ENB Financial Corp - FORM 10-Q

Attached files

file	filename
EX-32.1 - EXHIBIT 32.1 - ENB Financial Corp	ex32_1.htm
EX-31.2 - EXHIBIT 31.2 - ENB Financial Corp	ex31_2.htm
EX-32.2 - EXHIBIT 32.2 - ENB Financial Corp	ex32_2.htm
EX-31.1 - EXHIBIT 31.1 - ENB Financial Corp	ex31_1.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2011

£ 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

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 T No £

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

Yes £ No £

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

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

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

Yes £ No T

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 11, 2011, the registrant had 2,858,213 shares of $0.20 (par) Common Stock outstanding.

Index

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

March 31, 2011

Part I – FINANCIAL INFORMATION

	Item 1.	Financial Statements

	Consolidated Balance Sheets at March 31, 2011 and 2010 and December 31, 2010 (Unaudited)		3

	Consolidated Statements of Income for the Three Months Ended March 31, 2011 and 2010 (Unaudited)		4

	Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2011 and 2010 (Unaudited)		5

	Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and 2010 (Unaudited)		6

	Notes to the Unaudited Consolidated Interim Financial Statements		7-24

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25-51

	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52-55

	Item 4.	Controls and Procedures	55

	Item 4T.	Controls and Procedures	55


Part II – OTHER INFORMATION			56

	Item 1.	Legal Proceedings	56

	Item 1A.	Risk Factors	56

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	56

	Item 3.	Defaults Upon Senior Securities	56

	Item 4.	(Removed and Reserved)	56

	Item 5.	Other Information	56

	Item 6.	Exhibits	57

SIGNATURE PAGE			58

EXHIBIT INDEX			59

Index

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENB Financial Corp
Consolidated Balance Sheets (Unaudited)

	March 31,			December 31,			March 31,
	2011			2010			2010
(Dollars in thousands, except share data)	$			$			$
ASSETS
Cash and due from banks		9,801			9,388			10,372
Intererest-bearing deposits in other banks		23,948			16,838			4,016
Federal funds sold		-			3,000			7,025

Total cash and cash equivalents		33,749			29,226			21,413

Securities available for sale (at fair value)		254,807			259,138			243,006

Loans held for sale		376			771			535

Loans (net of unearned income)		423,297			415,234			436,525

Less: Allowance for loan losses		7,583			7,132			6,214

Net loans		415,714			408,102			430,311

Premises and equipment, net		20,420			20,487			21,064

Regulatory stock		4,455			4,680			4,916

Bank owned life insurance		16,045			15,891			15,404

Other assets		10,000			9,474			10,865

Total assets		755,566			747,769			747,514

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
Deposits:
Noninterest-bearing		140,342			131,534			123,653
Interest-bearing		454,509			464,060			467,481

Total deposits		594,851			595,594			591,134

Long-term debt		82,000			74,500			80,000
Other liabilities		3,251			3,442			4,542

Total liabilities		680,102			673,536			675,676

Stockholders' equity:
Common stock, par value $0.20;
Shares: Authorized 12,000,000
Issued 2,869,557 and Outstanding 2,858,213
(Issued 2,869,557 and Outstanding 2,856,039 as of 12-31-10)
(Issued 2,869,557 and Outstanding 2,842,758 as of 3-31-10)		574			574			574
Capital surplus		4,315			4,325			4,396
Retained earnings		70,238			69,226			66,399
Accumulated other comprehensive income, net of tax		614			442			1,142
Less: Treasury stock shares at cost 11,344 (13,518 shares
as of 12-31-10 and 26,799 shares as of 3-31-10)		(277	)		(334	)		(673	)

Total stockholders' equity		75,464			74,233			71,838

Total liabilities and stockholders' equity		755,566			747,769			747,514

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

ENB Financial Corp

Consolidated Statements of Income (Unaudited)

Periods Ended March 31, 2011 and 2010

	Three Months
	2011			2010
(Dollars in thousands, except share data)	$			$
Interest and dividend income:

Interest and fees on loans		5,441			5,588
Interest on securities available for sale
Taxable		1,500			1,932
Tax-exempt		862			601
Interest on federal funds sold		5			2
Dividend income		35			31

Total interest and dividend income		7,843			8,154

Interest expense:
Interest on deposits		1,434			1,927
Interest on short-term borrowings		-			1
Interest on long-term debt		762			883

Total interest expense		2,196			2,811

Net interest income		5,647			5,343

Provision for loan losses		450			450

Net interest income after provision for loan losses		5,197			4,893

Other income:
Trust and investment services income		278			287
Service fees		430			544
Commissions		425			353
Gains on securities transactions, net		484			208
Impairment losses on securities:
Impairment losses on investment securities		(923	)		(876	)
Non-credit related losses on securities not expected
to be sold in other comprehensive income before tax		776			827
Net impairment losses on investment securities		(147	)		(49	)
Gains on sale of mortgages		54			15
Earnings on bank owned life insurance		146			147
Other		110			176

Total other income		1,780			1,681

Operating expenses:
Salaries and employee benefits		2,852			2,692
Occupancy		411			407
Equipment		196			208
Advertising & marketing		71			112
Computer software & data processing		386			363
Bank shares tax		208			191
Professional services		301			370
FDIC Insurance		222			168
Other		359			342

Total operating expenses		5,006			4,853

Income before income taxes		1,971			1,721

Provision for federal income taxes		274			253

Net income		1,697			1,468

Earnings per share of common stock		0.59			0.52

Cash dividends paid per share		0.24			0.24

Weighted average shares outstanding		2,855,760			2,839,425

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

ENB Financial Corp

Consolidated Statements of Comprehensive Income (Unaudited)

Three Months Ended March 31, 2011 and 2010

	Three Months
	2011			2010
(Dollars in thousands)	$			$

Net income		1,697			1,468

Other comprehensive income arising during the period		598			2,280

Reclassification adjustment for gains realized in income		(484	)		(208	)

Reclassification adjustment for other-than-temporary impairment
losses realized in income		147			49

Other comprehensive income before tax		261			2,121

Income taxes related to comprehensive income		89			721

Other comprehensive income		172			1,400

Comprehensive income		1,869			2,868

Index

ENB Financial Corp

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLARS IN THOUSANDS)	Three Months Ended March 31,
	2011			2010
	$			$
Cash flows from operating activities:
Net income		1,697			1,468
Adjustments to reconcile net income to net cash
provided by operating activities:
Net amortization of securities and loan fees		491			309
Increase in interest receivable		(342	)		(145	)
Decrease in interest payable		(123	)		(41	)
Provision for loan losses		450			450
Gains on securities transactions		(484	)		(208	)
Impairment losses on securities		147			49
Gains on sale of mortgages		(54	)		(15	)
Loans originated for sale		(3,872	)		(1,487	)
Proceeds from sales of loans		4,321			1,146
Earnings on bank-owned life insurance		(146	)		(147	)
Depreciation of premises and equipment and amortization of software		343			338
Deferred income tax		(57	)		(143	)
Decrease in federal deposit insurance		204			151
Other assets and other liabilities, net		(553	)		(639	)
Net cash provided by operating activities		2,022			1,086

Cash flows from investing activities:
Securities available for sale:
Proceeds from maturities, calls, and repayments		16,117			15,981
Proceeds from sales		22,240			10,180
Purchases		(33,923	)		(30,880	)
Redemptions of regulatory bank stock		225			-
Purchase of bank-owned life insurance		(8	)		(9	)
Net increase in loans		(8,058	)		(9,231	)
Purchases of premises and equipment		(201	)		(478	)
Purchase of computer software		(10	)		(68	)
Net cash used in investing activities		(3,618	)		(14,505	)

