UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended     September 30, 2012

OR

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

For the transition period from ___________________________ to ___________________________

ENB Financial Corp

(Exact name of registrant as specified in its charter)

Pennsylvania	000-53297	51-0661129
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No)
31 E. Main St., Ephrata, PA	17522-0457
(Address of principal executive offices)	(Zip Code)

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

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

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 ý     No o

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

Yes ý     No o

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

Large Accelerated filer £	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company ý

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

Yes o     No ý

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 2, 2012, the registrant had 2,855,235 shares of $0.20 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

September 30, 2012

Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2012 and 2011 and December 31, 2011 (Unaudited)		3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)		4
	Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2012 and 2011 (Unaudited)		5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2012 and 2011 (Unaudited)		6
	Notes to the Unaudited Consolidated Interim Financial Statements		7-28
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29-60
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	61-65
	Item 4.	Controls and Procedures	66
Part II – OTHER INFORMATION			67
	Item 1.	Legal Proceedings	67
	Item 1A.	Risk Factors	67
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	67
	Item 3.	Defaults Upon Senior Securities	67
	Item 4.	Mine Safety Disclosures	67
	Item 5.	Other Information	67
	Item 6.	Exhibits	68
SIGNATURE PAGE			69
EXHIBIT INDEX			70

2

PART I.     FINANCIAL INFORMATION

Item 1.  Financial Statements

ENB Financial Corp

Consolidated Balance Sheets (Unaudited)

(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)	September 30,			December 31,			September 30,
	2012			2011			2011
	$			$			$
ASSETS
Cash and due from banks		10,198			12,511			10,541
Interest-bearing deposits in other banks		24,754			19,375			24,479
Total cash and cash equivalents		34,952			31,886			35,020
Securities available for sale (at fair value)		304,481			284,011			284,644
Loans held for sale		897			1,926			210
Loans (net of unearned income)		401,644			412,638			408,450
Less: Allowance for loan losses		7,644			8,480			8,253
Net loans		394,000			404,158			400,197
Premises and equipment		21,112			21,366			20,912
Regulatory stock		4,033			4,148			4,102
Bank owned life insurance		19,015			16,552			16,393
Other assets		6,349			7,099			7,351
Total assets		784,839			771,146			768,829
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		149,839			149,510			139,426
Interest-bearing		470,095			456,168			463,995
Total deposits		619,934			605,678			603,421
Long-term debt		70,500			73,000			80,500
Accounts payable for security purchases not yet settled		2,097			6,964			—
Other liabilities		3,394			3,033			3,170
Total liabilities		695,925			688,675			687,091
Stockholders' equity:
Common stock, par value $0.20;
Shares:  Authorized 12,000,000
Issued 2,869,557 and Outstanding 2,857,475
(Issued 2,869,557 and Outstanding 2,858,831 as of 12-31-11)
(Issued 2,869,557 and Outstanding 2,859,035 as of 9-30-11)		574			574			574
Capital surplus		4,315			4,304			4,317
Retained earnings		77,611			73,632			72,450
Accumulated other comprehensive income, net of tax		6,711			4,221			4,655
Less: Treasury stock shares at cost 12,082 (10,726 shares
as of 12-31-11 and 10,522 shares as of 9-30-11)		(297	)		(260	)		(258	)
Total stockholders' equity		88,914			82,471			81,738
Total liabilities and stockholders' equity		784,839			771,146			768,829

See Notes to the Unaudited Consolidated Interim Financial Statements

3

ENB Financial Corp

 Consolidated Statements of Income (Unaudited)

