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 2020-03-31 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 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 form10q-24161_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 March 31, 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 May 1, 2020, the registrant had 5,592,101 shares of $0.10 (par) Common Stock outstanding.

 

 

 

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

March 31, 2020

 

 

Part I – FINANCIAL INFORMATION  
       
  Item 1. Financial Statements  
       
  Consolidated Balance Sheets at March 31, 2020 and 2019, and December 31, 2019 (Unaudited) 3
       
  Consolidated Statements of Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited) 4
       
  Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2020 and 2019 (Unaudited) 5
       
  Consolidated Statements of Changes in Stockholders’ Equity for the Three Months Ended March 31, 2020 and 2019 (Unaudited) 6
       
  Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2020 and 2019 (Unaudited) 7
       
  Notes to the Unaudited Consolidated Interim Financial Statements 8-33
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 34-67
       
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 68-73
       
  Item 4. Controls and Procedures 74
       
       
Part II – OTHER INFORMATION 75
       
  Item 1. Legal Proceedings 75
       
  Item 1A. Risk Factors 75
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 75
       
  Item 3. Defaults upon Senior Securities 76
       
  Item 4. Mine Safety Disclosures 76
       
  Item 5. Other Information 76
       
  Item 6. Exhibits 77
       
       

SIGNATURE PAGE

78

 

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)

 

   March 31,   December 31,   March 31, 
   2020   2019   2019 
   $   $   $ 
ASSETS               
Cash and due from banks   14,346    24,304    17,957 
Interest-bearing deposits in other banks   9,066    16,749    22,468 
                
   Total cash and cash equivalents   23,412    41,053    40,425 
                
Securities available for sale (at fair value)   320,568    308,097    291,186 
Equity securities (at fair value)   6,640    6,708    6,081 
                
Loans held for sale   2,419    2,342    2,688 
                
Loans (net of unearned income)   764,120    753,618    710,135 
                
   Less: Allowance for loan losses   9,803    9,447    8,886 
                
   Net loans   754,317    744,171    701,249 
                
Premises and equipment   25,044    25,033    25,409 
Regulatory stock   7,222    7,291    6,705 
Bank owned life insurance   29,012    28,818    28,273 
Other assets   9,362    8,237    10,182 
                
       Total assets   1,177,996    1,171,750    1,112,198 
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
                
Liabilities:               
  Deposits:               
    Noninterest-bearing   363,766    363,857    329,007 
    Interest-bearing   619,086    610,231    600,794 
                
    Total deposits   982,852    974,088    929,801 
                
  Short-term borrowings   3,500    200     
  Long-term debt   71,531    77,872    72,478 
  Other liabilities   3,607    2,902    3,061 
                
       Total liabilities   1,061,490    1,055,062    1,005,340 
                
Stockholders' equity:               
  Common stock, par value $0.10               
Shares:  Authorized 24,000,000               
             Issued 5,739,114 and Outstanding  5,598,501 as of  3/31/20,               
             5,640,742 as of 12/31/19, and 5,694,452 as of 3/31/19   574    574    574 
  Capital surplus   4,476    4,482    4,438 
  Retained earnings   113,207    111,944    105,818 
  Accumulated other comprehensive income (loss) net of tax   1,103    1,600    (3,189)
  Less: Treasury stock cost on 140,613 shares as of 3/31/20, 98,372 as of 12/31/19,               
   and 44,662 as of 3/31/19   (2,854)   (1,912)   (783)
                
       Total stockholders' equity   116,506    116,688    106,858 
                
       Total liabilities and stockholders' equity   1,177,996    1,171,750    1,112,198 

 

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 March 31, 
   2020   2019 
   $   $ 
Interest and dividend income:          
Interest and fees on loans   8,452    8,023 
Interest on securities available for sale          
Taxable   1,221    1,275 
Tax-exempt   566    647 
Interest on deposits at other banks   60    47 
Dividend income   188    170 
           
Total interest and dividend income   10,487    10,162 
           
Interest expense:          
Interest on deposits   809    824 
Interest on borrowings   462    355 
           
Total interest expense   1,271    1,179 
           
Net interest income   9,216    8,983 
           
Provision for loan losses   350    180 
           
Net interest income after provision for loan losses   8,866    8,803 
           
Other income:          
Trust and investment services income   622    537 
Service fees   679    630 
Commissions   686    655 
Gains on the sale of debt securities, net   282    81 
(Losses) gains on equity securities, net   (230)   17 
Gains on sale of mortgages   541    349 
Earnings on bank-owned life insurance   206    178 
Other income   (19)   97 
           
Total other income   2,767    2,544 
           
Operating expenses:          
Salaries and employee benefits   5,696    5,188 
Occupancy   591    630 
Equipment   290    287 
Advertising & marketing   274    250 
Computer software & data processing   706    658 
Shares tax   239    233 
Professional services   623    475 
Other expense   691    561 
           
Total operating expenses   9,110    8,282 
           
Income before income taxes   2,523    3,065 
           
Provision for federal income taxes   358    462 
           
Net income   2,165    2,603 
           
Earnings per share of common stock   0.38    0.46 
           
Weighted average shares outstanding   5,627,257    5,694,340 

 

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 March 31, 
   2020   2019 
   $   $ 
         
Net income   2,165    2,603 
           
Other comprehensive (loss) income, net of tax:          
Securities available for sale not other-than-temporarily impaired:          
           
