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EX-31.1 - EX-31.1 - ENB Financial Corpex31-1.htm
EX-32.1 - EX-32.1 - ENB Financial Corpex32-1.htm
EX-32.2 - EX-32.2 - ENB Financial Corpex32-2.htm
EX-31.2 - EX-31.2 - ENB Financial Corpex31-2.htm

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

 

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

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

 

For the quarterly period ended June 30, 2015

OR

 

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

 

For the transition period from _________________________ to _________________________

 

 

ENB Financial Corp

(Exact name of registrant as specified in its charter)

 

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

 

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

 

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

 

 

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

Yes x         No o

 

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

Yes x         No o

 

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

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

 

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

Yes o         No x

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of August 7, 2015, the registrant had 2,854,302 shares of $0.20 (par) Common Stock outstanding.

 

 

ENB FINANCIAL CORP

INDEX TO FORM 10-Q

June 30, 2015

 

 

Part I – FINANCIAL INFORMATION  
       
  Item 1. Financial Statements  
       
  Consolidated Balance Sheets at June 30, 2015 and 2014 and December 31, 2014 (Unaudited) 3
       
  Consolidated Statements of Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited) 4
       
  Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2015 and 2014 (Unaudited)   5
       
  Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014 (Unaudited) 6
       
  Notes to the Unaudited Consolidated Interim Financial Statements  7-33
       
  Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   34-67
       
  Item 3. Quantitative and Qualitative Disclosures about Market Risk 68-72
       
  Item 4. Controls and Procedures 73
       
       
       
Part II – OTHER INFORMATION 74
       
  Item 1. Legal Proceedings 74
       
  Item 1A. Risk Factors 74
       
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 74
       
  Item 3. Defaults Upon Senior Securities 74
       
  Item 4. Mine Safety Disclosures 74
       
  Item 5. Other Information 74
       
  Item 6. Exhibits 75
       
       
SIGNATURE PAGE 76
       
EXHIBIT INDEX 77

 

2

Index 

 

ENB FINANCIAL CORP

 

CONSOLIDATED BALANCE SHEETS (UNAUDITED)

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

 

   June 30,   December 31,   June 30, 
   2015   2014   2014 
   $   $   $ 
ASSETS               
Cash and due from banks   12,497    16,727    14,663 
Interest-bearing deposits in other banks   24,469    26,685    30,358 
                
   Total cash and cash equivalents   36,966    43,412    45,021 
                
Securities available for sale (at fair value)   296,059    295,822    307,797 
                
Loans held for sale   1,294    506    108 
                
Loans (net of unearned income)   484,803    471,168    448,150 
                
   Less: Allowance for loan losses   7,249    7,141    6,968 
                
   Net loans   477,554    464,027    441,182 
                
Premises and equipment   22,045    22,447    22,606 
Regulatory stock   4,037    3,227    4,034 
Bank owned life insurance   23,449    20,603    20,239 
Other assets   8,284    7,164    9,475 
                
       Total assets   869,688    857,208    850,462 
                
LIABILITIES AND STOCKHOLDERS' EQUITY               
                
Liabilities:               
  Deposits:               
    Noninterest-bearing   207,826    210,444    183,149 
    Interest-bearing   494,724    489,207    500,552 
                
    Total deposits   702,550    699,651    683,701 
                
  Short-term borrowings   4,930        5,410 
  Long-term debt   67,094    62,300    69,150 
  Other liabilities   2,408    2,490    2,586 
                
       Total liabilities   776,982    764,441    760,847 
                
Stockholders' equity:               
  Common stock, par value $0.20;               
Shares:  Authorized 12,000,000               
             Issued 2,869,557 and Outstanding 2,853,869               
          (Issued 2,869,557 and Outstanding 2,856,836 as of 12/31/14)               
          (Issued 2,869,557 and Outstanding  2,856,993 as of 6/30/14)   574    574    574 
  Capital surplus   4,388    4,375    4,361 
  Retained earnings   88,721    87,200    85,229 
  Accumulated other comprehensive income (loss), net of tax   (481)   1,002    (189)
  Less: Treasury stock cost on 15,688 shares (12,721 shares               
   as of 12/31/14 and 12,564 shares as of 6/30/14)   (496)   (384)   (360)
                
