolio has averaged close to 40% of total loans. As of March 31, 2021, this percentage was 41.2%7.3%, and ~~as of March~~the Residential Real Estate segment increased $36,955,000, or 9.3% from December 31, 2022, it increased to 41.4%. Although economic conditions for consumers had deteriorated with the COVID-19 pandemic, increased unemployment, and decreased consumer spending, the mortgage market continued to remain relatively strong as consumers refinanced existing debt to lower rates.2022.

The first lien 1-4 family mortgages increased by $38.3 million, or 14.4%, from March 31, 2021, to March 31, 2022. These first lien 1-4 family loans made up 76.5% of the residential real estate total as of March 31, 2021, and 77.3% as of March 31, 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 first quarter of ~~2022,~~2023, mortgage production decreased ~~16%~~2% from the previous quarter and was down 3%26% from the first quarter of ~~2021.~~2022. Purchase money origination constituted ~~76%~~94% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up ~~65%~~55% of that mix. With ~~a higher volume of new construction business in combination with a rising~~the continued elevated fixed interest rate environment, the percentage of mortgage originations ~~being added into~~placed in the Corporation’s held-for-investment mortgage portfolio ~~increased quarter-over-quarter. In the first quarter of 2022, 75% of all mortgage originations were held in the mortgage portfolio, 47%~~remained abnormally high at 92%, 84% of which were adjustable rate mortgages. As of March 31, ~~2022,~~2023, ARM balances were ~~$142.6~~$250.0 million, representing ~~47.0%~~55.2% of the 1-4 family residential loan portfolio of the Corporation. With a decline in dollar volume of loans being delivered into the secondary market, ~~and an unprecedented increase in mortgage rates,~~ the gains on the sale of mortgages declined quarter-over-quarter.

As of March 31, 2022, the remainder of the residential real estate loans consisted of $11.8 million of fixed rate junior lien home equity loans, and $77.5 million of variable rate home equity lines of credit (HELOCs). This compares to $10.6 million of fixed rate junior lien home equity loans, and $70.9 million of HELOCs as of March 31, 2021. Therefore, combined, these two types of home equity loans increased from $81.5 million to $89.3 million, an increase of 9.6%.

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 11.9% of total loans as of March 31, 2022, a decline from the 17.3% at March 31, 2021. The balance of total commercial and industrial loans decreased from $145.7 million at March 31, 2021, to $112.6 million at March 31, 2022, a 29.4% decrease. This category of loans generally includes unsecured lines of credit, truck, equipment, and receivable and inventory loans, in addition to tax-free loans to municipalities. The balance at March 31, 2022 and March 31, 2021, also includes the PPP

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~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

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 $53.4 million, or 91.8% from March 31, 2021, to March 31, 2022.

~~The consumer loan portfolio increased slightly from $4.8 million at March 31, 2021, to $5.1 million at March 31, 2022, a 6.3% 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.

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Non-Performing Assets

Non-performing assets include:

·●

Nonaccrual loans

·●

Loans past due 90 days or more and still accruing

~~Non-performing troubled debt restructurings~~

·●

Other real estate owned

NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)

March 31, December 31, March 31,
2022 2021 2021
$ $ $

Nonaccrual loans 3,553 2,556 681
Loans past due 90 days or more and still accruing 86 325 152
Troubled debt restructurings, non-performing — — —
Total non-performing loans 3,639 2,881 833

Other real estate owned — — —

Total non-performing assets 3,639 2,881 833

Non-performing assets to net loans 0.39% 0.31% 0.10%

	March 31		December 31,		March 31
	2023		2022		2022
	$		$		$

Nonaccrual loans		3,514		4,178		3,553
Loans past due 90 days or more and still accruing		441		169		86
Total non-performing loans		3,955		4,347		3,639

Other real estate owned		—		—		—

Total non-performing assets		3,955		4,347		3,639

Non-performing assets to net loans		0.32%		0.31%		0.39%

The total balance of non-performing assets increased by ~~$2.8 million,~~$317,000, or ~~336.9%~~8.7% from balances at March 31, ~~2021,~~2022, and ~~increased~~decreased by ~~$0.8 million,~~$391,000, or ~~26.3%~~9.0%, from balances at December 31, ~~2021.~~2022. There were no non-performing TDR loans in any of the periods presented. A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally granted in order to improve the financial position of the borrower and improve the likelihood of full collection by the lender. Non-accrual loans ~~increased~~decreased by ~~$2.9 million,~~$39,000, or ~~421.6%~~1.1%, since March 31, ~~2021,~~2022, and ~~increased $1.0 million,~~decreased $664,000, or ~~39.0%~~15.9% since December 31, 2021. The increase that occurred between December 31, 2021 and March 31, 2022 was primarily due to one agricultural relationship that was added to non-accrual in the first quarter of 2022 in the amount of $963,000.2022. Loans past due 90 days or more and still accruing ~~were down $66,000 from the prior year period,~~increased $356,000 since March 31, 2022, and ~~down by $239,000, or 73.5%~~$273,000, since December 31, ~~2021.~~2022. This increase was primarily caused by the addition of one agriculture mortgage totaling $269,000 and several smaller residential mortgages.

