Company Quick10K Filing
ENB Financial
Price21.25 EPS2
Shares6 P/E11
MCap121 P/FCF9
Net Debt39 EBIT17
TEV160 TEV/EBIT9
TTM 2019-09-30, in MM, except price, ratios
10-Q 2020-06-30 Filed 2020-08-14
10-Q 2020-03-31 Filed 2020-05-14
10-K 2019-12-31 Filed 2020-03-27
10-Q 2019-09-30 Filed 2019-11-14
10-Q 2019-06-30 Filed 2019-08-14
10-Q 2019-03-31 Filed 2019-05-15
10-K 2018-12-31 Filed 2019-03-29
10-Q 2018-09-30 Filed 2018-11-14
10-Q 2018-06-30 Filed 2018-08-14
10-Q 2018-03-31 Filed 2018-05-15
10-K 2017-12-31 Filed 2018-03-29
10-Q 2017-09-30 Filed 2017-11-14
10-Q 2017-06-30 Filed 2017-08-11
10-Q 2017-03-31 Filed 2017-05-15
10-K 2016-12-31 Filed 2017-03-29
10-Q 2016-09-30 Filed 2016-11-14
10-Q 2016-06-30 Filed 2016-08-11
10-Q 2016-03-31 Filed 2016-05-13
10-K 2015-12-31 Filed 2016-03-28
10-Q 2015-09-30 Filed 2015-11-13
10-Q 2015-06-30 Filed 2015-08-13
10-Q 2015-03-31 Filed 2015-05-14
10-K 2014-12-31 Filed 2015-03-27
10-Q 2014-09-30 Filed 2014-11-13
10-Q 2014-06-30 Filed 2014-08-13
10-Q 2014-03-31 Filed 2014-05-14
10-K 2013-12-31 Filed 2014-03-28
10-Q 2013-09-30 Filed 2013-11-13
10-Q 2013-06-30 Filed 2013-08-14
10-Q 2013-03-31 Filed 2013-05-13
10-K 2012-12-31 Filed 2013-03-28
10-Q 2012-09-30 Filed 2012-11-14
10-Q 2012-06-30 Filed 2012-08-14
10-Q 2012-03-31 Filed 2012-05-15
10-K 2011-12-31 Filed 2012-03-29
10-Q 2011-09-30 Filed 2011-11-14
10-Q 2011-06-30 Filed 2011-08-12
10-Q 2011-03-31 Filed 2011-05-13
10-K 2010-12-31 Filed 2011-03-25
10-Q 2010-09-30 Filed 2010-11-12
10-Q 2010-06-30 Filed 2010-08-13
10-Q 2010-03-31 Filed 2010-05-14
10-K 2009-12-31 Filed 2010-03-25
8-K 2020-07-15 Other Events, Exhibits
8-K 2020-07-14 Earnings, Exhibits
8-K 2020-06-02
8-K 2020-05-05
8-K 2020-04-15
8-K 2020-04-13
8-K 2020-04-03
8-K 2020-01-15
8-K 2020-01-14
8-K 2019-10-16
8-K 2019-10-11
8-K 2019-07-17
8-K 2019-07-17
8-K 2019-06-03
8-K 2019-05-15
8-K 2019-05-07
8-K 2019-04-17
8-K 2019-04-12
8-K 2019-04-01
8-K 2019-02-20
8-K 2019-01-31
8-K 2019-01-16
8-K 2019-01-15
8-K 2018-10-18
8-K 2018-10-17
8-K 2018-10-15
8-K 2018-07-19
8-K 2018-07-18
8-K 2018-05-08
8-K 2018-04-18
8-K 2018-04-16
8-K 2018-02-02
8-K 2018-01-18
8-K 2018-01-17

ENBP 10Q Quarterly Report

Part I - Financial Information
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II - Other Information
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities - Nothing To Report
Item 4. Mine Safety Disclosures - Not Applicable
Item 5. Other Information - Nothing To Report
Item 6. Exhibits:
EX-31.1 ex31-1.htm
EX-31.2 ex31-2.htm
EX-32.1 ex32-1.htm
EX-32.2 ex32-2.htm

ENB Financial Earnings 2020-06-30

Balance SheetIncome StatementCash Flow

10-Q 1 form10q-24610_enbf.htm 10-Q

 

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 June 30, 2020

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 August 1, 2020, the registrant had 5,568,601 shares of $0.10 (par) Common Stock outstanding.

 

 

 

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

June 30, 2020

 

 

Part I – FINANCIAL INFORMATION  
       
  Item 1. Financial Statements  
       
  Consolidated Balance Sheets at June 30, 2020 and 2019, and December 31, 2019 (Unaudited) 3
       
  Consolidated Statements of Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited) 4
       
  Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited) 5
       
  Consolidated Statements of Changes in Stockholders’ Equity for the Three and Six Months Ended June 30, 2020 and 2019 (Unaudited) 6
       
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2020 and 2019 (Unaudited) 7
       
  Notes to the Unaudited Consolidated Interim Financial Statements 8-35
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 36-71
       
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 72-77
       
  Item 4. Controls and Procedures 78
       
       
Part II – OTHER INFORMATION 79
       
  Item 1. Legal Proceedings 79
       
  Item 1A. Risk Factors 79
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 79
       
  Item 3. Defaults upon Senior Securities 80
       
  Item 4. Mine Safety Disclosures 80
       
  Item 5. Other Information 80
       
  Item 6. Exhibits 81
       
       

SIGNATURE PAGE

82

 

2 

Index 

ENB FINANCIAL CORP

Part I - Financial Information

Item 1. Financial Statements

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

             

 

  June 30,  December 31,  June 30, 
  2020  2019  2019 
  $  $  $ 
ASSETS            
Cash and due from banks  21,320   24,304   17,210 
Interest-bearing deposits in other banks  39,904   16,749   34,460 
             
   Total cash and cash equivalents  61,224   41,053   51,670 
             
Securities available for sale (at fair value)  334,687   308,097   290,927 
Equity securities (at fair value)  6,775   6,708   6,231 
             
Loans held for sale  2,295   2,342   3,473 
             
Loans (net of unearned income)  835,969   753,618   718,356 
             
   Less: Allowance for loan losses  10,770   9,447   8,957 
             
   Net loans  825,199   744,171   709,399 
             
Premises and equipment  24,918   25,033   25,339 
Regulatory stock  6,942   7,291   6,959 
Bank owned life insurance  29,214   28,818   28,429 
Other assets  8,222   8,237   9,218 
             
       Total assets  1,299,476   1,171,750   1,131,645 
             
LIABILITIES AND STOCKHOLDERS' EQUITY            
             
Liabilities:            
  Deposits:            
    Noninterest-bearing  466,392   363,857   345,483 
    Interest-bearing  641,522   610,231   596,123 
             