       Total stockholders' equity   92,706    92,767    89,615 
                
       Total liabilities and stockholders' equity   869,688    857,208    850,462 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

3

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

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

 

   Three Months ended June 30,   Six Months ended June 30, 
   2015   2014   2015   2014 
   $   $   $   $ 
Interest and dividend income:                    
Interest and fees on loans   5,026    4,817    9,975    9,596 
Interest on securities available for sale                    
Taxable   804    1,063    1,804    2,222 
Tax-exempt   805    849    1,571    1,720 
Interest on deposits at other banks   19    19    33    27 
Dividend income   64    77    207    132 
                     
Total interest and dividend income   6,718    6,825    13,590    13,697 
                     
Interest expense:                    
Interest on deposits   610    777    1,284    1,566 
Interest on borrowings   341    440    681    868 
                     
Total interest expense   951    1,217    1,965    2,434 
                     
Net interest income   5,767    5,608    11,625    11,263 
                     
Provision (credit) for loan losses   100    (100)   300    (300)
                     
Net interest income after provision (credit) for loan losses   5,667    5,708    11,325    11,563 
                     
Other income:                    
Trust and investment services income   316    285    671    650 
Service fees   485    424    886    814 
Commissions   503    494    968    960 
Gains on securities transactions, net   600    582    1,161    1,267 
Impairment losses on securities:                    
Impairment gains on investment securities               15 
Non-credit related losses on securities not expected                    
to be sold in other comprehensive income before tax               (37)
Net impairment losses on investment securities               (22)
Gains on sale of mortgages   236    92    389    130 
Earnings on bank-owned life insurance   174    159    334    314 
Other income   80    132    186    235 
                     
Total other income   2,394    2,168    4,595    4,348 
                     
Operating expenses:                    
Salaries and employee benefits   3,674    3,481    7,376    6,911 
Occupancy   524    459    1,078    975 
Equipment   298    268    566    528 
Advertising & marketing   161    125    317    255 
Computer software & data processing   384    396    758    795 
Shares tax   195    183    391    366 
Professional services   437    353    754    680 
Other expense   514    524    1,097    1,077 
                     
Total operating expenses   6,187    5,789    12,337    11,587 
                     
Income before income taxes   1,874    2,087    3,583    4,324 
                     
Provision for federal income taxes   278    347    521    746 
                     
Net income   1,596    1,740    3,062    3,578 
                     
Earnings per share of common stock   0.56    0.61    1.07    1.25 
                     
Cash dividends paid per share   0.27    0.27    0.54    0.53 
                     
Weighted average shares outstanding   2,852,353    2,854,878    2,854,804    2,854,498 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

4

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(DOLLARS IN THOUSANDS)

 

   Three Months ended June 30,   Six Months ended June 30, 
   2015   2014   2015   2014 
   $   $   $   $ 
                 
Net income   1,596    1,740    3,062    3,578 
                     
Other comprehensive income, net of tax:                    
Net change in unrealized gains:                    
                     
Other-than-temporarily impaired securities available for sale:                    
                     
Gains arising during the period               15 
   Income tax effect               (5)
                10 
                     
   Losses recognized in earnings               22 
   Income tax effect               (7)
                15 
Unrealized holding gains on other-than-temporarily impaired                    
  securities available for sale, net of tax               25 
                     
Securities available for sale not other-than-temporarily impaired:                    
                     
   Unrealized gains (losses) arising during the period   (3,403)   2,972    (1,086)   6,912 
   Income tax effect   1,157    (1,010)   369    (2,350)
    (2,246)   1,962    (717)   4,562 
                     