There was no other real estate owned (OREO) as of March 31, ~~2022,~~2023, December 31, ~~2021,~~2022, or March 31, ~~2021.~~2022.

Allowance for Credit Losses

The allowance for credit losses (ACL) is ~~established~~a valuation account that is deducted from the loans' amortized cost basis to ~~cover any losses inherent in~~present the ~~loan portfolio.~~net amount expected to be collected on total loans. Management reviews the adequacy of the ~~allowance each quarter based upon~~ACL on a ~~detailed analysis and calculation~~quarterly basis. The ACL represents management’s estimate of ~~the allowance for~~lifetime 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 loans as of the ~~loan portfolio.~~balance sheet date. The ~~allowance~~ACL is estimated by management using relevant available information, from both internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts. The Corporation measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. Additionally, the ACL calculation includes ~~specific provisions~~subjective adjustments 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 risk factors that are likely to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce reserve levels and include adjustments for lending policies and procedures, loan portfolio trends, lending management experience, asset quality, loan review, underlying collateral, credit concentrations, and external factors. Loans that do not share risk characteristics are evaluated on an individual basis. When management determines that foreclosure is probable and the borrower is experiencing financial difficulty, the expected credit losses are based on the fair value of collateral at the reporting date adjusted ~~on a quarterly basis~~for selling costs as ~~needed.~~appropriate. Based on the quarterly calculation, management will adjust the ACL through the provision for credit losses as necessary.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

loss calculation, management will adjust the allowance for credit losses through the provision as necessary. Changes to the allowance for credit losses during the year are primarily affected by five main factors:

~~Historical loan losses~~

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

~~Growth trends of the loan portfolio~~

~~Recovery of loans previously charged off~~

~~Provision for loan losses~~

Strong credit and collateral policies have been instrumental in producing a favorable history of loan losses for the Corporation. The Net Charge-Off table below shows the net charge-offs ~~as a percentage of average loans outstanding~~ for each segment of the Corporation’s loan portfolio as of March 31, ~~2022~~2023.

Net Charge-Offs
(DOLLARS IN THOUSANDS)
	March 31,
	2023
	$

Loans charged-off:
Agriculture		—
Business Loans		—
Consumer Loans		1
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		—
Total loans charged-off		1

Recoveries of loans previously charged-off
Agriculture		63
Business Loans		13
Consumer Loans		—
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		1
Total recoveries		77

Net charge-offs (recoveries)
Agriculture		(63	)
Business Loans		(13	)
Consumer Loans		1
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		(1	)
Total net charge-offs (recoveries)		(76	)

Index

ENB FINANCIAL CORP

Management’s Discussion and ~~2021.~~Analysis

The Net Charge-Off table below shows the net charge-offs for each segment of the Corporation’s loan portfolio as of March 31, 2022.

Net Charge-Offs
(DOLLARS IN THOUSANDS)
	March 31,
	2022
	$

Loans charged-off:
Commercial real estate		65
Consumer real estate		—
Commercial and industrial		—
Consumer		1
Total loans charged-off		66

Recoveries of loans previously charged-off
Commercial real estate		—
Consumer real estate		3
Commercial and industrial		10
Consumer		1
Total recoveries		14

Net charge-offs (recoveries)
Commercial real estate		65
Consumer real estate		(3	)
Commercial and industrial		(10	)
Consumer		—
Total net charge-offs (recoveries)		52

~~Net Charge-Offs~~

~~(DOLLARS IN THOUSANDS)~~

March 31, March 31,
2022 2021
$ $

Loans charged-off:
Commercial real estate 65 —
Consumer real estate — —
Commercial and industrial — —
Consumer 1 14
Total loans charged-off 66 14

Recoveries of loans previously charged-off
Commercial real estate — —
Consumer real estate 3 —
Commercial and industrial 10 1
Consumer 1 1
Total recoveries 14 2

Net charge-offs (recoveries)
Commercial real estate 65 —
Consumer real estate (3 ) —
Commercial and industrial (10 ) (1 )
Consumer — 13
Total net charge-offs (recoveries) 52 12

Average loans outstanding
Commercial real estate 401,076 342,913
Consumer real estate 359,981 308,943
Commercial and industrial 164,553 181,591
Consumer 5,548 5,507
Total average loans outstanding 931,158 838,954

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)% 0.00%
Consumer 0.00% 0.24%
Total net charge-offs (recoveries) as a % of average loans outstanding 0.01% 0.00%

The net charge-offs as a percentage of average total loans outstanding indicates the percentage of the Corporation’s total loan portfolio that has been charged off during the period. The Corporation has historically experienced very low net charge-off percentages due to conservative credit practices. As of March 31, ~~2022, net~~2023, there were $1,000 in charge-offs ~~were $52,000,~~

~~Table~~and $77,000 of ~~Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

recoveries, representing a net ~~charge off~~recovery position of 0.01% of average loans outstanding as reflected above. As of March 31, ~~2021,~~2022, net charge-offs were very low at ~~$12,000,~~$52,000, resulting in a net charge-off as a percentage of average loans of ~~0.00%~~0.01% for the quarter.

