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 September 30, 2023

OR

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

For the transition period from _______________________ to _______________________

ENB Financial Corp

(Exact name of registrant as specified in its charter)

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

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

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

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

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

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

Yes ☒            No ☐

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

Yes ☒            No ☐

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

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

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

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

Yes ☐            No ☒

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of November 1, 2023, the registrant had 5,656,029 shares of $0.10 (par) Common Stock outstanding.

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

September 30, 2023

Part I – FINANCIAL INFORMATION
	Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, 2023 and 2022, and December 31, 2022 (Unaudited)		3
	Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)		4
	Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)		5
	Consolidated Statements of Changes in Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022 (Unaudited)		6
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022 (Unaudited)		7
	Notes to the Unaudited Consolidated Interim Financial Statements		8-31
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32-52
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	53-55
	Item 4.	Controls and Procedures	56
Part II – OTHER INFORMATION			57
	Item 1.	Legal Proceedings	57
	Item 1A.	Risk Factors	57
	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 3.	Defaults upon Senior Securities	58
	Item 4.	Mine Safety Disclosures	58
	Item 5.	Other Information	58
	Item 6.	Exhibits	59
SIGNATURE PAGE			60

2 

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

	September 30,			December 31,			September 30,
	2023			2022			2022
	$			$			$
ASSETS
Cash and due from banks		24,962			28,935			27,623
Interest-bearing deposits in other banks		13,797			8,637			22,953
Total cash and cash equivalents		38,759			37,572			50,576
Securities available for sale (at fair value, net of allowance for credit losses of $0)		438,152			529,142			559,646
Equity securities (at fair value)		9,041			9,118			8,951
Loans held for sale		1,081			5,927			5,131
Loans (net of unearned income)		1,335,597			1,191,117			1,114,504
Less: Allowance for credit losses		16,349			14,151			14,150
Net loans		1,319,248			1,176,966			1,100,354
Premises and equipment		25,339			25,333			24,598
Regulatory stock		8,283			6,670			5,897
Bank owned life insurance		35,415			34,805			35,995
Other assets		33,229			33,183			33,156
Total assets		1,908,547			1,858,716			1,824,304
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits:
Noninterest-bearing		583,145			672,342			670,563
Interest-bearing		1,077,845			966,616			961,286
Total deposits		1,660,990			1,638,958			1,631,849
Short-term borrowings		—			16,000			15,000
Long-term debt		98,528			58,039			44,206
Subordinated debt		39,516			39,396			39,356
Other liabilities		12,011			8,988			7,738
Total liabilities		1,811,045			1,761,381			1,738,149
Stockholders' equity:
Common stock, par value $0.10
Shares:  Authorized 24,000,000
Issued 5,739,114 and Outstanding 5,651,378 as of 9/30/23, 5,635,533 as of 12/31/22, and 5,625,146 as of 9/30/22		574			574			574
Capital surplus		4,237			4,437			4,475
Retained earnings		147,033			142,677			138,760
Accumulated other comprehensive loss, net of tax		(52,721	)		(48,292	)		(55,381	)
Less: Treasury stock cost on 87,737 shares as of 9/30/23, 103,581 as of 12/31/22, and 113,969 as of 9/30/22		(1,621	)		(2,061	)		(2,273	)
Total stockholders' equity		97,502			97,335			86,155
Total liabilities and stockholders' equity		1,908,547			1,858,716			1,824,304

See Notes to the Unaudited Consolidated Interim Financial Statements

3 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

	Three Months ended September 30,					Nine Months ended September 30,
	2023			2022		2023			2022
	$			$		$			$
Interest and dividend income:
Interest and fees on loans		15,892			11,022		44,540			29,357
Interest on securities available for sale
Taxable		2,900			2,654		8,753			6,090
Tax-exempt		736			1,074		2,265			3,182
Interest on deposits at other banks		227			55		474			139
Dividend income		282			167		803			367
Total interest and dividend income		20,037			14,972		56,835			39,135
Interest expense:
Interest on deposits		5,390			608		12,348			1,168
Interest on borrowings		1,289			775		3,668			1,683
Total interest expense		6,679			1,383		16,016			2,851
Net interest income		13,358			13,589		40,819			36,284
(Release) provision for credit losses		(504	)		550		1,568			1,300
Net interest income after (release) provision for credit losses		13,862			13,039		39,251			34,984
Other income:
Trust and investment services income		663			680		2,122			1,979
Service fees		1,382			791		3,404			2,063
Commissions		917			941		2,729			2,762
(Losses) gains on the sale of debt securities, net		—			—		(1,364	)		139
(Losses) gains on equity securities, net		(103	)		9		(405	)		(129	)
Gains on sale of mortgages		180			186		506			1,249
Earnings on bank-owned life insurance		245			242		708			667
Other income		271			331		931			1,145
Total other income		3,555			3,180		8,631			9,875
Operating expenses:
Salaries and employee benefits		7,350			6,607		22,706			19,826
Occupancy		833			713		2,429			2,125
Equipment		327			312		996			913
Advertising & marketing		387			259		1,074			833
Computer software & data processing		1,798			1,727		5,277			4,251
Shares tax		252			351		851			1,053
Professional services		922			720		2,428			1,983
Other expense		1,164			824		2,838			2,614
Total operating expenses		13,033			11,513		38,599			33,598
Income before income taxes		4,384			4,706		9,283			11,261
Provision for federal income taxes		771			697		1,432			1,503
Net income		3,613			4,009		7,851			9,758
Earnings per share of common stock		0.64			0.71		1.39			1.74
Cash dividends paid per share		0.17			0.17		0.51			0.51
Weighted average shares outstanding		5,647,965			5,611,279		5,640,214			5,597,301

See Notes to the Unaudited Consolidated Interim Financial Statements

4 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS)

	Three Months ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
	$			$			$			$
Net income		3,613			4,009			7,851			9,758
Other comprehensive (loss) income, net of tax:
Securities available for sale not other-than-temporarily impaired:
Unrealized losses arising during the period		(14,528	)		(23,500	)		(6,971	)		(74,319	)
Income tax effect		3,051			4,935			1,464			15,607
		(11,477	)		(18,565	)		(5,507	)		(58,712	)
Losses (gains) recognized in earnings		—			—			1,364			(139	)
Income tax effect		—			—			(286	)		29
		—			—			1,078			(110	)
Other comprehensive loss, net of tax		(11,477	)		(18,565	)		(4,429	)		(58,822	)
Comprehensive (Loss) Income		(7,864	)		(14,556	)		3,422			(49,064	)

See Notes to the Unaudited Consolidated Interim Financial Statements

5 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)

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

									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
Net income		—		—			2,558			—			—			2,558
Other comprehensive loss net of tax		—		—			—			(16,518	)		—			(16,518	)
Treasury stock purchased - 3,000 shares		—		—			—			—			(53	)		(53	)
Treasury stock issued - 18,418 shares		—		(42	)		—			—			368			326
Cash dividends paid, $0.17 per share		—		—			(951	)		—			—			(951	)
Balances, June 30, 2022		574		4,502			135,705			(36,816	)		(2,564	)		101,401
Net income		—		—			4,009			—			—			4,009
Other comprehensive loss net of tax		—		—			—			(18,565	)		—			(18,565	)
Treasury stock issued - 14,575 shares		—		(27	)		—			—			291			264
Cash dividends paid, $0.17 per share		—		—			(954	)		—			—			(954	)
Balances, September 30, 2022		574		4,475			138,760			(55,381	)		(2,273	)		86,155
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
Net income		—		—			1,797			—			—			1,797
Other comprehensive loss net of tax		—		—			—			(611	)		—			(611	)
Stock-based compensation expense		—		15			—			—			—			15
Treasury stock purchased - 12,431 shares		—		—			—			—			(168	)		(168	)
Treasury stock issued - 20,692 shares		—		(97	)		—			—			358			261
Cash dividends paid, $0.17 per share		—		—			(959	)		—			—			(959	)
Balances, June 30, 2023		574		4,259			144,380			(41,244	)		(1,635	)		106,334
Net income		—		—			3,613			—			—			3,613
Other comprehensive loss net of tax		—		—			—			(11,477	)		—			(11,477	)
Stock-based compensation expense		—		17			—			—			—			17
Treasury stock purchased - 8,800 shares		—		—			—			—			(125	)		(125	)
Treasury stock issued - 5,763 shares		—		(39	)		—			—			139			100
Cash dividends paid, $0.17 per share		—		—			(960	)		—			—			(960	)
Balances, September 30, 2023		574		4,237			147,033			(52,721	)		(1,621	)		97,502

See Notes to the Unaudited Consolidated Interim Financial Statements

6 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(DOLLARS IN THOUSANDS) 