   Gains recognized in earnings   (600)   (582)   (1,161)   (1,267)
   Income tax effect   204    198    395    431 
    (396)   (384)   (766)   (836)
Unrealized holding gains (losses) on securities available for sale not                    
  other-than-temporarily impaired, net of tax   (2,642)   1,578    (1,483)   3,726 
                     
Other comprehensive income (loss), net of tax   (2,642)   1,578    (1,483)   3,751 
                     
Comprehensive Income (Loss)   (1,046)   3,318    1,579    7,329 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

5

Index 

 

ENB FINANCIAL CORP

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(DOLLARS IN THOUSANDS)

 

   Six Months Ended June 30, 
   2015   2014 
   $   $ 
Cash flows from operating activities:          
Net income   3,062    3,578 
Adjustments to reconcile net income to net cash          
provided by operating activities:          
Net amortization of securities premiums and discounts and loan fees   2,844    2,268 
Increase in interest receivable   (15)   (161)
Decrease in interest payable   (64)   (14)
Provision (credit) for loan losses   300    (300)
Gains on securities transactions, net   (1,161)   (1,267)
Impairment losses on securities       22 
Gains on sale of mortgages   (389)   (130)
Loans originated for sale   (12,961)   (4,266)
Proceeds from sales of loans   12,562    4,347 
Earnings on bank-owned life insurance   (334)   (314)
(Gain)/Loss on sale of other real estate owned   20    (9)
Depreciation of premises and equipment and amortization of software   765    719 
Deferred income tax   (50)   309 
Other assets and other liabilities, net   (220)   (2,127)
Net cash provided by operating activities   4,359    2,655 
           
Cash flows from investing activities:          
Securities available for sale:          
   Proceeds from maturities, calls, and repayments   31,750    14,613 
   Proceeds from sales   76,539    69,513 
   Purchases   (112,363)   (86,877)
Proceeds from sale of other real estate owned   122    48 
Purchase of regulatory bank stock   (942)   (685)
Redemptions of regulatory bank stock   132    311 
Purchase of bank-owned life insurance   (2,512)   (14)
Net increase in loans   (14,059)   (9,995)
Purchases of premises and equipment   (316)   (261)
Purchase of computer software   (139)   (109)
Net cash used for investing activities   (21,788)   (13,456)
           
Cash flows from financing activities:          
Net increase in demand, NOW, and savings accounts   10,953    27,329 
Net decrease in time deposits   (8,054)   (254)
Net increase in short-term borrowings   4,930    1,510 
Proceeds from long-term debt   12,794    9,150 
Repayments of long-term debt   (8,000)   (5,000)
Dividends paid   (1,541)   (1,514)
Treasury stock sold   257    239 
Treasury stock purchased   (356)   (215)
Net cash provided by financing activities   10,983    31,245 
Increase (decrease) in cash and cash equivalents   (6,446)   20,444 
Cash and cash equivalents at beginning of period   43,412    24,577 
Cash and cash equivalents at end of period   36,966    45,021 
           
Supplemental disclosures of cash flow information:          
    Interest paid   2,029    2,448 
    Income taxes paid   445    250 
           
Supplemental disclosure of non-cash investing and financing activities:          
Net transfer of other real estate owned from loans   137    56 
Fair value adjustments for securities available for sale   (2,249)   5,683 

 

See Notes to the Unaudited Consolidated Interim Financial Statements

6

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

1. Basis of Presentation

 

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

 

ENB Financial Corp (“the Corporation”) is the bank holding company for its wholly-owned subsidiary Ephrata National Bank (the “Bank”). This Form 10-Q, for the second quarter of 2015, is reporting on the results of operations and financial condition of ENB Financial Corp.