~~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.”

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s level of classified loans was $13.6 million on March 31, 2023, compared to $17.0 million on March 31, ~~2022, compared to $21.9 million on March 31, 2021.~~2022. Total classified loans have decreased from the prior year. Having more loans in a classified status could result in a larger allowance as higher amounts of projected historical losses and qualitative factors are attached to these loans. In addition to this impact, management performs a specific allocation test on these classified loans. There was $251,000 of specifically allocated allowance against the classified loans as of March 31, 2022, $147,000 of specific allocation as of December 31, 2021, and $1.1 million of specific allocation as of March 31, 2021. The higher specific allocation at March 31, 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 1.28% as of March 31, 2023, 1.19% as of December 31, 2022, and 1.37% as of March 31, 2022, and 1.51% as of March 31, 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 4.7% as of March 31, 2022.

Premises and Equipment

Premises and equipment, net of accumulated depreciation, ~~decreased~~increased by ~~$0.4~~$965,000, or 4.0%, to $25.4 million ~~or 1.4%, to~~as of March 31, 2023, from $24.4 million as of March 31, ~~2022, from $24.7 million~~2022. As of March 31, 2023, $812,000 was classified as construction or improvement in process compared to $498,000 as of March 31, ~~2021. As of March 31, 2022, $137,000 was classified as construction in process compared to $89,000 as of March 31, 2021.~~2022. Fixed assets ~~declined~~increased as a result of ~~depreciation outpacing~~ new purchases outpacing depreciation on existing assets 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 ~~$5.4~~$7.3 million of regulatory stock holdings as of March 31, ~~2022,~~2023, consisted of ~~$4.7~~$6.1 million of FHLB of Pittsburgh stock, ~~$631,000~~$1.1 million 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 $6.1 million on March 31, 2023, $5.6 million on December 31, 2022, and $4.7 million on March 31, 2022, ~~$4.7 million on December 31, 2021, and $5.6 million on March 31, 2021,~~ 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 March 31, ~~2022,~~2023, increased by ~~$5.7~~$10.7 million, or ~~0.4%~~0.6%, and by ~~$192.6~~$131.7 million, or ~~14.5%~~8.7%, from December 31, ~~2021,~~2022, and March 31, ~~2021,~~2022, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. ~~In the past few years, the economic concerns and volatility of the equity markets continued to lead customers to banks for safe places to invest money, despite historically low interest rates.~~ The mix of the Corporation’s deposit categories has changed moderately since March 31, ~~2021,~~2022, with the changes being a ~~$95.5~~$33.4 million, or ~~16.5% increase~~4.9% decrease in non-interest bearing demand deposit accounts, a ~~$19.6~~$140.6 million, or ~~42.1%~~212.7% increase in interest bearing demand balances, a ~~$8.9~~$12.3 million, or ~~7.1% increase~~9.2% decrease in NOW balances, a ~~$13.6~~

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~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

$4.1 million, or ~~9.0%~~2.5% increase in money market account balances, a ~~$60.0~~$12.3 million, or ~~19.8% increase~~3.4% decrease in savings account balances, and a ~~$5.0~~$45.0 million, or ~~4.2% decrease~~39.4% increase in time deposit balances.

The growth ~~across most categories~~in interest bearing demand balances was a result of ~~core~~participating in a reciprocal arrangement for the Corporation’s off balance sheet cash management sweep product as a strategic decision to fund loan growth. This product allows customers to sweep balances off the Corporation’s balance sheet, maintain a competitive yield, and receive full FDIC insurance coverage. The Corporation now fully receives reciprocal balances back on balance sheet for this product, resulting in the large increase in balances since March 31, 2022.

The significant increase in time deposit ~~accounts is~~balances was a ~~direct~~result of issuing $20 million in brokered time deposits since March 31, 2022, as well as increases in the Corporation’s customer time deposits as a result of the ~~PPP funding, government stimulus payments,~~increased rate environment and ~~the change in customer’s spending habits during the uncertain economic conditions brought~~offering several promotional rates on ~~by COVID-19. Customers view demand~~specific time deposit ~~money market and savings accounts as the safest, most convenient place to maintain funds for maximum flexibility.~~

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

~~DEPOSITS BY MAJOR CLASSIFICATION~~

~~(DOLLARS IN THOUSANDS)~~

March 31, December 31, March 31,
2022 2021 2021
$ $ $

Non-interest bearing demand 675,519 686,278 580,003
Interest bearing demand 66,083 63,015 46,509
NOW accounts 134,018 139,366 125,101
Money market deposit accounts 164,893 168,327 151,297
Savings accounts 363,300 341,291 303,324
Time deposits 114,144 113,936 119,153
Total deposits 1,517,957 1,512,213 1,325,387

~~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~~

terms. Time deposits are typically a more rate-sensitive product, making them a source of funding that is prone to balance variations depending on the interest rate environment and how the Corporation’s time deposit rates compare with the local market rates. Time deposits fluctuate as consumers search for the best rates in the market, with less allegiance to any particular financial institution.

