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 2020 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, wide-ranging and continuing disruptions caused by the spread of

coronavirus (COVID-19) and government and business responses thereto,

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, a prolonged shutdown of the

federal government, increase in taxes or regulations, or increasing debt

balances

· Political changes and their impact on new laws and regulations

· Competitive forces

· Impact of mergers and acquisition activity in the local market and the effects

thereof

· Potential impact from continually evolving cybersecurity and other

technological risks and attacks, including additional costs, reputational

damage, regulatory penalties, and financial losses

· Changes in customer behavior impacting deposit levels and loan demand

· Changes in accounting principles, policies, or guidelines as may be adopted by

the regulatory agencies, as well as the Public Company Accounting Oversight

Board, the Financial Accounting Standards Board, and other accounting standards

setters

· Ineffective business strategy due to current or future market and competitive

conditions

· Management's ability to manage credit risk, liquidity risk, interest rate risk,

and fair value risk

· 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




                                      34

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

· Business and competitive disruptions caused by new market and industry entrants






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



Results of Operations



Overview



The first half of 2021 was positively impacted by a number of items resulting in
very strong financial results. The COVID-19 pandemic continues to impact
customer behavior and balance sheet growth, but as of the date of this report
there has not been significant negative impacts on earnings or credit. Customers
have adapted to changes in behavior and the Corporation continues to seek ways
to manage the structure of the balance sheet to achieve positive financial
results now and in future time periods.



The Corporation recorded net income of $3,551,000 for the three-month period
ended June 30, 2021, a $48,000, or 1.3% decrease from the three months ended
June 30, 2020. Net income for the six-month period was $8,055,000, a $2,291,000,
or 39.7% increase over earnings in the six-month period ended June 30, 2020. The
earnings per share, basic and diluted, were $0.64 for the three months ended
June 30, 2021, compared to $0.64 for the same period in 2020, and for the
year-to-date period, earnings per share were $1.45 compared to $1.03 in 2020, a
40.8% increase. The increase in the Corporation's 2021 earnings was caused
primarily by growth in gains on mortgages sold, other income, and net interest
income coupled with a decline in the provision for loan losses.



The gains from the sale of mortgages were $1,245,000 for the three months ended
June 30, 2021, compared to gains of $1,690,000 for the three months ended June
30, 2020, a decrease of $445,000, or 26.3%. However, for the six-month period,
gains were $3,175,000, an increase of $944,000, or 42.3%, over the six months
ended June 30, 2020. This year-to-date increase in gains can be attributed to
higher volume in the first half of 2021 compared to the first half of 2020,
driven by low market rates, which has caused an increase in refinancing activity
over the course of the past year. Additionally, margins received on sold
mortgages have been at higher levels supporting this higher level of gains.
Gains on securities in total decreased by $122,000, or 32.8%, for the three
months ended June 30, 2021, and increased by $161,000, or 38.0%, for the six
months ended June 30, 2021, compared to the same periods in the prior year.
Outside of mortgage and security gains, other non-interest income increased by
$576,000, or 28.7%, and $1,455,000, or 34.8%, for the three and six months ended
June 30, 2021, due to many positive trends such as higher trust income, higher
commissions on debit card interchange fees, and lower mortgage servicing asset
amortization.



The Corporation's NII increased by $262,000, or 2.8%, and $725,000, or 3.9%, for
the three and six months ended June 30, 2021, compared to the same periods in
2020. The increase in NII primarily resulted from an increase in interest on
securities in the available for sale category of $532,000, or 31.1%, for the
three-month period ended June 30, 2021, and $777,000, or 22.2%, for the
six-month period ended June 30, 2021, compared to the three and six months ended
June 30, 2020. In addition, interest expense on deposits and borrowings
decreased by $193,000, or 19.3%, and $613,000, or 27.0%, for the three and six
months ended June 30, 2021, compared to the same periods in the prior year. The
low interest rate environment has caused a rapid decline in asset yield, but
also a decline in the cost of funds, which has resulted in these much lower
levels of interest expense.



The financial services industry uses two primary performance measurements to
gauge performance: return on average assets (ROA) and return on average equity
(ROE). ROA measures how efficiently a bank generates income based on the amount
of assets or size of a company. ROE measures the efficiency of a company in
generating income based on the amount of equity or capital utilized. The latter
measurement typically receives more attention from shareholders. The ROA and ROE
decreased for the quarter-to-date period ended June 30, 2021, but increased for
the year-to-date period compared to the same periods in the prior year, due to
lower quarterly earnings and higher year-to-date earnings as of June 30, 2021.



                                      35

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Key Ratios                    Three Months Ended         Six Months Ended
                                   June 30,            June 30,
                              2021          2020         2021        2020

Return on Average Assets       0.92%        1.14%        1.07%       0.95%
Return on Average Equity      10.86%       12.31%       12.43%       9.86%




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

as
follows:



 · Net interest income

· Provision for loan losses




 · Other income


 · Operating expenses

· Provision for income taxes

The following discussion analyzes each of these five components.





Net Interest Income



NII represents the largest portion of the Corporation's operating income. In the
first six months of 2021, NII generated 67.4% of the Corporation's revenue
stream, which consists of net interest income and non-interest income, compared
to 73.2% in the first six months of 2020. This significant decrease is a result
of much higher levels of non-interest income primarily driven by mortgage gains
in the first six months of 2021 which made up 11.0% of the Corporation's revenue
stream, compared to 8.7% in the first six months of 2020. However, the overall
performance of the Corporation is highly dependent on the changes in net
interest income since it comprises such a significant portion of operating
income.



The following table shows a summary analysis of net interest income on a fully
taxable equivalent (FTE) basis. For analytical purposes and throughout this
discussion, yields, rates, and measurements such as NII, net interest spread,
and net yield on interest earning assets are presented on an FTE basis. The FTE
net interest income shown in both tables below will exceed the NII reported on
the consolidated statements of income, which is not shown on an FTE basis. The
amount of FTE adjustment totaled $289,000 for the three months ended June 30,
2021, and $556,000 for the six months ended June 30, 2021, compared to $197,000
and $370,000 for the same periods in 2020.



NET INTEREST INCOME

(DOLLARS IN THOUSANDS)

                                            Three Months Ended             Six Months Ended
                                                 June 30,                      June 30,
                                           2021            2020           2021           2020
                                             $              $              $              $
Total interest income                        10,537         10,468         21,067         20,955
Total interest expense                          806            999          1,657          2,270

Net interest income                           9,731          9,469         19,410         18,685
Tax equivalent adjustment                       289            197            556            370

Net interest income (fully taxable
equivalent)                                  10,020          9,666         19,966         19,055



NII is the difference between interest income earned on assets and interest expense incurred on liabilities. Accordingly, two factors affect net interest income:

· The rates earned on interest earning assets and paid on interest bearing

liabilities




 · The average balance of interest earning assets and interest bearing liabilities




                                      36

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Federal funds rate, the Prime rate, the shape of the U.S. Treasury curve,
and other wholesale funding curves, all affect NII. The Federal Reserve controls
the Federal funds rate, which is one of a number of tools available to the
Federal Reserve to conduct monetary policy. The Federal funds rate, and guidance
on when the rate might be changed, is often the focal point of discussion
regarding the direction of interest rates. During 2020, the Federal funds rate
was decreased by 150 basis points in March taking the rate to 0.25% by March 31,
2020. With the declines in the Federal funds rate, the U.S. Treasury yield curve
became flatter. Long-term rates like the ten-year U.S. Treasury were 232 basis
points under the 3.25% Prime rate as of December 31, 2020. Long-term Treasury
rates remained low throughout 2020, and with the decreases in the Federal
Reserve short-term rates, the yield curve remained essentially flat throughout
the year. Management had not anticipated the Fed rate decreases in the first
quarter of 2020. During the first half of 2021, longer-term U.S. Treasury rates
did increase adding some slope to the yield curve. The ten-year Treasury rate
was 1.45% as of June 30, 2021, which was 180 basis points under the Prime rate.
This Treasury rate movement makes it a little easier to get asset yield on the
longer end of the curve, but yields are still compressed compared to years prior
to 2020, making increasing asset yield much more difficult, which adds strain to
NII and net interest margin (NIM).



The Prime rate is generally used by commercial banks to extend variable rate
loans to business and commercial customers. For many years, the Prime rate has
been set at 300 basis points, or 3.00% higher, than the Federal funds rate and
typically moves when the Federal funds rate changes. As such, the Prime rate
decreased to 3.25% in March of 2020 after the 150 basis point Fed rate decline.
The Corporation's Prime-based loans generally reprice a day after the Federal
Reserve rate movement.



As a result of a larger balance sheet in the first half of 2021, even with much
lower asset yields, the Corporation's NII on a tax equivalent basis increased
while the Corporation's margin decreased to 2.72% for the quarter and 2.79% for
the six months ended June 30, 2021, compared to 3.24% in the second quarter of
2020 and 3.32% for the year-to-date period. Loan yields were lower in the first
half of 2021 due to the 150 basis point Fed rate decline during the first
quarter of 2020. The Corporation's NII for the three and six months ended June
30, 2021, increased over the same periods in 2020, by $354,000, or 3.7%, and
$911,000, or 4.8%, respectively. Management's asset liability sensitivity shows
a small benefit to both margin and NII given Federal Reserve rate increases.
Actual results over the past two years have confirmed the asset sensitivity of
the Corporation's balance sheet, however there was some decline in this asset
sensitivity in the first half of 2021. In a down-rate environment, the margin
and NII would suffer unless balance sheet growth is enough to offset lower

asset
yields.



Security yields will generally fluctuate more rapidly than loan yields based on
changes to the U.S. Treasury rates and yield curve. With lower Treasury rates in
2020, security reinvestment had generally been occurring at lower yields. With
slightly higher Treasury rates in the first half of 2021, security yields have
increased slightly, but still remain compressed compared to years prior to 2020.



The Corporation's loan portfolio yield has decreased from the prior years'
period as the variable rate portion of the loan portfolio repriced lower with
the two Federal Reserve rate decreases in March 2020 and some fixed rate
borrowers requested loan modifications to reset their rates lower in the current
record low market rate environment. The vast majority of the Corporation's
commercial Prime-based loans were priced at the Prime rate, which was 4.75% to
start 2020, and then 4.25% as of March 4, 2020, and 3.25% as of March 16, 2020
through June 30, 2021. The pricing for the most typical five-year fixed rate
commercial loans is currently in line with the Prime rate. With the significant
2020 Federal Reserve rate reductions, adding variable rate loans to the
portfolio means they will be priced at very low rates to start but can reprice
lower if the Federal Reserve lowers rates any further and would reprice higher
if the Federal Reserve would increase rates. There are elements of the
Corporation's Prime-based commercial loans priced above the Prime rate based on
the level of credit risk of the borrower. Management does price a portion of
consumer variable rate loans above the Prime rate, which also helps to improve
loan yield. Both commercial and consumer Prime-based pricing continues to be
influenced by local competition.



Mid-term and long-term interest rates on average were higher in the first half
of 2021 compared to the first half of 2020. The average rate of the 10-year U.S.
Treasury was 1.47% in the first half of 2021 compared to 1.02% in the first half
of 2020, and it stood at 1.45% on June 30, 2021, compared to 0.66% on June 30,
2020. The slope of the yield curve has been compressed throughout 2020 and 2021
with a little more slope in the first half of 2021. As of December 31, 2020, the
10-year U.S. Treasury rate was only 68 basis points higher than the Fed funds
rate and as of June 30, 2021, it was 120 basis points higher than the Fed funds
rate. The slope of the yield curve has fluctuated many times in the past two
years with the 10-year U.S. Treasury yield as high as 1.88% in the first half of
2020 and 1.74% in the first half of 2021, and as low as 0.54% in the first half
of 2020, and 0.93% in the first half of 2021.



                                      37

  Table of Contents

                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Corporation's overall cost of funds, including non-interest bearing funds,
remained stable through the first half of 2021 between 22 and 16 basis points.
Management expects the cost of funds will decline slightly and then stabilize
throughout 2021 as limited deposits reprice to lower rates. Core deposit
interest rates were reduced nine times throughout 2020 and time deposit rates
have also decreased resulting in maturing time deposits repricing at lower
levels or moving into core deposit products. Management does not anticipate
significant deposit rate movements in 2021 as deposits are now priced at very
low rates. Typically, financial institutions will make small systematic moves on
core interest bearing accounts while making larger rate movements in the pricing
of new or reissued time deposits. The Corporation's costs on borrowings included
$94,000 of prepayment penalties recorded on Federal Home Loan Bank (FHLB)
long-term advances paid off early during the first half of 2021, and $154,000 of
prepayment penalties recorded in the first half of 2020, accelerating the
interest expense, but achieving savings in future time periods. While the
average balance of borrowings was lower in the first half of 2021 than the first
half of 2020, the interest expense was higher, as the new $20 million sub debt
issue beginning on December 30, 2020, carried a higher rate of interest than
FHLB long-term advances that were paid off. As a result, the total cost of
borrowings increased from the first half of 2020 to the first half of 2021

by
$140,000.



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



RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN THOUSANDS)





                                     Six Months Ended June 30,                 Six Months Ended June 30,
                                           2021 vs. 2020                             2020 vs. 2019
                                        Increase (Decrease)                       Increase (Decrease)
                                         Due To Change In                          Due To Change In
                                                             Net                                       Net
                                Average      Interest      Increase       Average      Interest      Increase
                               Balances       Rates       (Decrease)     Balances       Rates       (Decrease)
                                   $            $             $              $            $             $
INTEREST INCOME

Interest on deposits at
other banks                          50          (89 )          (39 )          59         (144 )          (85 )

Securities available for
sale:
Taxable                             957         (943 )           14           217         (477 )         (260 )
Tax-exempt                        1,237         (289 )          948            (3 )        (49 )          (52 )
Total securities                  2,194       (1,232 )          962           214         (526 )         (312 )

Loans                             1,141       (1,683 )         (542 )       1,779       (1,039 )          740
Regulatory stock                    (39 )        (44 )          (83 )          28          (62 )          (34 )

Total interest income             3,346       (3,048 )          298         2,080       (1,771 )          309

INTEREST EXPENSE

Deposits:
Demand deposits                      77         (415 )         (338 )          51         (514 )         (463 )
Savings deposits                      9          (14 )           (5 )           6          (22 )          (16 )
Time deposits                       (78 )       (332 )         (410 )         (31 )        125             94
Total deposits                        8         (761 )         (753 )          26         (411 )         (385 )

Borrowings:
Total borrowings                    (64 )        204            140            62          110            172

Total interest expense              (56 )       (557 )         (613 )          88         (301 )         (213 )

NET INTEREST INCOME               3,402       (2,491 )          911         1,992       (1,470 )          522




During the first six months of 2021, the Corporation's NII on an FTE basis
increased by $911,000, or 4.8%, over the same period in 2020. Total interest
income on an FTE basis for the six months ended June 30, 2021, increased
$298,000, or 1.4%, from 2020, while interest expense decreased $613,000, or
27.0%, for the six months ended June 30, 2021, compared to the same period in
2020. The FTE interest income from the securities portfolio increased by
$962,000, or 25.0%, while loan interest income decreased $542,000, or 3.2%.
During the first half of 2021, additional loan volume caused by loan growth
added $1,141,000 to net interest income, but the lower yields caused a
$1,683,000 decrease, resulting in a total decrease of $542,000. Higher balances
in the securities portfolio caused an increase of $2,194,000 in NII, while lower
yields on securities caused a $1,232,000 decrease, resulting in a net increase
of $962,000.