Cash flows from financing activities:
Net increase in demand, NOW, and savings accounts		11,008			11,721
Net increase (decrease) in time deposits		(11,751	)		9,470
Proceeds from long-term debt		7,500			5,000
Repayments of long-term debt		-			(7,500	)
Dividends paid		(685	)		(681	)
Treasury stock sold		104			75
Treasury stock purchased		(57	)		-
Net cash provided by financing activities		6,119			18,085
Increase in cash and cash equivalents		4,523			4,666
Cash and cash equivalents at beginning of period		29,226			16,747
Cash and cash equivalents at end of period		33,749			21,413

Supplemental disclosures of cash flow information:
Interest paid		2,319			2,852
Income taxes paid		300			350

Supplemental disclosure of non-cash investing and financing activities:
Net transfer of other real estate owned held for sale from loans		-			429
Fair value adjustments for securities available for sale		261			2,121

See Notes to the Unaudited Consolidated Interim Financial Statements

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

1.	Basis of Presentation

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

ENB Financial Corp (“the Corporation”) is the bank holding company for Ephrata National Bank (the “Bank”), which is a wholly-owned subsidiary of ENB Financial Corp. This Form 10-Q, for the first quarter of 2011, is reporting on the results of operations and financial condition of ENB Financial Corp.

Operating results for the three months ended March 31, 2011, are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. 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, 2010.

2.	Securities Available for Sale

The amortized cost and fair value of securities held at March 31, 2011, and December 31, 2010, are as follows:
			Gross		Gross
(DOLLARS IN THOUSANDS)	Amortized		Unrealized		Unrealized			Fair
	Cost		Gains		Losses			Value
	$		$		$			$
March 31, 2011
U.S. treasuries & government agencies		46,555		991		(46	)		47,500
U.S. agency mortgage-backed securities		39,498		684		(231	)		39,951
U.S. agency collateralized mortgage obligations		58,728		582		(343	)		58,967
Private collateralized mortgage obligations		12,368		141		(776	)		11,733
Corporate bonds		13,738		241		(73	)		13,906
Obligations of states and political subdivisions		78,990		846		(967	)		78,869
Total debt securities		249,877		3,485		(2,436	)		250,926
Marketable equity securities		4,000		-		(119	)		3,881
Total securities available for sale		253,877		3,485		(2,555	)		254,807

December 31, 2010
U.S. treasuries & government agencies		46,701		1,310		(125	)		47,886
U.S. agency mortgage-backed securities		38,201		844		(207	)		38,838
U.S. agency collateralized mortgage obligations		64,713		886		(206	)		65,393
Private collateralized mortgage obligations		12,900		132		(1,220	)		11,812
Corporate bonds		11,749		234		(74	)		11,909
Obligations of states and political subdivisions		80,204		602		(1,405	)		79,401
Total debt securities		254,468		4,008		(3,237	)		255,239
Marketable equity securities		4,000		-		(101	)		3,899
Total securities available for sale		258,468		4,008		(3,338	)		259,138

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The amortized cost and fair value of debt securities available for sale at March 31, 2011, 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		33,312		33,578
Due after one year through five years		82,950		84,030
Due after five years through ten years		62,506		62,729
Due after ten years		71,109		70,589
Total debt securities		249,877		250,926

Securities available for sale with a par value of $65,785,000 and $66,801,000 at March 31, 2011, and December 31, 2010, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $69,811,000 at March 31, 2011, and $70,718,000 at December 31, 2010.

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,
	2011		2010
	$		$

Proceeds from sales		22,240		10,180
Gross realized gains		577		211
Gross realized losses		93		3

SUMMARY OF GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)