   Unrealized (losses) gains arising during the period   (349)   3,231 
   Income tax effect   75    (678)
    (274)   2,553 
           
   Gains recognized in earnings   (282)   (81)
   Income tax effect   59    17 
    (223)   (64)
           
Other comprehensive (loss) income, net of tax   (497)   2,489 
           
Comprehensive Income   1,668    5,092 

 

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 
                               
                               
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 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

6 

Index 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS)  Three Months Ended March 31,
   2020  2019
   $  $
Cash flows from operating activities:          
Net income   2,165    2,603 
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Net amortization of securities premiums and discounts and loan fees   845    827 
Amortization of operating leases right-of-use assets   44    43 
Increase in interest receivable   (24)   (85)
Increase (decrease) in interest payable   (36)   58 
Provision for loan losses   350    180 
Gains on sale of debt securities, net   (282)   (81)
(Gain) loss on equity securities, net   230    (17)
Gains on sale of mortgages   (541)   (349)
Loans originated for sale   (14,037)   (9,026)
Proceeds from sales of loans   14,501    8,116 
Earnings on bank-owned life insurance   (206)   (178)
Depreciation of premises and equipment and amortization of software   384    391 
Deferred income tax   (143)   (94)
Other assets and other liabilities, net   (145)   (105)
Net cash provided by operating activities   3,105    2,283 
           
Cash flows from investing activities:          
Securities available for sale:          
   Proceeds from maturities, calls, and repayments   24,372    2,997 
   Proceeds from sales   27,409    10,246 
   Purchases   (65,490)   (7,970)
Purchase of regulatory bank stock   (570)   (550)
Redemptions of regulatory bank stock   639    193 
Net increase in loans   (10,614)   (16,142)
Purchases of premises and equipment, net   (364)   (221)
Purchase of computer software   (1)   (29)
Net cash used for investing activities   (24,619)   (11,476)
           
Cash flows from financing activities:          
Net increase in demand, NOW, and savings accounts   11,968    6,928 
Net increase (decrease) in time deposits   (3,204)   3,139 
Net (decrease) increase in short-term borrowings   3,300    (7,870)
Proceeds from long-term debt   10,000    11,562 
Repayments of long-term debt   (16,341)   (4,470)
Dividends paid   (902)   (852)
Proceeds from sale of treasury stock   150    146 
Treasury stock purchased   (1,098)   (330)
Net cash provided by financing activities   3,873    8,253 
Decrease in cash and cash equivalents   (17,641)   (940)
Cash and cash equivalents at beginning of period   41,053    41,365 
Cash and cash equivalents at end of period   23,412    40,425 
           
Supplemental disclosures of cash flow information:          
    Interest paid   1,307    1,121 
    Income taxes paid        
           
Supplemental disclosure of non-cash investing and financing activities:          
Fair value adjustments for securities available for sale   631    (3,150)
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 first quarter of 2020, is reporting on the results of operations and financial condition of ENB Financial Corp.

 

Operating results for the three months ended March 31, 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 March 31, 2020, and December 31, 2019, are as follows:

 

      Gross  Gross   
(DOLLARS IN THOUSANDS)  Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
   $  $  $  $
March 31, 2020            
U.S. government agencies   10,378    152    (2)   10,528 
U.S. agency mortgage-backed securities   60,464    1,107    (55)   61,516 
U.S. agency collateralized mortgage obligations   55,834    907    (120)   56,621 
Asset-backed securities   28,969        (1,854)   27,115 
Corporate bonds   64,429    188    (1,811)   62,806 
Obligations of states and political subdivisions   99,098    3,096    (212)   101,982 
Total securities available for sale   319,172    5,450    (4,054)   320,568 
                     
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 March 31, 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   31,045    31,321 
Due after one year through five years   122,474    122,000 
Due after five years through ten years   45,499    45,029 
Due after ten years   120,154    122,218 
Total debt securities   319,172    320,568 

  

Securities available for sale with a par value of $85,824,000 and $66,712,000 at March 31, 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 $90,733,000 at March 31, 2020, and $68,732,000 at December 31, 2019.

9 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

 

   Three Months Ended March 31,
   2020  2019
   $  $
Proceeds from sales   27,409    10,246 
Gross realized gains   297    96 
Gross realized losses   (15)   (15)

 

 

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 three months of 2020 or 2019.

 

Information pertaining to securities with gross unrealized losses at March 31, 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 March 31, 2020                              
U.S. government agencies   1,194    (2)           1,194    (2)
U.S. agency mortgage-backed securities           5,794    (55)   5,794    (55)
U.S. agency collateralized mortgage obligations   12,458    (106)   1,545    (14)   14,003    (120)
Asset-backed securities   18,510    (1,145)   8,605    (709)   27,115    (1,854)
Corporate bonds   39,679    (1,586)   2,812    (225)   42,491    (1,811)
Obligations of states & political subdivisions   7,271    (212)           7,271    (212)
                               
Total temporarily impaired securities   79,112    (3,051)   18,756    (1,003)   97,868    (4,054)
                               
                               
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 62 positions that were carrying unrealized losses as of March 31, 2020. There were no instruments considered to be other-than-temporarily impaired at March 31, 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 March 31, 2020 and December 31, 2019.