                                      38

  Table of Contents

                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The average balance of interest bearing liabilities increased by 16.4% during
the six months ended June 30, 2021, compared to the prior year driven by growth
in deposit balances. The lower cost on deposit accounts resulted in a decrease
in interest expense. Lower rates on all deposit types caused a $761,000 decrease
in interest expense while higher balances of demand and savings deposits caused
an increase in expense of $8,000 resulting in a total decrease of $753,000.



Out of all the Corporation's deposit types, interest-bearing demand deposits
reprice the most rapidly, as nearly all accounts are immediately affected by
rate changes. Time deposit balances decreased resulting in a $78,000 reduction
to expense, and time deposits repricing to lower interest rates decreased
interest expense by $332,000, causing a net total decrease of $410,000 in time
deposit interest expense. Even with the low rate environment, the Corporation
was successful in increasing balances of other deposit types.



The average balance of outstanding borrowings decreased by 7.3% from the prior
year, due to early payoff of FHLB advances that occurred during 2020 and the
first half of 2021. This resulted in a decrease in interest expense of $64,000.
Although interest rates were lower in the first half of 2021 compared to the
prior year, the Corporation incurred interest prepayment penalites of $94,000 to
pay off two long-term FHLB advances. The Corporation also issued subordinated
debt at the end of 2020, which was at a higher interest rate than the FHLB
advances. These two events increased interest expense by $204,000. The
combination of lower overall levels of borrowings at a materially higher
weighted average interest rate caused an increase in interest expense of
$140,000 on total borrowings. The sub debt issue was pursued because of the
benefit of being treated as Tier 1 capital at the bank level and Tier II capital
at the bank holding company level.



The following tables show a more detailed analysis of net interest income on an
FTE basis with all the major elements of the Corporation's balance sheet, which
consists of interest earning and non-interest earning assets and interest
bearing and non-interest bearing liabilities. Additionally, the analysis
provides the net interest spread and the net yield on interest earning assets.
The net interest spread is the difference between the yield on interest earning
assets and the interest rate paid on interest bearing liabilities. The net
interest spread has the deficiency of not giving credit for the non-interest
bearing funds and capital used to fund a portion of the total interest earning
assets. For this reason, management emphasizes the net yield on interest earning
assets, also referred to as the NIM. The NIM is calculated by dividing net
interest income on an FTE basis into total average interest earning assets. The
NIM is generally the benchmark used by analysts to measure how efficiently a
bank generates NII.



                                      39

  Table of Contents

                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME



(DOLLARS IN THOUSANDS)

                                                       For the Three Months Ended June 30,
                                                2021                                        2020
                                                               (c)                                         (c)
                                 Average                    Annualized       Average                    Annualized
                                 Balance       Interest     Yield/Rate       Balance       Interest     Yield/Rate
                                    $             $             %               $             $             %
ASSETS
Interest earning assets:
Federal funds sold and
interest
on deposits at other banks         49,710           20           0.16          31,764           21           0.26

Securities available for
sale:
Taxable                           373,610        1,259           1.35         229,341        1,085           1.89
Tax-exempt                        188,390        1,262           2.68          97,514          802           3.29
Total securities (d)              562,000        2,521           1.79         326,855        1,887           2.31

Loans (a)                         858,183        8,207           3.83         827,386        8,674           4.20

Regulatory stock                    6,054           78           5.15           7,429           83           4.47

Total interest earning
assets                          1,475,947       10,826           2.94       1,193,434       10,665           3.58

Non-interest earning assets
(d)                                80,235                                      71,016

Total assets                    1,556,182                                   1,264,450

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Demand deposits                   338,060           40           0.05         274,419          110           0.16
Savings deposits                  312,504           15           0.02         238,056           12           0.02
Time deposits                     117,887          230           0.78         128,109          421           1.32
Borrowed funds                     72,235          521           2.89          76,051          456           2.41
Total interest bearing
liabilities                       840,686          806           0.39         716,635          999           0.56

Non-interest bearing
liabilities:

Demand deposits                   579,007                                     425,773
Other                               5,379                                       4,429

Total liabilities               1,425,072                                   1,146,837

Stockholders' equity              131,110                                     117,613

Total liabilities &
stockholders' equity            1,556,182                                   1,264,450

Net interest income (FTE)                       10,020                                       9,666

Net interest spread (b)                                          2.55                                        3.02
Effect of non-interest
   bearing deposits                                              0.17                                        0.22
Net yield on interest
earning assets (c)                                               2.72                                        3.24




(a) Includes balances of nonaccrual loans and the recognition of any related
interest income. The quarter-to-date average balances include net deferred loan
costs of $435,000 as of June 30, 2021, and $2,129,000 as of June 30, 2020. Such
fees and costs recognized through income and included in the interest amounts
totaled $36,000 in 2021, and $168,000 in 2020.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing net interest income (FTE) by total interest earning assets.

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



                                      40

  Table of Contents

                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME



(DOLLARS IN THOUSANDS)



                                                        For the Six Months Ended June 30,
                                                2021                                        2020
                                                               (c)                                         (c)
                                 Average                    Annualized       Average                    Annualized
                                 Balance       Interest     Yield/Rate       Balance       Interest     Yield/Rate
                                    $             $             %               $             $             %
ASSETS
Interest earning assets:
Federal funds sold and
interest
on deposits at other banks         53,820           42           0.16          25,312           81           0.64

Securities available for
sale:
Taxable                           346,417        2,362           1.36         229,245        2,348           2.05
Tax-exempt                        180,622        2,451           2.72          92,105        1,503           3.26
Total securities (d)              527,039        4,813           1.82         321,350        3,851           2.40

Loans (a)                         848,622       16,623           3.93         793,692       17,165           4.33

Regulatory stock                    6,043          145           4.80           7,449          228           6.13

Total interest earning
assets                          1,435,524       21,623           3.02       1,147,803       21,325           3.72

Non-interest earning assets
(d)                                80,066                                      71,700

Total assets                    1,515,590                                   1,219,503

LIABILITIES &
STOCKHOLDERS' EQUITY
Interest bearing
liabilities:
Demand deposits                   331,207           77           0.05         270,095          415           0.31
Savings deposits                  299,719           30           0.02         226,973           35           0.03
Time deposits                     118,594          492           0.84         130,907          902           1.39
Borrowed funds                     73,317        1,058           2.91          79,085          918           2.33
Total interest bearing
liabilities                       822,837        1,657           0.41         707,060        2,270           0.65

Non-interest bearing
liabilities:

Demand deposits                   556,878                                     390,775
Other                               5,204                                       4,163

Total liabilities               1,384,919                                   1,101,998

Stockholders' equity              130,671                                     117,505

Total liabilities &
stockholders' equity            1,515,590                                   1,219,503

Net interest income (FTE)                       19,966                                      19,055

Net interest spread (b)                                          2.61                                        3.07
Effect of non-interest
   bearing deposits                                              0.18                                        0.25
Net yield on interest
earning assets (c)                                               2.79                                        3.32




(a) Includes balances of nonaccrual loans and the recognition of any related
interest income. The year-to-date average balances include net deferred loan
costs of $815,000 as of June 30, 2021, and $2,057,000 as of June 30, 2020. Such
fees and costs recognized through income and included in the interest amounts
totaled $374,000 in 2021, and $49,000 in 2020.

(b) Net interest spread is the arithmetic difference between the yield on interest earning assets and the rate paid on interest bearing liabilities.

(c) Net yield, also referred to as net interest margin, is computed by dividing net interest income (FTE) by total interest earning assets.

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



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Corporation's interest income increased primarily due to increased interest
income on securities, but the increase in income was the result of growth in the
securities portfolio, not an increase in asset yield, resulting in a lower NIM
of 2.72% for the second quarter of 2021, compared to 3.24% for the second
quarter of 2020, and 2.79% for the year-to-date period in 2021, compared to
3.32% for the prior year. The yield earned on assets decreased by 64 basis
points during the three months ended June 30, 2021, and 70 basis points during
the six months ended June 30, 2021, while the rate paid on liabilities decreased
by 17 basis points and 24 basis points, respectively, when comparing both years.
This resulted in a 47 basis point decrease in interest spread for the
three-month period, and a 46 basis point decrease in spread for the six-month
period, and the effect of non-interest bearing deposits decreased by five basis
points during the three months ended June 30, 2021, and seven basis points
during the six months ended June 30, 2021, compared to the same periods in the
prior year, resulting in the decrease in NIM of 52 basis points and 53 basis
points, respectively. Management anticipates a levelling out of NIM during the
remainder of 2021 as Treasury rates have increased a little assisting with
achieving higher yields in the securities portfolio and loan yields will benefit
some by the remainder of the Paycheck Protection Program (PPP) fees that are
accretive to loan interest income as PPP loans pay off or are forgiven. Loan
yields decreased in the first half of 2021 compared to the prior year primarily
as a result of the 150 basis points of Prime decline in the first quarter of
2020 that did not fully impact the loan yields until the second quarter of 2020.
Growth in the loan portfolio will help to offset a declining asset yield moving
through 2021. The Corporation's loan yield decreased 37 basis points in the
second quarter of 2021 compared to the second quarter of 2020, and decreased by
40 basis points for the year-to-date period. Loan interest income decreased
$467,000, or 5.4%, and $1,009,000, or 5.9%, for the three and six-month periods
as a result of the decline in yields.



Loan pricing was challenging in the first half of 2021 as a result of the very
low rate environment and competition resulting in fixed-rate loans being priced
at very low levels and variable-rate loans priced at the Prime rate or below.
The Prime rate decreased by 1.50% in March of 2020 to 3.25%, which is now
comparable to the typical rate of a five-year fixed-rate loan. The commercial or
business fixed rates do increase with longer fixed terms or lower credit
quality. In terms of the variable rate pricing, nearly all variable rate loans
offered are Prime-based. Management is able to price loan customers with higher
levels of credit risk at Prime plus pricing, such as Prime plus 0.75%, which
amounted to 4.00% at June 30, 2021, still a relatively low rate. However, only a
small minority of the loans in the commercial and agricultural portfolios are at
these higher rates due to the strong credit quality of the Corporation's
borrowers and market competition. Competitors in the immediate market area have
been pricing select shorter-term fixed-rate commercial and agricultural lending
rates below 3.25% for the strongest loan credits.



Tax equivalent yields on the Corporation's securities decreased by 52 basis
points for the three months ended June 30, 2021, and 58 basis points for the six
months ended June 30, 2021, compared to the same periods in 2020. The
Corporation's securities portfolio consists of approximately 76% fixed income
debt instruments and 24% variable rate product as of June 30, 2021. The
Corporation's taxable securities experienced a 54 basis-point decrease in yield
for the three months ended June 30, 2021, and a 69 basis point decrease in yield
for the six months ended June 30, 2021, compared to 2020. Security reinvestment
in 2021 has been occurring at slightly higher rates due to the increase in U.S.
Treasury rates, but reinvestment throughout the majority of 2020 was at much
lower yields. The sharp growth in the investment portfolio during a period of
very low rates also contributed to the decline in average security yield. This
large amount of new investment was caused by the significant influx of deposits,
which caused excess liquidity. The sharpest growth in the securities portfolio
occurred in the fourth quarter of 2020 and the first quarter of 2021. In
addition to these negative influences, the Corporation's U.S. agency
mortgage-backed securities and collateralized mortgage obligations experience
faster principal prepayments as market rates decrease, causing the amortization
of premium to increase, effectively decreasing the yield.



The yield on tax-exempt securities decreased by 61 basis points in the second
quarter of 2021, and 54 basis points for the year-to-date period, compared to
2020. For the Corporation, these bonds consist entirely of tax-free municipal
bonds. While the tax-exempt yields on municipal bonds declined with the tax rate
change at the end of 2017, yields became more attractive again during 2020 and
2021. Management began investing in more of these bonds in 2020 as yields stood
out and provided better returns than other sectors of the portfolio.



The interest rate paid on deposits decreased for the three and six months ended
June 30, 2021, from the same periods in 2020. Management follows a disciplined
pricing strategy on core deposit products that are not rate sensitive, meaning
that the balances do not fluctuate significantly when interest rates change.
Rates on interest-bearing checking accounts and money market accounts were
decreased in 2020, resulting in a decrease in the cost of funds on these
accounts of 11 basis points for the three-month period and 26 basis points for
the six-month period. The cost of funds on time deposits decreased by 54 basis
points during the second quarter of 2021, and 55 basis points for the six-month
period, compared to the same periods in the prior year. Typically, the
Corporation sees increases in core deposit products during periods when
consumers are not confident in the stock market or economic conditions
deteriorate. During these periods, there is a "flight to safety" to federally
insured deposits. This trend occurred again in early 2020 as the federal, state
and local governmental bodies began rapidly instituting social distancing
measures in an effort to control the spread of the coronavirus. These measures
had an immediate signicant negative impact to the economy, which also resulted
in the Federal Reserve quickly dropping interest rates back to historic lows.
This in turn resulted in market interest rates declining again to historic lows,
with the Corporation reducing offering rates on deposit products. As the rate
difference between time deposits and core deposits narrowed, many customers
chose to transfer funds from maturing time deposits into checking and savings
accounts.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Corporation's average deposits increased $281.1 million, or 26.4%, for the
three-month period, and $287.6 million, or 28.2%, for the six-month period, with
all types of interest-bearing deposits increasing $127.9 million, or 20.0%, and
$121.5 million, or 19.4%, for the three and six-month periods ended June 30,
2021, compared to the same periods in the prior year, while non-interest bearing
demand deposits increased $153.2 million, or 36.9%, and $166.1 million, or
42.5%, respectively. In the current rate environment, with short-term rates low
and with small rate differences for longer-term deposits, the consumer generally
elected to stay short and maintain funds in accessible deposit instruments. In
addition to the consumer staying liquid with their available funds, there has
been a general trend of funds flowing from time deposit accounts into
non-interest checking, NOW, and savings accounts. The average balance of time
deposits declined during the first six months of 2021 compared to 2020, but the
other areas of NOW, MMDA, and savings grew sufficiently enough to compensate for
the decline in time deposits, causing total interest bearing funds to increase
significantly. Time deposit balances had been growing throughout 2018 and 2019
due to the odd-month CD promotions available at those times, but with the recent
sharp decline in rates, time deposits declined throughout 2020 and management
expects these time deposit balances to decrease throughout the remainder of 2021
as a result of customers electing to allow maturing time deposit balances to
roll off and hold them in a liquid account until there is some sign of rate
increases.