    Total deposits  1,107,914   974,088   941,606 
             
  Short-term borrowings     200    
  Long-term debt  65,072   77,872   74,628 
  Other liabilities  4,328   2,902   2,897 
             
       Total liabilities  1,177,314   1,055,062   1,019,131 
             
Stockholders' equity:            
  Common stock, par value $0.10            
Shares:  Authorized 24,000,000            
             Issued 5,739,114 and Outstanding  5,574,601 as of 6/30/20,            
             5,640,742 as of 12/31/19, and 5,692,384 as of 6/30/19  574   574   574 
  Capital surplus  4,466   4,482   4,454 
  Retained earnings  115,914   111,944   108,024 
  Accumulated other comprehensive income  4,522   1,600   298 
  Less: Treasury stock cost on 164,513 shares as of 6/30/20, 98,372 as of 12/31/19,            
   and 46,730 as of 6/30/19  (3,314)  (1,912)  (836)
             
       Total stockholders' equity  122,162   116,688   112,514 
             
       Total liabilities and stockholders' equity  1,299,476   1,171,750   1,131,645 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

3 

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

 

  Three Months ended June 30,  Six Months ended June 30, 
  2020  2019  2020  2019 
  $  $  $  $ 
Interest and dividend income:                
Interest and fees on loans  8,636   8,309   17,088   16,332 
Interest on securities available for sale                
Taxable  1,065   1,242   2,286   2,517 
Tax-exempt  644   608   1,210   1,255 
Interest on deposits at other banks  21   119   81   166 
Dividend income  102   184   290   354 
                 
Total interest and dividend income  10,468   10,462   20,955   20,624 
                 
Interest expense:                
Interest on deposits  543   913   1,352   1,737 
Interest on borrowings  456   391   918   746 
                 
Total interest expense  999   1,304   2,270   2,483 
                 
Net interest income  9,469   9,158   18,685   18,141 
                 
Provision for loan losses  975   30   1,325   210 
                 
Net interest income after provision for loan losses  8,494   9,128   17,360   17,931 
                 
Other income:                
Trust and investment services income  416   505   1,038   1,042 
Service fees  635   693   1,314   1,323 
Commissions  649   756   1,335   1,411 
Gains on the sale of debt securities, net  367   106   649   187 
Gains (losses) on equity securities, net  5   27   (225)  44 
Gains on sale of mortgages  1,690   415   2,231   764 
Earnings on bank-owned life insurance  205   179   411   357 
Other income  101   81   82   178 
                 
Total other income  4,068   2,762   6,835   5,306 
                 
Operating expenses:                
Salaries and employee benefits  4,966   5,105   10,662   10,293 
Occupancy  616   590   1,207   1,220 
Equipment  316   287   606   574 
Advertising & marketing  218   166   492   416 
Computer software & data processing  768   609   1,474   1,266 
Shares tax  239   232   479   465 
Professional services  507   556   1,130   1,031 
Other expense  614   672   1,304   1,234 
                 
Total operating expenses  8,244   8,217   17,354   16,499 
                 
Income before income taxes  4,318   3,673   6,841   6,738 
                 
Provision for federal income taxes  719   584   1,077   1,046 
                 
Net income  3,599   3,089   5,764   5,692 
                 
Earnings per share of common stock  0.64   0.54   1.03   1.00 
                 
Cash dividends paid per share  0.160   0.155   0.320   0.305 
                 
Weighted average shares outstanding  5,581,961   5,692,506   5,604,609   5,693,418 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

4 

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS)

 

  Three Months ended June 30,  Six Months Ended June 30, 
  2020  2019  2020  2019 
  $  $  $  $ 
             
Net income  3,599   3,089   5,764   5,692 
                 
Other comprehensive income, net of tax:                
Securities available for sale not other-than-temporarily impaired:                
                 
   Unrealized gains arising during the period  4,695   4,520   4,346   7,751 
   Income tax effect  (986)  (949)  (911)  (1,627)
   3,709   3,571   3,435   6,124 
                 
   Gains recognized in earnings  (367)  (106)  (649)  (187)
   Income tax effect  77   22   136   39 
   (290)  (84)  (513)  (148)
                 
Other comprehensive income, net of tax  3,419   3,487   2,922   5,976 
                 
Comprehensive Income  7,018   6,576   8,686   11,668 

 

See Notes to the Unaudited Consolidated Interim Financial Statements  

5 

Index 

 

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, 2018  574   4,435   104,067   (5,678)  (596)  102,802 
                         
Net income        2,603         2,603 
                         
Other comprehensive income net of tax           2,489      2,489 
Treasury stock purchased - 18,800 shares              (330)  (330)
                         
Treasury stock issued - 8,188 shares     3         143   146 
                         
Cash dividends paid, $0.15 per share        (852)        (852)
                         
Balances, March 31, 2019  574   4,438   105,818   (3,189)  (783)  106,858 
                         
Net income        3,089         3,089 
                         
Other comprehensive income net of tax           3,487      3,487 
                        
Treasury stock purchased - 29,366 shares              (204)  (204)
                         
Treasury stock issued - 16,686 shares     16         151   167 
                         
Cash dividends paid, $0.155 per share        (883)        (883)
                         
Balances, June 30, 2019  574   4,454   108,024   298   (836)  112,514 
                         
                         
Balances, December 31, 2019  574   4,482   111,944   1,600   (1,912)  116,688 
                         
Net income        2,165         2,165 
                         
Other comprehensive loss net of tax           (497)     (497)
                         
Treasury stock purchased - 49,911 shares              (1,098)  (1,098)
                         
Treasury stock issued - 7,670 shares     (6)        156   150 
                         
Cash dividends paid, $0.16 per share        (902)        (902)
                         
Balances, March 31, 2020  574   4,476   113,207   1,103   (2,854)  116,506 
                         
Net income        3,599         3,599 
                         
Other comprehensive income net of tax           3,419      3,419 
                         
Treasury stock purchased - 32,966 shares              (627)  (627)
                         
Treasury stock issued - 9,066 shares     (10)        167   157 
                         
Cash dividends paid, $0.16 per share        (892)        (892)
                         
Balances, June 30, 2020  574   4,466   115,914   4,522   (3,314)  122,162 

 

See Notes to the Unaudited Consolidated Interim Financial Statements      

6 

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) Six Months Ended June 30, 
  2020  2019 
  $  $ 
Cash flows from operating activities:        
Net income  5,764   5,692 
Adjustments to reconcile net income to net cash        
provided by operating activities:        
Net amortization of securities premiums and discounts and loan fees  1,496   1,692 
Amortization of operating leases right-of-use assets  89   87 
Increase in interest receivable  (396)  (343)
(Decrease) increase in interest payable  (111)  96 
Provision for loan losses  1,325   210 
Gains on the sale of debt securities, net  (649)  (187)
Loss on equity securities, net  225   (44)
Gains on sale of mortgages  (2,231)  (764)
Loans originated for sale  (58,228)  (20,210)
Proceeds from sales of loans  60,506   18,930 
Earnings on bank-owned life insurance  (411)  (357)
Depreciation of premises and equipment and amortization of software  767   783 
Deferred income tax  (373)  (274)
Other assets and other liabilities, net  1,438   123 
Net cash provided by operating activities  9,211   5,434 
         