 

      Gross  Gross   
(DOLLARS IN THOUSANDS)  Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
   $  $  $  $
March 31, 2020                    
CRA-qualified mutual funds   6,113            6,113 
Bank stocks   734        (207)   527 
Total equity securities   6,847        (207)   6,640 

 

      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 months ended March 31, 2020 and 2019, and the portion of unrealized gains and losses for the period that relates to equity investments held as of March 31, 2020 and 2019.

 

NET GAINS AND LOSSES ON EQUITY INVESTMENTS RECOGNIZED IN EARNINGS

(DOLLARS IN THOUSANDS)  

   Three Months Ended
   March 31, 2020  March 31, 2019
   $  $
       
Net gains (losses) recognized in equity securities during the period   (230)   17 
           
Less:  Net gains realized on the sale of equity securities during the period        
           
Unrealized gains (losses) recognized in equity securities held at reporting date   (230)   17 

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 March 31, 2020, and December 31, 2019:

 

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)

   March 31,  December 31,
   2020  2019
   $  $
Commercial real estate          
Commercial mortgages   120,080    120,212 
Agriculture mortgages   177,368    175,367 
Construction   18,778    16,209 
Total commercial real estate   316,226    311,788 
           
Consumer real estate (a)          
1-4 family residential mortgages   259,937    258,676 
Home equity loans   10,741    9,770 
Home equity lines of credit   68,633    70,809 
Total consumer real estate   339,311    339,255 
           
Commercial and industrial          
Commercial and industrial   63,670    58,019 
Tax-free loans   16,582    16,388 
Agriculture loans   20,733    20,804 
Total commercial and industrial   100,985    95,211 
           
Consumer   5,557    5,416 
           
Gross loans prior to deferred fees   762,079    751,670 
           
Deferred loan costs, net   2,041    1,948 
Allowance for loan losses   (9,803)   (9,447)
Total net loans   754,317    744,171 

 

(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $162,246,000 and $154,577,000 as of March 31, 2020, and December 31, 2019, respectively.

 

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of March 31, 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.

 

12 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

·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)

 

March 31, 2020  Commercial
Mortgages
  Agriculture
Mortgages
  Construction  Commercial
and
Industrial
  Tax-free
Loans
  Agriculture
Loans
  Total
   $  $  $  $  $  $  $
Grade:                                   
Pass   117,329    160,221    18,778    57,634    16,582    18,671    389,215 
Special Mention   818    4,133        842        836    6,629 
Substandard   1,933    13,014        5,141        1,226    21,314 
Doubtful               53            53 
Loss                            
                                    
    Total   120,080    177,368    18,778    63,670    16,582    20,733    417,211 

 

 

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 

 

Substandard loans increased by $1.2 million, or 6.0%, while special mention loans have declined minimally from December 31, 2019 to March 31, 2020. Substandard loans increased from $20.1 million to $21.3 million from December 31, 2019, to March 31, 2020 while special mention loans decreased from $6.9 million to $6.6 million during this same period. During the first quarter of 2020, agricultural dairy loans amounting to $2.0 million to two separate borrowers were downgraded to substandard. Of that $2.0 million, $1.0 million was downgraded from special mention to substandard. Additionally, two residential mortgages totaling $1.2 million were downgraded to substandard.

 

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 March 31, 2020 and December 31, 2019:

13 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)    

 

March 31, 2020  1-4 Family
Residential
Mortgages
  Home Equity
Loans
  Home Equity
Lines of
Credit
  Consumer  Total
Payment performance:  $  $  $  $  $
                
Performing   259,318    10,649    68,623    5,547    344,137 
Non-performing   619    92    10    10    731 
                          
   Total   259,937    10,741    68,633    5,557    344,868 

 

 

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 March 31, 2020 and December 31, 2019:

 

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

         Greater         
   30-59 Days  60-89 Days  than 90  Total Past     Total Loans
March 31, 2020  Past Due  Past Due  Days  Due  Current  Receivable
   $  $  $  $  $  $
Commercial real estate                              
   Commercial mortgages   121        227    348    119,732    120,080 
   Agriculture mortgages   1,154        1,046    2,200    175,168    177,368 
   Construction                   18,778    18,778 
Consumer real estate                              
   1-4 family residential mortgages   1,029    186    619    1,834    258,103    259,937 
   Home equity loans   28    3    92    123    10,618    10,741 
   Home equity lines of credit   9        10    19    68,614    68,633 
Commercial and industrial                              
   Commercial and industrial           534    534    63,136    63,670 
   Tax-free loans                   16,582    16,582 
   Agriculture loans                   20,733    20,733 
Consumer   26    10    10    46    5,511    5,557 
       Total   2,367    199    2,538    5,104    756,975    762,079 

 

 

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

         Greater         
   30-59 Days  60-89 Days  than 90  Total Past     Total Loans
December 31, 2019  Past Due  Past Due  Days  Due  Current  Receivable
   $  $  $  $  $  $
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 
   Home equity loans   52        92    144    9,626    9,770 
   Home equity lines of credit   43        10    53    70,756    70,809 
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 
       Total   3,395    173    3,244    6,812    744,858    751,670 

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 March 31, 2020 and December 31, 2019:

 

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)  

   March 31,  December 31,
   2020  2019
   $  $
       
Commercial real estate          
  Commercial mortgages   227    228 
  Agriculture mortgages   1,046    1,070 
  Construction        
Consumer real estate          
  1-4 family residential mortgages   493    495 
  Home equity loans   92    92 
  Home equity lines of credit        
Commercial and industrial          
  Commercial and industrial   534    538 
  Tax-free loans        
  Agriculture loans        
Consumer        
             Total   2,392    2,423 

 

 

As of March 31, 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 months ended March 31, 2020 and March 31, 2019, is as follows:

 

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)

   Three Months Ended March 31,
   2020  2019
   $  $
       
Average recorded balance of impaired loans   3,937    2,697 
Interest income recognized on impaired loans   35    11 

 

 

There were no loan modifications made during the first quarter of 2020. There was one loan modification that occurred during the first quarter of 2019, constituting a troubled debt restructuring (TDR). A modification of the payment terms to a loan customer are considered a TDR if a concession was made to a borrower that is experiencing financial difficulty. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments.