Periods Ended September 30, 2012 and 2011

	Three Months						Nine Months
	2012			2011			2012			2011
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)	$			$			$			$
Interest and dividend income:
Interest and fees on loans		5,011			5,386			15,272			16,271
Interest on securities available for sale
Taxable		977			1,603			3,336			4,710
Tax-exempt		924			867			2,711			2,565
Interest on deposits at other banks		24			11			60			29
Dividend income		31			28			86			94
Total interest and dividend income		6,967			7,895			21,465			23,669
Interest expense:
Interest on deposits		1,061			1,270			3,271			4,005
Interest on long-term debt		499			785			1,655			2,338
Total interest expense		1,560			2,055			4,926			6,343
Net interest income		5,407			5,840			16,539			17,326
Provision (credit) for loan losses		(250	)		450			(850	)		1,350
Net interest income after provision (credit) for loan losses		5,657			5,390			17,389			15,976
Other income:
Trust and investment services income		248			253			816			847
Service fees		393			435			1,259			1,320
Commissions		490			469			1,454			1,376
Gains on securities transactions, net		342			269			1,003			1,346
Impairment losses on securities:
Impairment losses on investment securities		—			(92	)		(55	)		(171	)
Non-credit related (gains) losses on securities not expected
to be sold in other comprehensive income before tax		—			11			(31	)		(129	)
Net impairment losses on investment securities		—			(81	)		(86	)		(300	)
Gains on sale of mortgages		52			28			183			108
Losses on sale of loans		—			—			—			(263	)
Earnings on bank owned life insurance		164			148			762			441
Other income		69			88			265			264
Total other income		1,758			1,609			5,656			5,139
Operating expenses:
Salaries and employee benefits		3,020			2,904			9,326			8,566
Occupancy		420			410			1,261			1,217
Equipment		221			206			657			604
Advertising & marketing		65			74			285			239
Computer software & data processing		418			397			1,216			1,174
Bank shares tax		202			208			618			625
Professional services		262			287			850			974
FDIC insurance		90			88			270			433
Other expense		373			401			1,282			1,133
Total operating expenses		5,071			4,975			15,765			14,965
Income before income taxes		2,344			2,024			7,280			6,150
Provision for federal income taxes		384			293			1,160			870
Net income		1,960			1,731			6,120			5,280
Earnings per share of common stock		0.69			0.61			2.14			1.85
Cash dividends paid per share		0.25			0.24			0.75			0.72
Weighted average shares outstanding		2,854,723			2,858,809			2,855,555			2,857,626

See Notes to the Unaudited Consolidated Interim Financial Statements

4

ENB Financial Corp

Consolidated Statements of Comprehensive Income  (Unaudited)

Periods Ended September 30, 2012 and 2011

	Three Months						Nine Months
	2012			2011			2012			2011
(DOLLARS IN THOUSANDS)	$			$			$			$
Net income		1,960			1,731			6,120			5,280
Other comprehensive (income) loss, net of tax:
Net change in unrealized (gains) losses:
Other-than-temporarily impaired securities available for sale:
Gains (losses) arising during the quarter		—			(92	)		(55	)		(171	)
Income tax effect		—			31			18			58
		—			(61	)		(37	)		(113	)
Losses recognized in earnings		—			81			86			300
Income tax effect		—			(27	)		(29	)		(103	)
		—			54			57			197
Unrealized holding gains (losses) on other-than-temporarily impaired
securities available for sale, net of tax		—			(7	)		20			84
Securities available for sale not other-than-temporarily impaired:
Gains arising during the period		2,568			3,021			4,745			7,602
Income tax effect		(873	)		(1,027	)		(1,613	)		(2,585	)
		1,695			1,994			3,132			5,017
Gains recognized in earnings		(342	)		(269	)		(1,003	)		(1,346	)
Income tax effect		116			91			341			458
		(226	)		(178	)		(662	)		(888	)
Unrealized holding (losses) gains on securities available for sale not
other-than-temporarily impaired, net of tax		1,469			1,816			2,470			4,129
Other comprehensive income		1,469			1,809			2,490			4,213
Comprehensive Income		3,429			3,540			8,610			9,493

See Notes to the Unaudited Consolidated Interim Financial Statements

5

ENB Financial Corp

Consolidated Statements of Cash Flows (Unaudited)