 

Operating results for the three and six months ended June 30, 2015, are not necessarily indicative of the results that may be expected for the year ended December 31, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in ENB Financial Corp’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

 

2. Securities Available for Sale

 

The amortized cost and fair value of securities held at June 30, 2015 and December 31, 2014, are as follows:

 

      Gross  Gross   
(DOLLARS IN THOUSANDS)  Amortized  Unrealized  Unrealized  Fair
   Cost  Gains  Losses  Value
   $  $  $  $
June 30, 2015            
U.S. government agencies   34,568    5    (306)   34,267 
U.S. agency mortgage-backed securities   39,263    119    (323)   39,059 
U.S. agency collateralized mortgage obligations   60,728    341    (669)   60,400 
Corporate bonds   60,684    77    (452)   60,309 
Obligations of states and political subdivisions   96,028    1,637    (1,188)   96,477 
Total debt securities   291,271    2,179    (2,938)   290,512 
Marketable equity securities   5,517    34    (4)   5,547 
Total securities available for sale   296,788    2,213    (2,942)   296,059 
                     
December 31, 2014                    
U.S. government agencies   46,577    110    (528)   46,159 
U.S. agency mortgage-backed securities   37,946    138    (134)   37,950 
U.S. agency collateralized mortgage obligations   48,690    55    (679)   48,066 
Corporate bonds   65,274    145    (311)   65,108 
Obligations of states and political subdivisions   90,628    2,961    (258)   93,331 
Total debt securities   289,115    3,409    (1,910)   290,614 
Marketable equity securities   5,189    19        5,208 
Total securities available for sale   294,304    3,428    (1,910)   295,822 

7

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The amortized cost and fair value of debt securities available for sale at June 30, 2015, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities due to certain call or prepayment provisions.

 

CONTRACTUAL MATURITY OF DEBT SECURITIES      
(DOLLARS IN THOUSANDS)      
   Amortized   
   Cost  Fair Value
   $  $
Due in one year or less   21,498    21,431 
Due after one year through five years   105,917    105,402 
Due after five years through ten years   73,700    73,439 
Due after ten years   90,156    90,240 
Total debt securities   291,271    290,512 

 

Securities available for sale with a par value of $73,680,000 and $75,013,000 at June 30, 2015, and December 31, 2014, respectively, were pledged or restricted for public funds, borrowings, or other purposes as required by law. The fair value of these pledged securities was $78,488,000 at June 30, 2015, and $78,269,000 at December 31, 2014.

 

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

 

PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE   
(DOLLARS IN THOUSANDS)            
             
   Three Months Ended June 30,  Six Months Ended June 30,
   2015  2014  2015  2014
   $  $  $  $
Proceeds from sales   36,304    28,253    76,539    69,513 
Gross realized gains   644    777    1,253    1,751 
Gross realized losses   44    195    92    484 

 

 

SUMMARY OF GAINS AND LOSSES ON SECURITIES AVAILABLE FOR SALE   
(DOLLARS IN THOUSANDS)            
   Three Months Ended June 30,  Six Months Ended June 30,
   2015  2014  2015  2014
   $  $  $  $
Gross realized gains   644    777    1,253    1,751 
                     
Gross realized losses   44    195    92    484 
Impairment on securities               22 
Total gross realized losses   44    195    92    506 
                     
Net gains on securities   600    582    1,161    1,245 

 

The bottom portion of the above table shows the net gains on security transactions, including any impairment taken on securities held by the Corporation. The net gain or loss from security transactions is also reflected on the Corporation’s Consolidated Statements of Income and Consolidated Statements of Cash Flows.

 

8 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Management evaluates all of the Corporation’s securities for other than temporary impairment (OTTI) on a periodic basis. Prior to June 30, 2014, the Corporation had a small number of private collateralized mortgage obligations (PCMOs) of which all but one had impairment recorded at some point in the past. During the second quarter of 2014, the three PCMOs remaining in the Corporation’s securities portfolio were sold. No other securities in the portfolio had other-than-temporary impairment recorded in 2014 or 2015.