 

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 that are being reported as TDRs. The balance of these three TDR loans was $1,949,000 as of March 31, 2020. One of these TDR loans with a balance of $439,000 is also on nonaccrual and is included under agricultural 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 March 31, 2020, and December 31, 2019:

 

IMPAIRED LOAN ANALYSIS            
(DOLLARS IN THOUSANDS)            
March 31, 2020  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
   $  $  $  $  $
                
With no related allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   720    763        723     
    Agriculture mortgages   1,879    1,909        1,894    24 
    Construction                    
Total commercial real estate   2,599    2,672        2,617    24 
                          
Commercial and industrial                         
    Commercial and industrial                    
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial                    
                          
Total with no related allowance   2,599    2,672        2,617    24 
                          
With an allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   92    100    49    92     
    Agriculture mortgages   677    677    12    692    5 
    Construction                    
Total commercial real estate   769    777    61    784    5 
                          
Commercial and industrial                         
    Commercial and industrial   534    549    53    536     
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   534    549    53    536     
                          
Total with a related allowance   1,303    1,326    114    1,320    5 
                          
Total by loan class:                         
Commercial real estate                         
    Commercial mortgages   812    863    49    815     
    Agriculture mortgages   2,556    2,586    12    2,586    29 
    Construction                    
Total commercial real estate   3,368    3,449    61    3,401    29 
                          
Commercial and industrial                         
    Commercial and industrial   534    549    53    536     
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   534    549    53    536     
                          
Total   3,902    3,998    114    3,937    29 

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 months ended March 31, 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 

 

 

During the three months ended March 31, 2020, management charged off $6,000 in loans while recovering $12,000 and added $350,000 to the provision. The unallocated portion of the allowance decreased from 4.7% of total reserves as of December 31, 2019, to 0.6% as of March 31, 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 three months ended March 31, 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 from COVID-19. 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 three months ended March 31, 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 first quarter of 2020 was slightly higher resulting in slightly more provision expense.

 

As of March 31, 2020, the Corporation’s total delinquencies were 0.67%, 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.

 

The Corporation reduced one qualitative factor for residential mortgages in the first quarter of 2020; this factor had been increased in the fourth quarter of 2019 because of higher delinquency. However, mortgage loan delinquency declined in the first quarter of 2020.  Delinquency among agriculture loans, excluding loans to dairy farmers, has continued to increase, and ended at 2.32% at March 31, 2020. A total of six agriculture loans were delinquent at this time.

 

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 had improved recently, COVID-19 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 three months ended March 31, 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 

 

 

During the three months ended March 31, 2019, management charged off $17,000 in loans while recovering $57,000 and added $180,000 to the provision. The growth in the loan portfolio was primarily responsible for the $180,000 of additional provision.

 

During the three months ended March 31, 2019, provision expenses were primarily recorded for the commercial real estate and commercial and industrial segments, while a credit provision was recorded in the consumer real estate segment due to very low historical loss experience. In the two quarters prior to the first quarter of 2019, management had adjusted the qualitative factors across the loan portfolio to better reflect the forward risk in each loan segment. This resulted in more provision expense being allocated to commercial real estate loans and less to residential real estate loans. While the Corporation had been experiencing more residential real estate growth than commercial real estate growth, when the performance of these respective borrowers declines, the potential for loan losses is more pronounced with commercial real estate loans. The impact of negative economic events is more volatile with commercial real estate loans. Supporting this conclusion, the Corporation’s level of delinquencies remained higher with commercial real estate loans than residential real estate loans. The Corporation’s commercial real estate and commercial and industrial loan provision allocations are also influenced by the levels of classified loans. For both of these categories the level of classified loans increased significantly since December 31, 2018, with commercial real estate increasing 31.7% and commercial and industrial increasing over four fold, but on a much smaller loan segment. This is what caused the Corporation to allocate $148,000 of provision expense to commercial real estate and $128,000 to commercial and industrial, while reducing consumer real estate by $140,000. The smallest out of all the loan segments is the unsecured consumer loan segment, where the $16,000 provision allocation was nearly a match to the $17,000 of consumer charge-offs that occurred in the first quarter of 2019.