Interest expense on deposits decreased by $258,000, or 47.5%, and $753,000, or
55.7%, for the three and six months ended June 30, 2021, compared to the same
periods in 2020. Demand and savings deposits reprice in their entirety whenever
the offering rates are changed, so with each successive rate drop in 2020, these
deposits repriced lower. Interest rates on interest checking and money market
accounts were decreased nine times in 2020. For the three and six months ended
June 30, 2021, the average balances of interest bearing demand deposits
increased by $63.6 million, or 23.2%, and $61.1 million, or 22.6%, over the same
periods in 2020, while the average balance of savings accounts increased by
$74.4 million, or 31.3%, and $72.7 million, or 32.1%, respectively.



Time deposits reprice over time according to their maturity schedule. This
enables management to both reduce and increase rates slowly over time. During
the six months ended June 30, 2021, time deposit balances decreased compared to
balances at June 30, 2020. The decrease can be attributed to the low rates paid
on time deposits, which has caused the differential between time deposit rates
and rates on non-maturity deposits to be minimal. As a result, customers have
elected to keep more of their funds in non-maturity deposits and less funds in
time deposits. Because time deposits are the most expensive deposit product for
the Corporation and the largest dollar expense from a funding standpoint, the
reduction in time deposits, along with the increases in interest-bearing
checking, savings, and non-interest bearing checking, has allowed the
Corporation to achieve a more balanced deposit funding position and maintain a
lower cost of funds. The Corporation's interest expense on time deposits
decreased by $191,000, or 45.4%, and $410,000, or 45.5%, for the three and six
months ended June 30, 2021, compared to the same periods in 2020. Management
anticipates the interest expense on time deposits and annualized rate paid will
decline throughout the remainder of 2021 as these higher-priced time deposits
mature and reprice at lower levels or convert to non-maturity deposits.



The Corporation's average rate on borrowed funds increased by 48 basis points
from the second quarter of 2021 compared to the second quarter of 2020, and
increased by 58 basis points for the year-to-date period. The Corporation's
subordinated debt issued on December 30, 2020, is included in this total
borrowed funds amount and is at a rate of 4.00% for 5 years, so the increase in
rate paid on borrowed funds is a direct result of this.



The Corporation historically uses both short-term and long-term borrowings to
supplement liquidity generated by deposit growth. Average short-term advances of
only $44,000 were utilized in the six months ended June 30, 2021, while average
short-term advances of $4,638,000 were utilized in the six months ended June 30,
2020. Management has used FHLB long-term borrowings as part of an asset
liability strategy to lengthen liabilities rather than as a source of liquidity.
Average total long-term FHLB borrowings decreased by $21,646,000, or 29.1%, for
the six months ended June 30, 2021, compared to the same period in 2020. The
average balance of subordinated debt increased by $19,620,000, as subordinated
debt was issued at the end of 2020 as a vehicle to support capital growth for
the Corporation. This growth in debt balances contributed to an increase in
interest expense for the three and six months ended June 30, 2021, compared to
the same period in the prior year. Interest expense on borrowed funds increased
$65,000, or 14.3%, for the three-month period and $140,000, or 15.3%, for the
six-month period when comparing 2021 to 2020, driven higher by interest expense
accrued on subordinated debt.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

For the three months ended June 30, 2021, the net interest spread decreased by
47 basis points to 2.55%, compared to 3.02% for the three months ended June 30,
2020. For the six months ended June 30, 2021, the net interest spread decreased
by 46 basis points to 2.61%, compared to 3.07% for the six months ended June 30,
2020. The effect of non-interest bearing funds decreased to 17 basis points from
22 basis points for the three months ended June 30, 2021, and decreased to 18
basis points from 25 basis points for the six months ended June 30, 2021,
compared to the same periods in 2020. The effect of non-interest bearing funds
refers to the benefit gained from deposits on which the Corporation does not pay
interest. As rates go higher, the benefit of non-interest bearing deposits
increases because there is more difference between non-interest bearing funds
and interest bearing liabilities. For example, if an interest checking account
with $10,000 earns 1%, the benefit for $10,000 of non-interest bearing deposits
is equivalent to $100; but if the interest-checking rate is increased to 1.50%,
then the benefit of the non-interest bearing funds is $150. This assumes
dollar-for-dollar replacement, which is not realistic, but demonstrates the way
the higher cost of funds affects the benefit to non-interest bearing deposits.



The Asset Liability Committee (ALCO) carefully monitors the NIM because it
indicates trends in net interest income, the Corporation's largest source of
revenue. For more information on the plans and strategies in place to protect
the NIM and moderate the impact of rising rates, refer to Item 7A: Quantitative
and Qualitative Disclosures about Market Risk.



Provision for Loan Losses



The allowance for credit losses (ACL) provides for losses inherent in the loan
portfolio as determined by a quarterly analysis and calculation of various
factors related to the loan portfolio. The amount of the provision reflects the
adjustment management determines necessary to ensure the ACL is adequate to
cover any losses inherent in the loan portfolio. The Corporation recorded no
provision expense for the second quarter of 2021, and provision expense of
$375,000 for the six months ended June 30, 2021, compared to $975,000 and
$1,325,000, respectively, for the three and six months ended June 30, 2020. The
analysis of the ACL takes into consideration, among other things, the following
factors:


· levels and trends in delinquencies, nonaccruals, charge-offs and recoveries,

· trends within the loan portfolio,

· changes in lending policies and procedures,

· experience of lending personnel and management oversight,

· national and local economic trends,

· concentrations of credit,

· external factors such as legal and regulatory requirements,

· changes in the quality of loan review and board oversight, and

· changes in the value of underlying collateral.


As of June 30, 2021, total delinquencies represented 0.15% of total loans,
compared to 0.41% as of June 30, 2020. These ratios are very low compared to
local and national peer groups. The vast majority of the Corporation's loan
customers have remained steadfast in making their loan payments and avoiding
delinquency, even during challenging economic conditions. The delinquency ratios
speak to the long-term health, conservative nature, and, importantly, the
character of the Corporation's customers and lending practices. Classified loans
are primarily determined by loan-to-value and debt-to-income ratios. The level
of classified loans has decreased from June 30, 2020, to June 30, 2021, from
19.7% of regulatory capital to 14.3% of regulatory capital. The delinquency and
classified loan information is utilized in the quarterly ACL calculation, which
directly affects the provision expense. A sharp increase or decrease in
delinquencies and/or classified loans during the quarter would be cause for
management to increase or decrease the provision expense. The level of actual
charge-offs relative to the amount of recoveries can also have a significant
impact on the provision. Management had minimal charge-offs and recoveries in
the first six months of 2021.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Generally, management will evaluate and adjust, if necessary, the provision
expense each quarter based upon completion of the quarterly ACL calculation.
Future provision amounts will generally depend on the amount of loan growth
achieved versus levels of delinquent, non-performing, and classified loans, as
well as charge-offs and recoveries.



In addition to the above, provision expense is impacted by three major
components that are all included in the quarterly calculation of the ACL. First,
specific allocations are made for any loans where management has determined an
exposure that needs to be provided for. These specific allocations are reviewed
each quarter to determine if adjustments need to be made. It is common for
specific allocations to be reduced as additional principal payments are made, so
while some specific allocations are being added, others are being reduced.
Second, management provides for estimated losses on pools of similar loans based
on historical loss experience. Finally, management utilizes qualitative factors
every quarter to adjust historical loss experience to take into consideration
the current trends in loan volume, delinquencies, charge-offs, changes in
lending practices, and the quality of the Corporation's underwriting, credit
analysis, lending staff, and Board oversight. National and local economic trends
and conditions are also helpful to determine the amount of loan loss allowance
the Corporation should be carrying on the various types of loans. Management
evaluates and adjusts, if necessary, the qualitative factors on a quarterly
basis.



In the first six months of 2021, qualitative factors were adjusted by management
based on current internal information regarding trends in the nature and volume
of the loan portfolio and delinquency. Since December 31, 2020, an increase in
qualitative factors was made across four loan pools related to changes in
lending policies and procedures and a decline was made across all loan pools
related to an improvement in national and local economic trends. These factor
changes were generally only 5 basis points. Other factors remained unchanged in
the first six months of 2021.



Management also monitors the allowance as a percentage of total loans. The
percentage of the allowance to total loans has increased since June 30, 2020,
and remains higher than the Bank's national peer group from the Uniform Bank
Performance Reports. As of June 30, 2021, the allowance as a percentage of total
loans was 1.46%, up from 1.29% at June 30, 2020. Management continues to
evaluate the ACL in relation to the size of the loan portfolio and changes to
the segments within the loan portfolio and their associated credit risk.
Management believes the ACL is adequate to provide for future loan losses based
on the current portfolio and the current economic environment. More detail is
provided under Allowance for Credit Losses in the Financial Condition section
that follows.





Other Income



Other income for the second quarter of 2021 was $4,077,000, an increase of
$9,000, or 0.2%, compared to the $4,068,000 earned during the second quarter of
2020. For the year-to-date period ended June 30, 2021, other income totaled
$9,395,000, an increase of $2,560,000, or 37.5%, compared to the same period in
2020. The following tables detail the categories that comprise other income.



OTHER INCOME

(DOLLARS IN THOUSANDS)



                                              Three Months Ended June 30,          Increase (Decrease)
                                               2021                2020
                                                 $                   $               $              %

Trust and investment services                        537                 416           121           29.1
Service charges on deposit accounts                  246                 205            41           20.0
Other service charges and fees                       438                 430             8            1.9
Commissions                                          952                 649           303           46.7
Gains on securities transactions, net                274                 367           (93 )        (25.3 )
Gains (losses) on equity securities, net             (24 )                 5           (29 )        >100%
Gains on sale of mortgages                         1,245               1,690          (445 )        (26.3 )
Earnings on bank owned life insurance                202                 205            (3 )         (1.5 )
Other miscellaneous income                           207                 101           106          >100%

Total other income                                 4,077               4,068             9            0.2


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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

OTHER INCOME

(DOLLARS IN THOUSANDS)



                                              Six Months Ended June 30,          Increase (Decrease)
                                               2021               2020
                                                $                  $               $               %

Trust and investment services                     1,207              1,038            169          16.3

Service charges on deposit accounts                 494                520            (26 )        (5.0 )
Other service charges and fees                      804                794             10           1.3
Commissions                                       1,816              1,335            481          36.0
Gains on securities transactions, net               362                649           (287 )       (44.2 )
Gains (losses) on equity securities, net            223               (225 )          448         >100%
Gains on sale of mortgages                        3,175              2,231            944          42.3
Earnings on bank owned life insurance               418                411              7           1.7
Other miscellaneous income                          896                 82 

814 >100%


Total other income                                9,395              6,835 

        2,560          37.5




Trust and investment services income increased $121,000, or 29.1%, and $169,000,
or 16.3%, for the three and six months ended June 30, 2021, compared to the same
periods last year. This revenue consists of income from traditional trust
services and income from alternative investment services provided through a
third party. In the second quarter of 2021, traditional trust income increased
by $4,000, or 1.5%, while income from alternative investments increased by
$116,000, or 81.8%, compared to the second quarter of 2020. For the six months
ended June 30, 2021, traditional trust services income increased by $65,000, or
9.9%, while income from alternative investment services increased by $104,000,
or 27.0%, compared to the same period in 2020. The increase in income from the
investment services area for both time periods can be partially attributed to
transfer fees received from a new broker dealer that resulted in additional
income of $60,000 in the first six months of 2021. The trust and investment
services area continues to be an area of strategic focus for the Corporation.
Management believes there continues to be great need for retirement, estate,
small business succession planning, and personal investment services in the
Corporation's service area. Management also sees these services as being a
necessary part of a comprehensive line of financial solutions across the
organization.



Service charges on deposit accounts increased by $41,000, or 20.0%, and
decreased by $26,000, or 5.0%, for the three and six months ended June 30, 2021,
compared to the same periods in 2020. The quarter-to-date increase and the
year-to-date decrease can both be primarily attributed to changes in customer
overdraft fees. With the onset of the COVID-19 pandemic in early 2020, overdraft
fees declined significantly as customers were provided with government stimulus
funds and were sitting on more cash and spending less. This caused overdraft
fees to decline significantly in the second quarter of 2020. While the level of
overdraft fees has increased by $28,000, or 17.4% for the second quarter of 2021
compared to 2020, the year-to-date fees are still lower by $44,000, or 10.4%.
Various other fee income categories increased or decreased to lesser degrees
making up the remainder of the variance compared to the prior year.



Commissions increased by $303,000, or 46.7%, and $481,000, or 36.0%, for the
three and six months ended June 30, 2021, compared to the same periods in 2020.
The increase was primarily caused by an increase in debit card interchange
income of $241,000, or 40.8%, for the three months ended June 30, 2021, and
$404,000, or 34.7%, for the six months ended June 30, 2021, compared to the same
periods in the prior year. The interchange income is a direct result of the
volume of debit card transactions processed and this income decreased during the
second quarter of 2020 as customer spending changed with lower levels of
purchases impacted by COVID-19, but increased again in late 2020 and throughout
the first half of 2021.