	Three Months Ended March 31,
	2011		2010
	$		$

Gross realized gains		577		211

Gross realized losses		93		3
Impairment on securities		147		49

Total gross realized losses		240		52

Net gains on securities		337		159

The bottom portion of the above chart shows the net gains on security transactions, including any impairment taken on securities held by the Corporation. Unlike the sale of a security, impairment is a write-down of the book value of the security which produces a loss and does not provide any proceeds. The net gain or loss from security transactions is also reflected on the Corporation’s consolidated income statements and consolidated statements of cash flows.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Management evaluates all of the Corporation’s securities for other than temporary impairment (OTTI) on a periodic basis. As of March 31, 2011, four private collateralized mortgage obligations (PCMO) were considered to be other-than-temporarily impaired, and the cash flow analysis on all four of these securities indicated a need to take impairment charges. These four securities were written down by a cumulative total of $147,000 as of March 31, 2011. As of December 31, 2010, four PCMOs were considered to be other-than-temporarily impaired. Of these four securities only two had impairment taken during 2010 in the amount of $393,000. Cumulative impairment on the four PCMO securities deemed impaired as of December 31, 2010, was $732,000. Information pertaining to securities with gross unrealized losses at March 31, 2011, and December 31, 2010, 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, 2011
U.S. treasuries & government agencies		5,954		(46	)		-		-			5,954		(46	)
U.S. agency mortgage-backed securities		15,672		(231	)		-		-			15,672		(231	)
U.S. agency collateralized mortgage obligations		18,565		(343	)		-		-			18,565		(343	)
Private collateralized mortgage obligations		-		-			7,471		(776	)		7,471		(776	)
Corporate bonds		5,483		(73	)		-		-			5,483		(73	)
Obligations of states & political subdivisions		32,060		(864	)		3,553		(103	)		35,613		(967	)

Total debt securities		77,734		(1,557	)		11,024		(879	)		88,758		(2,436	)

Marketable equity securities		-		-			1,881		(119	)		1,881		(119	)

Total temporarily impaired securities		77,734		(1,557	)		12,905		(998	)		90,639		(2,555	)

As of December 31, 2010
U.S. treasuries & government agencies		5,904		(125	)		-		-			5,904		(125	)
U.S. agency mortgage-backed securities		16,331		(207	)		-		-			16,331		(207	)
U.S. agency collateralized mortgage obligations		21,256		(206	)		-		-			21,256		(206	)
Private collateralized mortgage obligations		-		-			7,377		(1,220	)		7,377		(1,220	)
Corporate bonds		4,588		(74	)		-		-			4,588		(74	)
Obligations of states & polititcal subdivisions		42,453		(1,294	)		3,568		(111	)		46,021		(1,405	)

Total debt securities		90,532		(1,906	)		10,945		(1,331	)		101,477		(3,237	)

Marketable equity securities		-		-			1,899		(101	)		1,899		(101	)

Total temporarily impaired securities		90,532		(1,906	)		12,844		(1,432	)		103,376		(3,338	)

In the debt security portfolio, there are 100 positions that are considered temporarily impaired at March 31, 2011. Of those 100 positions, four PCMOs were the only instruments considered other-than-temporarily impaired at March 31, 2011.

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

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

income. The adoption of this provision was only applicable to four of the Corporation’s PCMOs since these instruments were the only instruments management deemed to be other-than-temporarily impaired.

The Corporation recorded $147,000 of impairment in the first quarter of 2011 on four PCMOs. Impairment was first recorded in 2009 for a total of $339,000 on two PCMO securities which are currently impaired. Additional impairment was recorded in 2010 for a total of $393,000 on the same two PCMO securities. During 2010, one PCMO security was sold that had $30,000 of cumulative impairment. During the first quarter of 2011, there was an additional $147,000 of impairment recorded on four PCMO securities, consisting of two PCMO securities currently identified as other than temporarily impaired, as well as the same two securities previously impaired. With the 2011 impairment, a cumulative total of $879,000 of impairment has been recorded on a total of four PCMO securities currently held.

The impairment on the PCMOs is a result of a deterioration of expected cash flows on these securities due to higher foreclosure and severity rates indicating expected principal losses in excess of the remaining credit protection on these instruments. Management tested the bonds and determined that it is likely that five of the six PCMOs will continue to pay an average of 8 constant prepayment rate (CPR) or higher. An 8 CPR speed means that eight percent of the principal would be expected to prepay in one year’s time. One PCMO is projected to pay an average of 15 CPR. The average CPR speed for the five PCMOs from March 31, 2010, to March 31, 2011, was 9.6 CPR while the sixth PCMO was paying at 15.1 CPR. Based on the historical, current, and expected prepayment speeds, management determined that it was appropriate to take additional impairment on four PCMOs in the first quarter of 2011 based on expected principal losses at the expected future speeds of 8 CPR and 15 CPR.