 

Information pertaining to securities with gross unrealized losses at June 30, 2015, and December 31, 2014, aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:

 

TEMPORARY IMPAIRMENTS OF SECURITIES

(DOLLARS IN THOUSANDS)

   Less than 12 months  More than 12 months  Total
      Gross     Gross     Gross
   Fair  Unrealized  Fair  Unrealized  Fair  Unrealized
   Value  Losses  Value  Losses  Value  Losses
   $  $  $  $  $  $
As of June 30, 2015                              
U.S. government agencies   18,060    (196)   3,905    (110)   21,965    (306)
U.S. agency mortgage-backed securities   17,914    (216)   2,683    (107)   20,597    (323)
U.S. agency collateralized mortgage obligations   22,198    (458)   8,935    (211)   31,133    (669)
Corporate bonds   35,675    (424)   3,181    (28)   38,856    (452)
Obligations of states & political subdivisions   34,360    (934)   8,499    (254)   42,859    (1,188)
                               
Total debt securities   128,207    (2,228)   27,203    (710)   155,410    (2,938)
                               
Marketable equity securities   107    (4)           107    (4)
                               
Total temporarily impaired securities   128,314    (2,232)   27,203    (710)   155,517    (2,942)
                               
As of December 31, 2014                              
U.S. government agencies   9,676    (30)   19,689    (498)   29,365    (528)
U.S. agency mortgage-backed securities   7,412    (18)   5,412    (116)   12,824    (134)
U.S. agency collateralized mortgage obligations   25,314    (403)   11,222    (276)   36,536    (679)
Corporate bonds   33,413    (227)   9,855    (84)   43,268    (311)
Obligations of states & political subdivisions   2,710    (29)   16,720    (229)   19,430    (258)
                               
Total temporarily impaired securities   78,525    (707)   62,898    (1,203)   141,423    (1,910)

 

In the debt security portfolio there were 122 positions that were carrying unrealized losses as of June 30, 2015. In the equity security portfolio there were three positions that were carrying unrealized losses as of June 30, 2015. There were no instruments considered to be other-than-temporarily impaired at June 30, 2015.

 

The Corporation evaluates both equity and fixed maturity positions for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant such evaluation. U.S. generally accepted accounting principles provide for the bifurcation of OTTI into two categories: (a) the amount of the total OTTI related to a decrease in cash flows expected to be collected from the debt security (the credit loss), which is recognized in earnings, and (b) the amount of total OTTI related to all other factors, which is recognized, net of taxes, as a component of accumulated other comprehensive income. This accounting treatment was only applicable to two of the Corporation’s PCMOs in the first quarter of 2014, but both of those securities were sold in the second quarter of 2014, resulting in no further impairment charges.

 

The prior impairment on the PCMOs was a result of a deterioration of expected cash flows on those securities due to higher projected credit losses than the amount of credit protection carried by those securities. Specifically, the foreclosure and severity rates had been running at levels where expected principal losses were in excess of the remaining credit protection on those instruments. The projected principal losses were based on prepayment speeds that were equal to or slower than the actual last twelve-month prepayment speeds the particular securities had experienced. Every quarter prior to the second quarter of 2014, management evaluated third-party reporting that showed projected principal losses based on various prepayment speed and severity rate scenarios. Based on the assumption that all loans over 60 days delinquent would default and at a severity rate equal to or above that previously experienced, and based on historical and expected prepayment speeds, management determined that it was appropriate to take an additional $22,000 of impairment on one PCMO in the first quarter of 2014. Because all of the remaining PCMOs were sold in the second quarter of 2014, no further impairment was recorded on these bonds in 2014 and future impairment analysis will cease for this segment since it was completely sold off.

 

9 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables reflect the amortized cost, market value, and unrealized loss as of June 30, 2014, on the PCMO securities held which had impairment taken in the year. There were no impairment charges in 2015 since all of the PCMO securities were sold during 2014. In 2014, there was one PCMO that had impairment taken during the first quarter prior to the sale of the remaining PCMO portfolio. The values shown below are after the Corporation recorded year-to-date impairment charges of $22,000 through June 30, 2014. The $22,000 was deemed to be a credit loss and was the amount that management expected the principal losses would be by the time the securities matured. Because all of the remaining PCMO securities were sold during the second quarter of 2014, there are no temporary market value losses remaining at June 30, 2015.