As of March 31, 2023 and 2022, ~~time~~the total uninsured deposits of the Corporation were approximately $235,753,000 and $288,011,000, respectively. Total uninsured deposits is calculated based on regulatory reporting requirements and reflects the portion of any deposit of a customer at an insured depository institution that exceeds the applicable FDIC insurance coverage for that depositor at that institution and amounts in any other uninsured investment or deposit accounts that are classified as deposits and not subject to any federal or state deposit insurance regime.

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Deposits by Major Classification table, shown below, provides the balances ~~had decreased $5.0 million, or 4.2%, from~~of each category for March 31, ~~2021, and increased $0.2 million, or 0.2% from~~2023, December 31, ~~2021. The Corporation has experienced a slow~~2022, and steady shift in deposit trends over the past five years as customers have moved money from time deposits into core checking and savings accounts. With the Federal Reserve rate decreases in 2020, there is minimal differences between shorter term CD rates and interest bearing non-maturity deposits, influencing customers to accumulate their funds in a liquid account that can be accessed at any time. This has resulted in declining time deposit balances and more significant growth in the core deposit areas.March 31, 2022.

DEPOSITS BY MAJOR CLASSIFICATION
(DOLLARS IN THOUSANDS)

	March 31,		December 31,		March 31,
	2023		2022		2022
	$		$		$

Non-interest bearing demand		642,136		672,342		675,519
Interest bearing demand		206,669		164,208		66,083
NOW accounts		121,684		139,846		134,018
Money market deposit accounts		168,991		163,836		164,893
Savings accounts		351,027		364,897		363,300
Time deposits		159,101		133,829		114,144
Total deposits		1,649,608		1,638,958		1,517,957

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

Borrowings

Total borrowings were ~~$63.9~~$123.1 million, ~~$63.9~~$113.4 million, and ~~$72.4~~$63.9 million as of March 31, ~~2022,~~2023, December 31, ~~2021,~~2022, and March 31, ~~2021,~~2022, respectively. ~~There were~~Short-term borrowings consisted of $5.0 million at March 31, 2023 and $16.0 million at December 31, 2022, with no short-term funds outstanding at ~~the end of any time period.~~March 31, 2022. 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.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

~~Management’s Discussion and Analysis~~

Total long-term borrowings, borrowings initiated for terms longer than one year, were $78.6 million as of March 31, 2023, $58.0 million as of December 31, 2022, and $44.2 million as of March 31, 2022, ~~$44.2 million as of December 31, 2021, and $52.8 million as of March 31, 2021.~~respectively. 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~~increase in long-term FHLB borrowings since March 31, ~~2021,~~2022, can be attributed to ~~management taking advantage of declining rates by prepaying FHLB advances~~the changing interest rate environment and ~~incurring penalties in order~~the desire to ~~save on interest expense in~~ladder out some borrowings into future ~~years.~~

years to cover anticipated liquidity needs. The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently ~~$528.7~~$604.9 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, onon December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of March 31, ~~2022,~~2023, $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.

Index

ENB FINANCIAL CORP

Management’s Discussion and Analysis

On July 22, 2022, the Corporation completed the sale of an additional subordinated debt note offering. The Corporation sold $20.0 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. As of March 31, 2023, $17.0 million of funds were invested in the Bank. The Corporation paid an issuance fee of 2% of the total issue that will be amortized to the call date on a pro-rata basis.

Stockholders’ Equity

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

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

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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

REGULATORY CAPITAL RATIOS:
Regulatory Requirements
Adequately Well
As of March 31, 2022 Capital Ratios Capitalized Capitalized
Total Capital to Risk-Weighted Assets
Consolidated 15.2% N/A N/A
Bank 14.3% 8.0% 10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.2% N/A N/A
Bank 13.1% 6.0% 8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated 12.2% N/A N/A
Bank 13.1% 4.5% 6.5%

Tier 1 Capital to Average Assets
Consolidated 8.0% N/A N/A
Bank 8.9% 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 March 31, 2021
Total Capital to Risk-Weighted Assets
Consolidated 16.8% N/A N/A
Bank 16.2% 8.0% 10.0%

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

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

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

REGULATORY CAPITAL RATIOS:
			Regulatory Requirements
			Adequately		Well
As of March 31, 2023	Capital Ratios		Capitalized		Capitalized
Total Capital to Risk-Weighted Assets
Consolidated		14.9%		N/A		N/A
Bank		14.4%		8.0%		10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.8%		N/A		N/A
Bank		13.2%		6.0%		8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.8%		N/A		N/A
Bank		13.2%		4.5%		6.5%

Tier 1 Capital to Average Assets
Consolidated		7.7%		N/A		N/A
Bank		9.4%		4.0%		5.0%