Cash flows from investing activities:        
Securities available for sale:        
   Proceeds from maturities, calls, and repayments  34,427   10,813 
   Proceeds from sales  43,818   28,648 
   Purchases  (102,034)  (30,115)
Equity securities        
    Proceeds from sales      
    Purchases  (292)  (153)
Purchase of regulatory bank stock  (1,128)  (1,102)
Redemptions of regulatory bank stock  1,477   491 
Net increase in loans  (82,304)  (24,451)
Purchases of premises and equipment, net  (589)  (517)
Purchase of computer software  (29)  (31)
Net cash used for investing activities  (106,654)  (16,417)
         
Cash flows from financing activities:        
Net increase in demand, NOW, and savings accounts  143,139   18,222 
Net (decrease) increase in time deposits  (9,313)  3,650 
Net decrease in short-term borrowings  (200)  (7,870)
Proceeds from long-term debt  12,984   16,212 
Repayments of long-term debt  (25,784)  (6,970)
Dividends paid  (1,794)  (1,735)
Proceeds from sale of treasury stock  307   313 
Treasury stock purchased  (1,725)  (534)
Net cash provided by financing activities  117,614   21,288 
Increase in cash and cash equivalents  20,171   10,305 
Cash and cash equivalents at beginning of period  41,053   41,365 
Cash and cash equivalents at end of period  61,224   51,670 
         
Supplemental disclosures of cash flow information:        
    Interest paid  2,381   2,387 
    Income taxes paid     800 
         
Supplemental disclosure of non-cash investing and financing activities:        
Fair value adjustments for securities available for sale  (3,697)  (7,564)
Initial recognition of operating right-of-use assets     1,075 
Initial recognition of operating lease liabilities     1,075 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

7 

Index 

 

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”). This Form 10-Q, for the second quarter of 2020, is reporting on the results of operations and financial condition of ENB Financial Corp.

 

Operating results for the three and six months ended June 30, 2020, are not necessarily indicative of the results that may be expected for the year ended December 31, 2020. 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, 2019.

 

Revenue from Contracts with Customers

 

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

 

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

8 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

 

2.       Securities Available for Sale

 

The amortized cost, gross unrealized gains and losses, and fair value of securities held at June 30, 2020,

and December 31, 2019, are as follows:    

 

    Gross Gross  
(DOLLARS IN THOUSANDS) Amortized Unrealized Unrealized Fair
  Cost Gains Losses Value
  $ $ $ $
June 30, 2020        
U.S. government agencies  8,217   163   (1)  8,379 
U.S. agency mortgage-backed securities  71,241   1,379   (67)  72,553 
U.S. agency collateralized mortgage obligations  45,854   857   (149)  46,562 
Asset-backed securities  33,340      (1,389)  31,951 
Corporate bonds  62,426   1,209   (204)  63,431 
Obligations of states and political subdivisions  107,885   4,103   (177)  111,811 
Total securities available for sale  328,963   7,711   (1,987)  334,687 
                 
December 31, 2019                
U.S. government agencies  32,621   31   (28)  32,624 
U.S. agency mortgage-backed securities  48,859   215   (448)  48,626 
U.S. agency collateralized mortgage obligations  60,124   323   (194)  60,253 
Asset-backed securities  23,646   7   (391)  23,262 
Corporate bonds  54,604   316   (40)  54,880 
Obligations of states and political subdivisions  86,216   2,245   (9)  88,452 
Total securities available for sale  306,070   3,137   (1,110)  308,097 

 

The amortized cost and fair value of securities available for sale at June 30, 2020, 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  38,520   38,932 
Due after one year through five years  111,575   113,440 
Due after five years through ten years  49,932   50,325 
Due after ten years  128,936   131,990 
Total debt securities  328,963   334,687 

 

Securities available for sale with a par value of $90,333,000 and $66,712,000 at June 30, 2020, and December 31, 2019, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $95,814,000 at June 30, 2020, and $68,732,000 at December 31, 2019.

 

9 

Index 

 

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 June 30,  Six Months Ended June 30, 
  2020  2019  2020  2019 
  $  $  $  $ 
Proceeds from sales  16,409   18,401   43,818   28,648 
Gross realized gains  369   122   666   218 
Gross realized losses  (2)  (16)  (17)  (31)

 

Management evaluates all of the Corporation’s securities for other-than-temporary impairment (OTTI) on a periodic basis. No securities in the portfolio had other-than-temporary impairment recorded in the first six months of 2020 or 2019.

 

Information pertaining to securities with gross unrealized losses at June 30, 2020, and December 31, 2019, 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 June 30, 2020                        
U.S. government agencies  1,195   (1)        1,195   (1)
U.S. agency mortgage-backed securities  5,790   (15)  4,130   (52)  9,920   (67)
U.S. agency collateralized mortgage obligations  17,034   (149)        17,034   (149)
Asset-backed securities  18,904   (672)  13,047   (717)  31,951   (1,389)
Corporate bonds  11,548   (73)  2,903   (131)  14,451   (204)
Obligations of states & political subdivisions  10,873   (177)        10,873   (177)
                         
Total temporarily impaired securities  65,344   (1,087)  20,080   (900)  85,424   (1,987)
                         
                         
As of December 31, 2019                        
U.S. government agencies  1,222   (3)  15,971   (25)  17,193   (28)
U.S. agency mortgage-backed securities  5,040   (32)  24,027   (416)  29,067   (448)
U.S. agency collateralized mortgage obligations  17,457   (50)  17,512   (144)  34,969   (194)
Asset-backed securities  10,278   (169)  9,126   (222)  19,404   (391)
Corporate bonds  2,562   (4)  13,041   (36)  15,603   (40)
Obligations of states & political subdivisions  2,642   (9)        2,642   (9)
                         
Total temporarily impaired securities  39,201   (267)  79,677   (843)  118,878   (1,110)

 

In the debt security portfolio there were 48 positions that were carrying unrealized losses as of June 30, 2020. There were no instruments considered to be other-than-temporarily impaired at June 30, 2020.

 

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

 

10 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

3.       Equity Securities

 

The following table summarizes the amortized cost, gross unrealized gains and losses, and fair value of equity securities held at June 30, 2020 and December 31, 2019.