 

SECURITY IMPAIRMENT CHARGES

(DOLLARS IN THOUSANDS)

 

   As of June 30, 2014
   Book  Market  Unrealized  Impairment
   Value  Value  Loss  Charge
   $  $  $  $
                     
Impaired private collateralized mortgage obligations               (22)

   

 

The following table provides a cumulative roll forward of credit losses recognized in earnings for debt securities held:

 

CREDIT LOSSES RECOGNIZED IN EARNINGS ON DEBT SECURITIES

(DOLLARS IN THOUSANDS)    

 

   Three Months Ended June 30,  Six Months Ended June 30,
   2015  2014  2015  2014
   $  $  $  $
             
Beginning balance       1,170        1,148 
                     
Credit losses on debt securities for which other-than-                    
  temporary impairment has not been previously recognized                
                     
Additional credit losses on debt securities for which other-                    
   than-temporary impairment was previously recognized               22 
                     
Sale of debt securities with previously recognized impairment       (1,170)       (1,170)
                     
Ending balance                

 

 

With the sale of the remaining PCMO portfolio during the second quarter of 2014, there are no remaining impairment balances as of June 30, 2015.

 

10 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

3. Loans and Allowance for Loan Losses

 

The following table presents the Corporation’s loan portfolio by category of loans as of June 30, 2015, and December 31, 2014:

 

LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)  

 

   June 30,  December 31,
   2015  2014
   $  $
Commercial real estate          
Commercial mortgages   95,009    95,914 
Agriculture mortgages   150,380    140,322 
Construction   7,823    7,387 
Total commercial real estate   253,212    243,623 
           
Consumer real estate (a)          
1-4 family residential mortgages   122,642    123,395 
Home equity loans   12,007    12,563 
Home equity lines of credit   30,482    27,308 
Total consumer real estate   165,131    163,266 
           
Commercial and industrial          
Commercial and industrial   33,046    31,998 
Tax-free loans   12,843    11,806 
Agriculture loans   16,455    16,496 
Total commercial and industrial   62,344    60,300 
           
Consumer   3,606    3,517 
           
Gross loans prior to deferred fees   484,293    470,706 
Less:          
Deferred loan costs, net   (510)   (462)
Allowance for loan losses   7,249    7,141 
Total net loans   477,554    464,027 

 

(a) Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $26,631,000 and $16,670,000 as of June 30, 2015, and December 31, 2014, respectively.

  

The Corporation grades commercial credits differently than consumer credits. The following tables represent all of the Corporation’s commercial credit exposures by internally assigned grades as of June 30, 2015 and December 31, 2014. The grading analysis estimates the capability of the borrower to repay the contractual obligations under the loan agreements as scheduled. The Corporation's internal commercial credit risk grading system is based on experiences with similarly graded loans.

 

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

 

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

 

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

 

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

 

11 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

 

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

 

COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)

 

June 30, 2015  Commercial
Mortgages
  Agriculture
Mortgages
  Construction  Commercial
and
Industrial
  Tax-free
Loans
  Agriculture
Loans
  Total
   $  $  $  $  $  $  $
Grade:                                   
Pass   88,461    147,490    6,535    32,117    10,396    16,271    301,270 
Special Mention   908    858        56    2,447    27    4,296 
Substandard   5,640    2,032    1,288    873        157    9,990 
Doubtful                            
Loss                            
                                    
    Total   95,009    150,380    7,823    33,046    12,843    16,455    315,556 
                                    

 

December 31, 2014  Commercial
Mortgages
  Agriculture
Mortgages
  Construction  Commercial
and
Industrial
  Tax-free
Loans
  Agriculture
Loans
  Total
   $  $  $  $  $  $  $
Grade:                                   
Pass   82,478    135,298    5,350    31,006    11,806    16,255    282,193 
Special Mention   2,649    3,237        29        29    5,944 
Substandard   10,787    1,787    2,037    963        212    15,786 
Doubtful                            
Loss                            
                                    