As of December 31, 2022
Total Capital to Risk-Weighted Assets
Consolidated		15.0%		N/A		N/A
Bank		14.5%		8.0%		10.0%

Tier I Capital to Risk-Weighted Assets
Consolidated		10.9%		N/A		N/A
Bank		13.4%		6.0%		8.0%

Common Equity Tier I Capital to Risk-Weighted Assets
Consolidated		10.9%		N/A		N/A
Bank		13.4%		4.5%		6.5%

Tier I Capital to Average Assets
Consolidated		7.6%		N/A		N/A
Bank		9.3%		4.0%		5.0%


As of March 31, 2022
Total Capital to Risk-Weighted Assets
Consolidated		15.2%		N/A		N/A
Bank		14.3%		8.0%		10.0%

Tier 1 Capital to Risk-Weighted Assets
Consolidated		12.2%		N/A		N/A
Bank		13.1%		6.0%		8.0%

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		12.2%		N/A		N/A
Bank		13.1%		4.5%		6.5%

Tier 1 Capital to Average Assets
Consolidated		8.0%		N/A		N/A
Bank		8.9%		4.0%		5.0%

As of March 31, ~~2022~~2023, the Bank’s Tier 1 Leverage Ratio stood at ~~8.9%~~9.4% while the Corporation’s Tier 1 Leverage Ratio was ~~8.0%~~7.7%. 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~~$40 million subordinated debt issue. Most of the marked improvement in capital ratios 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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ENB FINANCIAL CORP

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 March 31, ~~2022.~~2023.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

~~(DOLLARS IN THOUSANDS)~~

OFF-BALANCE SHEET ARRANGEMENTS
(DOLLARS IN THOUSANDS)

	March 31,
	~~2022~~2023
	$
Commitments to extend credit:
Revolving home equity		~~163,135~~201,489
Construction loans		~~49,847~~54,614
Real estate loans		~~88,950~~96,170
Business loans		~~182,622~~220,068
Consumer loans		~~1,452~~1,445
Other		~~5,384~~5,817
Standby letters of credit		~~12,125~~11,057

Total		~~503,515~~590,660

Market Risks

During March and April 2023 three significant bank failures occurred (Silicon Valley Bank, Signature Bank, and First Republic Bank). This was and continues to be accompanied by financial instability at certain additional banks. These bank failures and bank instabilities have created and may continue to create market and other risks, for all financial institutions and banks, including the Corporation. These risks include, but are not limited to:

Market risk and loss of confidence in the financial services sector, and/or specific banks;

Deterioration of securities and loan portfolios;

Deposit reductions with higher volumes and occurring over shorter periods of time;

Increased liquidity demand and utilization of sources of liquidity; and

Interest rate volatility and abrupt, sudden and greater than usual rate changes.

These factors individually, or in any combination, could materially and adversely affect:

Financial condition;

Operations and results thereof; and

Stock price.

In addition, the previously mentioned bank failures and instabilities may result in an increase of FDIC deposit insurance premiums and/or result in special FDIC deposit insurance assessments, which also may adversely affect the Corporation’s financial condition, operations, results thereof or stock price.

The Corporation cannot predict the impact, timing or duration of such events.

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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ENB FINANCIAL CORP

Management’s Discussion and Analysis

Corporate Governance

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

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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ENB FINANCIAL CORP

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 Corporation 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 March 31, 2022, 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 193.3%, compared to an upper policy guideline of 155%; the one-year gap ratio was 175.6%, compared to an upper policy guideline of 140%; the three-year gap ratio was 167.5%, compared to an upper guideline of 125%; and the five-year gap ratio was 167.8%, 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. 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 higher 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 positively impacts future performance in the current rates-up interest rate scenario as there are more assets repricing to higher rates than liabilities. Management will continue to monitor and manage the length of the balance sheet in order to sustain reasonable asset yields in the current rising rate environment.

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.

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

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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. In the past two years, 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 2021 and 2022 even with steady loan growth. As of March 31, 2022, the loan-to-deposit ratio was 62.6%, compared to 60.9%, at December 31, 2021, and 63.5% at March 31, 2021.

~~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 Corporation also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit ~~interest rates~~flows in its local market, reduce access to ~~the same degree as the overnight Federal Funds rate. The Corporation’s average cost~~wholesale funding and limit access of funds ~~was 13 basis points as of March 31, 2022, which is low from an historic perspective. The average cost of funds includes the benefit of non-interest bearing demand~~available through brokered deposit ~~accounts.~~

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 low deposit rates throughout 2021 and into 2022, 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.

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 decline from current levels as 2022 progresses.

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.

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 ~~cumulative maturity gap analysis discussed above, management utilizes~~potential cash surplus/deficit over a ~~number~~variety of time horizons to ensure the Corporation has adequate funding resources. Assumptions used for liquidity ~~measurements that management~~stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes ~~has advantages over and gives better clarity to the Corporation’s present and projected~~it can meet all anticipated liquidity ~~than the static gap analysis offers.~~demands.