The following table summarizes the cumulative roll-forward of credit losses on the Corporation’s other-than-temporarily impaired PCMOs recorded in earnings, for which a portion was also recognized as a component of other comprehensive income for the three months ended March 31, 2011, and March 31, 2010:

CREDIT LOSSES ON OTHER-THAN-TEMPORARILY IMPAIRED SECURITIES

(DOLLARS IN THOUSANDS)

	2011		2010
	$		$

Balance as of January 1st		732		369

Additional credit losses on debt securities for which other-
than-temporary impairment was previously recognized		147		49

Balance as of March 31st		879		418

The following table reflects the book value, market value, and unrealized loss as of March 31, 2011, on the four PCMO securities held which had impairment taken in 2011. The values shown are after the Corporation recorded year-to-date impairment charges of $147,000 through March 31, 2011. The $147,000 is deemed to be a credit loss and is the amount that management expects the principal loss will be by the time these four securities mature. The remaining $776,000 of unrealized losses is deemed to be a market value loss that is considered temporary. Prior to the impairment charge, these four securities had unrealized losses of $923,000.

SECURITY IMPAIRMENT CHARGES

(DOLLARS IN THOUSANDS)

								Year-to-Date
	As of March 31, 2011							2011
	Book		Market		Unrealized			Impairment
	Value		Value		Loss			Charge
	$		$		$			$

Private collateralized mortgage obligations		8,247		7,471		(776	)		(147	)

Recent market conditions throughout the financial sector have made the evaluation regarding the possible impairment of PCMOs difficult to fully determine given the volatility of their pricing, based not only on interest rate changes, but collateral uncertainty as well. The Corporation’s MBS and CMO holdings are backed by the U.S. government, and therefore, experience significantly less volatility and uncertainty than the PCMO securities. The

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Corporation’s PCMO holdings make up a minority of the total MBS, CMO, and PCMO securities held. As of March 31, 2011, on an amortized cost basis, PCMOs accounted for 11.2% of the Corporation’s total MBS, CMO, and PCMO holdings, compared to 11.1% as of December 31, 2010. As of March 31, 2011, six PCMOs were held with two of the six rated AAA by either Moody’s or S&P. The remaining four securities were rated below investment grade. Impairment charges, as detailed above, were taken on four of these securities during 2011. Management conducts impairment analysis on a quarterly basis and currently has no plans to sell these securities as cash flow analysis performed under severe stress testing does not indicate a need to take further impairment on the bonds that are considered impaired and does not show principal losses on the three bonds that are not deemed as impaired. The unrealized loss position of all of the Corporation’s PCMOs has significantly improved since December 31, 2010. The PCMO net unrealized losses stood at $1.1 million as of December 31, 2010, and improved to a $635,000 net unrealized loss as of March 31, 2011. Two of the six PCMOs are carrying unrealized gains. Management has concluded that, as of March 31, 2011, the unrealized losses outlined in the above table represent temporary declines. The Corporation does not intend to sell, and does not believe it will be required to sell these securities before recovery of their cost basis, which may be at maturity.

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

3.	Loans and Allowance for Loan Losses

The following tables present the Corporation’s loan portfolio by category of loans as of March 31, 2011, and December 31, 2010, and the summary of the allowance for loan losses for the first quarters of 2011 and 2010.