	Nine Months Ended September 30,
		2023			2022
		$			$
Cash flows from operating activities:
Net income			7,851			9,758
Adjustments to reconcile net income to net cash provided by operating activities:
Net amortization of securities premiums and discounts and loan fees			3,512			3,854
Increase in interest receivable			(483	)		(1,254	)
Increase in interest payable			1,501			526
Provision for credit losses			1,568			1,300
Losses (gain) on the sale of debt securities, net			1,364			(139	)
Losses on equity securities, net			405			129
Gains on sale of mortgages			(506	)		(1,249	)
Loans originated for sale			(23,149	)		(28,164	)
Proceeds from sales of loans			28,501			27,476
Earnings on bank-owned life insurance			(708	)		(667	)
Depreciation of premises and equipment and amortization of software			1,488			1,207
Deferred income tax			(282	)		(83	)
Amortization of deferred fees on subordinated debt			120			76
Stock-based compensation expense			46			—
Other assets and other liabilities, net			1,635			2,459
Net cash provided by operating activities			22,863			15,229
Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments			26,660			35,605
Proceeds from sales			61,089			8,575
Purchases			(6,982	)		(123,852	)
Equity securities
Proceeds from sales			—			151
Purchases			(328	)		(249	)
Purchase of regulatory bank stock			(2,398	)		(974	)
Redemptions of regulatory bank stock			785			457
Proceeds from bank-owned life insurance			2,078			—
Net increase in loans			(144,729	)		(193,735	)
Purchases of premises and equipment, net			(1,191	)		(1,106	)
Purchase of computer software			(499	)		(141	)
Net cash used for investing activities			(65,515	)		(275,269	)
Cash flows from financing activities:
Net (decrease) increase in demand, NOW, and savings accounts			(104,636	)		123,598
Net increase (decrease) in time deposits			126,668			(3,962	)
Proceeds from short-term borrowings			—			15,000
Repayments of short-term debt			(16,000	)		—
Proceeds from long-term debt			46,989			19,600
Repayments of long-term debt			(6,500	)		—
Dividends paid			(2,876	)		(2,854	)
Proceeds from sale of treasury stock			634			838
Treasury stock purchased			(440	)		(53	)
Net cash provided by financing activities			43,839			152,167
Increase (decrease) in cash and cash equivalents			1,187			(107,873	)
Cash and cash equivalents at beginning of period			37,572			158,449
Cash and cash equivalents at end of period			38,759			50,576
Supplemental disclosures of cash flow information:
Interest paid			14,514			2,325
Income taxes paid			1,375			1,200
Supplemental disclosure of non-cash investing and financing activities:
Fair value adjustments for securities available for sale			(5,607	)		(74,458	)
Recognition of lease operating right-of-use assets			—			2,811
Recognition of operating lease liabilities			—			2,811

See Notes to the Unaudited Consolidated Interim Financial Statements

7 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

1. Summary of Significant Accounting Policies

Basis of Presentation

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

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). Ephrata National Bank has one wholly-owned subsidiary, ENB Insurance, LLC which is consolidated into its financial statements. This Form 10-Q, for the third quarter of 2023, is reporting on the results of operations and financial condition of ENB Financial Corp on a consolidated basis.

Operating results for the nine months ended September 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 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, 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).

8 

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.

9 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Accrued interest receivable on available-for-sale debt securities totaled $3,757,000 at September 30, 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 $3,282,000 at September 30, 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.

10 

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 $1,218,000 as of September 30, 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 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.

11 

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 September 30, 2023, are as follows:  

			Gross		Gross			Allowance
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			for Credit		Fair
	Cost		Gains		Losses			Losses		Value
	$		$		$			$		$
September 30, 2023
U.S. treasuries		19,862		—		(2,319	)		—		17,543
U.S. government agencies		19,400		—		(2,464	)		—		16,936
U.S. agency mortgage-backed securities		45,121		—		(5,163	)		—		39,958
U.S. agency collateralized mortgage obligations		22,359		—		(2,723	)		—		19,636
Non-agency MBS/CMO		56,213		18		(4,323	)		—		51,908
Asset-backed securities		68,328		17		(1,375	)		—		66,970
Corporate bonds		61,262		—		(7,758	)		—		53,504
Obligations of states and political subdivisions		212,343		—		(40,646	)		—		171,697
Total securities available for sale		504,888		35		(66,771	)		—		438,152

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

			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 September 30, 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		3,214		3,116
Due after one year through five years		105,253		93,781
Due after five years through ten years		64,468		52,885
Due after ten years		331,953		288,370
Total debt securities		504,888		438,152

Securities available for sale with a par value of $119,215,000 and $116,179,000 at September 30, 2023, and December 31, 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 $106,154,000 at September 30, 2023, and $107,071,000 at December 31, 2022.

12 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023			2022
	$		$		$			$
Proceeds from sales		—		—		61,089			8,575
Gross realized gains		—		—		4			139
Gross realized losses		—		—		(1,368	)		—

Information pertaining to securities with gross unrealized losses at September 30, 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 September 30, 2023
U.S. Treasuries		—		—			17,543		(2,319	)		17,543		(2,319	)
U.S. government agencies		—		—			16,936		(2,464	)		16,936		(2,464	)
U.S. agency mortgage-backed securities		—		—			39,958		(5,163	)		39,958		(5,163	)
U.S. agency collateralized mortgage obligations		—		—			19,636		(2,723	)		19,636		(2,723	)
Non-Agency MBS/CMO		6,775		(73	)		42,102		(4,250	)		48,877		(4,323	)
Asset-backed securities		2,810		(24	)		60,928		(1,351	)		63,738		(1,375	)
Corporate bonds		—		—			53,504		(7,758	)		53,504		(7,758	)
Obligations of states & political subdivisions		515		(19	)		171,152		(40,627	)		171,667		(40,646	)
Total temporarily impaired securities		10,100		(116	)		421,759		(66,655	)		431,859		(66,771	)

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 322 positions carrying unrealized losses as of September 30, 2023.

13 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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 recorded in the first nine months of 2023 or other-than-temporary impairment in 2022.

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 issuers continue to make timely principal and interest payments on the bonds. The fair value is expected to recover as the 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 September 30, 2023 and December 31, 2022.

			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
September 30, 2023
CRA-qualified mutual funds		7,622		—		—			7,622
Bank stocks		1,736		17		(334	)		1,419
Total equity securities		9,358		17		(334	)		9,041

			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 and nine months ended September 30, 2023 and 2022, and the portion of unrealized gains and losses for the period that relates to equity investments held as of September 30, 2023 and 2022.

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)  

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2023			2022		2023			2022
	$			$		$			$
Net (losses) gains recognized in equity securities during the period		(103	)		9		(405	)		(129	)
Less:  Net gains realized on the sale of equity securities during the period		—			—		—			51
Unrealized gains (losses) recognized in equity securities held at reporting date		(103	)		9		(405	)		(180	)

14 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

5. Loans and Allowance for Credit Losses

The following table presents the Corporation’s loan portfolio by category of loans as of September 30, 2023 (in thousands):

	September 30,
	2023
	$
Agriculture		248,540
Business Loans		351,319
Consumer		6,516
Home Equity		105,593
Non-Owner Occupied Commercial Real Estate		133,454
Residential Real Estate (a)		487,833
Gross loans prior to deferred costs		1,333,255
Deferred loan costs, net		2,342
Allowance for credit losses		(16,349	)
Total net loans (b)		1,319,248

(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $298,899,000 as of September 30, 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 the impact of the change from the adoption of the standard (in thousands):

							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.

15 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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 receivable as determined by the 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 September 30, 2023 (in thousands):

	September 30, 2023
			31-60		61-90		Greater Than
			Days		Days		90 Days		Total		Total
	Current		Past Due		Past Due		Past Due		Past Due		Loans
Agriculture	$	248,066	$	474	$	—	$	—	$	474	$	248,540
Business Loans		351,196		—		5		118		123		351,319
Consumer		6,486		—		13		17		30		6,516
Home Equity		105,352		121		120		—		241		105,593
Non-Owner Occupied CRE		133,454		—		—		—		—		133,454
Residential Real Estate		486,406		718		13		696		1,427		487,833
Total (a)	$	1,330,960	$	1,313	$	151	$	831	$	2,295	$	1,333,255

(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, 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

16 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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 September 30, 2023, (in thousands): 

	Nonaccrual		Nonaccrual				Loans Past
	with no		with		Total		Due Over 90 Days		Total
	ACL		ACL		Nonaccrual		Still Accruing		Nonperforming
Agriculture	$	959	$	—	$	959	$	—	$	959
Business Loans		1,857		—		1,857		—		1,857
Consumer Loans		—		—		—		17		17
Home Equity		—		—		—		—		—
Non-Owner Occupied CRE		—		—		—		—		—
Residential Real Estate		—		—		—		696		696
Total (a)	$	2,816	$	—	$	2,816	$	713	$	3,529

(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 September 30, 2023 and December 31, 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.

17 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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

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

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

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 September 30, 2023 (in thousands):

													Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year												Loans		Loans
													Amortized		Converted
September 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Agriculture
Risk Rating
Pass	$	35,509	$	43,270	$	50,135	$	20,372	$	15,293	$	61,641	$	17,305	$	—	$	243,525
Special Mention		63		28		578		—		182		1,173		153		—		2,177
Substandard		—		—		—		730		303		1,805		—		—		2,838
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	35,572	$	43,298	$	50,713	$	21,102	$	15,778	$	64,619	$	17,458	$	—	$	248,540
Agriculture
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Business Loans
Risk Rating
Pass	$	32,457	$	103,772	$	68,985	$	38,030	$	16,715	$	47,291	$	37,831	$	—	$	345,081
Special Mention		—		—		—		—		—		272		—		—		272
Substandard		3,172		1,459		—		281		—		881		173		—		5,966
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	35,629	$	105,231	$	68,985	$	38,311	$	16,715	$	48,444	$	38,004	$	—	$	351,319
Business Loans
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Non-Owner Occupied CRE
Risk Rating
Pass	$	21,065	$	47,016	$	27,326	$	13,014	$	7,797	$	13,410	$	490	$	—	$	130,118
Special Mention		—		643		—		—		—		—		—		—		643
Substandard		—		—		—		—		2,386		307		—		—		2,693
Doubtful		—		—		—		—		—		—		—		—		—
Total	$	21,065	$	47,659	$	27,326	$	13,014	$	10,183	$	13,717	$	490	$	—	$	133,454
Non-Owner Occupied CRE
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total
Risk Rating
Pass	$	89,031	$	194,058	$	146,446	$	71,416	$	39,805	$	122,342	$	55,626	$	—	$	718,724
Special Mention		63		671		578		—		182		1,445		153		—		3,092
Substandard		3,172		1,459		—		1,011		2,689		2,993		173		—		11,497
Doubtful		—		—		—		—		—		—		—		—		—
Total (a)	$	92,266	$	196,188	$	147,024	$	72,427	$	42,676	$	126,780	$	55,952	$	—	$	733,313

(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.  