Historically, the Corporation has satisfied its liquidity needs from earnings, repayment of loans and amortizing investment securities, maturing investment securities, loan sales, deposit growth and its ability to access existing lines of credit. All investment securities are classified as available for sale; therefore, securities that are unencumbered can be used as collateral for borrowings and are an additional source of readily available liquidity.

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

·●

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

·●

Non-Core Funding ~~Concentration Analysis~~Dependence – ~~Alternative funding sources outside of core deposits~~Non-core liabilities minus short-term investments as a percentage of long-term assets

·●

~~Short-term Funds Availability~~Reliance on Wholesale Funding – ~~Readily available short-term funds~~Wholesale funding as a percentage of ~~assets~~total funding

·●

~~Securities Portfolio Liquidity~~Net Short-term Liabilities/Total Assets – ~~Cash flows maturing in one year or less as a percentage of~~Short-term liabilities minus short-term 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~~deposits

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

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ENB FINANCIAL CORP

These measurements are designed to prevent undue reliance on outside sources of funding and to ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity sources. As of March 31, ~~2022,~~2023, the Corporation was within guidelines for all of the above measurements except for securities portfolio liquidity as a percentage of total assets and as a percentage of the portfolio. These ratios were 1.9% and 5.3%, respectively, compared to a policy range of 4% - 8% and 10% - 20%. This was primarily due to a much higher balance sheet at March 31, 2022. Investment liquidity is moderate in the current rate environment but has decreased as a percentage of the portfolio because of the rapid growth in investment balances.measurements.

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

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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, or 300 basis points, or decrease ~~25, 50,~~100, 200, or 75300 basis points.

The results obtained through the use of forecasting models are based on a variety of factors. Both the net interest income and fair value forecasts make use of the maturity and repricing schedules to determine the changes to the balance sheet over the course of time. Additionally, there are many assumptions that factor into the results. These assumptions include, but are not limited to, the following:

·●

Projected forward interest rates

·●

Slope of the U.S. Treasury curve

·●

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

·●

Prepayment speeds on loans held and mortgage-backed securities

·●

Anticipated calls on securities with call options

·●

Deposit and loan balance fluctuations

·●

Competitive pressures affecting loan and deposit rates

·●

Economic conditions

·●

Consumer reaction to interest rate changes

For the interest rate sensitivity analysis and net portfolio value analysis discussed below, results are based on a static balance sheet reflecting no projected growth from balances as of March 31, 2022. 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.

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~~change immediately, the Corporation would realize ~~more~~less net interest income in all up and down rate scenarios. In past years, the Corporation was generally showing asset sensitivity meaning in a rates-up environment, assets would reprice faster than liabilities resulting in higher net interest income. ~~This is due to~~In the ability of the Corporation to immediately achieve higher interest earnings on interest-earning assets while having the ability to limit the amount of increase in interest-bearing liabilities based on the timing of deposit rate changes. This results in anpast few quarters, this increase in net interest income ~~in the rising rate scenarios, but~~shifted to a decline ~~in net~~primarily due to the increased impact from a higher cost of funds as rates continue to rise. While the Corporation would recognize higher interest income on its variable-rate assets, it would also now be repricing liabilities at a much faster pace resulting in increased interest expense that would offset the ~~declining rate scenarios.~~rise in interest income.

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ENB FINANCIAL CORP

The first quarter ~~2022~~of 2023 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of March 31, ~~2022,~~2023, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios. ~~The up-300 rate scenario shows a positive impact to net interest income. The~~

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increase in net interest income in the up-300 rate scenario is largely due to the variable rate securities and loans held on the Corporation’s balance sheet. On the liability side, when interest rates do increase, it is typical for management to react more slowly in increasing deposit rates so deposit rates move at a fraction of the full overnight rate movement. Loans that are Prime-based will increase by the full amount of the market rate movement while deposit rates will only increase at a fraction of the market rate increase. 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 decreases by 0.4% 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 decreases by 0.6% and increases by 0.7%, 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 slightly less than it was in previous quarters due partially to the assumption that deposit rates will need to be moved up proportionately as the Fed moves the overnight rate up. Additionally, the Corporation has a fairly long investment portfolio and a longer loan portfolio than in previous time periods due to the increase in residential mortgages as well as longer commercial loans. However, net interest income should increase as rates rise 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 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 more aggressive rates-up 300 basis point scenario also benefits 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 change 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 up 300 rate environment, although less of a benefit than prior timeframes.

As of March 31, 2022, in the down scenarios of -25, -50, and -75 basis points, net interest income decreases by 0.7%, 1.4%, and 2.1%, 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 2022.

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

Changes in Net Portfolio Value

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of March 31, ~~2022,~~2023, the Corporation was within guidelines for all rate scenarios except the down-200 and down-300 basis point scenarios. The Corporation shows a favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the ~~elevated~~large amount of core deposits on the Corporation’s balance ~~sheet as of March 31, 2022.~~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.