 

    Gross Gross  
(DOLLARS IN THOUSANDS) Amortized Unrealized Unrealized Fair
  Cost Gains Losses Value
  $ $ $ $
June 30, 2020                
CRA-qualified mutual funds  6,148         6,148 
Bank stocks  829      (202)  627 
Total equity securities  6,977      (202)  6,775 
                 

 

    Gross Gross  
(DOLLARS IN THOUSANDS) Amortized Unrealized Unrealized Fair
  Cost Gains Losses Value
  $ $ $ $
December 31, 2019                
CRA-qualified mutual funds  6,071         6,071 
Bank stocks  614   26   (3)  637 
Total equity securities  6,685   26   (3)  6,708 

 

The following table presents the net gains and losses on the Corporation’s equity investments recognized in earnings during the three and six months ended June 30, 2020 and 2019, and the portion of unrealized gains and losses for the period that relates to equity investments held as of June 30, 2020 and 2019.

 

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS 
(DOLLARS IN THOUSANDS)         
  Three Months Ended  Six Months Ended 
  June 30, 2020  June 30, 2019  June 30, 2020  June 30, 2019 
  $  $  $  $ 
                 
Net gains (losses) recognized in equity securities during the period  5   27   (225)  44 
                 
Less:  Net gains realized on the sale of equity securities during the period            
                 
Unrealized gains (losses) recognized in equity securities held at reporting date  5   27   (225)  44 

 

 

11 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

4.        Loans and Allowance for Loan Losses

 

The following table presents the Corporation’s loan portfolio by category of loans as of June 30, 2020, and December 31, 2019:

 

LOAN PORTFOLIO      
(DOLLARS IN THOUSANDS)      
  June 30,  December 31, 
  2020  2019 
  $  $ 
Commercial real estate        
Commercial mortgages  125,925   120,212 
Agriculture mortgages  175,108   175,367 
Construction  20,285   16,209 
Total commercial real estate  321,318   311,788 
         
Consumer real estate (a)        
1-4 family residential mortgages  261,772   258,676 
Home equity loans  10,688   9,770 
Home equity lines of credit  69,507   70,809 
Total consumer real estate  341,967   339,255 
         
Commercial and industrial        
Commercial and industrial  129,459   58,019 
Tax-free loans  16,607   16,388 
Agriculture loans  21,581   20,804 
Total commercial and industrial  167,647   95,211 
         
Consumer  5,061   5,416 
         
Gross loans prior to deferred fees  835,993   751,670 
         
Deferred loan costs, net  (24)  1,948 
Allowance for loan losses  (10,770)  (9,447)
Total net loans  825,199   744,171 

 

(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $187,258,000 and $154,577,000 as of June 30, 2020, and December 31, 2019, respectively.  

 

The largest movement within the Corporation’s loan portfolio since December 31, 2019 was the sharp growth in the commercial and industrial loan sector, which experienced a $71.4 million, or 123.1% increase. This was a direct result of the Small Business Administration’s new Paycheck Protection Program (PPP) established as part of the CARES Act passed in March 2020, to provide relief to small businesses from the impact of COVID-19. The Corporation began making these loans in early April 2020, and by June 30, 2020 had approved over 950 applications that resulted in $76.1 million in PPP loan balances. The majority of these loans have been written with a two-year term, however management expects the vast majority of these loans to be forgiven by the SBA, or paid off by the borrower, prior to maturity of the loan. As a result, management expects the commercial and industrial loan balances to decline by December 31, 2020 with further declines during 2021.

 

12 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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 June 30, 2020 and December 31, 2019. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

 

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

 

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

 

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

 

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

 

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

 

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

 

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)

June 30, 2020 Commercial
Mortgages
  Agriculture
Mortgages
  Construction  Commercial
and
Industrial
  Tax-free
Loans
  Agriculture
Loans
  Total 
  $  $  $  $  $  $  $ 
Grade:                            
Pass  123,203   159,455   20,285   119,227   16,607   19,192   457,969 
Special Mention  813   3,242      5,062      832   9,949 
Substandard  1,909   12,411      5,139      1,557   21,016 
Doubtful           31         31 
Loss                     
                             
    Total  125,925   175,108   20,285   129,459   16,607   21,581   488,965 

 

December 31, 2019 Commercial
Mortgages
  Agriculture
Mortgages
  Construction  Commercial
and
Industrial
  Tax-free
Loans
  Agriculture
Loans
  Total 
  $  $  $  $  $  $  $ 
Grade:                            
Pass  117,875   158,896   16,209   52,028   16,388   18,530   379,926 
Special Mention  827   4,546      618      939   6,930 
Substandard  1,510   11,925      5,293      1,335   20,063 
Doubtful           80         80 
Loss                     
                             
    Total  120,212   175,367   16,209   58,019   16,388   20,804   406,999 

 

13 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Substandard loans increased by $953,000, or 4.8%, while special mention loans have increased by $3.0 million, or 43.6%, from December 31, 2019 to June 30, 2020. Substandard loans increased from $20.1 million to $21.0 million from December 31, 2019, to June 30, 2020 while special mention loans increased from $6.9 million to $9.9 million during this same period. The loan areas that experienced material changes in special mention and substandard loans were commercial and industrial, agricultural mortgages, and commercial mortgages. Under commercial and industrial loans, $4.4 million of pass-rated loans were transferred to special mention with $3.9 million of this amount consisting of loans to a commercial leasing company. Under agricultural mortgages, the changes in both substandard and special mention were caused by a number of unrelated borrowers experiencing grading changes or paying off. During the second quarter of 2020, a livestock operating farm with $1.3 million of balances was transferred into substandard from pass. Partially offsetting this, the Corporation received a $825,000 loan payoff on another real estate secured agricultural mortgage. There was also $745,000 of loans transferred into substandard from special mention in the first quarter of 2020. In addition to these loans, two other dairy farm loans primarily accounted for the remaining variance in substandard agricultural mortgages from December 31, 2019 to June 30, 2020. One dairy farmer with $1,130,000 of loans came off of substandard in the second quarter of 2020, while another dairy farmer with three loans totaling $778,000 was placed into substandard.

 

Two agricultural mortgages were primarily responsible for the $1.3 million reduction in special mention agricultural mortgages between December 31, 2019 and June 30, 2020. One was the $745,000 farm loan that was transferred from special mention to substandard in the first quarter of 2020. The other was a dairy farmer that sold out and paid off $730,000 of special mention agricultural mortgage loans in the second quarter of 2020. Lastly, under commercial mortgages, one residential investment property borrower with $443,000 of loans was placed on substandard in the first quarter of 2020. Note the sharp growth in commercial and industrial pass loans was a result of the introduction of the new PPP loans, which started in April 2020.