 

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 March 31, 2020 and December 31, 2019:

 

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

 

As of March 31, 2020:  Commercial Real
Estate
  Consumer
Real Estate
  Commercial
and
Industrial
  Consumer  Unallocated  Total
   $  $  $  $  $  $
Allowance for credit losses:                              
Ending balance: individually evaluated                              
  for impairment   61        53            114 
Ending balance: collectively evaluated                              
  for impairment   4,521    3,151    1,903    56    58    9,689 
                               
Loans receivable:                              
Ending balance   316,226    339,311    100,985    5,557         762,079 
Ending balance: individually evaluated                              
  for impairment   3,368        534             3,902 
Ending balance: collectively evaluated                              
  for impairment   312,858    339,311    100,451    5,557         758,177 
                               
                               

 

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 

 

COVID-19 Loan Forbearance Programs

 

As of March 31, 2020, over 105 of the Corporation’s customers had requested payment deferrals or payments of interest only on loans totaling $17.4 million. 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.

 

Through April 30, 2020, the Corporation has modified an additional 150 loans totaling $46.6 million, which are primarily commercial loans. Therefore, including the loans modified in March, a total of $64.0 million of loans have had payments deferred under the COVID-19 guidance. Of the $64.0 million of loan balances with payments being deferred, $52.6 million, or 82.2% were in the form of commercial or agricultural loan deferments, with vast majority of these commercial loan deferrals. The remaining $11.4 million of loan balances with payments being deferred were in the form of residential mortgage deferrals. Nearly all of the COVID-19 loan payment deferrals were for a 90-day period.

 

21 

Index 

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

 

As of March 31, 2010, 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 second quarter of 2020, and will likely show further deterioration as the year progresses, depending 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. Therefore, it is likely the Corporation’s provision for loan losses would also increase over the next several quarters should the level of these credit measurements increase.

 

 

5. Fair Value Presentation

 

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

 

  Level I: Quoted prices are available in active markets for identical assets or liabilities as of the reported date.
     
  Level II: Pricing inputs are other than the quoted prices in active markets, which are either directly or indirectly observable as of the reported date.  The nature of these assets and liabilities includes items for which quoted prices are available but traded less frequently and items that are fair-valued using other financial instruments, the parameters of which can be directly observed.
     
  Level III: Assets and liabilities that have little to no observable pricing as of the reported date.  These items do not have two-way markets and are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment or estimation.

 

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

   March 31, 2020
   Level I  Level II  Level III  Total
   $  $  $  $
             
U.S. government agencies       10,528        10,528 
U.S. agency mortgage-backed securities       61,516        61,516 
U.S. agency collateralized mortgage obligations       56,621        56,621 
Asset-backed securities       27,115        27,115 
Corporate bonds       62,806        62,806 
Obligations of states & political subdivisions       101,982        101,982 
Equity securities   6,640            6,640 
                     
Total securities   6,640    320,568        327,208 

  

On March 31, 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 March 31, 2020, the CRA fund investments had a $6,113,000 book and fair market value and the bank stock portfolio had a book value of $734,000, and fair market value of $528,000.

22 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)

   December 31, 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.

 

23 

Index 

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

   March 31, 2020 
   Level I   Level II   Level III   Total 
   $   $   $   $ 
Assets:                    
Impaired Loans  $   $   $3,788   $3,788 
Total  $   $   $3,788   $3,788 

 

 

   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 $3,902,000 of impaired loans as of March 31, 2020, with $114,000 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.

24 

Index 

ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)    

  March 31, 2020
  Fair Value Valuation Unobservable Range
  Estimate Techniques Input (Weighted Avg)
         
Impaired loans         3,788 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 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

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

 

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

(DOLLARS IN THOUSANDS)

   March 31, 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   23,412    23,412    23,412         
Regulatory stock   7,222    7,222    7,222         
Loans held for sale   2,419    2,419    2,419         
Loans, net of allowance   754,317    759,337            759,337 
Mortgage servicing assets   691    691            691 
Accrued interest receivable   3,792    3,792    3,792         
Bank owned life insurance   29,012    29,012    29,012         
                          
Financial Liabilities:                         
Demand deposits   363,766    363,766    363,766         
Interest-bearing demand deposits   28,479    28,479    28,479         
NOW accounts   95,604    95,604    95,604         
Money market deposit accounts   140,781    140,781    140,781         
Savings accounts   222,241    222,241    222,241         
Time deposits   131,981    135,159            135,159 
     Total deposits   982,852    986,030    850,871        135,159 
                          
Short-term borrowings   3,500    3,500    3,500         
Long-term debt   71,531    68,375            68,375 
Accrued interest payable   485    485    485         

 

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         

 

 

7.       Commitments and Contingent Liabilities

 

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of March 31, 2020, firm loan commitments were $69.7 million, unused lines of credit were $276.1 million, and open letters of credit were $8.7 million. The total of these commitments was $354.5 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 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

8. Accumulated Other Comprehensive Income (Loss)

 

The activity in accumulated other comprehensive income (loss) for the three months ended March 31, 2020 and 2019 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, 2019   1,600 
  Other comprehensive loss before reclassifications   (274)
  Amount reclassified from accumulated other comprehensive income (loss)   (223)
Period change   (497)
      
Balance at March 31, 2020   1,103 
      
Balance at December 31, 2018   (5,678)
  Other comprehensive income before reclassifications   2,553 
  Amount reclassified from accumulated other comprehensive income (loss)   (64)
Period change   2,489 
      
Balance at March 31, 2019   (3,189)

 

(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.