~~Table of Contents~~

~~ENB FINANCIAL CORP~~

The results as of March 31, 2022, indicate that the Corporation’s net portfolio value would experience valuation gains of 3.9%, 3.7%, and 4.9% in the rates-up 100, 200, and 300 basis point scenarios. Management’s maximum permitted declines in net portfolio value by policy are -5% for rates-up 100 basis points, graduating up to -15% for rates-up 300 basis points. A valuation loss would indicate that the value of the Corporation’s assets is declining at a faster pace than the decrease in the value of the Corporation’s liabilities. The analysis ~~does show~~shows a valuation loss in the down ~~25, 50, and 75~~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 ~~-3.0%, -6.6%,~~37%. In the down-300 basis point scenario, policy allows for a valuation decline of 30% and ~~-10.6%, respectively, compared to~~actual projection results show a valuation decline of 68%. While this loss is outside of policy guidelines, ~~of -3.75%, -7.5%, and -11.25%. The Corporation’s expected valuation loss was within guidelines for all down-rate scenarios. The~~the Federal Reserve has signaled that their preferred course of action is to ~~have several additional rate hikes in 2022.~~increase rates until inflation retracts. The ~~behavior of the Corporation’s deposits~~down-300 basis point scenario is very unlikely. The Corporation will continue to ~~have an impact on the Corporation’s net portfolio value. With the large balances~~monitor these measurements in the ~~Corporation’s core deposits, management is very well situated in an increasing rate environment~~down-rate scenarios and adjust balance sheet structure as necessary to ~~maintain a low cost of funds, as core deposits become more valuable.~~prepare for future potential lower rates.

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

~~Table of Contents~~Index

ENB FINANCIAL CORP

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, ~~2022,~~2023, 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 March 31, ~~2022,~~2023, 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~~Effective January 1, 2023, the ~~Corporation’s internal~~Corporation adopted CECL. The Corporation designed new controls and modified existing controls as part of this adoption. These additional controls over financial reporting ~~that occurred~~included controls over model governance, assumptions, and expanded controls over loan level data. There were no other changes in the Corporation's internal control over financial reporting (as defined in Rule 13a-15(f)) during the ~~most recent fiscal~~ quarter ended March 31, 2023 that ~~have~~ materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

~~Table of Contents~~Index

ENB FINANCIAL CORP

PART II – OTHER INFORMATION

March 31, ~~2022~~2023

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~~Other than as noted below, there have been no material changes in risk factors ~~since~~applicable to the Corporation from those disclosed in "Risk Factors" in Item 1A of the Corporation's Annual Report on Form 10-K for the year ended December 31, ~~2021 Form 10-K filing.~~2022.

Recent negative developments affecting the banking industry, including recent bank failures or concerns regarding liquidity, have eroded customer confidence in the banking system and may have a material adverse effect on the Corporation.

Recent events impacting the banking industry, including the high-profile failure or instability of certain banking institutions, have resulted in general uncertainty and eroded confidence in the safety, soundness, and financial strength of the financial services sector. In particular, the bank failures highlighted the potential serious impact of a financial institution unable to meet withdrawal requests by depositors. This has resulted in a growing concern about liquidity in the banking industry, access to and volatile capital markets and reduced stock valuations for certain financial institutions. Similar future events, including additional bank failures or bank instability, could directly or indirectly adversely impact our own liquidity, access to capital markets, stock price, financial condition and results of operations. Further, these recent events may also result in: greater regulatory scrutiny and enforcement; additional and more stringent laws and regulations for the financial services industry; increased FDIC deposit insurance premiums or special FDIC assessments; and higher capital ratio requirements, which as a result could have a material negative impact and adverse effect on our business, financial condition and results of operations.

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 March 31, ~~2022.~~2023.

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 *

January 2023

3,653

16.86

3,653

156,991

February 2023

5,250

16.25

5,250

151,741

March 2023

—

151,741

Total

8,903

~~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 *

~~January 2022~~

—

~~167,100~~

~~February 2022~~

—

~~167,100~~

~~March 2022~~

—

~~167,100~~

~~Total~~

—

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By March 31, ~~2022,~~2023, a total of ~~32,900~~48,259 shares were repurchased at a total cost of ~~$669,000~~$932,000 for an average cost per share of ~~$20.33.~~$19.31.

Item 3. Defaults Upon Senior Securities – Nothing to Report

Item 4. Mine Safety Disclosures – Not Applicable

Item 5. Other Information – Nothing to Report

~~Table of Contents~~Index

ENB FINANCIAL CORP

Item 6. Exhibits:

Exhibit No.	Description
3(i)	Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 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 Nonqualified~~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	Employment Agreement by and among ENB Financial Corp, The Ephrata National Bank and Chad E. Neiss dated as of October 28, 2022. (Incorporated herein by reference to Exhibit 10.1 of the Corporation's Form 8-K filed with the SEC on November 1, 2022.)
10.5	Employment Agreement by and among ENB Financial Corp, The Ephrata National Bank and Jeffrey S. Stauffer dated as of October 28, 2022. (Incorporated herein by reference to Exhibit 10.2 of the Corporation's Form 8-K filed with the SEC on November 1, 2022.)
10.6	Employment Agreement by and among ENB Financial Corp, The Ephrata National Bank and Rachel G. Bitner dated as of October 28, 2022. (Incorporated herein by reference to Exhibit 10.4 of the Corporation's Form 8-K filed with the SEC on November 1, 2022.)
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)).