 

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of June 30, 2020 and December 31, 2019:

 

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)  

June 30, 2020 1-4 Family
Residential
Mortgages
  Home Equity
Loans
  Home Equity
Lines of
Credit
  Consumer  Total 
Payment performance: $  $  $  $  $ 
                
Performing  260,990   10,596   69,497   5,053   346,136 
Non-performing  782   92   10   8   892 
                     
   Total  261,772   10,688   69,507   5,061   347,028 

 

December 31, 2019 1-4 Family
Residential
Mortgages
  Home Equity
Loans
  Home Equity
Lines of
Credit
  Consumer  Total 
Payment performance: $  $  $  $  $ 
                
Performing  257,374   9,678   70,799   5,412   343,263 
Non-performing  1,302   92   10   4   1,408 
                     
   Total  258,676   9,770   70,809   5,416   344,671 

 

14 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of June 30, 2020 and December 31, 2019:

 

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

                    Loans 
        Greater           Receivable > 
  30-59 Days  60-89 Days  than 90  Total Past     Total Loans  90 Days and 
June 30, 2020 Past Due  Past Due  Days  Due  Current  Receivable  Accruing 
  $  $  $  $  $  $  $ 
Commercial real estate                            
   Commercial mortgages        221   221   125,704   125,925    
   Agriculture mortgages  305         305   174,803   175,108    
   Construction  1,038         1,038   19,247   20,285    
Consumer real estate                            
   1-4 family residential mortgages  307      782   1,089   260,683   261,772   291 
   Home equity loans  2      92   94   10,594   10,688    
   Home equity lines of credit  9      10   19   69,488   69,507   10 
Commercial and industrial                            
   Commercial and industrial  23      521   544   128,915   129,459    
   Tax-free loans              16,607   16,607    
   Agriculture loans  47         47   21,534   21,581    
Consumer  6   8   8   22   5,039   5,061   8 
       Total  1,737   8   1,634   3,379   832,614   835,993   309 

 

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

                    Loans 
        Greater           Receivable > 
  30-59 Days  60-89 Days  than 90  Total Past     Total Loans  90 Days and 
December 31, 2019 Past Due  Past Due  Days  Due  Current  Receivable  Accruing 
  $  $  $  $  $  $  $ 
Commercial real estate                            
   Commercial mortgages        228   228   119,984   120,212    
   Agriculture mortgages  962      1,070   2,032   173,335   175,367    
   Construction              16,209   16,209    
Consumer real estate                            
   1-4 family residential mortgages  2,254   161   1,302   3,717   254,959   258,676   807 
   Home equity loans  52      92   144   9,626   9,770    
   Home equity lines of credit  43      10   53   70,756   70,809   10 
Commercial and industrial                            
   Commercial and industrial  68      538   606   57,413   58,019    
   Tax-free loans              16,388   16,388    
   Agriculture loans  2         2   20,802   20,804    
Consumer  14   12   4   30   5,386   5,416   4 
       Total  3,395   173   3,244   6,812   744,858   751,670   821 

15 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table presents nonaccrual loans by classes of the loan portfolio as of June 30, 2020 and December 31, 2019:

 

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)  

 

  June 30,  December 31, 
  2020  2019 
  $  $ 
       
Commercial real estate        
  Commercial mortgages  221   228 
  Agriculture mortgages     1,070 
  Construction      
Consumer real estate        
  1-4 family residential mortgages  491   495 
  Home equity loans  92   92 
  Home equity lines of credit      
Commercial and industrial        
  Commercial and industrial  521   538 
  Tax-free loans      
  Agriculture loans      
Consumer      
             Total  1,325   2,423 

 

As of June 30, 2020 and December 31, 2019, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and six months ended June 30, 2020 and June 30, 2019, is as follows:

 

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)  

 

  Three Months Ended June 30,  Six months ended June 30, 
  2020  2019  2020  2019 
  $  $  $  $ 
             
Average recorded balance of impaired loans  3,178   3,412   3,557   3,057 
Interest income recognized on impaired loans  18   11   43   22 

 

 

There were no loan modifications made during the first six months of 2020 that would be considered a troubled debt restructuring (TDR). Deferments of principal related to the impact of COVID-19 did occur beginning in late March 2020, however these modifications are not considered a TDR under the revised COVID-19 regulatory guidance. There was one loan modification that occurred during the first quarter of 2019, constituting a TDR. A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments.

 

In the first quarter of 2019, a loan modification was made on a $718,000 agricultural mortgage which moved the timing of the annual principal payment and changed interest payments from monthly to annually. The farmer had suffered a fire loss in late 2018 impacting one year’s harvest. The principal and interest payment due date was reset to November 15, 2019, when it was paid. No other loans were modified during 2019.

 

Included in the impaired loan portfolio are three loans to unrelated borrowers that are being reported as TDRs. The balance of these three TDR loans was $1,941,000 as of June 30, 2020. One of these TDR loans with a balance of $439,000 is also on nonaccrual and is included under 1-4 family residential mortgages shown in the nonaccrual table above. For both of these TDR loans the borrowers have a history of being delinquent. Management will continue to report these loans as TDR loans until they have been paid off or charged off.

16 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information regarding impaired loans by loan portfolio class as of June 30, 2020, and for the six months ended June 30, 2020, and as of December 31, 2019:

 

IMPAIRED LOAN ANALYSIS          
(DOLLARS IN THOUSANDS)          
June 30, 2020 Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
 
  $  $  $  $  $ 
                
With no related allowance recorded:                    
Commercial real estate                    
    Commercial mortgages  712   759      720    
    Agriculture mortgages  824   853      1,528   43 
    Construction               
Total commercial real estate  1,536   1,612      2,248   43 
                     
Commercial and industrial                    
    Commercial and industrial               
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial               
                     
Total with no related allowance  1,536   1,612      2,248   43 
                     
With an allowance recorded:                    
Commercial real estate                    
    Commercial mortgages  92   100   28   92    
    Agriculture mortgages  677   677   5   685    
    Construction               
Total commercial real estate  769   777   33   777    
                     
Commercial and industrial                    
    Commercial and industrial  521   543   31   532    
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial  521   543   31   532    
                     
Total with a related allowance  1,290   1,320   64   1,309    
                     
Total by loan class:                    
Commercial real estate                    
    Commercial mortgages  804   859   28   812    
    Agriculture mortgages  1,501   1,530   5   2,213   43 
    Construction               
Total commercial real estate  2,305   2,389   33   3,025   43 
                     
Commercial and industrial                    
    Commercial and industrial  521   543   31   532    
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial  521   543   31   532    
                     
Total  2,826   2,932   64   3,557   43 

 

17 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS             
(DOLLARS IN THOUSANDS)             
December 31, 2019 Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
 
  $  $  $  $  $ 
                
With no related allowance recorded:                    
Commercial real estate                    
    Commercial mortgages  724   765      859    
    Agriculture mortgages  1,912   1,928      1,903   43 
    Construction               
Total commercial real estate  2,636   2,693      2,762   43 
                     
Commercial and industrial                    
    Commercial and industrial               
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial               
                     
Total with no related allowance  2,636   2,693      2,762   43 
                     
With an allowance recorded:                    
Commercial real estate                    
    Commercial mortgages  92   100   49   93    
    Agriculture mortgages  718   718   60   760    
    Construction               
Total commercial real estate  810   818   109   853    
                     