(DOLLARS IN THOUSANDS)	Nine Months Ended September 30,
	2012			2011
	$			$
Cash flows from operating activities:
Net income		6,120			5,280
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of securities premiums and discounts and loan fees		2,649			1,353
Increase in interest receivable		(205	)		(35	)
Decrease in interest payable		(175	)		(158	)
Provision (credit) for loan losses		(850	)		1,350
Gains on securities transactions, net		(1,003	)		(1,346	)
Impairment losses on securities		86			300
Losses on the sale of student loans		—			263
Gains on sale of mortgages		(183	)		(108	)
Loans originated for sale		(10,212	)		(7,277	)
Proceeds from sales of loans		11,424			7,946
Earnings on bank-owned life insurance		(762	)		(441	)
Gains on sale of other real estate owned		(15	)		—
Depreciation of premises and equipment and amortization of software		1,001			999
Deferred income tax		598			(212	)
Decrease in prepaid federal deposit insurance		236			395
Decrease in accounts payable for securities purchased not yet settled		(4,867	)		—
Other assets and other liabilities, net		(485	)		(400	)
Net cash provided by operating activities		3,357			7,909
Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		70,460			41,795
Proceeds from sales		29,624			58,530
Purchases		(118,512	)		(119,762	)
Purchase of other real estate owned		(112	)		—
Proceeds from sale of other real estate owned		132
Purchase of regulatory bank stock		(230	)		—
Redemptions of regulatory bank stock		345			578
Purchase of bank-owned life insurance		(2,527	)		(61	)
Proceeds from bank-owned life insurance		826			—
Proceeds from sale of student loans		—			7,981
Net decrease (increase) in loans		10,729			(1,682	)
Purchases of premises and equipment		(582	)		(1,226	)
Purchase of computer software		(33	)		(107	)
Net cash used for investing activities		(9,880	)		(13,954	)
Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		13,104			15,606
Net increase (decrease) in time deposits		1,152			(7,779	)
Proceeds from long-term debt		15,000			10,500
Repayments of long-term debt		(17,500	)		(4,500	)
Dividends paid		(2,141	)		(2,056	)
Treasury stock sold		317			334
Treasury stock purchased		(343	)		(266	)
Net cash provided by financing activities		9,589			11,839
Increase in cash and cash equivalents		3,066			5,794
Cash and cash equivalents at beginning of period		31,886			29,226
Cash and cash equivalents at end of period		34,952			35,020
Supplemental disclosures of cash flow information:
Interest paid		5,100			6,501
Income taxes paid		745			1,065
Supplemental disclosure of non-cash investing and financing activities:
Securities purchased not yet settled		2,097			—
Net transfer of other real estate owned held for sale from loans		278			—
Fair value adjustments for securities available for sale		3,773			6,383

See Notes to the Unaudited Consolidated Interim Financial Statements

6

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

1.Basis of Presentation

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

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). This Form 10-Q, for the third quarter of 2012, is reporting on the results of operations and financial condition of ENB Financial Corp.

Operating results for the three and nine months ended September 30, 2012, are not necessarily indicative of the results that may be expected for the year ended December 31, 2012. 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, 2011.

2.Securities Available for Sale

The amortized cost and fair value of securities held at September 30, 2012, and December 31, 2011, are as follows:

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
September 30, 2012
U.S. government agencies		36,741		1,935		(60	)		38,616
U.S. agency mortgage-backed securities		54,425		1,234		(11	)		55,648
U.S. agency collateralized mortgage obligations		47,503		285		(368	)		47,420
Private collateralized mortgage obligations		6,352		62		(479	)		5,935
Corporate bonds		47,606		1,382		(36	)		48,952
Obligations of states and political subdivisions		96,686		6,428		(160	)		102,954
Total debt securities		289,313		11,326		(1,114	)		299,525
Marketable equity securities		5,000		—		(44	)		4,956
Total securities available for sale		294,313		11,326		(1,158	)		304,481
December 31, 2011
U.S. government agencies		44,669		1,959		(14	)		46,614
U.S. agency mortgage-backed securities		54,264		874		(9	)		55,129
U.S. agency collateralized mortgage obligations		55,908		462		(321	)		56,049
Private collateralized mortgage obligations		8,251		25		(1,051	)		7,225
Corporate bonds		25,579		230		(511	)		25,298
Obligations of states and political subdivisions		84,945		4,852		(52	)		89,745
Total debt securities		273,616		8,402		(1,958	)		280,060
Marketable equity securities		4,000		—		(49	)		3,951
Total securities available for sale		277,616		8,402		(2,007	)		284,011

7

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The amortized cost and fair value of debt securities available for sale at September 30, 2012, 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		36,641		36,979
Due after one year through five years		104,948		107,512
Due after five years through ten years		74,391		76,672
Due after ten years		73,333		78,362
Total debt securities		289,313		299,525

Securities available for sale with a par value of $83,331,000 and $73,049,000 at September 30, 2012, and December 31, 2011, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $89,138,000 at September 30, 2012, and $77,874,000 at December 31, 2011.