18 

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 table presents the balances of consumer loans by classes of the loan portfolio based on payment performance as of September 30, 2023 (in thousands):

													Revolving		Revolving
	Term Loans Amortized Costs Basis by Origination Year												Loans		Loans
													Amortized		Converted
September 30, 2023	2023		2022		2021		2020		2019		Prior		Cost Basis		to Term		Total
Consumer
Payment Performance
Performing	$	2,820	$	1,279	$	458	$	220	$	41	$	4	$	1,677	$	—	$	6,499
Nonperforming		—		17		—		—		—		—		—		—		17
Total	$	2,820	$	1,296	$	458	$	220	$	41	$	4	$	1,677	$	—	$	6,516
Consumer
Current period gross charge-offs	$	—	$	30	$	7	$	1	$	1	$	2	$	—	$	—	$	41
Home equity
Payment Performance
Performing	$	5,189	$	19,185	$	1,084	$	602	$	566	$	1,967	$	74,598	$	2,402	$	105,593
Nonperforming		—		—		—		—		—		—		—		—		—
Total	$	5,189	$	19,185	$	1,084	$	602	$	566	$	1,967	$	74,598	$	2,402	$	105,593
Home equity
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential Real Estate
Payment Performance
Performing	$	101,537	$	154,677	$	107,045	$	44,636	$	32,391	$	46,851	$	—	$	—	$	487,137
Nonperforming		—		239		359		—		—		98		—		—		696
Total	$	101,537	$	154,916	$	107,404	$	44,636	$	32,391	$	46,949	$	—	$	—	$	487,833
Residential Real Estate
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Total
Payment Performance
Performing	$	109,546	$	175,141	$	108,587	$	45,458	$	32,998	$	48,822	$	76,275	$	2,402	$	599,229
Nonperforming		—		256		359		—		—		98		—		—		713
Total (a)	$	109,546	$	175,397	$	108,946	$	45,458	$	32,998	$	48,920	$	76,275	$	2,402	$	599,942

(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.  

19 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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		525,540
Non-performing		447		339		—		30		816
Total		410,301		11,937		98,349		5,769		526,356

As of December 31, 2022, 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, 2022, in accordance with ASC 310 is as follows:

	Three		Nine
	Months		Months
	Ended		Ended
	September 30,		September 30,
	2022		2022
	$		$
Average recorded balance of impaired loans		5,028		4,012
Interest income recognized on impaired loans		5		19

20 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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		—

21 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Allowance for Credit Losses

The following table presents the activity in the allowance for credit losses by portfolio segment for the three months ended September 30, 2023 (in thousands):

	Beginning							Provisions			Ending
	Balance		Charge-offs			Recoveries		(Reductions)			Balance
Allowance for credit losses:
Agriculture		3,666		—			—		(290	)		3,376
Business Loans		3,449		—			—		(432	)		3,017
Consumer Loans		357		(26	)		3		33			367
Home Equity		2,339		—			—		(26	)		2,313
Non-Owner Occupied CRE		943		—			—		(30	)		913
Residential Real Estate		6,079		—			—		284			6,363
Total (a)	$	16,833	$	(26	)	$	3	$	(461	)	$	16,349

(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 activity in the allowance for credit losses by portfolio segment for the nine months ended September 30, 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	)		—			—		—			—
Commercial & Industrial		2,151		(2,151	)		—			—		—			—
Consumer		67		(67	)		—			—		—			—
Agriculture		—		3,537			—			71		(232	)		3,376
Business Loans		—		3,382			—			8		(373	)		3,017
Consumer Loans		—		250			(41	)		3		155			367
Home Equity		—		2,129			—			—		184			2,313
Non-Owner Occupied CRE		—		875			—			—		38			913
Residential Real Estate		—		4,658			—			8		1,697			6,363
Unallocated		417		(417	)		—			—		—			—
Total (a)	$	14,151	$	680		$	(41	)	$	90	$	1,469		$	16,349

(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 nine months ended September 30, 2023, management charged off $41,000 in loans while recovering $90,000 and added $1,469,000 to the provision for credit losses related to loans and added $99,000 to the provision for off-balance sheet credit exposure for a combined provision of $1,568,000.

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 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. 

22 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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.

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 nine months ended September 30, 2022:

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, 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
Charge-offs		—			—		(41	)		—			—			(41	)
Recoveries		2			3		12			1			—			18
Provision		(239	)		834		255			(28	)		(172	)		650
Balance - June 30, 2022		5,871			4,715		2,541			44			435			13,606
Charge-offs		—			—		(18	)		(15	)		—			(33	)
Recoveries		10			3		13			1			—			27
Provision		529			108		(109	)		34			(12	)		550
Balance - September 30, 2022		6,410			4,826		2,427			64			423			14,150

23 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

During the nine months ended September 30, 2022, management charged off $140,000 in loans while recovering $59,000 and added $1,300,000 to the provision. The unallocated portion of the allowance decreased from 4.9% of total reserves as of December 31, 2021, to 3.0% as of September 30, 2022.

During the nine months ended September 30, 2022, net provision expense was recorded for all sectors except the consumer sector where a small credit provision was recorded. The provision expense for the commercial real estate, consumer real estate, and commercial and industrial sectors was primarily related to growth in those sectors of the loan portfolio through September 30, 2022, while the credit provision in the consumer sector was primarily related to declining qualitative factors in several areas since September 30, 2021

The following table presents the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on estimation method as of September 30, 2023:

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

As of September 30, 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		3,376		3,017		367		2,313		913		6,363		16,349
Loans receivable:
Ending balance		248,540		351,319		6,516		105,593		133,454		487,833		1,333,255
Ending balance: individually evaluated		2,463		754		—		—		—		—		3,217
Ending balance: collectively evaluated		246,077		350,565		6,516		105,593		133,454		487,833		1,330,038

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:

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:

24 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

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

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

The following tables provide the fair market value for assets required to be measured and reported at fair value on a recurring basis on the Consolidated Balance Sheets as of September 30, 2023, and December 31, 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)

	September 30, 2023
	Level I		Level II		Level III		Total
	$		$		$		$
U.S. treasuries		17,543		—		—		17,543
U.S. government agencies		—		16,936		—		16,936
U.S. agency mortgage-backed securities		—		39,958		—		39,958
U.S. agency collateralized mortgage obligations		—		19,636		—		19,636
Non-agency MBS/CMO		—		51,908		—		51,908
Asset-backed securities		—		66,970		—		66,970
Corporate bonds		—		53,504		—		53,504
Obligations of states & political subdivisions		—		171,697		—		171,697
Equity securities		9,041		—		—		9,041
Total securities		26,584		420,609		—		447,193

On September 30, 2023, the Corporation held no securities valued using level III inputs. Most 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.

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.

25 

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

On December 31, 2022, the Corporation held no securities valued using level III inputs. Most 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.

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022, by level within the fair value hierarchy:

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

	September 30, 2023
	Level I		Level II		Level III		Total
	$		$		$		$
Assets:
Individually analyzed loans	$	—	$	—	$	3,217	$	3,217
Total	$	—	$	—	$	3,217	$	3,217

	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 $3,217,000 of individually analyzed loans as of September 30, 2023 and $4,620,000 of impaired loans as of December 31, 2022. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

26 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)

	September 30, 2023
	Fair Value	Valuation	Unobservable	Range
	Estimate	Techniques	Input	(Weighted Avg)
Individually analyzed loans	3,217	Appraisal of collateral (1)	Appraisal adjustments (2)	0% to -20% (-20%)
			Liquidation expenses (2)	0% to -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 are presented as a percent of the appraisal.

27 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables provide the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022:

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

(DOLLARS IN THOUSANDS)

	September 30, 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		38,759		38,759		38,759		—		—
Regulatory stock		8,283		8,283		8,283		—		—
Loans held for sale		1,081		1,081		1,081		—		—
Loans, net of allowance		1,319,248		1,233,701		—		—		1,233,701
Mortgage servicing assets		2,121		2,923		—		—		2,923
Accrued interest receivable		7,039		7,039		7,039		—		—
Bank owned life insurance		35,415		35,415		35,415		—		—
Financial Liabilities:
Demand deposits		583,145		583,145		583,145		—		—
Interest-bearing demand deposits		236,243		236,243		236,243		—		—
NOW accounts		99,368		99,368		99,368		—		—
Money market deposit accounts		157,684		157,684		157,684		—		—
Savings accounts		324,053		324,053		324,053		—		—
Time deposits		260,497		256,515		—		—		256,515
Total deposits		1,660,990		1,657,008		1,400,493		—		256,515
Long-term debt		98,528		96,459		—		—		96,459
Subordinated debt		39,516		33,473		—		—		33,473
Accrued interest payable		2,099		2,099		2,099		—		—

28 

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		6,249		6,249		6,249		—		—
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 September 30, 2023, firm loan commitments were $100.1 million, unused lines of credit were $510.6 million, and open letters of credit were $17.0 million. The total of these commitments was $627.7 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.