Commercial and industrial                    
    Commercial and industrial  538   549   80   261    
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial  538   549   80   261    
                     
Total with a related allowance  1,348   1,367   189   1,114    
                     
Total by loan class:                    
Commercial real estate                    
    Commercial mortgages  816   865   49   952    
    Agriculture mortgages  2,630   2,646   60   2,663   43 
    Construction               
Total commercial real estate  3,446   3,511   109   3,615   43 
                     
Commercial and industrial                    
    Commercial and industrial  538   549   80   261    
    Tax-free loans               
    Agriculture loans               
Total commercial and industrial  538   549   80   261    
                     
Total  3,984   4,060   189   3,876   43 

  

18 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2020:

 

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

 

  Commercial
Real Estate
  Consumer
Real Estate
  Commercial
and
Industrial
  Consumer  Unallocated  Total 
  $  $  $  $  $  $ 
Allowance for credit losses:                        
Beginning balance - December 31, 2019  4,319   2,855   1,784   41   448   9,447 
                         
    Charge-offs           (6)     (6)
    Recoveries  11      1         12 
    Provision  252   296   171   21   (390)  350 
                         
Balance - March 31, 2020  4,582   3,151   1,956   56   58   9,803 
                         
    Charge-offs           (10)     (10)
    Recoveries        1   1      2 
    Provision  356   146   175   5   293   975 
                         
Ending Balance - June 30, 2020  4,938   3,297   2,132   52   351   10,770 

 

During the six months ended June 30, 2020, management charged off $16,000 in loans while recovering $14,000 and added $1,325,000 to the provision. The unallocated portion of the allowance decreased from 4.7% of total reserves as of December 31, 2019, to 3.3% as of June 30, 2020. Management monitors the unallocated portion of the allowance with a desire to maintain it at approximately 5% over the long term, with a requirement of it not to exceed 10%.

 

During the six months ended June 30, 2020, net provision expense was recorded for all sectors. The higher provision was primarily caused by increasing the qualitative factors across all industry lines to various degrees as a result of the impact and effect from COVID-19 and the declining economic conditions. A qualitative factor was increased for business loans specifically related to the special federal governmental lending programs developed as a result of COVID-19. There were minimal charge-offs and recoveries recorded during the six months ended June 30, 2020, so the provision expense was primarily related to this change in economic conditions and potential for credit declines moving forward. The total amount of substandard loans at the end of the second quarter of 2020 was slightly higher resulting in slightly more provision expense.

 

As of June 30, 2020, the Corporation’s total delinquencies were 0.41%, a decline from 0.91% at December 31, 2019. The Corporation’s total delinquencies continue to compare favorably to the national uniform bank performance group, which was at 1.05% as of December 31, 2019.

 

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

 

19 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2019:

 

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, 2018  4,296   2,408   1,428   102   432   8,666 
                         
    Charge-offs           (17)     (17)
    Recoveries  44      13         57 
    Provision  148   (140)  128   16   28   180 
                         
Balance - March 31, 2019  4,488   2,268   1,569   101   460   8,886 
                         
    Charge-offs           (6)     (6)
    Recoveries  43      1   3      47 
    Provision  (114)  122   (204)  (22)  248   30 
                         
Balance - June 30, 2019  4,417   2,390   1,366   76   708   8,957 

 

During the six months ended June 30, 2019, management charged off $23,000 in loans while recovering $104,000 and added $210,000 to the provision. The unallocated portion of the allowance increased from 5.3% as of December 31, 2018, and 5.5% as of March 31, 2019, to 8.6% as of June 30, 2019.

 

During the six months ended June 30, 2019, net provision expense was recorded for the commercial real estate segment, while net credit provisions were recorded in the consumer real estate, commercial and industrial, and consumer segments. This was due to continued very low historical loss experience for these three segments. In the first half of 2019, management adjusted the qualitative factors across the loan portfolio to better reflect the forward risk in each loan segment. This resulted in a slightly larger allowance for commercial real estate loans and slightly lower allowances for consumer real estate, commercial and industrial, and consumer, while the unallocated portion of the allowance increased. The Corporation’s commercial real estate allocation for credit losses was reduced by $114,000 in the second quarter of 2019, influenced by a reduction in real estate secured agricultural delinquencies that declined materially since March 31, 2019. The allowance for credit losses on consumer real estate grew in the second quarter of 2019 relative to the sharper growth in this segment offset partially by lower delinquencies than March 31, 2019 but unchanged from the prior June 30, 2019. The Commercial and industrial allocation for credit losses was reduced by $204,000 in the second quarter of 2019 as delinquencies declined significantly.

 

20 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of June 30, 2020 and December 31, 2019:

 

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

As of June 30, 2020: Commercial Real
Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total 
  $  $  $  $  $  $ 
Allowance for credit losses:                        
Ending balance: individually evaluated                        
  for impairment  33      31         64 
Ending balance: collectively evaluated                        
  for impairment  4,905   3,297   2,101   52   351   10,706 
                         
Loans receivable:                        
Ending balance  321,318   341,967   167,647   5,061       835,993 
Ending balance: individually evaluated                        
  for impairment  2,305      521          2,826 
Ending balance: collectively evaluated                        
  for impairment  319,013   341,967   167,126   5,061       833,167 

 

 

As of December 31, 2019: Commercial Real
Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total 
  $  $  $  $  $  $ 
Allowance for credit losses:                        
Ending balance: individually evaluated                        
  for impairment  109      80         189 
Ending balance: collectively evaluated                        
  for impairment  4,210   2,855   1,704   41   448   9,258 
                         
Loans receivable:                        
Ending balance  311,788   339,255   95,211   5,416       751,670 
Ending balance: individually evaluated                        
  for impairment  3,446      538          3,984 
Ending balance: collectively evaluated                        
  for impairment  308,342   339,255   94,673   5,416       747,686 

 

5. Fair Value Presentation

 

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

 

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

 

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

 

21 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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 June 30, 2020, and December 31, 2019, 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)            
  June 30, 2020 
  Level I  Level II  Level III  Total 
  $  $  $  $ 
             
U.S. government agencies     8,379      8,379 
U.S. agency mortgage-backed securities     72,553      72,553 
U.S. agency collateralized mortgage obligations     46,562      46,562 
Asset-backed securities     31,951      31,951 
Corporate bonds     63,431      63,431 
Obligations of states & political subdivisions     111,811      111,811 
Equity securities  6,775         6,775 
                 
Total securities  6,775   334,687      341,462 

 

 

On June 30, 2020, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of June 30, 2020, the CRA fund investments had a $6,148,000 book and fair market value and the bank stock portfolio had a book value of $829,000, and fair market value of $627,000.