~~Table of Contents~~Index

ENB FINANCIAL CORP

~~SIGNATURES~~

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: May ~~12, 2022~~15, 2023	By:	/s/ Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer


Dated: May ~~12, 2022~~15, 2023	By:	/s/ Rachel G. Bitner
		Rachel G. Bitner
		Treasurer
		Principal Financial Officer

iso4217:USD xbrli:shares


	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~28-47~~31-49

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	~~49-52~~50-52

	Item 4.	Controls and Procedures	5453



Part II – OTHER INFORMATION			5554

	Item 1.	Legal Proceedings	5554

	Item 1A.	Risk Factors	5554

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	54

	Item 3.	Defaults upon Senior Securities	54

	Item 4.	Mine Safety Disclosures	54

	Item 5.	Other Information	54

	Item 6.	Exhibits	55

~~Item 3.Defaults upon Senior Securities~~	55

~~Item 4.Mine Safety Disclosures~~	55

~~Item 5.Other Information~~	55

~~Item 6.Exhibits~~	56


SIGNATURE PAGE			5756

							Commercial
	Commercial		Agriculture				and		Tax-free		Agriculture
March 31, 2022	Mortgages		Mortgages		Construction		Industrial		Loans		Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		177,935		187,837		50,429		57,449		23,295		21,698		518,643
Special Mention		521		4,537		6,505		6,380		0—		71		18,014
Substandard		2,336		8,032		0—		3,317		0—		382		14,067
Doubtful		0—		0—		0—		0—		0—		0—		0—
Loss		0—		0—		0—		0—		0—		0—		0—

Total		180,792		200,406		56,934		67,146		23,295		22,151		550,724

	1-4 Family				Home Equity
	Residential		Home Equity		Lines of
March 31, 2022	Mortgages		Loans		Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		303,372		11,447		77,460		5,132		397,411
Non-performing		37		372		38		9		456

Total		303,409		11,819		77,498		5,141		397,867

			Unpaid
	Recorded		Principal		Related
March 31, 2022	Investment		Balance		Allowance
	$		$		$

With no related allowance recorded:
Commercial real estate
Commercial mortgages		579		619		0—
Agriculture mortgages		2,690		2,720		0—
Construction		0—		0—		0—
Total commercial real estate		3,269		3,339		0—

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

Total with no related allowance		3,269		3,339		0—

With an allowance recorded:
Commercial real estate
Commercial mortgages		0—		0—		0—
Agriculture mortgages		537		550		23
Construction		0—		0—		0—
Total commercial real estate		537		550		23

Commercial and industrial
Commercial and industrial		210		210		209
Tax-free loans		0—		0—		0—
Agriculture loans		19		20		19
Total commercial and industrial		229		230		228

Total with a related allowance		766		780		251

Total by loan class:
Commercial real estate
Commercial mortgages		579		619		0—
Agriculture mortgages		3,227		3,270		23
Construction		0—		0—		0—
Total commercial real estate		3,806		3,889		23

Commercial and industrial
Commercial and industrial		210		210		209
Tax-free loans		0—		0—		0—
Agriculture loans		19		20		19
Total commercial and industrial		229		230		228

Total		4,035		4,119		251

	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

	March 31, 2022
					Quoted Prices in Active Markets		Significant Other		Significant
					for Identical		Observable		Unobservable
	Carrying				Assets		Inputs		Inputs
	Amount		Fair Value		(Level I)		(Level II)		(Level III)
	$		$		$		$		$
Financial Assets:
Cash and cash equivalents		79,154		79,154		79,154		0—		0—
Regulatory stock		5,406		5,406		5,406		0—		0—
Loans held for sale		2,223		2,223		2,223		0—		0—
Loans, net of allowance		937,592		933,932		0—		0—		933,932
Mortgage servicing assets		1,958		2,737		0—		0—		2,737
Accrued interest receivable		5,694		5,694		5,694		0—		0—
Bank owned life insurance		35,574		35,574		35,574		0—		0—

Financial Liabilities:
Demand deposits		675,519		675,519		675,519		0—		0—
Interest-bearing demand deposits		66,083		66,083		66,083		0—		0—
NOW accounts		134,018		134,018		134,018		0—		0—
Money market deposit accounts		164,893		164,893		164,893		0—		0—
Savings accounts		363,300		363,300		363,300		0—		0—
Time deposits		114,144		112,113		0—		0—		112,113
Total deposits		1,517,957		1,515,926		1,403,813		0—		112,113

Long-term debt		44,206		44,042		0—		0—		44,042
Subordinated debt		19,700		18,675		0—		0—		18,675
Accrued interest payable		444		444		444		0—		0—