29 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

8. Accumulated Other Comprehensive Income (Loss)

The activity in accumulated other comprehensive income (loss) for the three and nine months ended September 30, 2023 and 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, 2022		(48,292	)
Other comprehensive loss before reclassifications		7,335
Amount reclassified from accumulated other comprehensive income (loss)		324
Period change		7,659
Balance at March 31, 2023		(40,633	)
Other comprehensive loss before reclassifications		(1,365	)
Amount reclassified from accumulated other comprehensive income (loss)		754
Period change		(611	)
Balance at June 30, 2023		(41,244	)
Other comprehensive loss before reclassifications		(11,477	)
Amount reclassified from accumulated other comprehensive income (loss)		—
Period change		(11,477	)
Balance at September 30, 2023		(52,721	)
Balance at December 31, 2021		3,441
Other comprehensive loss before reclassifications		(23,629	)
Amount reclassified from accumulated other comprehensive income (loss)		(110	)
Period change		(23,739	)
Balance at March 31, 2022		(20,298	)
Other comprehensive loss before reclassifications		(16,518	)
Amount reclassified from accumulated other comprehensive income (loss)		—
Period change		(16,518	)
Balance at June 30, 2022		(36,816	)
Other comprehensive loss before reclassifications		(18,565	)
Amount reclassified from accumulated other comprehensive income (loss)		—
Period change		(18,565	)
Balance at September 30, 2022		(55,381	)

30 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

(DOLLARS IN THOUSANDS)

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Three Months
	Ended September 30,
	2023		2022		Affected Line Item in the
	$		$		Consolidated Statements of Income
Securities available-for-sale:
Net securities (losses) gains, reclassified into earnings		—		—	(Losses) gains on the sale of debt securities, net
Related income tax benefit (expense)		—		—	Benefit/(Provision) for federal income taxes
Net effect on accumulated other comprehensive income (loss) for the period		—		—

(1) Amounts in parentheses indicate debits.

	Amount Reclassified from
	Accumulated Other Comprehensive
	Income (Loss)
	For the Nine Months
	Ended September 30,
	2023			2022			Affected Line Item in the
	$			$			Consolidated Statements of Income
Securities available-for-sale:
Net securities (losses) gains, reclassified into earnings		(1,364	)		139		(Losses) gains on the sale of debt securities, net
Related income tax benefit (expense)		286			(29	)	Benefit/(Provision) for federal income taxes
Net effect on accumulated other comprehensive  income (loss) for the period		(1,078	)		110

(1) Amounts in parentheses indicate debits.

9. Recently Issued Accounting Standards

In March 2023, the FASB issued ASU No. 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method (a consensus of the 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 effective for reporting periods beginning after December 15, 2023, for public business entities, or January 1, 2024 for the Corporation. The Corporation does not expect the adoption of this ASU to have a material impact on the Corporation's financial statements.

31 

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 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, regional and local economic conditions

● Interest rate and monetary policies of the Federal Reserve Board

● Inflation and monetary fluctuations and volatility

● Continuing and future banking instability caused by recent bank failure and continuous financial uncertainty of various banks which may adversely impact the corporation and its securities values, deposit stability, capital adequacy, financial condition, operations, liquidity, and results of operations

● Health of the housing market

● Volatility of the securities markets including the valuation of securities

● Real estate valuations and its impact on the loan portfolio

● 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

● Operational, legal, and reputational 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

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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

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

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

● 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 Corporation recorded net income of $3,613,000 for the three-month period ended September 30, 2023, a $396,000, or 9.9% decrease from the three months ended September 30, 2022. Net income for the nine-month period was $7,851,000, a $1,907,000, or 19.5% decrease from earnings in the nine-month period ended September 30, 2022. The earnings per share, basic and diluted, were $0.64 for the three months ended September 30, 2023, compared to $0.71 for the same period in 2022, and for the year-to-date period, earnings per share were $1.39 compared to $1.74 in 2022.

The Corporation’s net interest income (NII) decreased by $231,000, or 1.7%, and increased by $4,535,000, or 12.5%, for the three and nine months ended September 30, 2023, compared to the same periods in 2022. The decrease in NII for the quarter can be attributed to higher costs associated with deposits and borrowings. Interest on deposits increased by $4,782,000 for the three months ended September 30, 2023, and interest on borrowings increased by $514,000, partially offset by an increase in interest and dividend income of $5,065,000, or 33.8%, compared to the three months ended September 30, 2022. The increase in NII for the year-to-date period primarily resulted from an increase in interest and fees on loans of $15,183,000, or 51.7%, and an increase in interest on securities available-for-sale of $1,746,000, or 18.8%, compared to the nine months ended September 30, 2022. Offsetting these increases, interest expense on deposits and borrowings increased by $13,165,000, or 461.8%, for the nine months ended September 30, 2023, compared to the same period in the prior year.

The Corporation recorded a reversal of provision for credit losses of $504,000 in the third quarter of 2023, and provision expense of $1,568,000 for the year-to-date period, compared to expense of $550,000 in the third quarter of 2022 and a year-to-date provision of $1,300,000 through September 30, 2022. The 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. The current expected credit loss model (CECL) is based on possible economic scenarios as well as qualitative factors specific to the Corporation. Due to the subjective methodology of the CECL standard, provision expense is currently more volatile than historical experience. The allowance as a percentage of total loans was 1.22% as of September 30, 2023, 1.19% as of December 31, 2022, and 1.27% as of September 30, 2022.

Other income was higher for the quarter but lower for the nine months ended September 30, 2023, compared to the prior year primarily as a result of fluctuations in service fees, mortgage gains, and losses on the sale of securities. Service fees were higher by $591,000, or 74.7% for the quarter primarily related to fees generated on an off-balance sheet sweep account. Conversely, gains from the sale of mortgages were lower by $6,000, or 3.2% for the quarter, and lower by $743,000, or 59.5% for the year-to-date period compared to the same period in the prior year.

33 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The decrease in mortgage gains can be primarily attributed to the rapid rise in mortgage rates during the first nine months of 2023 which has caused customer activity to shift from fixed-rate mortgages that were sold on the secondary market, to adjustable rate mortgages held on the Corporation’s balance sheet. The Corporation recorded $103,000 of losses on securities transactions for the three months ended September 30, 2023, and $1,769,000 for the nine months ended September 30, 2023, compared to gains of $9,000 and $10,000 for the three and nine months ended September 30, 2022, respectively. The losses recorded in 2023 were primarily losses related to strategic sales of investments in the available-for-sale category in order to fund more profitable loan growth. The lower yields on the securities portfolio provided opportunities to sell at losses and still recover the loss within a twelve-month period due to the ability to reinvest in much higher yielding assets. Outside of mortgage and security gains and losses, other non-interest income increased by $493,000, or 16.5%, and $1,278,000, or 14.8%, for the three and nine months ended September 30, 2023. Operating expenses increased by $1,520,000, or 13.2%, and $5,001,000, or 14.9%, for the three and nine months ended September 30, 2023, compared to the same periods in the prior year. This increase can be primarily attributed to the rising cost of salaries and employee benefits as well as increased investments in technology and software.

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 quarter-to-date period and the year-to-date period ended September 30, 2023, compared to the same periods in the prior year, due to lower earnings in 2023.

Key Ratios	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
Return on Average Assets		0.75%		0.89%		0.56%		0.75%
Return on Average Equity		13.68%		15.63%		10.11%		11.49%

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

● Net interest income

● Provision for loan losses

● Other income

● Operating expenses

● Provision for income taxes

The following discussion analyzes each of these five components.

Net Interest Income (NII)

NII represents the largest portion of the Corporation’s operating income. In the first nine months of 2023, NII generated 82.5% of the Corporation’s revenue stream, which consists of NII and non-interest income, compared to 78.6% in the first nine months of 2022. This increase is a result of higher levels of NII in the first nine months of 2023 as well as lower non-interest income compared to 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 $135,000 for the three months ended September 30, 2023, and $491,000 for the nine months ended September 30, 2023, compared to $314,000 and $934,000 for the same periods in 2022.

34 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2023		2022		2023		2022
	$		$		$		$
Total interest income		20,037		14,972		56,835		39,135
Total interest expense		6,679		1,383		16,016		2,851
Net interest income		13,358		13,589		40,819		36,284
Tax equivalent adjustment		135		314		491		934
Net interest income (fully taxable equivalent)		13,493		13,903		41,310		37,218

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 2022, asset yields increased dramatically with the Federal Reserve rate movements, but liability costs were still low due to the slower increase in deposit rates. In the first nine months of 2023, interest rates on deposits increased more dramatically as a result of competitive pressure and the desire to retain existing deposits and attract new ones to add to the Corporation’s liquidity position. While higher market rates have helped the Corporation’s asset yields, the higher cost of funds has put pressure on the NIM causing slight compression. Management believes that compression will continue the higher cost of liabilities without a similar-sized increase in asset yield.

Despite the increase in assets yields, the Corporation’s net interest margin for the third quarter of 2023 declined to 2.89%, from 3.19% for the third quarter of 2022. The decline was driven entirely by the rapid increase in the cost of funds which resulted in a faster increase in interest expense that more than offset the increasing asset yields and interest income. However, for the year-to-date period, as a result of a larger balance sheet and improved asset yields, the Corporation’s NII and net interest margin on a tax equivalent basis increased. The Corporation’s margin increased to 2.99% for the year-to-date period ended September 30, 2023, compared to 2.96% for the year-to-date period in 2022. The Corporation’s NII on a fully-taxable-equivalent basis for the three months ended September 30, 2023, decreased from the same period in 2022 by $410,000, or 2.9%, but for the nine months ended September 30, 2023, NII increased by $4,092,000, or 11.0%.