    Total   95,914    140,322    7,387    31,998    11,806    16,496    303,923 

12 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing or non-performing. Non-performing loans consist of those loans greater than 90 days delinquent and nonaccrual loans. The following tables present the balances of consumer loans by classes of the loan portfolio based on payment performance as of June 30, 2015 and December 31, 2014:

 

CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)  

 

June 30, 2015  1-4 Family
Residential
Mortgages
  Home Equity
Loans
  Home Equity
Lines of
Credit
  Consumer  Total
Payment performance:  $  $  $  $  $
                
Performing   122,255    12,007    30,482    3,603    168,347 
Non-performing   387            3    390 
                          
   Total   122,642    12,007    30,482    3,606    168,737 
                          

 

December 31, 2014  1-4 Family
Residential
Mortgages
  Home Equity
Loans
  Home Equity
Lines of
Credit
  Consumer  Total
Payment performance:  $  $  $  $  $
                
Performing   123,023    12,551    27,308    3,517    166,399 
Non-performing   372    12            384 
                          
   Total   123,395    12,563    27,308    3,517    166,783 

 

13 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present an age analysis of the Corporation’s past due loans, segregated by loan portfolio class, as of June 30, 2015 and December 31, 2014:

 

AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)      

 

                     Loans
         Greater           Receivable >
   30-59 Days  60-89 Days  than 90  Total Past     Total Loans  90 Days and
June 30, 2015  Past Due  Past Due  Days  Due  Current  Receivable  Accruing
   $  $  $  $  $  $  $
Commercial real estate                                   
   Commercial mortgages   130    181        311    94,698    95,009     
   Agriculture mortgages                   150,380    150,380     
   Construction                   7,823    7,823     
Consumer real estate                                   
   1-4 family residential mortgages   817    33    387    1,237    121,405    122,642    387 
   Home equity loans   46            46    11,961    12,007     
   Home equity lines of credit                   30,482    30,482     
Commercial and industrial                                   
   Commercial and industrial   18        56    74    32,972    33,046     
   Tax-free loans                   12,843    12,843     
   Agriculture loans                   16,455    16,455     
Consumer   12    17    3    32    3,574    3,606    3 
       Total   1,023    231    446    1,700    482,593    484,293    390 

 

                     Loans
         Greater           Receivable >
   30-59 Days  60-89 Days  than 90  Total Past     Total Loans  90 Days and
December 31, 2014  Past Due  Past Due  Days  Due  Current  Receivable  Accruing
   $  $  $  $  $  $  $
Commercial real estate                                   
   Commercial mortgages       189    266    455    95,459    95,914     
   Agriculture mortgages                   140,322    140,322     
   Construction                   7,387    7,387     
Consumer real estate                                   
   1-4 family residential mortgages   665    349    372    1,386    122,009    123,395    372 
   Home equity loans   78    14    12    104    12,459    12,563    12 
   Home equity lines of credit   13            13    27,295    27,308     
Commercial and industrial                                   
   Commercial and industrial   21    73        94    31,904    31,998     
   Tax-free loans                   11,806    11,806     
   Agriculture loans                   16,496    16,496     
Consumer   23    1        24    3,493    3,517     
       Total   800    626    650    2,076    468,630    470,706    384 

14 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table presents nonaccrual loans by classes of the loan portfolio as of June 30, 2015 and December 31, 2014:

 

NONACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)    

 

   June 30,  December 31,
   2015  2014
   $  $
       
Commercial real estate          
  Commercial mortgages   465    894 
  Agriculture mortgages        
  Construction        
Consumer real estate          
  1-4 family residential mortgages        
  Home equity loans        
  Home equity lines of credit        
Commercial and industrial          
  Commercial and industrial   56    73 
  Tax-free loans        
  Agriculture loans        
Consumer        
             Total   521    967 

 

As of June 30, 2015 and December 31, 2014, all of the Corporation’s commercial loans on nonaccrual status were also considered impaired. Information with respect to impaired loans for the three and six months ended June 30, 2015 and June 30, 2014, is as follows:

 

IMPAIRED LOANS

(DOLLARS IN THOUSANDS)    

 

   Three months ended June 30,  Six months ended June 30,
   2015  2014  2015  2014
   $  $  $  $
             
Average recorded balance of impaired loans   1,920    2,580    2,043    2,617 
Interest income recognized on impaired loans   21    27    45    55 

 

 

Interest income on impaired loans would have increased by approximately $6,000 and $13,000 for the three and six months ended June 30, 2015, compared to $10,000 and $22,000 for the three and six months ended June 30, 2014, had these loans performed in accordance with their original terms.