 

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

(DOLLARS IN THOUSANDS)        

 

  Amount Reclassified from    
  Accumulated Other Comprehensive    
  Income (Loss)    
  For the Three Months    
  Ended March 31,    
  2020 2019   Affected Line Item in the
  $ $   Consolidated Statements of Income
Securities available-for-sale:        
  Net securities gains, 282 81   Gains on the sale of
           reclassified into earnings              debt securities, net
     Related income tax expense (59) (17)   Provision for federal income taxes
  Net effect on accumulated other comprehensive        
     income (loss) for the period 223 64    

 

(1) Amounts in parentheses indicate debits.        

28 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

9. 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.

 

Lease Consolidated Balance Sheets Classification      
(Dollars in Thousands)  Classification  March 31, 2020
 Lease Right-of-Use Assets        
         
    Operating lease right-of use assets  Other Assets  $864 
         
 Lease Liabilities        
    Operating lease liabilties  Other Liabilities  $872 

 

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.

 

   March 31, 2020
Weighted-average remaining lease term     
    Operating leases   5.1 years
 Weighted-average discount rate     
    Operating leases   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 March 31, 2020 were as follows:

29 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

Lease Payment Schedule   
(Dollars in Thousands)  Operating Leases
Twelve Months Ended:     
    March 31, 2021  $202 
    March 31, 2022   206 
    March 31, 2023   155 
    March 31, 2024   154 
    March 31, 2025   155 
Thereafter   74 
Total Future Minimum Lease Payments   946 
Amounts Representing Interests   (74)
Present Value of Net Future Minimum Lease Payments  $872 

 

10. 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.

 

 

11. Subsequent Events

 

Paycheck Protection Program (PPP)

 

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

 

In terms of qualifying for a PPP loan, an eligible business 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 75% of the loan proceeds are used for payroll expenses, with the remaining 25% 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 April 30, 2020, the Corporation had approved and originated 618 PPP loans totaling $68,848,000. Management’s focus has been to serve the customers and market area that the Corporation serves. Management believes the Corporation’s total PPP loan funding will reach $78.0 million when the second round of PPP funding is exhausted.

 

In accordance with the SBA terms and conditions on these PPP loans, the Corporation expects to receive approximately $3.1 million in fees associated with the processing of these loans. The Corporation is awaiting guidance from the SBA on how to submit the required reporting to support the amount of fee income expected to be received. It is anticipated that this reporting will occur in June of 2020, followed by a period of time to process this reporting. When the Corporation does eventually receive this fee income it will be deferred over the expected life of the loans. To this regard, the financial community is also waiting on further accounting guidance as to how this fee income will be recognized. While the PPP loans have a two-year maturity, 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.

 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

12. Recently Issued Accounting Standards

 

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments, which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13 is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative effect adjustment to opening retained earnings as of the beginning of the first reporting period in which the guidance is adopted. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective, but cannot yet determine the magnitude of any such one-time adjustment or the overall impact of the new guidance on the consolidated financial statements.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework – Changes the Disclosure Requirements for Fair Value Measurements. The Update removes the requirement to disclose the amount of and reasons for transfers between Level I and Level II of the fair value hierarchy; the policy for timing of transfers between levels; and the valuation processes for Level III fair value measurements. The Update requires disclosure of changes in unrealized gains and losses for the period included in other comprehensive income (loss) for recurring Level III fair value measurements held at the end of the reporting period and the range and weighted average of significant unobservable inputs used to develop Level III fair value measurements. This Update is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In April 2019, the FASB issued ASU 2019-04, Codification Improvements to Topic 326, Financial Instruments – Credit Losses, Topic 815, Derivatives and Hedging, and Topic 825, Financial Instruments, which affects a variety of topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance. Topic 326, Financial Instruments – Credit Losses amendments are effective for SEC registrants for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all other public business entities, the effective date is for fiscal years beginning after December 15, 2020, and for all other entities, the effective date is for fiscal years beginning after December 15, 2021. On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. Topic 815, Derivatives and Hedging amendments are effective for public business entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2019, and interim periods beginning after December 15, 2020. For entities that have adopted the amendments in Update 2017-12, the effective date is as of the beginning of the first annual period beginning after the issuance of this Update. Topic 825, Financial Instruments amendments are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

In May 2019, the FASB issued ASU 2019-05, Financial Instruments – Credit Losses, Topic 326, which allows entities to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost upon adoption of the new credit losses standard. To be eligible for the transition election, the existing financial asset must otherwise be both within the scope of the new credit losses standard and eligible for the applying the fair value option in ASC 825-10.3. The election must be applied on an instrument-by-instrument basis and is not available for either available-for-sale or held-to-maturity debt securities. For entities that elect the fair value option, the difference between the carrying amount and the fair value of the financial asset would be recognized through a cumulative-effect adjustment to opening retained earnings as of the date an entity adopted ASU 2016-13. Changes in fair value of that financial asset would subsequently be reported in current earnings. For entities that have not yet adopted ASU 2016-13, the effective dates and transition requirements are the same as those in ASU 2016-13. For entities that have adopted ASU 2016-13, ASU 2019-05 is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted once ASU 2016-13 has been adopted On October 16, 2019, the FASB voted to defer the effective date for ASC 326, Financial Instruments – Credit Losses, for smaller reporting companies to fiscal years beginning after December 15, 2022, and interim periods within those fiscal years.  The final ASU is expected to be issued in mid-November. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization, and Miscellaneous Updates. This ASU amends various SEC paragraphs pursuant to the issuance of SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization. Other miscellaneous updates to agree to the electronic Code of Federal Regulations also have been incorporated.