The Corporation’s overall cost of funds has risen significantly through the first nine months of 2023. Core deposit interest rates have risen over the past year; however, time deposit rates have risen to higher levels and more quickly than core deposit rates. The change in deposit rates has resulted in some movement from low interest bearing core deposits to time deposits or other higher yielding money market deposits. This resulted in the total cost of deposits increasing by $4,782,000 for the quarter and $11,181,000 for the nine months ended September 30, 2023, compared to the same periods in the prior year. The average balance of borrowings was higher in the first nine months of 2023 compared to 2022, and interest rates were also higher, resulting in the total cost of borrowings increasing by $514,000, or 66.3%, and $1,984,000, or 117.9%, for the three and nine months ended September 30, 2023, compared to the same periods in 2022.

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

35 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)

	Three Months Ended September 30,									Nine Months Ended September 30,
	2023 vs. 2022									2023 vs. 2022
	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		37			136			173			(126	)		461			335
Securities available for sale:
Taxable		(523	)		833			310			(617	)		3,512			2,895
Tax-exempt		(280	)		(252	)		(532	)		(756	)		(656	)		(1,412	)
Total securities		(803	)		581			(222	)		(1,373	)		2,856			1,483
Loans		2,691			2,194			4,885			8,908			6,327			15,235
Regulatory stock		38			12			50			95			109			204
Total interest income		1,963			2,923			4,886			7,504			9,753			17,257
INTEREST EXPENSE
Deposits:
Demand deposits		74			2,955			3,029			164			7,748			7,912
Savings deposits		(2	)		67			65			(3	)		194			191
Time deposits		298			1,390			1,688			458			2,620			3,078
Total deposits		370			4,412			4,782			619			10,562			11,181
Borrowings:
Total borrowings		310			204			514			1,394			590			1,984
Total interest expense		680			4,616			5,296			2,013			11,152			13,165
NET INTEREST INCOME		1,283			(1,693	)		(410	)		5,491			(1,399	)		4,092

36 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The following tables show a more detailed analysis of NII on a 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 September 30,
	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		22,715		227		3.97		15,294		55		1.42
Securities available for sale:
Taxable		359,965		3,030		3.37		434,872		2,720		2.50
Tax-exempt		157,807		804		2.04		206,493		1,336		2.59
Total securities (d)		517,772		3,834		2.96		641,365		4,056		2.53
Loans (a)		1,317,484		15,959		4.83		1,078,955		11,074		4.10
Regulatory stock		8,114		152		7.48		6,032		101		6.71
Total interest earning assets		1,866,085		20,172		4.32		1,741,646		15,286		3.51
Non-interest earning assets (d)		41,128						52,736
Total assets		1,907,213						1,794,382
LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		497,850		3,449		2.75		431,947		420		0.39
Savings deposits		332,615		83		0.10		371,063		19		0.02
Time deposits		221,755		1,858		3.32		112,188		169		0.60
Borrowed funds		136,812		1,289		3.74		101,450		775		3.03
Total interest bearing liabilities		1,189,032		6,679		2.23		1,016,648		1,383		0.54
Non-interest bearing liabilities:
Demand deposits		602,012						668,287
Other		11,369						7,690
Total liabilities		1,802,413						1,692,625
Stockholders' equity		104,800						101,757
Total liabilities & stockholders' equity		1,907,213						1,794,382
Net interest income (FTE)				13,493						13,903
Net interest spread (b)						2.09						2.97
Effect of non-interest bearing deposits						0.80						0.22
Net yield on interest earning assets (c)						2.89						3.19

(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 $2,426,000 as of September 30, 2023, and $2,360,000 as of September 30, 2022. Such fees and costs recognized through income and included in the interest amounts totaled ($92,000) in 2023, and $92,000 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.

37 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

	For the Nine Months Ended September 30,
	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		18,777		474		3.38		45,260		139		0.41
Securities available for sale:
Taxable		379,437		9,120		3.20		417,802		6,225		1.98
Tax-exempt		160,783		2,563		2.13		203,711		3,975		2.60
Total securities (d)		540,220		11,683		2.88		621,513		10,200		2.19
Loans (a)		1,274,727		44,733		4.68		1,002,612		29,498		3.93
Regulatory stock		7,734		436		7.53		5,742		232		5.38
Total interest earning assets		1,841,458		57,326		4.15		1,675,127		40,069		3.19
Non-interest earning assets (d)		43,137						64,565
Total assets		1,884,595						1,739,692
LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing liabilities:
Demand deposits		488,441		8,498		2.33		397,487		586		0.20
Savings deposits		345,160		246		0.10		364,704		55		0.03
Time deposits		179,235		3,605		2.69		113,366		527		0.62
Borrowed funds		133,655		3,667		3.67		79,923		1,683		2.82
Total interest bearing liabilities		1,146,491		16,016		1.87		955,480		2,851		0.40
Non-interest bearing liabilities:
Demand deposits		623,384						663,950
Other		10,875						6,705
Total liabilities		1,780,750						1,626,135
Stockholders' equity		103,845						113,557
Total liabilities & stockholders' equity		1,884,595						1,739,692
Net interest income (FTE)				41,310						37,218
Net interest spread (b)						2.29						2.79
Effect of non-interest bearing deposits						0.70						0.17
Net yield on interest earning assets (c)						2.99						2.96

(a) Includes balances of nonaccrual loans and the recognition of any related interest income.  The year-to-date average balances include net deferred loan costs of $2,541,000 as of September 30, 2023, and $2,238,000 as of September 30, 2022.  Such fees and costs recognized through income and included in the interest amounts totaled $(260,000) in 2023, and $54,000 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 net interest income (FTE) by total interest earning assets.

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

38 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Corporation’s average balances on securities decreased by $123.6 million, or 19.3%, for the three months ended September 30, 2023, and $81.3 million, or 13.1%, for the nine months ended September 30, 2023, compared to the same periods in 2022. The tax equivalent yield on investments increased by 43 basis points for the quarter-to-date period and 69 basis points for the year-to-date period when comparing both years. As a result of the declining balances, interest income on securities decreased by $222,000, or 5.5%, for the three months ended September 30, 2023, compared to the same period in 2022. For the year-to-date period, as a result of the higher yields on securities, interest income increased by $1,483,000, or 14.5%, compared to 2022.

Average balances on loans increased by $238.5 million, or 22.1%, for the three months ended September 30, 2023, and $272.1 million, or 27.1%, for the nine months ended September 30, 2023, compared to the same periods in the prior year. Loan yields increased by 73 basis points for the quarter, and 75 basis points for the year-to-date period and loan interest income increased by $4,885,000, or 44.1%, and $15,235,000, or 51.6%, for both time frames due to the increase in loan balances and higher yields.

The average balance of interest-bearing deposit accounts increased by $137.0 million, or 15.0%, and $137.3 million, or 15.7%, for the three and nine months ended September 30, 2023, respectively, compared to the same periods in the prior year. Interest-bearing deposits increased as rates increased due to funds shifting from non-interest earning accounts to interest earning accounts due to the rapid increase in market rates. The average balance of savings accounts decreased as funds moved into higher-yielding accounts. The interest rate paid on all interest-bearing deposits increased significantly for both time periods. The average rate on interest-bearing deposits increased by 177 basis points for the quarter ended September 30, 2023, and 145 basis points for the year-to-date period, compared to the same periods in the prior year. The combination of these changes resulted in an increase in interest expense on deposits of $4,782,000, for the three months ended September 30, 2023, and $11,181,000, for the nine months ended September 30, 2023, compared to the same periods in 2022.

The Corporation’s average balance on borrowed funds increased by $35.4 million, or 34.9%, for the three months ended September 30, 2023, and $53.7 million, or 67.2%, for the nine months ended September 30, 2023, compared to the same periods in 2022. The Corporation’s borrowed funds consist of FHLB advances as well as subordinated debt issued in December of 2020 and July of 2022 which was used to support capital growth for the Corporation. The rate paid on borrowed funds increased by 71 basis points for the three months ended September 30, 2023, and 85 basis points for the nine months ended September 30, 2023, compared to the same periods in the prior year. This increase in rate can be attributed to initiating higher-rate FHLB advances in late 2022 and throughout 2023 as well as the issuance of subordinated debt in July of 2022.

For the three months ended September 30, 2023, the net interest spread decreased by 88 basis points to 2.09%, compared to 2.97% for the three months ended September 30, 2022. For the nine months ended September 30, 2023, the net interest spread decreased by 50 basis points to 2.29%, compared to 2.79% for the nine months ended September 30, 2022. The effect of non-interest bearing funds increased to 80 basis points from 22 basis points for the three months ended September 30, 2023, and increased to 70 basis points from 17 basis points for the nine months ended September 30, 2023, compared to the same periods in 2022. The effect of non-interest bearing funds refers to the benefit gained from deposits on which the Corporation does not pay interest. As rates go higher, the benefit of non-interest bearing deposits increases because there is more difference between non-interest bearing funds and interest bearing liabilities. The Corporation’s NIM for the third quarter of 2023 was 2.89%, compared to 3.19% for the third quarter of 2022. For the year-to-date period, the Corporation’s NIM was 2.99%, compared to 2.96% for the same period in 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 Credit Losses

The provision for credit losses includes a provision for losses on loans, available-for-sale debt securities, and unfunded loan commitments. The provision provides for losses inherent in the financial assets as determined by a quarterly analysis and calculation of various factors related to the financial assets. The amount of the provision reflects the adjustment management determines necessary to ensure the Allowance for Credit Losses (ACL) is adequate to cover any losses inherent in the financial assets. The Corporation recorded a provision expense of $1,469,000 for credit losses related to loans, $99,000 for unfunded commitments, and $0 related to available-for-sale debt securities for the first nine months of 2023, compared to $1,300,000 related to loans for the nine months ended September 30, 2022. The provision expense was higher in the first nine months of 2023 due to the Corporation’s adoption of ASU 2016-13 which requires a reliance on forward economic indicators to project expected credit losses as well as a higher balance of classified loans. As of September 30, 2023, the allowance as a percentage of total loans was 1.22%, compared to 1.27% at September 30, 2022. More detail is provided under Allowance for Credit Losses in the Financial Condition section that follows.