 

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

22 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A RECURRING BASIS            
(DOLLARS IN THOUSANDS)            
  December 31, 2019 
  Level I  Level II  Level III  Total 
  $  $  $  $ 
             
U.S. government agencies     32,624      32,624 
U.S. agency mortgage-backed securities     48,626      48,626 
U.S. agency collateralized mortgage obligations     60,253      60,253 
Asset-backed securities     23,262      23,262 
Corporate bonds     54,880      54,880 
Obligations of states & political subdivisions     88,452      88,452 
Equity securities  6,708         6,708 
                 
Total securities  6,708   308,097      314,805 

 

On December 31, 2019, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of December 31, 2019, the CRA fund investments had a $6,071,000 book and market value and the bank stocks had a book value of $614,000 and a market value of $637,000.

 

The following tables provide the fair value for each class of assets required to be measured and reported at fair value on a nonrecurring basis on the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019, by level within the fair value hierarchy:

23 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

 

  June 30, 2020 
  Level I  Level II  Level III  Total 
  $  $  $  $ 
Assets:                
Impaired Loans $  $  $2,762  $2,762 
Total $  $  $2,762  $2,762 

 

 

  December 31, 2019 
  Level I  Level II  Level III  Total 
  $  $  $  $ 
Assets:                
Impaired Loans $  $  $3,795  $3,795 
Total $  $  $3,795  $3,795 

 

The Corporation had a total of $2,826,000 of impaired loans as of June 30, 2020, with $64,000 of specific allocation against these loans and $3,984,000 of impaired loans as of December 31, 2019, with $189,000 of specific allocation against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

 

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:

24 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS  
(DOLLARS IN THOUSANDS)          
  June 30, 2020  
  Fair Value Valuation Unobservable Range  
  Estimate Techniques Input (Weighted Avg)  
           
Impaired loans  2,762 Appraisal of Appraisal -20% (-20%)  
    collateral (1) adjustments (2)    
      Liquidation -10% (-10%)  
      expenses (2)    

 

  December 31, 2019  
   Fair Value  Valuation Unobservable  Range  
  Estimate Techniques Input (Weighted Avg)  
           
Impaired loans 3,795 Appraisal of Appraisal -20% (-20%)  
    collateral (1) adjustments (2)    
      Liquidation  -10% (-10%)  
      expenses (2)    

 

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

 

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

25 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table provides the carrying amount for each class of assets and liabilities and the fair value for certain financial instruments that are not required to be measured or reported at fair value on the Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019:

 

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

(DOLLARS IN THOUSANDS)

 

  June 30, 2020
      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  61,224   61,224   61,224       
Regulatory stock  6,942   6,942   6,942       
Loans held for sale  2,295   2,295   2,295       
Loans, net of allowance  825,199   833,431         833,431 
Mortgage servicing assets  863   898         898 
Accrued interest receivable  4,164   4,164   4,164       
Bank owned life insurance  29,214   29,214   29,214       
                     
Financial Liabilities:                    
Demand deposits  466,392   466,392   466,392       
Interest-bearing demand deposits  41,083   41,083   41,083       
NOW accounts  104,594   104,594   104,594       
Money market deposit accounts  123,212   123,212   123,212       
Savings accounts  246,763   246,763   246,763       
Time deposits  125,870   128,724         128,724 
     Total deposits  1,107,914   1,110,768   982,044      128,724 
                     
Long-term debt  65,072   61,612         61,612 
Accrued interest payable  410   410   410       

 

26 

Index 

 

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, 2019
      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  41,053   41,053   41,053       
Regulatory stock  7,291   7,291   7,291       
Loans held for sale  2,342   2,342   2,342       
Loans, net of allowance  744,171   759,011         759,011 
Mortgage servicing assets  892   1,049         1,049 
Accrued interest receivable  3,768   3,768   3,768       
Bank owned life insurance  28,818   28,818   28,818       
                     
Financial Liabilities:                    
Demand deposits  363,857   363,857   363,857       
Interest-bearing demand deposits  25,171   25,171   25,171       
NOW accounts  96,941   96,941   96,941       
Money market deposit accounts  141,649   141,649   141,649       
Savings accounts  211,285   211,285   211,285       
Time deposits  135,185   136,781         136,781 
     Total deposits  974,088   975,684   838,903      136,781 
                     
Short-term borrowings  200   200   200       
Long-term debt  77,872   76,825         76,825 
Accrued interest payable  521   521   521       

 

6.       Commitments and Contingent Liabilities

 

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of June 30, 2020, firm loan commitments were $64.0 million, unused lines of credit were $305.4 million, and open letters of credit were $8.8 million. The total of these commitments was $378.2 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.

 

27 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

7. Accumulated Other Comprehensive Income (Loss)

 

The activity in accumulated other comprehensive income for the six months ended June 30, 2020 and 2019 is as follows:

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (1) (2)

(DOLLARS IN THOUSANDS)  

  Unrealized
  Gains (Losses)
  on Securities
  Available-for-Sale
  $
Balance at December 31, 2019  1,600 
  Other comprehensive loss before reclassifications  (274)
  Amount reclassified from accumulated other comprehensive income  (223)
Period change  (497)
     
Balance at March 31, 2020  1,103 
  Other comprehensive income before reclassifications  3,709 
  Amount reclassified from accumulated other comprehensive income  (290)
Period change  3,419 
     
Balance at June 30, 2020  4,522 
     
Balance at December 31, 2018  (5,678)
  Other comprehensive income before reclassifications  2,553 
  Amount reclassified from accumulated other comprehensive income  (64)
Period change  2,489 
     
Balance at March 31, 2019  (3,189)
  Other comprehensive income before reclassifications  3,571 
  Amount reclassified from accumulated other comprehensive income  (84)
Period change  3,487 
     
Balance at June 30, 2019  298 

 

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

(2) Amounts in parentheses indicate debits.   

 

28 

Index 

 

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 June 30,    
  2020 2019   Affected Line Item in the
  $ $   Consolidated Statements of Income
Securities available-for-sale:        
  Net securities gains,  367  106   Gains on the sale of
           reclassified into earnings              debt securities, net
     Related income tax expense (77) (22)   Provision for federal income taxes
  Net effect on accumulated other comprehensive        
     income (loss) for the period 290 84    

 

(1) Amounts in parentheses indicate debits.

  

 

  Amount Reclassified from    
  Accumulated Other Comprehensive    
  Income (Loss)    
  For the Six Months    
  Ended June 30,    
  2020 2019   Affected Line Item in the
  $ $   Consolidated Statements of Income
Securities available-for-sale:        
  Net securities gains,  649 187   Gains on the sale of
           reclassified into earnings              debt securities, net
     Related income tax expense (136) (39)   Provision for federal income taxes
  Net effect on accumulated other comprehensive        
     income (loss) for the period 513 148    

 

(1) Amounts in parentheses indicate debits.  

 

8. Leases

 

A lease is defined as a contract, or part of a contract, that conveys the right to control the use of identified property, plant or equipment for a period of time in exchange for consideration. On January 1, 2019, the Corporation adopted ASU No. 2016-02 “Leases” (Topic 842) and all subsequent ASUs that modified Topic 842. For the Corporation, Topic 842 primarily affected the accounting treatment for operating lease agreements in which the Corporation is the lessee.