For the three and six months ended June 30, 2021, $274,000 and $362,000 of gains
on securities transactions were recorded, respectively, compared to gains of
$367,000 and $649,000, respectively, for the same periods in 2020. Gains or
losses on securities transactions fluctuate based on market opportunities to
take gains and reposition the securities portfolio to improve long-term
earnings, or as part of management's asset liability goals to improve liquidity
or reduce interest rate risk or fair value risk. The gains or losses recorded by
the Corporation depend heavily on market pricing and the volume of security
sales. Generally, the lower U.S. Treasury yields go, the more management will be
motivated to pursue taking gains from the sale of securities. However, these
market opportunities are evaluated subject to the Corporation's other asset
liability measurements and goals. The yield curve in the first six months of
2021 and 2020 provided opportunities to take gains out of the portfolio.

                                      46

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Gains or losses on equity securities amounted to a loss of $24,000 during the
second quarter of 2021, compared to a gain of $5,000 for the same period in the
prior year. For the year-to-date period, gains on equity securities amounted to
$223,000 in 2021, compared to a loss of $225,000 in 2020. Gains or losses on
equity securities are impacted by actual sales of securities as well as changes
in the market value of these securities since market value gains and losses are
recorded through income. In the first six months of 2021, $95,000 of gains were
recorded on the sale of bank stocks and $128,000 was recorded as an unrealized
gain due to the increase in market value of the bank stock portfolio. During the
first six months of 2020, unrealized losses of $225,000 were recorded due to the
decline in bank stock prices as the COVID-19 pandemic began and negatively
impacted the market.



Gains on the sale of mortgages were $1,245,000 for the three-month period ended
June 30, 2021, compared to $1,690,000 for the same period in 2020, a $445,000,
or 26.3% decrease. For the six-month period ended June 30, 2021, mortgage gains
amounted to $3,175,000, compared to $2,231,000 for the same period in 2020, a
$944,000, or 42.3% increase. While mortgage activity was slightly slower for the
second quarter of 2021 compared to 2020, year-to-date activity was still higher
resulting in the year-to-date increase in mortgage gains. The increased mortgage
activity is the result of historically low interest rates and a surge in
mortgage refinancing activity. Management currently anticipates that gains
throughout the remainder of 2021 will decrease compared to the prior year as
refinance activity slows down.



The miscellaneous income category increased by $106,000 for the three months
ended June 30, 2021, and $814,000 for the six months ended June 30, 2021,
compared to the same periods in 2020. Net mortgage servicing income increased by
$92,000 for the three months ended June 30, 2021, and $355,000 for the six
months ended June 30, 2021, compared to the same periods in the prior year. This
was due to much lower levels of mortgage servicing asset amortization in 2021.
The slightly higher interest rate environment resulted in this lower level of
amortization. Other miscellaneous income categories increased as well making up
the remainder of the variance in this category.





Operating Expenses



Operating expenses for the second quarter of 2021 were $9,696,000, an increase
of $1,452,000, or 17.6%, compared to the $8,244,000 for the second quarter of
2020. For the year-to-date period ended June 30, 2021, operating expenses
totaled $18,883,000, an increase of $1,529,000, or 8.8%, compared to the same
period in 2020. The following tables provide details of the Corporation's
operating expenses for the three and six-month periods ended June 30, 2021,
compared to the same periods in 2020.



OPERATING EXPENSES

(DOLLARS IN THOUSANDS)



                                                  Three Months Ended June 30,
                                                   2021                2020            Increase (Decrease)
                                                     $                   $                $              %

Salaries and employee benefits                         5,959              

4,966             993         20.0
Occupancy expenses                                       635                 616              19          3.1
Equipment expenses                                       285                 316             (31 )       (9.8 )

Advertising & marketing expenses                         245                 218              27         12.4
Computer software & data processing expenses           1,102               

 768             334         43.5
Bank shares tax                                          275                 239              36         15.1
Professional services                                    598                 507              91         17.9
Other operating expenses                                 597                 614             (17 )       (2.8 )
   Total Operating Expenses                            9,696               8,244           1,452         17.6




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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

OPERATING EXPENSES

(DOLLARS IN THOUSANDS)



                                                   Six Months Ended June 30,
                                                   2021                2020            Increase (Decrease)
                                                     $                   $               $               %
Salaries and employee benefits                        11,658              10,662            996           9.3
Occupancy expenses                                     1,318               1,207            111           9.2
Equipment expenses                                       552                 606            (54 )        (8.9 )

Advertising & marketing expenses                         435                 492            (57 )       (11.6 )
Computer software & data processing expenses           2,200              

1,474            726          49.3
Bank shares tax                                          555                 479             76          15.9
Professional services                                  1,036               1,130            (94 )        (8.3 )
Other operating expenses                               1,129               1,304           (175 )       (13.4 )
   Total Operating Expenses                           18,883              17,354          1,529           8.8




Salaries and employee benefits are the largest category of operating expenses.
In general, they comprise approximately 62% of the Corporation's total operating
expenses. For the three months ended June 30, 2021, salaries and benefit costs
increased by $993,000, or 20.0%, from the second quarter of 2020. For the six
months ended June 30, 2021, salaries and benefits increased by $996,000, or
9.3%, from the year-to-date period in the prior year. The growth in salaries can
primarily be attributed to higher mortgage commissions stemming from higher
volume, merit and cost of living increases, additions to staff, and higher
deferred salaries costs in the second quarter of 2020 stemming from higher
levels of PPP loan production.



Occupancy expenses consist of the following:

· Depreciation of bank buildings

· Real estate taxes and property insurance




 · Building lease expense


 · Utilities

· Building repair and maintenance






Occupancy expenses increased $19,000, or 3.1%, and $111,000, or 9.2%, for the
three and six months ended June 30, 2021, compared to the same periods in the
prior year. Utilities costs increased by $22,000, or 13.4%, and $42,000, or
12.1%, for the three and six months ended June 30, 2021, compared to the same
periods in the prior year. For the year-to-date period, snow removal costs
increased by $46,000, or 321.7%, and building repair and maintenance costs
increased by $22,000, or 20.5%, compared to the year-to-date period in 2020.
Various other occupancy expense categories increased or decreased by smaller
amounts making up the remainder of the quarter and year-to-date variance.



Equipment expenses decreased by $31,000, or 9.8%, and $54,000, or 8.9%, for the
three and six months ended June 30, 2021, compared to the same periods in the
prior year. Equipment depreciation costs decreased by $12,000, or 6.6%, and
$40,000, or 10.8%, for the three and six months ended June 30, 2021, compared to
the same periods in 2020. Additionally, equipment repair and maintenance costs
decreased by $22,000, or 59.5%, and $22,000, or 37.8%, for the same time
periods. Various other occupancy expense categories increased or decreased by
smaller amounts making up the remainder of the quarter and year-to-date
variance.



Advertising and marketing expenses increased by $27,000, or 12.4%, and decreased
by $57,000, or 11.6%, for the three and six months ended June 30, 2021, compared
to the same periods in 2020. These expenses can be further broken down into two
categories, marketing expenses and public relations. The marketing expenses
decreased by $17,000, or 9.1%, for the quarter-to-date period, and $78,000, or
21.4%, for the year-to-date period ended June 30, 2021, compared to the same
periods in the prior year. Public relations expenses increased by $45,000, or
169.0%, and $20,000, or 15.8%, for the three and six months ended June 30, 2021,
compared to the same periods in 2020. Marketing expenses support the overall
business strategies of the Corporation; therefore, the timing of these expenses
is highly dependent upon the execution of those strategies.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Computer software and data processing expenses increased by $334,000, or 43.5%,
for the second quarter of 2021 compared to 2020, and $726,000, or 49.3%, for the
six months ended June 30, 2021, compared to the same periods in 2020.
Software-related expenses were up by $320,000, or 71.8%, for the three months
ended June 30, 2021, and by $656,000, or 76.4%, for the six months ended June
30, 2021, compared to the same periods in the prior year. The increases were
primarily as a result of of increased amortization on existing software as well
as purchases of new software platforms to support the strategic initiatives of
the Corporation. Software expenses are likely to continue to increase in 2021,
but the actual increase will be dependent on how quickly new software platforms
are identified, analyzed, approved and placed into service. Data processing fees
were up $14,000, or 4.4%, and $70,000, or 11.4%, for the three and six months
ended June 30, 2021, compared to the same periods in 2020.



Bank shares tax expense was $275,000 for the second quarter of 2021, an increase
of $36,000, or 15.1%, from the second quarter of 2020. For the year-to-date
period, shares tax increased by $76,000, or 15.9%, compared to the prior year.
Two main factors determine the amount of bank shares tax: the ending value of
shareholders' equity and the ending value of tax-exempt U.S. obligations. The
shares tax calculation uses a period-end balance of shareholders' equity and a
tax rate of 0.95%. The increase in 2021 can be primarily attributed to the
Corporation's growing value of shareholders' equity.



Professional services expense increased by $91,000, or 17.9%, and decreased by
$94,000, or 8.3%, for the three and six-month periods ended June 30, 2021,
compared to the same periods in 2020. These services include accounting and
auditing fees, legal fees, and fees for other third-party services.
Payroll-related processing costs as well as contract employee expenses increased
in total by $ 74,000 for the quarter-to-date period; accounting and auditing
fees were higher by $29,000, or 39.2%; and legal fees for the quarter increased
by $24,000, or 356.3%. The year-to-date decrease was caused by a decline in
other outside service fees by $260,000, or 47.2%, for the six months ended June
30, 2021, compared to the same period in 2020. Partially offsetting this
decrease, payroll-related processing costs as well as contract employee expenses
increased by $105,000 for the year-to-date period. Several other professional
services expenses increased or decreased slightly making up the remainder of the
variance.



Other operating expenses decreased by $17,000, or 2.8%, and $175,000, or 13.4%,
for the three and six months ended June 30, 2021, compared to the same periods
in 2020. Contributing to this decrease, operating supplies costs declined by
$66,000, or 54.3%, for the quarter and $110,000, or 49.5% for the year-to-date
period when comparing both years. Loan related expenses decreased by $56,000, or
35.8%, and $91,000, or 35.8%, for the three and six months ended June 30, 2021,
compared to the same periods in 2020. Partially offsetting these declines, FDIC
and OCC assessment charges increased by $61,000, or 53.1%, and $147,000, or
85.4% for the quarter and year-to-date periods. Fraud-related charge-offs
decreased by $25,000 for the quarter, and $63,000 for the year-to-date period
ended June 30, 2021, compared to the same periods in the prior year. Several
other operating expense categories increased or decreased by smaller amounts
making up the remainder of this variance.





Income Taxes



For the six months ended June 30, 2021, the Corporation recorded Federal income
tax expense of $1,492,000, compared to $1,077,000 for the six months ended June
30, 2020. The effective tax rate for the Corporation was 15.6% for the six
months ended June 30, 2021, and 15.7% for the six months ended June 30, 2020.
Certain items of income are not subject to Federal income tax, such as
tax-exempt interest income on loans and securities, and BOLI income; therefore,
the effective income tax rate for the Corporation is lower than the stated tax
rate. The effective tax rate is calculated by dividing the Corporation's
provision for Federal income taxes on the Consolidated Statements of Income by
the income before income taxes for the applicable period.



The Corporation's effective tax rate has historically been maintained at low
levels primarily due to a relatively high level of tax-free municipal bonds held
in the securities portfolio. The fluctuation of the effective tax rate will
occur as a result of total tax-free revenue as a percentage of total revenue.



The Corporation is also subject to Pennsylvania Corporate Net Income Tax;
however, the Corporation's Holding Company has very limited taxable corporate
net income activities. The Corporation's wholly owned subsidiary, Ephrata
National Bank, is subject to Pennsylvania Bank Shares Tax. Like Federal
Corporate income tax, the Pennsylvania Bank Shares Tax is a significant expense
for the Corporation, amounting to $555,000 in the first six months of 2021
compared to $479,000 in 2020. The Bank Shares Tax expense appears on the
Corporation's Consolidated Statements of Income, under operating expenses.


                                      49

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Financial Condition



Investment Securities



The Corporation classifies all of its debt securities as available for sale and
reports the portfolio at fair value. As of June 30, 2021, the Corporation had
$592.1 million of securities available for sale, which accounted for 37.5% of
assets, compared to 33.1% as of December 31, 2020, and 26.3% as of June 30,
2020. Based on ending balances, the securities portfolio increased 73.4% from
June 30, 2020, and 22.5% from December 31, 2020.



The debt securities portfolio was showing a net unrealized gain of $9,319,000 as
of June 30, 2021, compared to an unrealized gain of $10,072,000 as of December
31, 2020, and $5,724,000 as of June 30, 2020. The valuation of the Corporation's
securities portfolio, predominately debt securities, is impacted by both the
U.S. Treasury rates and the perceived forward direction of interest rates. The
10-year U.S. Treasury yield was 0.66% as of June 30, 2020, 0.93% as of December
31, 2020, and 1.45% as of June 30, 2021. The lower Treasury rates have caused an
increase in market valuation, which has resulted in the unrealized gains
recorded in all time periods. Gains were lower as of June 30, 2021, compared to
the end of 2020 due to the increase in Treasury rates experienced in the first
and second quarters of 2021. Additionally, with the Federal Reserve's sudden
overnight rate decreases in March of 2020, the variable rate portion of the
Corporation's security portfolio lost market value due to the market's
recognition that these instruments would yield materially less going forward
which resulted in the lower levels of unrealized gains at June 30, 2020.



The table below summarizes the Corporation's amortized cost, unrealized gain or
loss position, and fair value for each sector of the securities portfolio for
the periods ended June 30, 2021, December 31, 2020, and June 30, 2020.