39 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Other Income

Other income for the third quarter of 2023 was $3,555,000, an increase of $375,000, or 11.8%, compared to the $3,180,000 earned during the third quarter of 2022. For the year-to-date period ended September 30, 2023, other income totaled $8,631,000, a decrease of $1,244,000, or 12.6%, compared to the same period in 2022. The following table details the categories that comprise other income.

OTHER INCOME

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,
	2023			2022		Increase (Decrease)
	$			$		$			%
Trust and investment services		663			680		(17	)		(2.5	)
Service charges on deposit accounts		372			361		11			3.0
Other fees		1,010			430		580			>100%
Commissions		917			941		(24	)		(2.6	)
Net gains (losses) on debt and equity securities		(103	)		9		(112	)		>100%
Gains on sale of mortgages		180			186		(6	)		(3.2	)
Earnings on bank owned life insurance		245			242		3			1.2
Other miscellaneous income		271			331		(60	)		(18.1	)
Total other income		3,555			3,180		375			11.8

OTHER INCOME

(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,					Increase (Decrease)
	2023			2022
	$			$		$			%
Trust and investment services		2,122			1,979		143			7.2
Service charges on deposit accounts		1,003			987		16			1.6
Other fees		2,401			1,076		1,325			>100%
Commissions		2,729			2,762		(33	)		(1.2	)
Net gains (losses) on debt and equity securities		(1,769	)		10		(1,779	)		>100%
Gains on sale of mortgages		506			1,249		(743	)		(59.5	)
Earnings on bank owned life insurance		708			667		41			6.1
Other miscellaneous income		931			1,145		(214	)		(18.7	)
Total other income		8,631			9,875		(1,244	)		(12.6	)

Trust and investment services income decreased marginally for the quarter and increased for the year-to-date period as a result of a larger level of assets under management and higher fees. Other fees increased for both time periods driven by fees earned on an off-balance-sheet sweep product. The Corporation incurred $103,000 of losses on debt and equity securities in the third quarter of 2023, and $1,769,000 of losses for the year-to-date period as a result of strategic sales of debt securities from the available-for-sale portfolio to fund higher yielding loan growth and depreciation of bank stock values causing an unrealized loss on equity securities. Mortgage gains declined marginally for the quarter and by $743,000, or 59.5%, for the nine months ended September 30, 2023, compared to the same period in 2022. This was primarily 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 and a switch to mortgages held on the Corporation’s balance sheet as opposed to sold on the secondary market. The miscellaneous income category was lower for the three and nine months ended September 30, 2023, as a result of non-recurring income items that impacted 2022.

40 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Operating Expenses

Operating expenses for the third quarter of 2023 were $13,033,000, an increase of $1,520,000, or 13.2%, compared to the $11,513,000 for the third quarter of 2022. For the year-to-date period ended September 30, 2023, operating expenses totaled $38,599,000, an increase of $5,001,000, or 14.9%, compared to the same period in 2022. The following table provides details of the Corporation’s operating expenses for the three and nine-month periods ended September 30, 2023, compared to the same periods in 2022.

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

	Three Months Ended September 30,
	2023		2022		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		7,350		6,607		743			11.2
Occupancy expenses		833		713		120			16.8
Equipment expenses		327		312		15			4.8
Advertising & marketing expenses		387		259		128			49.4
Computer software & data processing expenses		1,798		1,727		71			4.1
Shares tax		252		351		(99	)		(28.2	)
Professional services		922		720		202			28.1
Other operating expenses		1,164		824		340			41.3
Total Operating Expenses		13,033		11,513		1,520			13.2

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)

	Nine Months Ended September 30,
	2023		2022		Increase (Decrease)
	$		$		$			%
Salaries and employee benefits		22,706		19,826		2,880			14.5
Occupancy expenses		2,429		2,125		304			14.3
Equipment expenses		996		913		83			9.1
Advertising & marketing expenses		1,074		833		241			28.9
Computer software & data processing expenses		5,277		4,251		1,026			24.1
Bank shares tax		851		1,053		(202	)		(19.2	)
Professional services		2,428		1,983		445			22.4
Other operating expenses		2,838		2,614		224			8.6
Total Operating Expenses		38,599		33,598		5,001			14.9

41 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Salaries and employee benefits are the largest category of operating expenses. For the third quarter of 2023, salaries and benefits increased $743,000, or 11.2%, and for the nine months ended September 30, 2023, salaries and benefits increased $2,880,000, or 14.5%, compared to the same periods in 2022. This was primarily due to a competitive labor market that resulted in higher costs to attract and retain employees inclusive of costs related to merit increases and higher employee benefit expenses. Occupancy and equipment expenses in total increased by 13.2% for the quarter, and 12.7% for the year-to-date period, compared to the same periods in the prior year as a result of increased expenses to maintain buildings and normal costs to purchase and repair equipment. Advertising and marketing expenses increased by $128,000, or 49.4%, and $241,00, or 28.9%, for the three and nine months ended September 30, 2023, compared to the same periods in the prior year. This was primarily a result of increased newspaper and television advertising as well as some direct mail campaigns. Computer software and data processing expenses increased by $71,000, or 4.1%, and $1,026,00, or 24.1%, for the three and nine months ended September 30, 2023, as a result of higher technology costs caused primarily by a debit card conversion that took place in the third quarter of 2023 that resulted in amortized contract costs. Shares tax expense is based on the Corporation’s level of shareholders’ equity and has decreased due to the decline in the Corporation’s level of shareholders’ equity. Professional services expenses increased by 28.1% in the third quarter of 2023, and 22.4% for the year-to-date period compared to the prior year driven by higher fees associated with various third party support of strategic initiatives. Other operating expenses increased by $340,000, or 41.3%, and $224,000, or 8.6%, for the three and nine months ended September 30, 2023, compared to the same periods in the prior year due to largely to higher FDIC insurance costs.

Income Taxes

Federal income tax expense was $771,000 for the third quarter of 2023 compared to $697,000 for the same period in 2022. For the nine months ended September 30, 2023, the Corporation recorded Federal income tax expense of $1,432,000, compared to $1,503,000 for the nine months ended September 30, 2022. The effective tax rate for the Corporation was 15.4% for the nine months ended September 30, 2023, and 13.3% for the nine months ended September 30, 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.

42 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

Financial Condition

Investment Securities

The Corporation classifies all of its debt securities as available for sale and reports the portfolio at fair value. As of September 30, 2023, the Corporation had $438.2 million of debt securities available for sale, which accounted for 23.0% of assets, compared to 28.5% as of December 31, 2022, and 30.7% as of September 30, 2022. Based on ending balances, the debt securities portfolio decreased 21.7% from September 30, 2022, and 17.2% from December 31, 2022.

The debt securities portfolio was showing a net unrealized loss of $66,736,000 as of September 30, 2023, compared to $61,129,000 as of December 31, 2022, and $70,102,000 as of September 30, 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.

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

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

● Growth of the loan portfolio

● Slope of the U.S. Treasury curve

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

● Duration and average length of the portfolio

● Volatility of the portfolio

● Direction of interest rates

● Economic factors impacting debt securities

The investment policy of the Corporation 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’s U.S. Treasury sector decreased $15.1 million during the first nine months of 2023, resulting in a 46.3% decrease in this sector. This sector represents a safe credit, but carries a low yield due to the investments made in 2020 and 2021. As a result, some Treasuries were sold during the first half of the year to provide liquidity for much higher yielding loan growth. The Corporation’s U.S. government agency sector decreased by $7.9 million, or 31.7%, since December 31, 2022.

The Corporation’s U.S. agency MBS and CMO sectors have decreased since December 31, 2022, with MBS decreasing $5.3 million, or 11.8%, and CMOs decreasing $7.9 million, or 28.6%. These two security types both consist of mortgage instruments that pay monthly interest and principal, however the behavior of the two types vary according to the structure of the mortgage pool or CMO instrument. Management desires to maintain a substantial amount of MBS and CMOs in order to assist in adding to and maintaining a stable five-year ladder of cash flows, which is important in providing stable liquidity and interest rate risk positions. U.S. agency MBS and CMO securities pay contractual monthly principal and interest, but are also subject to additional prepayment of principal. The combined effect of all of these instruments paying monthly principal and interest provides the Corporation with a reasonably stable base cash flow of approximately $2.0 - $3.0 million per month. Cash flows coming off of MBS and CMOs do slow down and speed up as interest rates increase or decrease, which has an impact on the portfolio’s length and yield.

The portfolio of non-agency MBS and CMO securities stood at $51.9 million as of September 30, 2023, or 11.6% 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. The non-agency portfolio stood at $50.3 million at December 31, 2022.

The Corporation’s asset-backed securities declined by $6.3 million, or 8.6%, from December 31, 2022, to September 30, 2023. Many of the bonds in this sector receive regular monthly principal payments which caused the value to decline. These bonds are primarily floating rate instruments, so in the current rates-up environment, they have added to the overall yield increase for the portfolio.

43 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

As of September 30, 2023, the fair value of the Corporation’s corporate bonds decreased by $16.1 million, or 23.2%, from balances at December 31, 2022. During the first half of 2023, some corporate bonds were sold to provide liquidity for loan growth. 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. 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 above other taxable bonds. These instruments also experience significant fair market value gains and losses when interest rates decrease and increase. Municipal securities were purchased throughout 2020 and 2021 due to the levels of excess liquidity experienced due to deposit inflows. Municipal bonds represented 38.4% of the securities portfolio as of September 30, 2023, compared to 38.2% as of December 31, 2022.