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

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE
(DOLLARS IN THOUSANDS)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	$		$		$		$
Proceeds from sales		6,720		12,542		29,624		58,530
Gross realized gains		351		315		1,080		1,567
Gross realized losses		9		46		77		221

SUMMARY OF GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE
(DOLLARS IN THOUSANDS)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2012		2011		2012		2011
	$		$		$		$
Gross realized gains		351		315		1,080		1,567
Gross realized losses		9		46		77		221
Impairment on securities		—		81		86		300
Total gross realized losses		9		127		163		521
Net gains on securities		342		188		917		1,046

The bottom portion of the above table shows the net gains on security transactions, including any impairment taken on securities held by the Corporation. Unlike the sale of a security, impairment is a write-down of the book value of the security which produces a loss and does not provide any proceeds. The net gain or loss from security transactions is also reflected on the Corporation’s Consolidated Statements of Income and Consolidated Statements of Cash Flows.

8

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

Management evaluates all of the Corporation’s securities for other than temporary impairment (OTTI) on a periodic basis. As of September 30, 2012, no impairment was needed on any of the Corporation’s securities; however, three private collateralized mortgage obligations (PCMOs) were being held that had experienced prior impairment. Analysis of these three securities as of September 30, 2012, based on the projected future cash flows, including prepayment speeds, delinquencies, foreclosures, and the severity of losses, did not indicate a need to take additional impairment. While there was no security impairment recorded in the second or third quarters of 2012, in the first quarter of 2012, $86,000 of impairment was recorded on two PCMO securities considered to be other than temporarily impaired. Impairment was taken on four PCMO securities in the third quarter of 2011 that amounted to $81,000 and year-to-date impairment on these securities as of September 30, 2011, was $300,000. One of the four PCMOs that experienced impairment in 2011 was sold in May 2012, leaving only three PCMOs that had experienced impairment. Information pertaining to securities with gross unrealized losses at September 30, 2012, and December 31, 2011, 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 September 30, 2012
U.S. government agencies		3,975		(60	)		—		—			3,975		(60	)
U.S. agency mortgage-backed securities		5,638		(11	)		—		—			5,638		(11	)
U.S. agency collateralized mortgage obligations		27,612		(270	)		5,719		(98	)		33,331		(368	)
Private collateralized mortgage obligations		—		—			4,844		(479	)		4,844		(479	)
Corporate bonds		1,971		(28	)		992		(8	)		2,963		(36	)
Obligations of states & political subdivisions		9,817		(131	)		2,005		(29	)		11,822		(160	)
Total debt securities		49,013		(500	)		13,560		(614	)		62,573		(1,114	)
Marketable equity securities		—		—			956		(44	)		956		(44	)
Total temporarily impaired securities		49,013		(500	)		14,516		(658	)		63,529		(1,158	)
As of December 31, 2011
U.S. government agencies		5,995		(14	)		—		—			5,995		(14	)
U.S. agency mortgage-backed securities		4,998		(9	)		—		—			4,998		(9	)
U.S. agency collateralized mortgage obligations		23,631		(321	)		—		—			23,631		(321	)
Private collateralized mortgage obligations		—		—			4,919		(1,051	)		4,919		(1,051	)
Corporate bonds		12,392		(497	)		491		(14	)		12,883		(511	)
Obligations of states & political subdivisions		2,767		(17	)		2,977		(35	)		5,744		(52	)
Total debt securities		49,783		(858	)		8,387		(1,100	)		58,170		(1,958	)
Marketable equity securities		—		—			951		(49	)		951		(49	)
Total temporarily impaired securities		49,783		(858	)		9,338		(1,149	)		59,121		(2,007	)

In the debt security portfolio, there are 47 positions that were considered temporarily impaired at September 30, 2012. Based on analysis conducted as of September 30, 2012, no securities indicated impairment, and therefore, no securities were considered other-than-temporarily impaired.