 

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

 

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740), to simplify the accounting for income taxes, change the accounting for certain tax transactions, and make minor improvements to the codification. This Update provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax and provides guidance to evaluate whether a step-up in tax basis of goodwill relates to a business combination in which book goodwill was recognized or was a separate transaction. The Update also changes current guidance for making an intraperiod allocation if there is a loss in continuing operations and gains outside of continuing operations, determining when a deferred tax liability is recognized after an investor in a foreign entity transitions to or from the equity method of accounting, accounting for tax law changes and year-to-date losses in interim periods, and determining how to apply the income tax guidance to franchise taxes that are partially based on income. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In January 2020, the FASB issued ASU 2020-2, Financial Instruments – Credit Losses (Topic 326) and Leases (Topic 842): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 119 and Update to SEC Section on Effective Date Related to Accounting Standards Update No. 2016-02, Leases (Topic 842), February 2020, to add and amend SEC paragraphs in the Accounting Standards Codification to reflect the issuance of SEC Staff Accounting Bulletin No. 119, related to the new credit losses standard, and comments by the SEC staff related to the revised effective date of the new leases standard. This ASU is effective upon issuance. This did not have a significant impact on the Corporation’s financial statements.

 

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ENB FINANCIAL CORP
Notes to the Unaudited Consolidated Interim Financial Statements

In March 2020, the FASB issued ASU 2020-3, Codification Improvements to Financial Instruments. This ASU was issued to improve and clarify various financial instruments topics, including the current expected credit losses (CECL) standard issued in 2016. The ASU includes seven issues that describe the areas of improvement and the related amendments to GAAP; they are intended to make the standards easier to understand and apply and to eliminate inconsistencies, and they are narrow in scope and are not expected to significantly change practice for most entities. Among its provisions, the ASU clarifies that all entities, other than public business entities that elected the fair value option, are required to provide certain fair value disclosures under ASC 825, Financial Instruments, in both interim and annual financial statements. It also clarifies that the contractual term of a net investment in a lease under Topic 842 should be the contractual term used to measure expected credit losses under Topic 326. Amendments related to ASU 2019-04 are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is not permitted before an entity’s adoption of ASU 2016-01. Amendments related to ASU 2016-13 for entities that have not yet adopted that guidance are effective upon adoption of the amendments in ASU 2016-13. Early adoption is not permitted before an entity’s adoption of ASU 2016-13. Amendments related to ASU 2016-13 for entities that have adopted that guidance are effective for fiscal years beginning after December 15, 2019, including interim periods within those years. Other amendments are effective upon issuance of this ASU. The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial position or results of operations.

 

In January 2020, the FASB issued ASU 2020-4, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, March 2020, to provide temporary optional expedients and exceptions to the U.S. GAAP guidance on contract modifications and hedge accounting to ease the financial reporting burdens of the expected market transition from LIBOR and other interbank offered rates to alternative reference rates, such as Secured Overnight Financing Rate. Entities can elect not to apply certain modification accounting requirements to contracts affected by what the guidance calls reference rate reform, if certain criteria are met. An entity that makes this election would not have to remeasure the contracts at the modification date or reassess a previous accounting determination. Also, entities can elect various optional expedients that would allow them to continue applying hedge accounting for hedging relationships affected by reference rate reform, if certain criteria are met, and can make a one-time election to sell and/or reclassify held-to-maturity debt securities that reference an interest rate affected by reference rate reform. The amendments in this ASU are effective for all entities upon issuance through December 31, 2022. It is too early to predict whether a new rate index replacement and the adoption of the ASU will have a material impact on the Corporation’s financial statements.

 

 

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ENB FINANCIAL CORP
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 2019 Annual Report to Shareholders of the Corporation. The financial condition and results of operations presented are not indicative of future performance.

 

Forward-Looking Statements

 

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

 

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

 

 

·National and local economic conditions
· Effects of economic conditions particularly with regard to the negative impact of severe and wide-ranging disruptions caused by the spread of coronavirus (COVID-19), specifically the effect on loan customers to repay loans
·Health of the housing market
·Real estate valuations and its impact on the loan portfolio
·Interest rate and monetary policies of the Federal Reserve Board
·Volatility of the securities markets including the valuation of securities
·Future actions or inactions of the United States government, including a failure to increase the government debt limit or a prolonged shutdown of the federal government
·Political changes and their impact on new laws and regulations
·Competitive forces
·Impact of mergers and acquisition activity in the local market and the effects thereof
·Potential impact from continually evolving cybersecurity and other technological risks and attacks, including additional costs, reputational damage, regulatory penalties, and financial losses
·Changes in customer behavior impacting deposit levels and loan demand
·Changes in accounting principles, policies, or guidelines as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standards setters
·Ineffective business strategy due to current or future market and competitive conditions
·Management’s ability to manage credit risk, liquidity risk, interest rate risk, and fair value risk
·Operation, legal, and reputation risk
·Results of the regulatory examination and supervision process
·The impact of new laws and regulations
·Possible changes to the capital and liquidity requirements and other regulatory pronouncements, regulations and rules
·Large scale global disruptions such as pandemics, terrorism, trade wars, and armed conflict.
·Local disruptions due to flooding, severe weather, or other natural disasters
·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

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ENB FINANCIAL CORP
Management’s Discussion and Analysis

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

 

Results of Operations

 