Loans

Net loans outstanding increased by 19.9%, to $1,319.2 million at September 30, 2023, from $1,100.4 billion at September 30, 2022. Net loans increased by 12.1%, an annualized rate of 16.1%, from $1,177.0 million at December 31, 2022. The following table shows the composition of the loan portfolio as of September 30, 2023 and December 31, 2022.

LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)

	September 30,					December 31,
	2023					2022
	$			%		$			%
Agriculture		248,540			18.6		238,734			20.1
Business Loans		351,319			26.4		336,340			28.3
Consumer		6,516			0.5		5,932			0.5
Home Equity		105,593			7.9		98,854			8.3
Non-Owner Occupied CRE		133,454			10.0		111,333			9.4
Residential Real Estate (a)		487,833			36.6		397,260			33.4
Total loans		1,333,255			100		1,188,453			100
Less:
Deferred loan costs, net		2,342					2,664
Allowance for credit losses		(16,349	)				(14,151	)
Total net loans (b)		1,319,248					1,176,966

(a) Residential real estate loans do not include mortgage loans serviced for others which totaled $298,899,000 as of September 30, 2023 and $298,375,000 as of December 31, 2022.

(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.

There was moderate growth in the loan portfolio since December 31, 2022. All of the loan categories showed an increase in balances since December 31, 2022.

From December 31, 2022, the Agriculture Loan segment increased $9,806,000, or 4.1%, the Business Loan segment increased $14.978.000, of 4.5%, the Consumer Loan segment increased $584,000, or 9.8%, the Home Equity segment increased $6.739,000, or 6.8%, the Non-Owner Occupied segment increased $22,121,000, or 19.9%, and the Residential Real Estate segment increased $90,573,000, or 22.8% from December 31, 2022. The Agriculture segment is concentrated primarily in loans to dairy operators, poultry operators, and crop farmers.  Business loans are fairly diverse with small concentrations in lessors of residential buildings and dwellings and lessors of non-residential buildings.  These concentrations are less than 10% of the total business loan portfolio.

44 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

In the third quarter of 2023, mortgage production decreased 18% from the previous quarter and was down 16% from the third quarter of 2022.  Purchase money origination constituted 96% of the Corporation’s mortgage originations for the quarter, with construction-only and construction-permanent loans making up 44% of that mix.  With the continued elevated fixed interest rate environment, the percentage of mortgage originations placed in the Corporation’s held-for-investment mortgage portfolio remained high at 78%, 74% of which were adjustable rate mortgages.  As of September 30, 2023, ARM balances were $305.0 million, representing 63.4% of the 1-4 family residential loan portfolio of the Corporation.

The consumer loan portfolio represents 0.5% of total loans. The long-term trend over the past decade has seen homeowners turning to the equity in their homes to finance cars and education rather than traditional consumer loans that are generally unsecured. Demand for unsecured credit is being matched by principal payments on existing loans resulting in stable balances.

Non-Performing Assets

Non-performing assets include:

● Nonaccrual loans

● Loans past due 90 days or more and still accruing

● Other real estate owned

NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)

	September 30		December 31,		September 30
	2023		2022		2022
	$		$		$
Nonaccrual loans		2,816		4,178		4,505
Loans past due 90 days or more and still accruing		713		169		147
Total non-performing loans		3,529		4,347		4,652
Other real estate owned		—		—		—
Total non-performing assets		3,529		4,347		4,652
Non-performing assets to net loans		0.28%		0.31%		0.42%

The total balance of non-performing assets decreased by $1,123,000, or 18.8% from balances at September 30, 2022, and $818,000, or 18.8%, from balances at December 31, 2022 due to 3 loans that paid off. Non-accrual loans decreased by $1,689,000, or 37.5%, since September 30, 2022, and $1,362,000, or 32.6% since December 31, 2022. Loans past due 90 days or more and still accruing increased $566,000, or 384.7%, since September 30, 2022, and increased $544,000, or 321.6%, since December 31, 2022. This increase was primarily caused by the addition of two residential mortgages totaling $597,000.

There was no other real estate owned (OREO) as of September 30, 2023, December 31, 2022, or September 30, 2022.

Allowance for Credit Losses

The allowance for credit losses (ACL) is a valuation account that is deducted from the loans' amortized cost basis to present the net amount expected to be collected on total loans. Management reviews the adequacy of the ACL on a quarterly basis.  The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The 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 subjective adjustments for 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 for selling costs as 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

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 for each segment of the Corporation’s loan portfolio as of September 30, 2023.

Net Charge-Offs

(DOLLARS IN THOUSANDS)

	September 30,
	2023
	$
Loans charged-off:
Agriculture		—
Business Loans		—
Consumer Loans		41
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		—
Total loans charged-off		41
Recoveries of loans previously charged-off
Agriculture		71
Business Loans		8
Consumer Loans		3
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		8
Total recoveries		90
Net charge-offs (recoveries)
Agriculture		(71	)
Business Loans		(8	)
Consumer Loans		38
Home Equity		—
Non-Owner Occupied CRE		—
Residential Real Estate		(8	)
Total net charge-offs (recoveries)		(49	)

46 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

The Net Charge-Off table below shows the net charge-offs for each segment of the Corporation’s loan portfolio as of September 30, 2022.

Net Charge-Offs

(DOLLARS IN THOUSANDS)

	September 30,
	2022
	$
Loans charged-off:
Commercial real estate		65
Consumer real estate		—
Commercial and industrial		59
Consumer		16
Total loans charged-off		140
Recoveries of loans previously charged-off
Commercial real estate		12
Consumer real estate		9
Commercial and industrial		35
Consumer		3
Total recoveries		59
Net charge-offs (recoveries)
Commercial real estate		53
Consumer real estate		(9	)
Commercial and industrial		24
Consumer		13
Total net charge-offs (recoveries)		81

The Corporation has historically experienced very low net charge-off percentages due to conservative credit practices. As of September 30, 2023, there were $41,000 in charge-offs and $90,000 of recoveries, representing a net recovery position of $49,000 as show above. As of September 30, 2022, there were $140,000 in charge-offs and $59,000 in recoveries, representing a net charge-off position of $81,000.

Management regularly reviews the overall risk profile of the loan portfolio and the impact that current economic trends have on the Corporation’s loans. The financial industry typically evaluates the quality of loans on a scale with “unclassified” representing healthy loans, “special mention” being the first indication of credit concern, and several successive classified ratings indicating further credit declines of “substandard,” “doubtful,” and, ultimately, “loss.”

The Corporation’s level of classified loans was $12.9 million on September 30, 2023, compared to $12.9 million on September 30, 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.

Premises and Equipment

Premises and equipment, net of accumulated depreciation, increased by $0.7 million, or 2.8%, to $25.3 million as of September 30, 2023, from $24.6 million as of September 30, 2022. As of September 30, 2023, $567,000 was classified as construction or improvement in process compared to $664,000 as of September 30, 2022. Fixed assets increased as a result of 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 $8.3 million of regulatory stock holdings as of September 30, 2023, consisted of $7.1 million of FHLB of Pittsburgh stock, $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.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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 $7.1 million on September 30, 2023, $5.6 million on December 31, 2022, and $5.2 million on September 30, 2022, with no excess capital stock position. Any future stock repurchases would be the result of lower borrowing balances. Stock repurchases by the FHLB occur every quarter.

Deposits

The Corporation’s total ending deposits at September 30, 2023, increased by $22.0 million, or 1.3%, and by $29.1 million, or 1.8%, from December 31, 2022, and September 30, 2022, respectively. Customer deposits are the Corporation’s primary source of funding for loans and securities. The mix of the Corporation’s deposit categories has changed significantly since September 30, 2022, as customers have moved from non-interest bearing and low-interest bearing accounts into higher yielding checking accounts and time deposits. Since September 30, 2022, there has been a $87.4 million, or 13.0% decrease in non-interest bearing demand deposit accounts, a $59.9 million, or 34.0% increase in interest bearing demand balances, a $30.0 million, or 23.2% decrease in NOW balances, a $8.0 million, or 4.8% decrease in money market account balances, a $45.2 million, or 12.2% decrease in savings account balances, and a $139.8 million, or 115.9% increase in time deposit balances.

The growth in interest bearing demand balances was a result of 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 fully receives reciprocal balances back on balance sheet for this product and many customers moved funds into this product during 2023, resulting in the large increase in balances.

The significant increase in time deposit balances was a result of issuing $30 million in brokered time deposits since September 30, 2022, as well as increases in the Corporation’s customer time deposits as a result of the increased rate environment and offering several promotional rates on specific time deposit 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 September 30, 2023 and 2022, the total uninsured deposits of the Corporation were approximately $204,614,000 and $305,890,000, 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.

The Deposits by Major Classification table, shown below, provides the balances of each category for September 30, 2023, December 31, 2022, and September 30, 2022.

DEPOSITS BY MAJOR CLASSIFICATION

(DOLLARS IN THOUSANDS)

	September 30,		December 31,		September 30,
	2023		2022		2022
	$		$		$
Non-interest bearing demand		583,145		672,342		670,563
Interest bearing demand		236,243		164,208		176,308
NOW accounts		99,368		139,846		129,390
Money market deposit accounts		157,684		163,836		165,688
Savings accounts		324,053		364,897		369,229
Time deposits		260,497		133,829		120,671
Total deposits		1,660,990		1,638,958		1,631,849

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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 $138.0 million, $113.4 million, and $98.6 million as of September 30, 2023, December 31, 2022, and September 30, 2022, respectively. There were no short-term borrowings as of September 30, 2023, but as of December 31, 2022, there were $16.0 million, and $15.0 million at September 30, 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.