AMORTIZED COST AND FAIR VALUE OF SECURITIES HELD



(DOLLARS IN THOUSANDS)



                                                                        Net
                                                    Amortized       Unrealized          Fair
                                                      Cost        Gains (Losses)        Value
                                                        $                $                $
June 30, 2021
U.S. treasuries                                        4,981                  43         5,024
U.S. government agencies                              29,620                (261 )      29,359

U.S. agency mortgage-backed securities                62,258                 649        62,907
U.S. agency collateralized mortgage obligations       36,911               

 617        37,528
Asset-backed securities                              100,202                 801       101,003
Corporate bonds                                       84,052               1,015        85,067

Obligations of states and political subdivisions     256,280               6,455       262,735
Total debt securities, available for sale            574,304              

9,319       583,623
Equity securities                                      8,430                  75         8,505
Total securities                                     582,734               9,394       592,128

December 31, 2020
U.S. government agencies                              54,224                 137        54,361

U.S. agency mortgage-backed securities                69,777               1,275        71,052
U.S. agency collateralized mortgage obligations       34,449               

 586        35,035
Asset-backed securities                               60,387                  88        60,475
Corporate bonds                                       60,387               1,336        61,723

Obligations of states and political subdivisions     187,132               6,650       193,782
Total debt securities                                466,356              10,072       476,428
Equity securities                                      7,158                 (53 )       7,105
Total securities                                     473,514              10,019       483,533




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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

                                                                        Net
                                                    Amortized       Unrealized          Fair
                                                      Cost        Gains (Losses)        Value
                                                        $                $                $
June 30, 2020
U.S. government agencies                               8,217                 162         8,379
U.S. agency mortgage-backed securities                71,241               1,312        72,553
U.S. agency collateralized mortgage obligations       45,854               

 708        46,562
Asset-backed securities                               33,340              (1,389 )      31,951
Corporate bonds                                       62,426               1,005        63,431

Obligations of states and political subdivisions     107,885              

3,926       111,811
Total debt securities                                328,963               5,724       334,687
Equity securities                                      6,977                (202 )       6,775

Total securities available for sale                  335,940              

5,522       341,462




Interest rate changes and the perceived forward direction of interest rates
generally have a close correlation to the valuation of the Corporation's fixed
income securities portfolio. There are also a number of other market factors
that impact bond prices. During the second half of 2019, the Federal Reserve
decreased short-term rates three times for a total of 75 basis points, and
during the first quarter of 2020, the Federal Reserve decreased short-term rates
two times for a total of 150 basis points. Market conditions in the first
quarter of 2020 were very unpredictable and fast changing due to the start of
COVID-19 and the declaration of a global pandemic on March 11, 2020. The Fed's
reduction of interest rates was in response to this pandemic and caused
short-term and long-term Treasury rates to decline at a rapid pace to reach
all-time lows. During the first and second quarters of 2021, rates on the longer
end of the yield curve did increase causing slight declines in the unrealized
gains on the investment portfolio. The COVID-19 pandemic continues to have
significant impacts on rates and the economy and management believes this will
continue throughout 2021, but the absolute value and direction of Treasury rates
could fluctuate as the pandemic recovery reaches new levels. Beyond interest
rate movements, there are also a number of other factors that influence bond
pricing including regulatory changes, financial performance of issuers, changes
to credit rating of insurers of bonds, changes in market perception of certain
classes of securities, and many more. Management monitors the changes in
interest rates and other market influences to assist in management of the
securities portfolio.



Any material increase in market interest rates would have a negative impact on
the market value of the Corporation's fixed income debt securities. As of June
30, 2021, approximately 76% of the Corporation's debt securities were fixed rate
securities with the other 24% variable rate. The variable rate instruments
generally experience very little impact to valuation based on a change in rates
because they trade on a spread over overnight rates such as LIBOR. However, with
the Federal Reserve drastically reducing the Federal Funds rate by 1.50% in
March of 2020 to 0.25%, caused the market to view floating rate bonds
differently, as the new effective yields on those securities would be
significantly reduced upon the next rate reset. Fixed rate securities without
call options could maintain their effective yield in a new bond market with
sharply lower yields. Therefore, the valuation of the fixed rate securities held
up better when the securities portfolio was valued for June 30, 2020. Since that
time, the pricing of variable rate instruments has become more rational and most
bonds have experienced an increase in unrealized gain since March of 2020.
Generally the longer the bond and the longer the call protection, the better the
bond did in terms of valuation. The municipal bond sector is the largest of the
portfolio and, as a result, management will closely monitor the 10-year U.S.
Treasury yield due to its impact on these securities. The other sectors of the
portfolio have shorter lives and duration and would be more influenced by the
2-year and 5-year U.S. Treasury rates. The change in value of unrealized gains
and losses for the remainder of 2021 will be impacted by movements in U.S.
Treasury rates and could increase and decrease throughout the remainder of the
year as Treasury rates fluctuate.



The Corporation's effective duration increased in the second quarter of 2021 to
3.8, from 2.7 at December 31, 2020, and 2.4 at June 30, 2020. Effective duration
is a measurement of the length of the securities portfolio with a higher level
indicating more length and more exposure to an increase in interest rates.
Duration is expected to remain stable or increase slightly throughout the
remainder of 2021. The Corporation increased effective duration by purchasing
longer municipal securities in the first and second quarters of 2021.
Additionally, with increasing rates, pass-through structures of mortgage backed
securities (MBS) and collateralized mortgage obligations (CMO) instruments
typically lengthen in duration as principal payments decrease.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Management's actions to maintain reasonable effective duration of the securities
portfolio are part of a broader asset liability plan to continually work to
mitigate future interest rate risk and fair value risk to the Corporation. Part
of that strategy is to retain higher levels of cash and cash equivalents to
increase liquidity and provide an immediate hedge against higher interest rates
and fair value risk. However, despite taking actions to mitigate the
Corporation's future risk, these risks are inherent to the banking model.
Unrealized gains and losses on securities will vary significantly according to
market forces. Management's focus will continue to be on the long-term
performance of these securities. While management has and will continue to take
gains from the portfolio when opportunities exist, the broader securities
strategy remains to buy and hold debt securities until maturity. Because market
interest rates were declining rapidly in 2020, there was some opportunity to
realize gains from the sales of securities. As a result, gains from the sales of
debt securities were higher in the second quarter of 2020 than the second
quarter of 2021.



The Corporation typically invests excess liquidity into securities, primarily
fixed-income bonds. The securities portfolio provides interest and dividend
income to supplement the interest income on loans. Additionally, the securities
portfolio assists in the management of both liquidity risk and interest rate
risk. In order to provide maximum flexibility for management of liquidity and
interest rate risk, the securities portfolio is classified as available for sale
and reported at fair value. Management adjusts the value of all the
Corporation's securities on a monthly basis to fair market value as determined
in accordance with U.S. generally accepted accounting principles. Management has
the ability and intent to hold all debt securities until maturity, and does not
generally record impairment on bonds that are currently valued below book value.
In addition to the fixed and variable rate bonds, the Corporation's equity
holdings consist of a small CRA-qualified mutual fund with a book and fair
market value of $7.2 million. The CRA fund is a Small Business Association (SBA)
variable rate fund with a stable dollar price. The Corporation also has a small
portfolio of bank stocks with a book value of $1,225,000 and fair market value
of $1,300,000 as of June 30, 2021. The fair value of the bank stocks was
significantly impacted by the COVID-19 pandemic and the drastic devaluation of
bank stocks during 2020 but has rebounded as of June 30, 2021, and is
responsible for the increase in gains on equity securities reported as of June
30, 2021.



All securities and bonds are evaluated for impairment on a quarterly basis.
Should any impairment occur, management would write down the security to a fair
market value in accordance with U.S. generally accepted accounting principles,
with the amount of the write down recorded as a loss on securities.



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

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

risk

· Growth of the loan portfolio

· Slope of the U.S. Treasury curve

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

Treasuries

· Duration and average length of the portfolio

· Volatility of the portfolio

· Direction of interest rates

· Economic factors impacting debt securities

The investment policy of the Corporation imposes guidelines to ensure diversification within the portfolio. The diversity specifications provide opportunities to shorten or lengthen duration, maximize yield, and mitigate credit risk. The composition of the securities portfolio based on fair market value is shown in the following table.





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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

SECURITIES PORTFOLIO

(DOLLARS IN THOUSANDS)



                                                              Period Ending
                                   June 30, 2021            December 31, 2020            June 30, 2020
                                   $            %             $            %             $            %

U.S. treasuries                   5,024          0.8             -            -             -            -
U.S. government agencies         29,359          5.0        54,361         11.2         8,379          2.5
U.S. agency mortgage-backed
securities                       62,907         10.6        71,052         14.7        72,553         21.2
U.S. agency collateralized
mortgage obligations             37,528          6.3        35,035          7.2        46,562         13.6
Asset-backed securities         101,003         17.1        60,475         12.5        31,951          9.4
Corporate debt securities        85,067         14.4        61,723         12.8        63,431         18.6
Obligations of states and
political subdivisions          262,735         44.4       193,782         40.1       111,811         32.7
Total debt securities,
available for sale              583,623         98.6       476,428         98.5       334,687         98.0

Marketable equity
securities                        8,505          1.4         7,105          1.5         6,775          2.0

Total securities                592,128        100.0       483,533        100.0       341,462        100.0





The largest movements within the securities portfolio were shaped by market factors, such as:

· slope of the U.S. Treasury curve and projected forward rates

· interest spread versus U.S. Treasury rates on the various securities

· pricing of the instruments, including supply and demand for the product

· structure of the instruments, including duration and average life

· portfolio weightings versus policy guidelines

· prepayment speeds on mortgage-backed securities and collateralized mortgage

obligations

· credit risk of each instrument and risk-based capital considerations

· Federal income tax considerations with regard to obligations of tax-free states


   and political subdivisions.




The Corporation purchased $5.0 million of U.S. treasuries during the second
quarter of 2021 and held no treasuries in 2020, resulting in the increase in
this sector which represents a safe credit at a market appropriate yield which
added some diversity to the portfolio. The Corporation's U.S. government agency
sector decreased by $25.0 million, or 46.0%, since December 31, 2020, with the
weighting decreased from 11.2% of the portfolio to 5.0%. Management had
purchased $35.5 million of short-term discount notes at the end of 2020 to
offset the Corporation's shares tax expense. These bonds were sold in the first
quarter of 2021 and are responsible for the decline in this category. In the
past, management's goal was to maintain agency securities at approximately 10%
of the securities portfolio. In the current rate environment, management is
comfortable maintaining agencies below this level. In the past, this sector was
important in maintaining adequate risk weightings of the portfolio and to ensure
sufficient U.S. government securities for pledging purposes, but the Corporation
is also utilizing both MBS and CMOs to do the same. Instead, Management has
increased the allocations of both asset-backed securities (ABS) and obligations
of states and political subdivisions (municipals) since June 30, 2020, in order
to better structure the portfolio to achieve higher yields while also protecting
in preparation for a rates-up environment.



The Corporation's ABS and municipal sectors have increased significantly since
June 30, 2020, with ABS increasing $69.1 million, or 216.1%, and municipals
increasing $150.9 million, or 135.0%. ABS securities are floating rate student
loan pools which are instruments that will perform well in a rates-up
environment and offset the interest rate risk of the longer fixed-rate municipal
bonds. These securities provide a variable rate return materially above the
overnight Federal funds rate in a safe investment with a risk rating very
similar to that of U.S. Agency bonds. The asset-backed securities generally
provide monthly principal and interest payments to complement the Corporation's
ongoing cash flows. With liquidity and cash levels remaining high, management
views the ABS sector as a safe, higher yielding option than cash, with the
qualities of cash in a rates-up environment.



Obligations of states and political subdivisions, or municipal bonds, are
tax-free and taxable securities that generally provide the highest yield in the
securities portfolio. They also carry the longest duration on average of any
instrument in the securities portfolio. Municipal tax-equivalent yields
generally start well above other taxable bonds. These instruments also
experience significant fair market value gains and losses when interest rates
decrease and increase. Municipal securities were purchased throughout 2020 and
the first half of 2021 due to market conditions that led to favorable yields on
some instruments. The Corporation also began purchasing some taxable municipal
securities that added to the value of this sector. Municipal bonds represented
44.5% of the securities portfolio as of June 30, 2021, compared to 32.7% as of
June 30, 2020. The Corporation's investment policy limits municipal holdings to
150% of Tier 2 capital. As of June 30, 2021, municipal holdings amounted to 165%
of Tier 2 capital, above this limit. The Corporation plans to sell some
municipal bonds to be back within policy guidelines by September 30, 2021.




                                      53

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Corporation's U.S. agency MBS and CMO sectors have fluctuated since June 30,
2020, with MBS decreasing $9.6 million, or 13.3%, and CMOs decreasing $9.0
million, or 19.4%. These two security types both consist of mortgage instruments
that pay monthly interest and principal, however the behavior of the two types
vary according to the structure of the mortgage pool or CMO instrument.
Management desires to maintain a substantial amount of MBS and CMOs in order to
assist in adding to and maintaining a stable five-year ladder of cash flows,
which is important in providing stable liquidity and interest rate risk
positions. Unlike the typical U.S. agency paper, corporate bonds, and
obligations of states and political subdivisions, which only pay principal at
final maturity, the U.S. agency MBS and CMO securities pay contractual monthly
principal and interest, but are also subject to additional prepayment of
principal. The combined effect of all of these instruments paying monthly
principal and interest provides the Corporation with a reasonably stable base
cash flow of approximately $2.5 - $3.0 million per month. Cash flows coming off
of MBS and CMOs do slow down and speed up as interest rates increase or
decrease, which has an impact on the portfolio's length and yield. As interest
rates decline, prepayment of principal on securities increases, the duration of
the security shortens, and the yield declines as more amortization is required
on premium bonds. When interest rates increase, the opposite of this occurs.
Despite the fluctuations that occur in terms of monthly cash flow as a result of
changing prepayment speeds, the monthly cash flow generated by U.S. agency MBS
and CMO securities is reasonably stable and as a group is material, and helps to
soften or smooth out the Corporation's total monthly cash flow from all
securities.



As of June 30, 2021, the fair value of the Corporation's corporate bonds
increased by $21.6 million, or 34.1%, from balances at June 30, 2020. Like any
security, corporate bonds have both positive and negative qualities and
management must evaluate these securities on a risk versus reward basis.
Corporate bonds add diversity to the portfolio and provide strong yields for
short maturities; however, by their very nature, corporate bonds carry a high
level of credit risk should the entity experience financial difficulties.
Management stands to possibly lose the entire principal amount if the entity
that issued the corporate paper fails. As a result of the higher level of credit
risk taken by purchasing a corporate bond, management has in place procedures to
closely analyze the financial health of the company as well as policy
guidelines. The guidelines include both maximum investment by issuer and minimal
credit ratings that must be met in order for management to purchase a corporate
bond. Financial analysis is conducted prior to every corporate bond purchase
with ongoing monitoring performed on all securities held.



By policy, management is to identify and recommend whether to hold or sell
securities with credit ratings that have fallen below minimum policy credit
ratings required at the time of purchase, or below investment grade. Management
monitors the security ratings on a monthly basis and reviews quarterly with the
Board of Directors. Management, with Board approval, determines whether it is in
the Corporation's best interest to continue to hold any security that has fallen
below policy guidelines or below investment grade based on the expectation of
recovery of market value or improved performance. At this time management has
elected, and the Board has approved, holding all securities that have fallen
below initial policy guidelines. As of June 30, 2021, no securities have fallen
below investment grade.