9

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The Corporation evaluates both equity and fixed maturity positions for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. The Corporation adopted a provision of U.S. generally accepted accounting principles which provides for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive income. The adoption of this provision was only applicable to four of the Corporation’s PCMOs since these were the only instruments management deemed to be other-than-temporarily impaired and have experienced some impairment.

A cumulative total of $1,143,000 of impairment has been recorded on the three impaired PCMO securities currently held, plus the PCMO that was sold in May 2012. Impairment of $340,000 was first recorded in 2009 on two of these securities. Additional impairment was recorded in 2010 for a total of $393,000 on the same two PCMO securities. During 2011, there was an additional $324,000 of impairment recorded on the three PCMO securities, currently identified as other than temporarily impaired, plus the impaired PCMO that was sold in May 2012. In the first quarter of 2012, an additional $86,000 of impairment was recorded on two of the PCMO securities. There was no impairment recorded in the second or third quarters of 2012.

The impairment on the PCMOs is a result of a deterioration of expected cash flows on these securities due to higher projected credit losses than the amount of credit protection carried by these securities. Specifically, the foreclosure and severity rates have been running at levels where expected principal losses are in excess of the remaining credit protection on these instruments. The projected principal losses are based on prepayment speeds that are equal to or slower than the actual last twelve-month prepayment speeds the particular securities have experienced. Every quarter, management evaluates third-party reporting that shows projected principal losses based on various prepayment speed and severity rate scenarios. Based on the assumption that all loans over 60 days delinquent will default and at a severity rate equal to or above that previously experienced, and based on historical and expected prepayment speeds, management determined that it was appropriate to take additional impairment on two PCMOs in the first quarter of 2012, with no impairment necessary in the second or third quarters.

The following tables reflect the amortized cost, market value, and unrealized loss as of September 30, 2012 and 2011, on the PCMO securities held which had impairment taken in each respective year. The values shown are after the Corporation recorded year-to-date impairment charges of $86,000 through September 30, 2012, and $300,000 through September 30, 2011. The $86,000 and $300,000 are deemed to be credit losses and are the amounts that management expects the principal losses will be by the time these securities mature. The remaining $308,000 and $1,031,000 of unrealized losses are deemed to be market value losses that are considered temporary.

SECURITY IMPAIRMENT CHARGES
(DOLLARS IN THOUSANDS)
	As of September 30, 2012
	Amortized		Market		Unrealized			Impairment
	Cost		Value		Loss			Charge
	$		$		$			$
Private collateralized mortgage obligations		3,605		3,297		(308	)		(86	)

	As of September 30, 2011
	Amortized		Market		Unrealized			Impairment
	Cost		Value		Loss			Charge
	$		$		$			$
Private collateralized mortgage obligations		7,427		6,396		(1,031	)		(300	)

10

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following table provides a cumulative roll forward of credit losses recognized in earnings for debt securities held:

CREDIT LOSSES RECOGNIZED IN EARNINGS ON DEBT SECURITIES
(DOLLARS IN THOUSANDS)
	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2012		2011		2012			2011
	$		$		$			$
Beginning balance		977		951		1,057			732
Credit losses on debt securities for which other-than-
temporary impairment has not been previously recognized		—		—		—			105
Additional credit losses on debt securities for which other-
than-temporary impairment was previously recognized		—		81		86			195
Sale of debt securities with previously recognized impairment				—		(166	)		—
Ending balance		977		1,032		977			1,032

Recent market conditions throughout the financial sector have made the evaluation regarding the possible impairment of PCMOs difficult to fully determine given the volatility of their pricing, based not only on interest rate changes, but on collateral uncertainty as well. The Corporation’s mortgage-backed securities (MBS) and collateralized mortgage obligations (CMO) holdings are backed by the U.S. government, and therefore, experience significantly less volatility and uncertainty than the PCMO securities. The Corporation has not experienced any impairment on U.S. government MBS or CMO securities and does not expect impairment in the future on these instruments. The Corporation’s PCMO holdings make up a minority of the total MBS, CMO, and PCMO securities held. As of September 30, 2012, on an amortized cost basis, PCMOs accounted for 5.9% of the Corporation’s total MBS, CMO, and PCMO holdings, compared to 7.0% as of December 31, 2011. As of September 30, 2012, four PCMOs were held with one of the four rated AAA by either Moody’s or S&P. The remaining three securities were rated below investment grade. Impairment charges, as detailed above, were taken on two of these securities in the first quarter of 2012, with no impairment taken in the second or third quarters of 2012.