Total long-term borrowings, borrowings initiated for terms longer than one year, were $98.5 million as of September 30, 2023, $58.0 million as of December 31, 2022, and $44.2 million as of September 30, 2022, 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 increase in long-term FHLB borrowings since September 30, 2022, can be attributed to the changing interest rate environment and the desire to ladder out some borrowings into future years to cover liquidity needs. The Corporation continues to be well under the FHLB maximum borrowing capacity (MBC), which is currently $664.6 million. The Corporation’s internal policy limits are far more restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.

In addition to the long-term advances funded through the FHLB, on December 30, 2020, the Corporation completed the sale of a subordinated debt note offering. The Corporation sold $20.0 million of subordinated debt notes with a maturity date of December 30, 2030. These notes are non-callable for 5 years and carry a fixed interest rate of 4% per year for 5 years and then convert to a floating rate for the remainder of the term. The notes can be redeemed at par beginning 5 years prior to maturity. The notes are structured to qualify as Tier 2 capital for the Corporation and any funds it invests in the Bank qualify as Tier 1 capital at the Bank. As of June 30, 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.

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 September 30, 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.

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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.

REGULATORY CAPITAL RATIOS:

			Regulatory Requirements
			Adequately		Well
As of September 30, 2023	Capital Ratios		Capitalized		Capitalized
Total Capital to Risk-Weighted Assets
Consolidated		14.7%		N/A		N/A
Bank		14.3%		8.0%		10.0%
Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.7%		N/A		N/A
Bank		13.1%		6.0%		8.0%
Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.7%		N/A		N/A
Bank		13.1%		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 September 30, 2022
Total Capital to Risk-Weighted Assets
Consolidated		15.1%		N/A		N/A
Bank		14.4%		8.0%		10.0%
Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.9%		N/A		N/A
Bank		13.2%		6.0%		8.0%
Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated		10.9%		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		9.3%		4.0%		5.0%

50 

ENB FINANCIAL CORP

Management’s Discussion and Analysis

As of September 30, 2023, the Bank’s Tier 1 Leverage Ratio stood at 9.4% while the Corporation’s Tier 1 Leverage Ratio was 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 $40 million subordinated debt issue. Most of the marked improvement in capital ratios occurred at the Bank level.

Off-Balance Sheet Arrangements

In the normal course of business, the Corporation typically has off-balance sheet arrangements related to loan funding commitments. These arrangements may impact the Corporation’s financial condition and liquidity if they were to be exercised within a short period of time. As discussed in the following liquidity section, the Corporation has in place sufficient liquidity alternatives to meet these obligations. The following table presents information on the commitments by the Corporation as of September 30, 2023.

OFF-BALANCE SHEET ARRANGEMENTS

(DOLLARS IN THOUSANDS)

	September 30,
	2023
	$
Commitments to extend credit:
Revolving home equity		215,754
Construction loans		28,582
Real estate loans		86,878
Business loans		229,856
Consumer loans		1,362
Other		5,721
Standby letters of credit		17,004
Total		585,157

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:

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

2. Deterioration of securities and loan portfolios;

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

4. Increased liquidity demand and utilization of sources of liquidity; and

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

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

1. Financial condition;

2. Operations and results thereof; and

3. 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:

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ENB FINANCIAL CORP

Management’s Discussion and Analysis

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.

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.

The Corporation regularly reviews its liquidity position by measuring its projected net cash flows at a 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 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 cash that could be raised quickly without the need to liquidate assets. The Corporation also stresses its liquidity position utilizing different longer-term scenarios. The varying degrees of stress create pressure on deposit flows in its local market, reduce access to wholesale funding and limit access of funds available through brokered deposit channels. In addition to stressing cash flow, specific liquidity risk indicators are monitored to help identify risk areas. This analysis helps identify and quantify the potential cash surplus/deficit over a variety of time horizons to ensure the Corporation has adequate funding resources. Assumptions used for liquidity stress testing are subjective. Should an evolving liquidity situation or business cycle present new data, potential assumption changes will be considered. The Corporation believes it can meet all anticipated liquidity demands.

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:

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

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

● Reliance on Wholesale Funding – Wholesale funding as a percentage of total funding

● Net Short-term Liabilities/Total Assets – Short-term liabilities minus short-term assets as a percentage of total assets

● Loan to Deposit Ratio – Total loans as a percentage of total deposits

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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 September 30, 2023, the Corporation was within guidelines for all of the above 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.

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 100, 200, or 300 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

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. Back testing of the model is completed to compare actual results to projections to ensure the validity of the assumptions in the model. 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 change immediately, the Corporation would realize 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. In the past few quarters, this increase in net interest income shifted to a decline 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 rise in interest income. Likewise, in the down-rate scenarios, asset yields would decline in conjunction with market rate moves, while deposit repricing would be slower to retain existing deposit balances.

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ENB FINANCIAL CORP

The third quarter of 2023 analysis projects net interest income expected in the seven rate scenarios over a one-year time horizon. As of September 30, 2023, the Corporation was within guidelines for the maximum amount of net interest income change in all rate scenarios.

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

Changes in Net Portfolio Value

The change in net portfolio value is considered a tool to measure long-term interest rate risk. The analysis measures the exposure of the balance sheet to valuation changes due to changes in interest rates. The calculation of net portfolio value discounts future cash flows to the present value based on current market rates. The change in net portfolio value estimates the gain or loss in value that would occur on market sensitive instruments given an interest rate increase or decrease in the same seven scenarios mentioned above. As of September 30, 2023, the Corporation was within guidelines for all rate scenarios except the down-300 basis point scenarios. The Corporation shows a favorable benefit to net portfolio value in the rising rate scenarios, due primarily to the large amount of core deposits on the Corporation’s balance sheet. The non-interest bearing demand deposit accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts increases, causing a lower net present value for these interest-bearing deposits. This improves the modeling of the Corporation’s fair value risk to higher interest rates as the liability amounts decrease causing a higher net portfolio value of the Corporation’s balance sheet. However, as interest rates decrease, the discount rate used to value the Corporation’s interest bearing accounts decreases, causing a higher net present value for these interest-bearing deposits.

The analysis shows a valuation loss in the down rate scenarios. Policy allows for a valuation decline of 30% for the down-300 basis point scenario and actual projected results show a valuation decline of 32%. While this loss is outside of policy guidelines, the Federal Reserve has signaled that their preferred course of action is to increase rates until inflation retracts. The Corporation will continue to monitor these measurements in the down-rate scenarios and adjust balance sheet structure as necessary to 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.

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ENB FINANCIAL CORP

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures.

Management carried out an evaluation, under the supervision and with the participation of the Chief Executive Officer (Principal Executive Officer) and Treasurer (Principal Financial Officer), of the effectiveness of the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 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 September 30, 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 the Corporation’s internal controls over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Corporation’s internal control over financial reporting.

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PART II – OTHER INFORMATION

September 30, 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. Other than as noted below, there have been no material changes in risk factors 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, 2022.

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.

Events impacting the banking industry, including the high-profile failure or instability of certain banking institutions, have resulted and may continue to result 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 September 30, 2023.

Issuer Purchase of Equity Securities
					Total Number of		Maximum Number
	Total Number		Average		Shares Purchased		of Shares that May
	of Shares		Price Paid		as Part of Publicly		Yet be Purchased
Period	Purchased		Per Share		Announced Plans *		Under the Plan *
July 2023		8,800		14.25		8,800		130,510
August 2023		—		—		—		130,510
September 2023		—		—		—		130,510
Total		8,800

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ENB FINANCIAL CORP

* On October 21, 2020, the Board of Directors of the Corporation approved a plan to repurchase, in open market and privately negotiated transactions, up to 200,000 shares of its outstanding common stock. The first purchase of common stock under this plan occurred on October 28, 2020. By September 30, 2023, a total of 69,490 shares were repurchased at a total cost of $1,226,000 for an average cost per share of $17.65.

Item 3. Defaults Upon Senior Securities – Nothing to Report

Item 4. Mine Safety Disclosures – Not Applicable

Item 5. Other Information – Nothing to Report

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Item 6. Exhibits:

Exhibit No.	Description
3(i)	Articles of Incorporation of the Registrant, as amended (Incorporated by reference to Exhibit 3.1 of the Corporation’s Form 8-K  filed with the SEC on June 7, 2019)
3 (ii)	By-Laws of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on July 21, 2021.)
10.1	Form of Deferred Income Agreement. (Incorporated herein by reference to Exhibit 10.1 of the Corporation’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2008.)
10.2	2022 Employee Stock Purchase Plan (Incorporated herein by reference to Appendix A to the Corporation’s Definitive Proxy Statement filed with the SEC on 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.)
10.7	Employment Agreement by and among ENB Financial Corp, The Ephrata National Bank and Joselyn D. Strohm dated as of June 5, 2023. (Incorporated herein by reference to Exhibit 10.1 of the Corporation's Form 8-K filed with the SEC on June 7, 2023.)
31.1	Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)).
31.2	Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)).
32.1	Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).
32.2	Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).

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ENB FINANCIAL CORP

SIGNATURES

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

	ENB Financial Corp
	(Registrant)
Dated:  November 14, 2023	By:	/s/  Jeffrey S. Stauffer
		Jeffrey S. Stauffer
		Chairman of the Board
		Chief Executive Officer and President
		Principal Executive Officer
Dated: November 14, 2023	By:	/s/  Rachel G. Bitner
		Rachel G. Bitner
		Treasurer
		Principal Financial Officer

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