As of June 30, 2021, five of the 44 corporate securities held by the Corporation
showed an unrealized holding loss. These securities with unrealized holding
losses were valued at 99.7% of book value. The Corporation's investment policy
requires that corporate bonds have a minimum credit rating of A3 by Moody's or
A- by S&P or Fitch at the time of purchase, or an average or composite rating of
A-. As of June 30, 2021, all but two of the corporate bonds had at least one A3
or A- rating by one of the two predominate credit rating services, Moody's and
S&P. Two corporate bonds had a total book value of $4.6 million, and did not
have an A3 or A- rating as of June 30, 2021. These bonds were rated Moody's Baa1
and S&P BBB+, which are two levels above the minimum required to be considered
investment grade. Management conducts ongoing monitoring of these securities and
has chosen to continue to hold the bonds with Board approval. In addition, there
are fifteen corporate bond instruments that have split ratings with the highest
rating within the Corporation's initial purchase policy guidelines and the lower
rating outside of management guidelines, but all are still investment grade. The
fifteen bonds have a book value of $24.4 million with a $391,000 unrealized gain
as of June 30, 2021. Management conducts ongoing monitoring of these bonds with
the Board approving holding these securities on a quarterly basis. In addition,
the Corporation purchased $4,900,000 of subordinated debt notes from six
different entities during late 2020 and into 2021, all of which are unrated.
These are considered corporate bonds as they each are subordinated debt of a
domestic community bank but are unrated because they are not a typical corporate
issuance. Currently, there are no indications that any of these bonds would
discontinue contractual payments.



                                      54

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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The Corporation's investment policy requires that municipal bonds not carrying
any insurance coverage have a minimum credit rating of A3 by Moody's or A- by
S&P or Fitch at the time of purchase. As of June 30, 2021, one municipal bond
with a par value of $500,000 was unrated, and no other municipal bonds carried a
credit rating under these levels.



Management utilizes several municipal surveillance reports and engages an
independent non-brokerage service third party to perform enhanced municipal
credit evaluation. Management will typically sell municipal securities if
negative trends in financial performance are found and/or ratings have declined
to levels deemed unacceptable. As a result of the above monitoring and actions
taken to proactively sell weaker municipal credits, the Corporation's entire
municipal bond portfolio consists of investment grade credits.



The entire securities portfolio is reviewed monthly for credit risk and
evaluated quarterly for possible impairment. The Corporation's municipal and
corporate bonds present the largest credit risk and highest likelihood for any
possible impairment. Due to the ability for corporate credit situations to
change rapidly and ongoing nationwide concerns of pension obligations impacting
municipalities, management continues to closely monitor all corporate and
municipal securities.



Loans



Net loans outstanding increased by 3.9%, to $857.1 million at June 30, 2021,
from $825.2 million at June 30, 2020. Net loans increased by 5.7%, an annualized
rate of 11.4%, from $811.0 million at December 31, 2020. The following table
shows the composition of the loan portfolio as of June 30, 2021, December 31,
2020, and June 30, 2020.



LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)



                                           June 30,                 December 31,                 June 30,
                                             2021                       2020                       2020
                                        $            %             $            %             $            %

Commercial real estate
Commercial mortgages                 156,022         17.9       142,698         17.4       125,925         15.1
Agriculture mortgages                178,573         20.5       176,005         21.4       175,108         20.9
Construction                          21,347          2.5        23,441          2.9        20,285          2.4
Total commercial real estate         355,942         40.9       342,144         41.7       321,318         38.4

Consumer real estate (a)
1-4 family residential mortgages     288,301         33.2       263,569    

    32.0       261,772         31.3
Home equity loans                     11,525          1.3        10,708          1.3        10,688          1.3
Home equity lines of credit           71,694          8.2        71,290          8.7        69,507          8.3
Total consumer real estate           371,520         42.7       345,567         42.0       341,967         40.9

Commercial and industrial
Commercial and industrial            102,533         11.8        97,896         11.9       129,459         15.5
Tax-free loans                        16,268          1.9        10,949          1.3        16,607          2.0
Agriculture loans                     17,824          2.1        20,365          2.5        21,581          2.6

Total commercial and industrial      136,625         15.8       129,210    

    15.7       167,647         20.1

Consumer                               5,133          0.6         5,155          0.6         5,061          0.6

Total loans                          869,220        100.0       822,076        100.0       835,993        100.0
Less:

Deferred loan fees (costs), net         (535 )                   (1,294 )  

                    24
Allowance for credit losses           12,703                     12,327                     10,770
Total net loans                      857,052                    811,043                    825,199



(a) Residential real estate loans do not include mortgage loans serviced for

others which totaled $263,005,000 as of June 30, 2021, $235,437,000 as of

December 31, 2020, and $187,258,000 as of June 30, 2020.




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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

There was moderate growth in the loan portfolio since June 30, 2020, and
December 31, 2020. Most major loan categories showed an increase in balances
from both time periods with the exception of the commercial and industrial loans
which showed a decline due to the forgiveness of PPP loans since June 30, 2020.



The consumer residential real estate category represents the largest group of
loans for the Corporation. The consumer residential real estate category of
total loans increased from $342.0 million on June 30, 2020, to $371.5 million on
June 30, 2021, a 8.6% increase. This category includes closed-end fixed rate or
adjustable-rate residential real estate loans secured by 1-4 family residential
properties, including first and junior liens, and floating rate home equity
loans. The 1-4 family residential mortgages account for the vast majority of
residential real estate loans with fixed and floating home equity loans making
up the remainder. Historically, the entire consumer residential real estate
component of the loan portfolio has averaged close to 40% of total loans. As of
June 30, 2020, this percentage was 40.9%, and as of June 30, 2021, it increased
to 42.7%. Management expects the consumer residential real estate category to
stabilize throughout the remainder of 2021. The strategic decision was made in
the first half of 2021 to keep some shorter-term mortgages on the books as
opposed to selling them on the secondary market, which resulted in an increase
in 1-4 family portfolio mortgages. With a number of these long-term assets now
on the balance sheet, management has backed off of this strategy in order to
protect against rising interest rates in the future. Although economic
conditions for consumers have deteriorated with the COVID-19 pandemic, increased
unemployment, and decreased consumer spending, the mortgage market continues to
remain relatively strong as consumers refinance existing debt to lower rates.
Market conditions have been changing rapidly throughout the first half of 2021
and the rest of the year is unpredictable, but management would expect mortgage
volume to continue at fairly high levels from a historic perspective.



The first lien 1-4 family mortgages increased by $26.5 million, or 10.1%, from
June 30, 2020, to June 30, 2021. These first lien 1-4 family loans made up 76.5%
of the residential real estate total as of June 30, 2020, and 77.6% as of June
30, 2021. The vast majority of the first lien 1-4 family closed end loans
consist of single family personal first lien residential mortgages and home
equity loans, with the remainder consisting of 1-4 family residential
non-owner-occupied mortgages. In the second quarter of 2021, mortgage production
increased 22% over the previous quarter and was up 16% over the second quarter
of 2020.  Purchase money origination constituted 70% of the Corporation's
mortgage originations for the quarter, with construction-only and
construction-permanent loans making up 50% of that mix.  With a decrease in
refinance activity as a percentage of overall volume, the percentage of mortgage
originations going in the Corporation's held-for-investment mortgage portfolio
increased quarter-over-quarter, particularly with respect to a higher volume of
new construction business.  In the second quarter of 2021, 70% of all mortgage
originations were held in the mortgage portfolio, 55% of which were adjustable
rate mortgages.  As of June 30, 2021, ARM balances were $129.9 million,
representing 45.1% of the 1-4 family residential loan portfolio of the
Corporation.  The ARM product is beneficial to the Corporation as it limits the
interest rate risk to a much shorter time period. With a small increase in
interest rates, a decrease in volume being delivered into the secondary market,
and a decision by management to move loans originally earmarked for sale on the
secondary market into the bank's own portfolio, the gains on the sale of
mortgages decreased by 35% quarter-over-quarter.



As of June 30, 2021, the remainder of the residential real estate loans
consisted of $11.5 million of fixed rate junior lien home equity loans, and
$71.7 million of variable rate home equity lines of credit (HELOCs). This
compares to $10.7 million of fixed rate junior lien home equity loans, and $69.5
million of HELOCs as of June 30, 2020. Therefore, combined, these two types of
home equity loans increased from $80.2 million to $83.2 million, an increase of
3.7%. The majority of borrowers have been choosing variable rate HELOC loans in
the historically low rate environment. With no sign of the Federal Reserve
moving to increase rates, management expects HELOC activity to increase with
customers choosing variable rate product over fixed rate product until rates
begin to increase again.



Commercial real estate makes up 40.9% of total loans as of June 30, 2021,
compared to 38.4% of total loans as of June 30, 2020. Within the commercial real
estate segment, the increase has primarily been in commercial mortgages, with
agriculture mortgages and construction loans remaining fairly stable.
Agricultural mortgages increased by $3.5 million, or 2.0%, from $175.1 million
as of June 30, 2020, to $178.6 million as of June 30, 2021. Dairy lending is
showing signs of improvement. Locally, 2021 milk prices are trending positively.
Nationally, prices have seen some normality return which is reflected in the
futures price. Over the past 12 months, there has been a small percentage of
dairy farmers that have left the conventional dairy operation and have switched
to organic and/or specialty products. This has opened up new financing
opportunities. While dairy remains the largest agricultural loan concentration,
management believes dairy loans will decline as a percentage of total
agricultural loans with other non-dairy agricultural areas growing.  Currently,
management is experiencing more growth in specialty crops and other areas
outside of dairy like poultry and layers.  Management anticipates that
agricultural mortgages may increase through the remainder of 2021 as the economy
stabilizes and more farmers move forward with capital improvements or expansion
of current operations.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Commercial mortgages increased $30.1 million, or 23.9%, from balances at June
30, 2020. Commercial mortgages as a percentage of the total loan portfolio
increased to 17.9% as of June 30, 2021, compared to 15.1% at June 30, 2020. New
loan production in this segment is currently outpacing normal principal
payments, pay downs, and payoffs. Commercial real estate loans have shown solid
growth as a number of businesses move ahead on commercial projects. Management
expects commercial real estate loans to remain stable as a percentage of the
Corporation's loans for the remainder of 2021.



The Corporation's commercial construction loan balances increased by $1.1
million, or 5.2%, from June 30, 2020 to June 30, 2021. Management was
experiencing some demand for smaller residential builds like construction on
existing lots but no new large scale projects. Commercial construction loans
were 2.5% of the total loan portfolio as of June 30, 2021 and 2.4% as of June
30, 2020.



The other area of commercial lending is non-real estate secured commercial
lending, referred to as commercial and industrial lending. Commercial and
industrial loans not secured by real estate accounted for 15.8% of total loans
as of June 30, 2021, compared to 20.1% as of June 30, 2020. In scope, the
commercial and industrial loan sector, at 15.8% of total loans, is significantly
smaller than the commercial real estate sector at 40.9% of total loans. This is
consistent with management's credit preference for obtaining real estate
collateral when making commercial loans. The balance of total commercial and
industrial loans decreased from $167.6 million at June 30, 2020, to $136.6
million at June 30, 2021, a 18.5% decrease. This category of loans generally
includes unsecured lines of credit, truck, equipment, and receivable and
inventory loans, in addition to tax-free loans to municipalities. The balance at
June 30, 2021 and June 30, 2020, also includes the PPP loans, which has declined
rapidly as these loans are forgiven by the SBA after businesses prove they used
the funds for qualified expenses. Management anticipates that these loans will
experience a significant decline in the remainder of 2021.



The Corporation provides credit to many small and medium-sized businesses. Much
of this credit is in the form of Prime-based lines of credit to local businesses
where the line may not be secured by real estate, but is based on the health of
the borrower with other security interests on accounts receivable, inventory,
equipment, or through personal guarantees. Commercial and industrial loans,
including PPP loans, decreased to $102.5 million at June 30, 2021, a $27.0
million, or 20.8% decrease, from the $129.5 million at June 30, 2020. This
decrease was driven primarily by the forgiveness of some of the first round of
PPP loans during the fourth quarter of 2020 and the first quarter of 2021, but
new loan generation during the first half of 2021 offset some of the forgiven
balances. The tax-free loans declined by $0.3 million, or 2.0%, from balances at
June 30, 2020, and the commercial and industrial agricultural loans declined by
$3.8 million, or 17.4%.



The consumer loan portfolio remained the same from June 30, 2020, to June 30,
2021, at $5.1 million. Consumer loans made up 0.6% of total loans for both time
periods. The long-term trend over the past decade has seen homeowners turning to
the equity in their homes to finance cars and education rather than traditional
consumer loans that are generally unsecured. Slightly higher demand for
unsecured credit is being outpaced by principal payments on existing loans
resulting in the decrease in balances. Management anticipates that the
Corporation's level of consumer loans will likely remain stable as a percentage
of the portfolio, as the need for additional unsecured credit is generally
offset by those borrowers wishing to reduce debt levels and move away from the
higher cost of unsecured financing relative to other forms of real estate
secured financing.





Non-Performing Assets


Non-performing assets include:





 · Nonaccrual loans

· Loans past due 90 days or more and still accruing

· Non-performing troubled debt restructurings




 · Other real estate owned




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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis


NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)



                                                         June 30,      December 31,     June 30,
                                                           2021            2020           2020
                                                             $              $               $

Nonaccrual loans                                              651              725           886

Loans past due 90 days or more and still accruing             287            1,373           309
Troubled debt restructurings, non-performing                    -                -           439
Total non-performing loans                                    938          

 2,098         1,634

Other real estate owned                                         -                -             -

Total non-performing assets                                   938          

2,098 1,634


Non-performing assets to net loans                           0.11 %        

  0.25 %        0.38 %




The total balance of non-performing assets decreased by $0.7 million, or 42.7%,
and $1.2 million, or 55.3%, from balances at June 30, 2020 and December 31,
2020, respectively. The decrease from the prior periods was primarily due to
lower levels of loans past due 90 days or more as well as a decrease in
non-performing troubled debt restructurings (TDRs). There were no non-performing
TDR loans as of June 30, 2021 or December 31, 2020. A TDR is a loan where
management has granted a concession to the borrower from the original terms. A
concession is generally granted in order to improve the financial position of
the borrower and improve the likelihood of full collection by the lender. There
was one non-performing TDR as of June 30, 2020; a $439,000 real estate secured
loan with a payment modification to allow annual interest and principal
payments. Non-accrual loans decreased, by $0.2 million, or 26.5%, since June 30,
2020, and loans past due 90 days or more and still accruing were down slightly
from the prior year period, and down more significantly, by $1.1 million, or
79.2% since December 31, 2020. The $1.1 million of non-accrual reduction that
occurred between June 30, 2020 and December 31, 2020 was due to two commercial
borrowers paying off their loans during the remainder of 2020. One commercial
borrower with three non-accrual loans totaling over $1.0 million paid them off
in the second quarter of 2020, while another commercial borrower with a $92,000
non-accrual loan was paid off in December 2020.