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)

	March 31,		December 31,
	2011		2010
	$		$
Commercial real estate
Commercial mortgages		101,969		96,256
Agriculture mortgages		65,820		60,513
Construction		12,217		14,781
Total commercial real estate		180,006		171,550

Consumer real estate (a)
1-4 family residential mortgages		137,546		137,361
Home equity loans		17,610		17,719
Home equity lines of credit		12,655		12,490
Total consumer real estate		167,811		167,570

Commercial and industrial
Commercial and industrial		29,629		28,434
Tax-free loans		22,207		23,028
Agriculture loans		11,185		11,756
Total commercial and industrial		63,021		63,218

Consumer		12,589		13,045

Gross loans prior to deferred fees		423,427		415,383
Less:
Deferred loan fees, net		130		149
Allowance for loan losses		7,583		7,132
Total net loans		415,714		408,102

(a)	Real estate loans serviced for Fannie Mae, which are not included in the Consolidated Balance Sheets, totaled $9,582,000 and $10,101,000 as of March 31, 2011, and December 31, 2010, respectively.

ALLOWANCE FOR LOAN LOSSES SUMMARY

(DOLLARS IN THOUSANDS)

	Three Months Ended March 31,
	2011			2010
	$			$
Balance at January 1		7,132			5,912
Amounts charged off		(149	)		(195	)
Recoveries of amounts previously charged off		150			47
Balance before current year provision		7,133			5,764
Provision charged to operating expense		450			450
Balance at March 31		7,583			6,214

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, 2011, and December 31, 2010. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

loan agreements as scheduled or at all. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

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

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

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

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

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, 2011	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		77,670		59,126		8,220		21,765		22,207		10,125		199,113
Special Mention		7,150		5,604		881		1,832		-		609		16,076
Substandard		17,149		1,090		3,116		6,032		-		383		27,770
Doubtful		-		-		-		-		-		68		68
Loss		-		-		-		-		-		-		-

Total		101,969		65,820		12,217		29,629		22,207		11,185		243,027

December 31, 2010	Commercial Mortgages		Agriculture Mortgages		Construction		Commercial and Industrial		Tax-free Loans		Agriculture Loans		Total
	$		$		$		$		$		$		$
Grade:
Pass		72,541		53,757		11,377		20,286		23,028		10,932		191,921
Special Mention		8,657		5,667		126		2,403		-		589		17,442
Substandard		15,058		1,089		3,278		5,745		-		235		25,405
Doubtful		-		-		-		-		-		-		-
Loss		-		-		-		-		-		-		-

Total		96,256		60,513		14,781		28,434		23,028		11,756		234,768

Index

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of March 31, 2011, and December 31, 2010:

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)

March 31, 2011	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		137,486		17,600		12,655		12,588		180,329
Non-performing		60		10		-		1		71

Total		137,546		17,610		12,655		12,589		180,400

December 31, 2010	1-4 Family Residential Mortgages		Home Equity Loans		Home Equity Lines of Credit		Consumer		Total
Payment performance:	$		$		$		$		$

Performing		137,268		17,661		12,490		13,044		180,463
Non-performing		93		58		-		1		152

Total		137,361		17,719		12,490		13,045		180,615

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, 2011, and December 31, 2010:

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

	30-59 Days		60-89 Days		Greater than 90		Total Past				Total Loans		Loans Receivable > 90 Days and
March 31, 2011	Past Due		Past Due		Days		Due		Current		Receivable		Accruing
	$		$		$		$		$		$		$
Commercial real estate
Commercial mortgages		319		-		-		319		101,650		101,969		-
Agriculture mortgages		97		-		-		97		65,723		65,820		-
Construction		-		-		-		-		12,217		12,217		-
Consumer real estate
1-4 family residential mortgages		839		317		60		1,216		136,330		137,546		60
Home equity loans		163		-		10		173		17,437		17,610		10
Home equity lines of credit		-		-		-		-		12,655		12,655		-
Commercial and industrial
Commercial and industrial		10		-		-		10		29,619		29,629		-
Tax-free loans		-		-		-		-		22,207		22,207		-
Agriculture loans		-		-		-		-		11,185		11,185		-
Consumer		9		2		1		12		12,577		12,589		1
Total		1,437		319		71		1,827		421,600		423,427		71

Loans

ENB Financial Corp - FORM 10-Q - May 13, 2011

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