Management conducts impairment analysis on a quarterly basis and currently plans to continue to hold these securities as cash flow analysis performed under severe stress testing does not indicate a need to take further impairment on the bonds that are considered impaired. The unrealized loss position of all of the Corporation’s PCMOs has improved since December 31, 2011. The PCMO net unrealized losses stood at $1.0 million as of December 31, 2011, and improved to a $417,000 net unrealized loss as of September 30, 2012. One of the four PCMOs is carrying an unrealized gain. Management has concluded that, as of September 30, 2012, the unrealized losses outlined in the above table represent temporary declines. Management currently does not intend to sell these securities as a result of unrealized holding losses carried and impairment taken, and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity. While management does not intend to sell these securities related to their impairment, it is standard practice to sell off smaller MBS, CMO, and PCMO instruments once normal principal payments have reduced the size of the security to less than $1 million. This is done to reduce the administrative costs and improve the efficiency of the entire portfolio. One previously impaired PCMO instrument was sold in the second quarter of 2012 with proceeds of $1,051,000 at a minimal loss of $8,000. Management will continue to monitor the remaining PCMO instruments.

11

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

3.        Loans and Allowance for Loan Losses

The following tables present the Corporation’s loan portfolio by category of loans as of September 30, 2012, and December 31, 2011.

LOAN PORTFOLIO
	September 30,			December 31,
	2012			2011
	$			$
Commercial real estate
Commercial mortgages		86,941			95,347
Agriculture mortgages		76,675			73,287
Construction		17,525			18,957
Total commercial real estate		181,141			187,591
Consumer real estate (a)
1-4 family residential mortgages		130,762			133,959
Home equity loans		13,525			14,687
Home equity lines of credit		15,907			15,004
Total consumer real estate		160,194			163,650
Commercial and industrial
Commercial and industrial		25,612			25,913
Tax-free loans		17,774			19,072
Agriculture loans		13,058			12,884
Total commercial and industrial		56,444			57,869
Consumer		3,798			3,590
Gross loans prior to deferred fees		401,577			412,700
Less:
Deferred loan fees (costs), net		(67	)		62
Allowance for loan losses		7,644			8,480
Total net loans		394,000			404,158

(a) Real estate loans serviced for Fannie Mae, which are not included in the Consolidated Balance Sheets, totaled $7,345,000 and $8,904,000 as of September 30, 2012, and December 31, 2011, respectively.    

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of September 30, 2012, and December 31, 2011. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled or at all. 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.

12

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

COMMERCIAL CREDIT EXPOSURE
CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE
(DOLLARS IN THOUSANDS)
September 30, 2012	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		77,946		73,400		13,054		23,198		17,534		12,161		217,293
Special Mention		619		419		—		338		—		88		1,464
Substandard		8,376		2,856		4,471		2,076		240		809		18,828
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total		86,941		76,675		17,525		25,612		17,774		13,058		237,585

December 31, 2011	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		76,532		67,235		13,869		21,561		19,072		11,943		210,212
Special Mention		3,872		773		132		1,173		—		65		6,015
Substandard		14,943		5,279		4,956		3,179		—		876		29,233
Doubtful		—		—		—		—		—		—		—
Loss		—		—		—		—		—		—		—
Total		95,347		73,287		18,957		25,913		19,072		12,884		245,460

13

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and non-accrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of September 30, 2012, and December 31, 2011:

CONSUMER CREDIT EXPOSURE
CREDIT RISK PROFILE BY PAYMENT PERFORMANCE
(DOLLARS IN THOUSANDS)
September 30, 2012	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$
Performing		130,451		13,384		15,907		3,794		163,536
Non-performing		311		141		—		4		456
Total		130,762		13,525		15,907		3,798		163,992