Management continues to monitor delinquency trends and the level of non-performing loans closely. At this time, management believes that the potential for material losses related to non-performing loans is decreasing with the level of delinquencies and non-performing loans lower than what was experienced throughout 2020.

There was no other real estate owned (OREO) as of June 30, 2021, December 31, 2020, or June 30, 2020.







Allowance for Credit Losses



The allowance for credit losses is established to cover any losses inherent in
the loan portfolio. Management reviews the adequacy of the allowance each
quarter based upon a detailed analysis and calculation of the allowance for
credit losses. This calculation is based upon a systematic methodology for
determining the allowance for credit losses in accordance with generally
accepted accounting principles. The calculation includes estimates and is based
upon losses inherent in the loan portfolio. The allowance calculation includes
specific provisions for under-performing loans and general allocations to cover
anticipated losses on all loan types based on historical losses. The calculation
is also influenced by nine qualitative factors that are adjusted on a quarterly
basis as needed. Based on the quarterly credit loss calculation, management will
adjust the allowance for credit losses through the provision as necessary.
Changes to the allowance for credit losses during the year are primarily
affected by five main factors:



 · Historical loan losses

· Qualitative factor adjustments including levels of delinquent and

non-performing loans

· Growth trends of the loan portfolio

· Recovery of loans previously charged off




 · Provision for loan losses




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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Strong credit and collateral policies have been instrumental in producing a
favorable history of loan losses for the Corporation. The Allowance for Credit
Losses table below shows the activity in the allowance for credit losses for the
six-month periods ended June 30, 2021 and June 30, 2020. At the bottom of the
table, two benchmark percentages are shown. The first is net charge-offs as a
percentage of average loans outstanding for the year. The second is the total
allowance for credit losses as a percentage of total loans.



ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

                                                              Six Months Ended
                                                                   June 30
                                                              2021         2020
                                                               $            $

Balance at January 1,                                         12,327        9,447
Loans charged off:
Real estate                                                        -            -
Commercial and industrial                                          -            -
Consumer                                                          23           16
Total charged off                                                 23           16

Recoveries of loans previously charged off:
Real estate                                                        -          (11 )
Commercial and industrial                                        (17 )         (2 )
Consumer                                                          (7 )         (1 )
Total recovered                                                  (24 )        (14 )

Net loans charged off (recovered)                                 (1 )     

2


Provision charged to operating expense                           375       

1,325

Balance at June 30,                                           12,703       10,770

Net charge-offs as a % of average total loans outstanding 0.00 %

0.00 %


Allowance at end of period as a % of total loans                1.46 %     

 1.29 %




Charge-offs for the six months ended June 30, 2021, were $23,000, compared to
$16,000 for the same period in 2020. Management typically charges off unsecured
debt over 90 days delinquent with little likelihood of recovery. In the first
half of 2021 and 2020, the Corporation charged off several smaller amounts
related to consumer loans. Recoveries were also low in the first half of 2020
and 2021with total recoveries of $24,000 in the first half of 2021 and $14,000
in the first quarter of 2020.



The allowance as a percentage of total loans represents the portion of the total
loan portfolio for which an allowance has been provided. Management regularly
reviews the overall risk profile of the loan portfolio and the impact that
current economic trends have on the Corporation's loans. The financial industry
typically evaluates the quality of loans on a scale with "unclassified"
representing healthy loans, "special mention" being the first indication of
credit concern, and several successive classified ratings indicating further
credit declines of "substandard," "doubtful," and, ultimately, "loss."



The Corporation's level of classified loans was $22.2 million on June 30, 2021,
compared to $25.1 million on June 30, 2020. Total classified loans increased
during 2020 but then decreased by December 31, 2020, and into the first half of
2021. Having more loans in a classified status could result in a larger
allowance as higher amounts of projected historical losses and qualitative
factors are attached to these loans. In addition to this impact, management
performs a specific allocation test on these classified loans. There was $1.1
million of specifically allocated allowance against the classified loans as of
June 30, 2021, $1.1 million of specific allocation as of December 31, 2020, and
$64,000 of specific allocation as of June 30, 2020. The higher specific
allocation at June 30, 2021 and December 31, 2020, is related to a customer with
ongoing business concerns. Typically, as the classified loan balances fluctuate,
the associated specific allowance applied to them fluctuates, resulting in a
lower or higher required allowance.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The net charge-offs as a percentage of average total loans outstanding indicates
the percentage of the Corporation's total loan portfolio that has been charged
off during the period, after reducing charge-offs by recoveries. The Corporation
continues to experience low net charge-off percentages due to strong credit
practices. Management continually monitors delinquencies, classified loans, and
non-performing loans closely in regard to how they may impact charge-offs in the
future. The actual charge-offs have been running at low levels, and management
expects this to continue through the remainder of 2021. Management practices are
in place to reduce the number and severity of losses. In regard to severely
delinquent loans, management attempts to improve the Corporation's collateral or
credit position and, in the case of a loan workout, intervene to minimize
additional charge-offs.



The allowance as a percentage of total loans was 1.46% as of June 30, 2021,
1.50% as of December 31, 2020, and 1.29% as of June 30, 2020. Management
anticipates that the allowance percentage will remain fairly stable during the
remainder of 2021, as the allowance balance is increased with additional
provision expense to account for loan growth throughout the year. It is typical
for the allowance for credit losses to contain a small amount of excess
reserves. Over the long term, management targets and excess reserve at
approximately 5% knowing that the reserve can fluctuate. The excess reserve
stood at 4.7% as of June 30, 2021. Management would anticipate that this
unallocated portion of the allowance will remain stable throughout the remainder
of 2021.





Premises and Equipment



Premises and equipment, net of accumulated depreciation, decreased by $0.2
million, or 0.8%, to $24.7 million as of June 30, 2021, from $24.9 million as of
June 30, 2020. As of June 30, 2021, $379,000 was classified as construction in
process compared to $178,000 as of June 30, 2020. Fixed assets declined as a
result of depreciation outpacing new purchases in 2021.





Regulatory Stock



The Corporation owns multiple forms of regulatory stock that is required in
order to be a member of the Federal Reserve Bank (FRB) and members of banks such
as the Federal Home Loan Bank (FHLB) and Atlantic Community Bankers Bank (ACBB).
The Corporation's $5.9 million of regulatory stock holdings as of June 30, 2021,
consisted of $5.3 million of FHLB of Pittsburgh stock, $601,000 of FRB stock,
and $37,000 of Atlantic Community Bancshares, Inc. stock, the Bank Holding
Company of ACBB. All of these stocks are valued at a stable dollar price, which
is the price used to purchase or liquidate shares; therefore, the investment is
carried at book value and there is no fair market value adjustment.



The Corporation's investment in FHLB stock is required for membership in the
organization. The amount of stock required is dependent upon the relative size
of outstanding FHLB borrowings and mortgage activity. Excess stock is typically
repurchased from the Corporation at par if the borrowings decline to a
predetermined level. The Corporation's FHLB stock position was $5.2 million on
June 30, 2021, $5.9 million on December 31, 2020, and $6.8 million on June 30,
2020, with no excess capital stock position. Any future stock repurchases would
be the result of lower borrowing balances. Stock repurchases by the FHLB occur
every quarter.


The 2021 second quarter dividend declaration made on FHLB stock by FHLB of Pittsburgh was at a 5.75% annualized yield on activity stock and 2.50% annualized yield on membership stock. Most of the Corporation's dividend is based on the activity stock, which is based on the amount of borrowings and mortgage activity with FHLB.







Deposits



The Corporation's total ending deposits at June 30, 2021, increased by $116.1
million, or 9.3%, and by $261.0 million, or 23.6%, from December 31, 2020, and
June 30, 2020, respectively. Customer deposits are the Corporation's primary
source of funding for loans and securities. In the past few years, the economic
concerns and volatility of the equity markets continued to lead customers to
banks for safe places to invest money, despite historically low interest rates.
The mix of the Corporation's deposit categories has changed moderately since
June 30, 2020, with the changes being a $116.4 million, or 24.9% increase in
non-interest bearing demand deposit accounts, a $14.3 million, or 34.9% increase
in interest bearing demand balances, a $26.6 million, or 25.4% increase in NOW
balances, a $39.0 million, or 31.7% increase in money market account balances, a
$73.5 million, or 29.8% increase in savings account balances, and a $8.8
million, or 7.0% decrease in time deposit balances.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

The growth across most categories of core deposit accounts is a direct result of
the PPP funding, government stimulus payments, and the change in customer's
spending habits during the uncertain economic conditions brought on by COVID-19.
Due to limited safe investment options outside of banks, the Corporation saw
customers bring deposit funds back to regular core checking and savings accounts
in an effort to provide safety and financial flexibility. With the decrease in
rates that occurred during 2020, customer deposits increased with few options in
the market to earn a higher return. Customers view demand deposit, money market
and savings accounts as the safest, most convenient place to maintain funds for
maximum flexibility. Management believes deposit balances may continue to
increase, but at a slower pace, through the remainder of 2021.



The Deposits by Major Classification table, shown below, provides the balances of each category for June 30, 2021, December 31, 2020, and June 30, 2020.

DEPOSITS BY MAJOR CLASSIFICATION



(DOLLARS IN THOUSANDS)



                                 June 30,        December 31,       June 30,
                                   2021              2020             2020
                                     $                $                 $

Non-interest bearing demand         582,747            534,853         466,392
Interest bearing demand              55,419             47,092          41,083
NOW accounts                        131,151            137,279         104,593
Money market deposit accounts       162,247            140,113         123,212
Savings accounts                    320,252            274,386         246,762
Time deposits                       117,068            119,088         125,872
Total deposits                    1,368,884          1,252,811       1,107,914



The growth and mix of deposits is often driven by several factors including:

· Convenience and service provided

· Current rates paid on deposits relative to competitor rates

· Level of and perceived direction of interest rates

· Financial condition and perceived safety of the institution

· Possible risks associated with other investment opportunities

· Level of fees on deposit products






The Corporation has been a stable presence in the local market area that has
experienced several large bank mergers over the past several years. Three new
convenient locations were added since 2016, significantly expanding the
Corporation's footprint, with a presence in three counties with a total of
thirteen branch locations. The Corporation has a history of offering competitive
interest rates and fair and understandable service fees because of a strong
commitment to the customers and the communities that it serves. Management has
always priced products and services in a manner that makes them affordable for
all customers. This in turn creates a high degree of customer loyalty and a
stable deposit base. Additionally, as financial institutions have come under
increased scrutiny from both regulators and customers, the Corporation has
maintained an outstanding reputation. Management believes the Corporation's
deposit base has benefited as a result of a growing desire by customers to seek
a longstanding, reliable financial institution as a partner to meet their
financial needs.



Time deposits are typically a more rate-sensitive product, making them a source
of funding that is prone to balance variations depending on the interest rate
environment and how the Corporation's time deposit rates compare with the local
market rates. Time deposits fluctuate as consumers search for the best rates in
the market, with less allegiance to any particular financial institution. As of
June 30, 2021, time deposit balances had decreased $8.8 million, or 7.0%, from
June 30 2020, and decreased $2.0 million, or 1.7% from December 31, 2020. The
Corporation has experienced a slow and steady shift in deposit trends over the
past five years as customers have moved money from time deposits into core
checking and savings accounts. With the Federal Reserve rate decreases in 2020,
there is minimal differences between shorter term CD rates and interest bearing
non-maturity deposits, influencing customers to accumulate their funds in a
liquid account that can be accessed at any time. This has resulted in declining
time deposit balances and more significant growth in the core deposit areas.



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                               ENB FINANCIAL CORP

                      Management's Discussion and Analysis

Borrowings



Total borrowings were $69.8 million, $74.4 million, and $65.1 million as of June
30, 2021, December 31, 2020, and June 30, 2020, respectively. Of these amounts,
there were no short-term funds outstanding as of June 30, 2021, December 31,
2020 or June 30, 2020. Short-term funds are used for immediate liquidity needs
and are not typically part of an ongoing liquidity or interest rate risk
strategy; therefore, they fluctuate more rapidly. When short-term funds are
used, they are purchased through correspondent and member bank relationships as
overnight borrowings or through the FHLB for terms less than one year.



Total long-term borrowings, borrowings initiated for terms longer than one year,
were $50.2 million as of June 30, 2021, $54.8 million as of December 31, 2020,
and $65.1 million as of June 30, 2020. The long-term borrowings for the
Corporation were made up entirely of FHLB long-term advances at June 30, 2021,
December 31, 2020, and June 30, 2020. FHLB advances are used as a secondary
source of funding and to mitigate interest rate risk. These long-term funding
instruments are typically a more effective funding instrument in terms of
selecting the exact amount, rate, and term of funding rather than trying to
source the same through deposits. In this manner, management can efficiently
meet known liquidity and interest rate risk needs. The decrease in FHLB
borrowings since June 30, 2020, can be attributed to management taking advantage
of declining rates by prepaying FHLB advances and incurring penalties in order
to save on interest expense in future years.



In order to limit the Corporation's exposure and reliance to a single funding
source, the Corporation's Asset Liability Policy sets a goal of maintaining the
amount of borrowings from the FHLB to 15% of asset size. As of June 30, 2021,
the Corporation was significantly under this policy guideline at 3.2% of asset
size with $50.2 million of total FHLB borrowings. The Corporation also has a
policy that limits total borrowings from all sources to 150% of the
Corporation's capital. As of June 30, 2021, the Corporation was significantly
under this policy guideline at 51.4% of capital with $69.8 million total
borrowings from all sources. The Corporation has maintained FHLB borrowings and
total borrowings well within these policy guidelines throughout all of 2020 and
through the first six months of 2021.