Overview

 

The first quarter of 2020 was impacted by a number of unprecedented items caused by the onset of the COVID-19 pandemic. The spread of COVID-19 quickly became global and impacted the global economy. This impact was felt rather quickly due to China’s large role in the world economy, second in GDP but first in terms of supply chain impact for basic goods. The immediate impact and forward risk posed by the pandemic caused the Federal Reserve to take the unusual step of reducing the Federal Funds rate by 50 basis points to 1.25% on March 3, 2020, at a special Fed meeting ahead of the regularly scheduled March 18, 2020 meeting. On March 11, 2020, the World Health Organization (WHO) recognized COVID-19 as a pandemic. The quick further expansion of the pandemic then caused the Federal Reserve to take an unprecedented step of a second special meeting on Sunday afternoon of March 15, 2020, to further reduce the Federal Funds rate 100 basis points to 0.25%. This importantly gave all banks easy access to very cheap funds. On March 15, 2020, the Fed also reduced the Discount Window rate by 150 basis points which took this rate down to 0.25%. This move took the Federal Funds rate to the same historic low of 0.25% that occurred due to the Financial Crisis of 2008. On March 16, 2020, the Fed also announced that they will take steps to inject more liquidity into the financial system by purchasing up to $500 billion of U.S. Treasuries and $200 billion of mortgage-backed securities. All major stock exchanges experienced dramatic sell-offs. The DOW which had peaked at 29,568 in February, closed on Friday, March 20, 2020 at 19,174, down 10,394 points, or 35%. NASDAQ was down 30%, while the S&P 500 was down 32%. Closer to home, as COVID-19 spread and has impacted every state with confirmed cases, Pennsylvania’s cases spread to 100 by March 19, 2020, when Governor Wolf announced the required closing of all non-essential businesses. These closures will cause further economic impact that will be long lasting. The U.S. Government worked on a massive Coronavirus Relief Bill that included direct small business aid for employers with fewer than 500 employees; direct deposit stimulus payments to American households; enhanced unemployment compensation benefits; and direct aid to hospitals and health care providers.

 

The economic impact of COVID-19 had an impact on first quarter results for the Corporation, but will have much more measurable results as the year progresses. The Corporation recorded net income of $2,165,000 for the three-month period ended March 31, 2020, a 16.8% decrease from the $2,603,000 earned during the same period in 2019. The earnings per share, basic and diluted, were $0.38 for the three months ended March 31, 2020, compared to $0.46 for the same period in 2019, a 17.4% decrease. The decrease in the Corporation’s 2020 earnings was caused primarily by an increase in operating expenses, an increase in the provision for loan losses, and higher-than-normal amortization on mortgage servicing assets.

 

The Corporation’s NII increased by $233,000, or 2.6%, for the three months ended March 31, 2020, compared to the same period in 2019. The increase in NII primarily resulted from an increase in interest and fees on loans of $429,000, or 5.3%, for the first quarter of 2020, compared to the first quarter of the prior year. The increase in interest and fees on loans was partially offset by a decrease of $135,000, or 7.0%, on interest earned on securities. Additionally, the Corporation’s interest expense on deposits and borrowings increased by $92,000, or 7.8%, for the three-month period ended March 31, 2020, compared to 2019. This increase was primarily driven by approximately $50,000 of prepayment penalties on FHLB advances that were taken in order to position the Corporation with lower-rate advances going forward.

 

The Corporation recorded a $170,000 additional provision expense in the first quarter of 2020 compared to the same quarter of 2019, with $350,000 of provision compared to $180,000 of provision for the first quarter of 2019. The gains from the sale of debt securities were $282,000 for the three months ended March 31, 2020, compared to gains of $81,000 for the first quarter of 2019. Market interest rates were lower in 2020, making it more conducive to achieving gains from the sale of securities. There were unrealized losses of $230,000 on the Corporation’s portfolio of equity securities that consists of stocks held in other banks. This loss flows through the income statement and was the result of the devaluation of bank stocks given the economic environment that began with the COVID-19 pandemic. For the first quarter of 2019, there was an unrealized gain of $17,000 on this portfolio, resulting in a negative impact to income of $247,000 for the first quarter of 2020 compared to the prior year. The gain on the sale of mortgages increased by $192,000, or 55.0%, for the three-month period ended March 31, 2020, compared to the prior year’s period. The volume of mortgages sold was higher during the first three months of 2020 compared to the same period in the prior year due to the very low interest rate environment. Total operating expenses increased by $828,000, or 10.0%, for the three months ended March 31, 2020, compared to the same period in 2019. This increase was primarily driven by a $508,000, or 9.8%, increase in salaries and benefits caused by a performance bonus paid out in the first quarter of 2020 that resulted in additional expense of approximately $205,000. Outside of this performance bonus, first quarter salaries and benefit expense would have increased by $303,000, or 5.8%.

 

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ENB FINANCIAL CORP
Management’s Discussion and Analysis

The financial services industry uses two primary performance measurements to gauge performance: return on average assets (ROA) and return on average equity (ROE). ROA measures how efficiently a bank generates income based on the amount of assets or size of a company. ROE measures the efficiency of a company in generating income based on the amount of equity or capital utilized. The latter measurement typically receives more attention from shareholders. The ROA and ROE decreased for the three months ended March 31, 2020, compared to the same period in the prior year due primarily to lower earnings.