December 31, 2011	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$
Performing		133,643		14,541		15,004		3,590		166,778
Non-performing		316		146		—		—		462
Total		133,959		14,687		15,004		3,590		167,240

14

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of September 30, 2012, and December 31, 2011:

AGING OF LOANS RECEIVABLE
(DOLLARS IN THOUSANDS)
													Loans
					Greater								Receivable >
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
September 30, 2012	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		128		225		—		353		86,588		86,941		—
Agriculture mortgages		—		—		—		—		76,675		76,675		—
Construction		—		—		—		—		17,525		17,525		—
Consumer real estate
1-4 family residential mortgages		640		21		172		833		129,929		130,762		172
Home equity loans		132		—		—		132		13,393		13,525		—
Home equity lines of credit		17		—		—		17		15,890		15,907		—
Commercial and industrial
Commercial and industrial		32		—		—		32		25,580		25,612		—
Tax-free loans		—		—		—		—		17,774		17,774		—
Agriculture loans		—		—		—		—		13,058		13,058		—
Consumer		5		—		2		7		3,791		3,798		—
Total		954		246		174		1,374		400,203		401,577		172

													Loans
					Greater								Receivable >
	30-59 Days		60-89 Days		than 90		Total Past				Total Loans		90 Days and
December 31, 2011	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		390		—		—		390		94,957		95,347		—
Agriculture mortgages		—		—		—		—		73,287		73,287		—
Construction		132		—		—		132		18,825		18,957		—
Consumer real estate
1-4 family residential mortgages		1,684		140		107		1,931		132,028		133,959		107
Home equity loans		79		101		—		180		14,507		14,687		—
Home equity lines of credit		—		15		—		15		14,989		15,004		—
Commercial and industrial
Commercial and industrial		49		—		101		150		25,763		25,913		—
Tax-free loans		—		—		—		—		19,072		19,072		—
Agriculture loans		—		—		—		—		12,884		12,884		—
Consumer		18		5		—		23		3,567		3,590		—
Total		2,352		261		208		2,821		409,879		412,700		107

15

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following table presents nonaccrual loans by classes of the loan portfolio as of September 30, 2012, and December 31, 2011:

NONACCRUAL LOANS BY LOAN CLASS
(DOLLARS IN THOUSANDS)
	September 30,		December 31,
	2012		2011
	$		$
Commercial real estate
Commercial mortgages		963		1,265
Agriculture mortgages		—		—
Construction		—		—
Consumer real estate
1-4 family residential mortgages		184		209
Home equity loans		141		146
Home equity lines of credit		—		—
Commercial and industrial
Commercial and industrial		54		242
Tax-free loans		—		—
Agriculture loans		—		—
Consumer		4		—
Total		1,346		1,862

As of September 30, 2012, and December 31, 2011, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and nine months ended September 30, 2012, and September 30, 2011, is as follows:

IMPAIRED LOANS
(DOLLARS IN THOUSANDS)
	Three months ended September 30,				Nine months ended September 30,
	2012		2011		2012		2011
	$		$		$		$
Impaired loans:
Average recorded balance of impaired loans		3,074		3,645		3,286		4,075
Interest income recognized on impaired loans		50		29		106		92

Interest income on impaired loans would have increased by approximately $4,000 and $65,000 for the three and nine months ended September 30, 2012, and $35,000 and $114,000 for the three and nine months ended September 30, 2011, had these loans performed in accordance with their original terms.

16

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information in regards to impaired loans by loan portfolio class as of September 30, 2012, and December 31, 2011:

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
September 30, 2012	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	$		$		$		$		$
With no related allowance recorded:
Commercial real estate
Commercial mortgages		304		304		—		416		—
Agriculture mortgages		1,640		1,640		—		1,646		83
Construction		—		—		—		—		—
Total commercial real estate		1,944		1,944		—		2,062		83
Commercial and industrial
Commercial and industrial		54		95		—		155		20
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		54		95		—		155		20
Total with no related allowance		1,998		2,039		—		2,217		103
With an allowance recorded:
Commercial real estate
Commercial mortgages		983		1,080		162		1,069		3
Agriculture mortgages		—		—		—		—		—
Construction		—		—		—		—		—
Total commercial real estate		983		1,080		162		1,069		3
Commercial and industrial
Commercial and industrial		—		—		—		—		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		—		—		—		—		—
Total with a related allowance		983		1,080		162		1,069		3
Total by loan class:
Commercial real estate
Commercial mortgages		1,287		1,384		162		1,485		3
Agriculture mortgages		1,640		1,640		—		1,646		83
Construction		—		—		—		—		—
Total commercial real estate		2,927		3,024		162		3,131		86
Commercial and industrial
Commercial and industrial		54		95		—		155		20
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		54		95		—		155		20
Total		2,981		3,119		162		3,286		106

17

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS
(DOLLARS IN THOUSANDS)
December 31, 2011	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
	$		$		$		$		$
With no related allowance recorded:
Commercial real estate
Commercial mortgages		473		473		—		641		—
Agriculture mortgages		1,658		1,658		—		1,667		119
Construction		—		67		—		44		—
Total commercial real estate		2,131		2,198		—		2,352		119
Commercial and industrial
Commercial and industrial		137		137		—		226		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		137		137		—		226		—
Total with no related allowance		2,268		2,335		—		2,578		119
With an allowance recorded:
Commercial real estate
Commercial mortgages		1,147		1,244		140		1,245		—
Agriculture mortgages		—		—		—		—		—
Construction		—		—		—		—		—
Total commercial real estate		1,147		1,244		140		1,245		—
Commercial and industrial
Commercial and industrial		105		105		61		71		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		105		105		61		71		—
Total with a related allowance		1,252		1,349		201		1,316		—
Total by loan class:
Commercial real estate
Commercial mortgages		1,620		1,717		140		1,886		—
Agriculture mortgages		1,658		1,658		—		1,667		119
Construction		—		67		—		44		—
Total commercial real estate		3,278		3,442		140		3,597		119
Commercial and industrial
Commercial and industrial		242		242		61		297		—
Tax-free loans		—		—		—		—		—
Agriculture loans		—		—		—		—		—
Total commercial and industrial		242		242		61		297		—
Total		3,520		3,684		201		3,894		119

18

Index

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

The following tables detail activity in the allowance for loan losses by portfolio segment for the nine months ended September 30, 2012, and September 30, 2011:

ALLOWANCE FOR CREDIT LOSSES
(DOLLARS IN THOUSANDS)
	Commercial Real Estate			Consumer Real Estate			Commercial and Industrial			Consumer			Unallocated			Total
	$			$			$			$			$			$
Allowance for credit losses:
Beginning balance - December 31, 2011		3,441			1,424			2,825			61			729			8,480
Charge-offs		—			—			42			5			—			47
Recoveries		—			—			20			5			—			25
Provision		(371	)		(103	)		214			(6	)		16			(250	)(1)
Balance - March 31, 2012		3,070			1,321			3,017			55			745			8,208
Charge-offs		—			—			5			2			—			7
Recoveries		—			—			23			3			—			26
Provision		41			96			(434	)		4			(57	)		(350	)(1)
Balance - June 30, 2012		3,111			1,417			2,601			60			688			7,877
Charge-offs		—			—			—			2			—			2
Recoveries		15			—			3			1			—			19
Provision		296			(14	)		(457	)		(5	)		(70	)		(250	)(1)
Ending Balance - September 30, 2012		3,422			1,403			2,147			54			618			7,644

(1) The Corporation recognized a $250,000 credit provision in the first quarter of 2012, a $350,000 credit provision in the second quarter of 2012, and a $250,000 credit provision in the third quarter of 2012, as a result of lower levels of non-performing and  delinquent loans, minimum charge-offs, and a decline in loan balances.

	Commercial Real Estate		Consumer Real Estate		Commercial and Industrial			Consumer		Unallocated		Total
	$		$		$			$		$		$
Allowance for credit losses:
Beginning balance - December 31, 2010		2,605		1,254		2,816			75		382		7,132
Charge-offs		97		13		30			9		—		149
Recoveries		—		2		145			3		—		150
Provision		527		39		(165	)		—		49		450