 

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

 

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

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Lease Consolidated Balance Sheets Classification      
(Dollars in Thousands) Classification June 30, 2020 December 31, 2019
Lease Right-of-Use Assets      
       
    Operating lease right-of use assets Other Assets $819   908 
           
 Lease Liabilities          
    Operating lease liabilties Other Liabilities $828   916 

 

 

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

 

    June 30, 2020 December 31, 2019
Weighted-average remaining lease term            
    Operating leases      4.8 years  5.3 years
 Weighted-average discount rate          
    Operating leases      3.10%  3.09%

 

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

 

Future minimum payments for operating leases with initial or remaining terms of one year or more as of June 30, 2020 were as follows:

 

Lease Payment Schedule  
(Dollars in Thousands) Operating Leases
Twelve Months Ended:    
    June 30, 2021 $202 
    June 30, 2022  197 
    June 30, 2023  150 
    June 30, 2024  155 
    June 30, 2025  155 
Thereafter  35 
Total Future Minimum Lease Payments  894 
Amounts Representing Interests  (66)
Present Value of Net Future Minimum Lease Payments $828 

 

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

9. Change in Capital Structure

 

On April 17, 2019 ENB Financial Corp announced the Board of Directors declared a two-for-one stock split of the Corporation’s issued and outstanding common stock pursuant to which one (1) additional share of common stock was issued for each share of common stock held by shareholders of record as of the close of business on May 31, 2019. The additional shares were issued on June 28, 2019. The stock split was effected pursuant to articles of amendment to the articles of incorporation to reduce the par value of the common stock from $0.20 to $0.10 and increase the authorized shares of common stock proportionately from 12,000,000 to 24,000,000. Per share data reflected on the Corporation’s consolidated statements of income are restated as if the stock split had occurred at the beginning of the earliest period presented.

 

 

10. Risks and Uncertainties

 

COVID-19 Update

 

The following table provides information with respect to our commercial loans by type at June 30, 2020.

 

At Risk

 

(Dollars in Thousands)   # $ $ %
    Number Total Principal of Total
    of Loan Balance Loan
Loan Type   Loans Exposure of Loans Balance
  Lessors of Nonresidential Buildings    151   62,901   57,085   6.83% 
  Lessors of Residential Buildings    225   44,104   39,395   4.71% 
  Specialized Freight    30   16,049   11,733   1.40% 
  Residential Remodelers    99   10,256   4,158   0.50% 
  New Single Family Housing Construction    58   8,965   4,189   0.50% 
  Passenger Car Leasing    136   8,808   8,789   1.05% 
  Hotels    12   7,843   3,138   0.38% 
  Religious Organizations    58   7,365   6,269   0.75% 
  Car Washes    11   6,959   5,286   0.63% 
  Concrete & Structural Contrators    27   6,875   4,767   0.57% 
  Other    71   14,945   8,597   1.03% 
                   
Totals    878   195,070   153,406   18.35% 

 

The Corporation has a diversified commercial loan portfolio that is consistent with the diversified economies of Lancaster, Lebanon and Berks Counties in Pennsylvania, the Corporation’s market area. The above chart is focused on loan types that are commonly known to be at risk or negatively impacted by the COVID-19 pandemic and its effects. The Corporation’s largest exposure to at risk loan types are loans on leased commercial property and loans on residential investment properties. The Corporation has a relatively low exposure to the hospitality industry, including restaurants. Single loan type exposures falling under the other category do not exceed 0.5% of total loans and include loan types such as site preparation contractors, fuel dealers, and recreational centers. The above levels of exposure to these at risk loan types have not had significant movements from 2019 to 2020. Management does not expect any significant movements in these exposures going forward.

 

Paycheck Protection Program (PPP)

 

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

 

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

 

In the initial CARES Act, $349 billion of funds were made available for PPP loans. This amount was fully exhausted prior to the end of April. Congress then passed an additional allocation of funds for the PPP loans, allowing a second round of applications to begin. As of June 30, 2020, the Corporation had approved and originated 951 PPP loans totaling $79,710,000 with a current balance of $76,068,000. Management’s focus has been to serve the customers and market area that the Corporation serves. Subsequent to June 30, 2020, but prior to the filing of this report, the Corporation has approved and originated 990 PPP loans totaling $80,821,000 with a current balance of $77,180,000.

 

In accordance with the SBA terms and conditions on these PPP loans, the Corporation expects to receive approximately $3.25 million in fees associated with the processing of these loans. Management received the first $3.15 million in fees in June associated with processing the first $76 million of PPP loans submitted, however all fee income is being deferred over the expected life of each PPP loan. Management will receive the remainder of the fee income as much smaller final batches of PPP loans are processed. The initial batch of the PPP loans carried a stated maturity of two years. In later batches of PPP loans the maturity can be five years, however the vast majority of the Corporation’s PPP loans will carry a two year maturity. When a PPP loan is paid off or forgiven, the remaining fee amount is taken into income. It is expected that the vast majority of these PPP borrowers will provide the necessary support in order to have their principal balances forgiven in a period of time significantly shorter than the two-year life of the loan.

 

COVID-19 Loan Forbearance Programs

 

As of June 30, 2020, over 300 of the Corporation’s customers had requested payment deferrals or payments of interest only on loans totaling $61.7 million, or 7.4% of the total loan portfolio. In accordance with interagency guidance issued in March 2020, these short-term deferrals are not considered troubled debt restructurings (TDRs) unless the borrower was previously experiencing financial difficulty. In addition, the risk-rating on COVID-19 modified loans did not change, and these loans will not be considered past due until after the deferral period is over and scheduled payments resume. The credit quality of these loans will be reevaluated after the deferral period ends.

 

Of the $61.7 million of loan balances with payments being deferred, $49.5 million, or 77.0% were in the form of commercial or agricultural loan deferments, with the vast majority of these commercial loan deferrals. The remaining loan deferments consisted of $11.9 million of residential mortgage deferrals and $200,000 of consumer loan deferrals. The vast majority all of the COVID-19 loan payment deferrals were for a 90-day period.

 

As of June 30, 2020, the Corporation’s delinquent, non-performing, and impaired loans were not yet materially impacted by the rapidly declining economic conditions brought on by COVID-19. However, due to the magnitude of this economic interruption, management does anticipate that these levels will rise in the third quarter of 2020, and will likely show further deterioration in the remainder of 2020 and into 2021. The significance of a credit deterioration with depend on the length of time business operations are curtailed, or limited, and the amount of time it takes for consumer confidence to rebuild and engage into increased purchasing activities. Management has already significantly increased the Corporation’s provision for loan losses in the second quarter of 2020, as qualitative factors have been increased based on predicted prolonged economic weakness, which is expected to impact more and more borrowers.

 

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

11. Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the p