The Corporation continues to be well under the FHLB maximum borrowing capacity
(MBC), which is currently $440.6 million. The Corporation's two internal policy
limits mentioned above are far more restrictive than the FHLB MBC, which is
calculated and set quarterly by FHLB.



In addition to the long-term advances funded through the FHLB, on December 30,
2020, the Corporation completed the sale of a subordinated debt note offering.
The Corporation sold $20.0 million of subordinated debt notes with a maturity
date of December 30, 2030. These notes are non-callable for 5 years and carry a
fixed interest rate of 4% per year for 5 years and then convert to a floating
rate for the remainder of the term. The notes can be redeemed at par beginning 5
years prior to maturity. The notes are structured to qualify as Tier 2 capital
for the Corporation and any funds it invests in the Bank qualify as Tier 1
capital at the Bank. As of June 30, 2021, $15.0 million of funds were invested
in the Bank. The Corporation paid an issuance fee of 2% of the total issue that
will be amortized to the call date on a pro-rata basis.





Stockholders' Equity



Federal regulatory authorities require banks to meet minimum capital levels. The
Corporation, as well as the Bank, as the solely owned subsidiary of the
Corporation, maintains capital ratios well above those minimum levels. The
risk-weighted capital ratios are calculated by dividing capital by total
risk-weighted assets. Regulatory guidelines determine the risk-weighted assets
by assigning assets to specific risk-weighted categories. The calculation of
tier I capital to risk-weighted average assets does not include an add-back to
capital for the amount of the allowance for credit losses, thereby making this
ratio lower than the total capital to risk-weighted assets ratio.



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The following tables reflect the capital ratios for the Corporation and Bank compared to the regulatory capital requirements.





REGULATORY CAPITAL RATIOS:



                                                                              Regulatory Requirements
                                                                            Adequately          Well
As of June 30, 2021                                      Capital Ratios     Capitalized      Capitalized
Total Capital to Risk-Weighted Assets
Consolidated                                                      16.1 %          8.0 %            10.0 %
Bank                                                              15.6 %          8.0 %            10.0 %

Tier 1 Capital to Risk-Weighted Assets
Consolidated                                                      12.9 %          6.0 %             8.0 %
Bank                                                              14.3 %          6.0 %             8.0 %

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated                                                      12.9 %          4.5 %             6.5 %
Bank                                                              14.3 %          4.5 %             6.5 %

Tier 1 Capital to Average Assets
Consolidated                                                       8.3 %          4.0 %             5.0 %
Bank                                                               9.2 %          4.0 %             5.0 %

As of December 31, 2020
Total Capital to Risk-Weighted Assets
Consolidated                                                      16.1 %          8.0 %            10.0 %
Bank                                                              15.3 %          8.0 %            10.0 %

Tier I Capital to Risk-Weighted Assets
Consolidated                                                      12.8 %          6.0 %             8.0 %
Bank                                                              14.0 %          6.0 %             8.0 %

Common Equity Tier I Capital to Risk-Weighted Assets
Consolidated                                                      12.8 %          4.5 %             6.5 %
Bank                                                              14.0 %          4.5 %             6.5 %

Tier I Capital to Average Assets
Consolidated                                                       9.0 %          4.0 %             5.0 %
Bank                                                               9.8 %          4.0 %             5.0 %


As of June 30, 2020
Total Capital to Risk-Weighted Assets
Consolidated                                                      13.4 %          8.0 %            10.0 %
Bank                                                              13.3 %          8.0 %            10.0 %

Tier 1 Capital to Risk-Weighted Assets
Consolidated                                                      12.3 %          6.0 %             8.0 %
Bank                                                              12.1 %          6.0 %             8.0 %

Common Equity Tier 1 Capital to Risk-Weighted Assets
Consolidated                                                      12.3 %          4.5 %             6.5 %
Bank                                                              12.1 %          4.5 %             6.5 %

Tier 1 Capital to Average Assets
Consolidated                                                       9.3 %          4.0 %             5.0 %
Bank                                                               9.2 %          4.0 %             5.0 %




On December 30, 2020, the Corporation issued $20 million of subordinated debt in
order to support capital levels which had declined due to the dramatic balance
sheet growth that had occurred during 2020. The $20 million of subordinated debt
qualifies as Tier 2 capital at the Holding Company level. Amounts of the
subordinated debt can be transferred to the Bank where it qualifies as Tier 1
Capital. As of June 30, 2021, $15.0 million of this subordinated debt funding
was transferred down to the Bank to rebuild the Bank's capital levels. As of
June 30, 2021 the Bank's Tier 1 Leverage Ratio stood at 9.2% while the
Corporation's Tier 1 Leverage Ratio was 8.3%. The Bank's Tier 1 Leverage Ratio
policy range is 9.0% to 12.0% while the Corporation's Tier 1 Leverage Ratio
policy range is 8.0% - 12.0%. Tier 1 Capital levels at the Corporation level
were not impacted by the subordinated debt issue since subordinated debt only
qualifies as Tier 2 Capital at the Corporate level. As such, in terms of the
Corporation's regulatory capital ratios, only the Total Capital to Risk-Weighted
Assets ratio was enhanced as a result of the $20 million subordinated debt
issue. Most of the marked improvement in capital ratios occurred at the Bank
level.

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                      Management's Discussion and Analysis

Dividends play a vital role in the management of capital levels of the
Corporation. Management seeks a balance between maintaining a sufficient cushion
of excess capital above regulatory limits versus the payment of dividends to the
shareholders as a direct return of their investment. Due to a constant stream of
stable earnings, the payment of a dividend is needed to maintain capital at
acceptable levels in order to provide an adequate return of equity to the
shareholders.



The Corporation's dividends per share for the six months ended June 30, 2021,
were $0.33, and the dividends per share for the six months ended June 30, 2020,
were $0.32. Dividends are paid from current earnings and available retained
earnings. The Corporation's current capital plan calls for management to
maintain tier I capital to average assets between 8.0% and 12.0%. As a secondary
measurement, the capital plan also targets a long-term dividend payout ratio in
the range of 30% to 45%. This ratio will vary according to income, but over the
long term, the Corporation's goal is to maintain and target a payout ratio
within this range. For the six months ended June 30, 2021, the payout ratio was
22.8%. This dividend payout ratio is low as a result of the higher earnings in
the first half of 2021, some of which are non-recurring. Management currently
anticipates that the payout ratio may return to more normal levels as 2021
progresses. Management's goal is to maintain all regulatory capital ratios at
current levels. Future dividend payout ratios are dependent on the future level
of earnings and other factors that impact the level of capital.



The amount of unrealized gain or loss on the securities portfolio is reflected,
net of tax, as an adjustment to capital, as required by U.S. generally accepted
accounting principles. This is recorded as accumulated other comprehensive
income or loss in the capital section of the consolidated balance sheet. An
unrealized gain increases capital, while an unrealized loss reduces capital.
This requirement takes the position that, if the Corporation liquidated the
securities portfolio at the end of each period, the current unrealized gain or
loss on the securities portfolio would directly impact the Corporation's
capital. As of June 30, 2021, the Corporation showed an unrealized gain, net of
tax, of $7,362,000, compared to an unrealized gain of $7,958,000 at December 31,
2020, and an unrealized gain of $4,522,000 as of June 30, 2020. These unrealized
gains, net of tax are excluded from capital when calculating the tier I capital
to average assets numbers above. The amount of unrealized gain or loss on the
securities portfolio, shown net of tax, as an adjustment to capital, does not
include any actual impairment taken on securities, which is shown as a reduction
to income on the Corporation's Consolidated Statements of Income. No impairment
was recorded in the six months ended June 30, 2021, or in the same prior year
period. The changes in unrealized gains and losses are due to normal changes in
market valuations of the Corporation's securities as a result of interest rate
movements.




Off-Balance Sheet Arrangements


In the normal course of business, the Corporation typically has off-balance
sheet arrangements related to loan funding commitments. These arrangements may
impact the Corporation's financial condition and liquidity if they were to be
exercised within a short period of time. As discussed in the following liquidity
section, the Corporation has in place sufficient liquidity alternatives to meet
these obligations. The following table presents information on the commitments
by the Corporation as of June 30, 2021.

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                      Management's Discussion and Analysis

OFF-BALANCE SHEET ARRANGEMENTS



(DOLLARS IN THOUSANDS)



                                 June 30,
                                   2021
                                     $
Commitments to extend credit:
Revolving home equity             139,733
Construction loans                  3,258
Real estate loans                 133,014
Business loans                    175,129
Consumer loans                      1,279
Other                               5,022
Standby letters of credit          11,295

Total                             468,730






Significant Legislation


Dodd-Frank Wall Street Reform and Consumer Protection Act





In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act
(Dodd-Frank) was signed into law. Dodd-Frank is intended to affect a fundamental
restructuring of federal banking regulation. Among other things, Dodd-Frank
creates a new Financial Stability Oversight Council to identify systemic risks
in the financial system and gives federal regulators new authority to take
control of and liquidate financial firms. Dodd-Frank additionally creates a new
independent federal regulator to administer federal consumer protection laws.
Dodd-Frank is expected to have a significant impact on the Corporation's
business operations as its provisions take effect. It is difficult to predict at
this time what specific cumulative impact Dodd-Frank and the yet-to-be-written
implementing rules and regulations will have on community banks. However, it is
expected that, at a minimum, they will increase the Corporation's operating and
compliance costs and could increase interest expense. Among the provisions that
have already or are likely to affect the Corporation are the following:



Holding Company Capital Requirements



Dodd-Frank requires the Federal Reserve to apply consolidated capital
requirements to bank holding companies that are no less stringent than those
currently applied to depository institutions. Under these standards, trust
preferred securities will be excluded from tier I capital unless such securities
were issued prior to May 19, 2010, by a bank holding company with less than
$15 billion in assets. Dodd-Frank additionally requires that bank regulators
issue countercyclical capital requirements so that the required amount of
capital increases in times of economic expansion and decreases in times of
economic contraction, are consistent with safety and soundness.



Deposit Insurance



Dodd-Frank permanently increased the maximum deposit insurance amount for banks,
savings institutions, and credit unions to $250,000 per depositor. Additionally,
on February 7, 2011, the Board of Directors of the FDIC approved a final rule
based on the Dodd-Frank Act that revises the assessment base from one based on
domestic deposits to one based on assets. This change, which was effective in
April 2011, saved the Corporation a significant amount of FDIC insurance
premiums from the significantly higher FDIC insurance premiums placed into
effect after the financial crisis.



Corporate Governance



Dodd-Frank requires publicly traded companies to give stockholders a non-binding
vote on executive compensation at least every three years, a non-binding vote
regarding the frequency of the vote on executive compensation at least every six
years, and a non-binding vote on "golden parachute" payments in connection with
approvals of mergers and acquisitions unless previously voted on by
shareholders. The SEC has finalized the rules implementing these requirements
which took effect on January 21, 2011. The Corporation was exempt from these
requirements until January 21, 2013, due to its status as a smaller reporting
company. Additionally, Dodd-Frank directs the federal banking regulators to
promulgate rules prohibiting excessive compensation paid to executives of
depository institutions and their holding companies with assets in excess of
$1.0 billion, regardless of whether the company is publicly traded. Dodd-Frank
also gives the SEC authority to prohibit broker discretionary voting on
elections of directors and executive compensation matters.



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                      Management's Discussion and Analysis

Limits on Interchange Fees


Dodd-Frank amended the Electronic Fund Transfer Act to, among other things, give
the Federal Reserve the authority to establish rules regarding interchange fees
charged for electronic debit transactions by payment card issuers having assets
over $10 billion and to enforce a new statutory requirement that such fees be
reasonable and proportional to the actual cost of a transaction to the issuer.



Consumer Financial Protection Bureau



Dodd-Frank created the Consumer Financial Protection Bureau (CFPB), which is
granted broad rulemaking, supervisory and enforcement powers under various
federal consumer financial protection laws, including the Equal Credit
Opportunity Act, Truth in Lending Act, Real Estate Settlement Procedures Act,
Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial
Privacy Provisions of the Gramm-Leach-Bliley Act, and certain other statutes.
The CFPB has examination and primary enforcement authority with respect to
depository institutions with $10 billion or more in assets. Smaller institutions
will be subject to rules promulgated by the CFPB but will continue to be
examined and supervised by federal banking regulators for consumer compliance
purposes. The CFPB will have authority to prevent unfair, deceptive, or abusive
practices in connection with the offering of consumer financial products.
Dodd-Frank authorizes the CFPB to establish certain minimum standards for the
origination of residential mortgages including a determination of the borrower's
ability to repay. In addition, Dodd-Frank will allow borrowers to raise certain
defenses to foreclosure if they receive any loan other than a "qualified
mortgage" as defined by the CFPB. Dodd-Frank permits states to adopt consumer
protection laws and standards that are more stringent than those adopted at the
federal level and, in certain circumstances, permits state attorneys general to
enforce compliance with both the state and federal laws and regulations.



Prohibition Against Charter Conversions of Troubled Institutions


Dodd-Frank prohibits a depository institution from converting from a state to
federal charter or vice versa while it is the subject of a cease and desist
order or other formal enforcement action or a memorandum of understanding with
respect to a significant supervisory matter unless the appropriate federal
banking agency gives notice of the conversion to the federal or state authority
that issued the enforcement action and that agency does not object within 30
days. The notice must include a plan to address the significant supervisory
matter. The converting institution must also file a copy of the conversion
application with its current federal regulator which must notify the resulting
federal regulator of any ongoing supervisory or investigative proceedings that
are likely to result in an enforcement action and provide access to all
supervisory and investigative information relating thereto.



Interstate Branching



Dodd-Frank authorizes national and state banks to establish branches in other
states to the same extent as a bank chartered by that state would be permitted.
Previously, banks could only establish branches in other states if the host
state expressly permitted out-of-state banks to establish branches in that
state. Accordingly, banks will be able to enter new markets more freely.



Limits on Interstate Acquisitions and Mergers


Dodd-Frank precludes a bank holding company from engaging in an interstate
acquisition - the acquisition of a bank outside its home state - unless the bank
holding company is both well capitalized and well managed. Furthermore, a bank
may not engage in an interstate merger with another bank headquartered in
another state unless the surviving institution will be well capitalized and well
managed. The previous standard in both cases was adequately capitalized and

adequately managed.



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                      Management's Discussion and Analysis

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