 

During the six months ended June 30, 2015 and 2014, there were no loan modifications made that would cause a loan to be considered a troubled debt restructuring (TDR). A TDR is a loan where management has granted a concession to the borrower from the original terms. A concession is generally defined as more favorable payment or credit terms granted to a borrower in an effort to improve the likelihood of the lender collecting principal in its entirety. Concessions usually are in the form of interest only for a period of time, or a lower interest rate offered in an effort to enable the borrower to continue to make normally scheduled payments.

 

15 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize information in regards to impaired loans by loan portfolio class as of June 30, 2015, December 31, 2014, and June 30, 2014:

 

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)  

 

June 30, 2015  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
   $  $  $  $  $
                
With no related allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   465    1,038        607     
    Agriculture mortgages   1,360    1,360        1,375    43 
    Construction                    
Total commercial real estate   1,825    2,398        1,982    43 
                          
Commercial and industrial                         
    Commercial and industrial   56    62        61    2 
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   56    62        61    2 
                          
Total with no related allowance   1,881    2,460        2,043    45 
                          
With an allowance recorded:                         
Commercial real estate                         
    Commercial mortgages                    
    Agriculture mortgages                    
    Construction                    
Total commercial real estate                    
                          
Commercial and industrial                         
    Commercial and industrial                    
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial                    
                          
Total with a related allowance                    
                          
Total by loan class:                         
Commercial real estate                         
    Commercial mortgages   465    1,038        607     
    Agriculture mortgages   1,360    1,360        1,375    43 
    Construction                    
Total commercial real estate   1,825    2,398        1,982    43 
                          
Commercial and industrial                         
    Commercial and industrial   56    62        61    2 
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   56    62        61    2 
                          
Total   1,881    2,460        2,043    45 

16 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)  

 

December 31, 2014  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
   $  $  $  $  $
                
With no related allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   745    931        931     
    Agriculture mortgages   1,391    1,391        1,539    104 
    Construction                    
Total commercial real estate   2,136    2,322        2,470    104 
                          
Commercial and industrial                         
    Commercial and industrial   73    73        86    6 
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   73    73        86    6 
                          
Total with no related allowance   2,209    2,395        2,556    110 
                          
With an allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   149    264    1    68     
    Agriculture mortgages                    
    Construction                    
Total commercial real estate   149    264    1    68     
                          
Commercial and industrial                         
    Commercial and industrial                    
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial                    
                          
Total with a related allowance   149    264    1    68     
                          
Total by loan class:                         
Commercial real estate                         
    Commercial mortgages   894    1,195    1    999     
    Agriculture mortgages   1,391    1,391        1,539    104 
    Construction                    
Total commercial real estate   2,285    2,586    1    2,538    104 
                          
Commercial and industrial                         
    Commercial and industrial   73    73        86    6 
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   73    73        86    6 
                          
Total   2,358    2,659    1    2,624    110 

17 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)            

 

June 30, 2014  Recorded
Investment
  Unpaid
Principal
Balance
  Related
Allowance
  Average
Recorded
Investment
  Interest
Income
Recognized
   $  $  $  $  $
                
With no related allowance recorded:                         
Commercial real estate                         
    Commercial mortgages   888    985        940     
    Agriculture mortgages   1,569    1,569        1,580    55 
    Construction                    
Total commercial real estate   2,457    2,554        2,520    55 
                          
Commercial and industrial                         
    Commercial and industrial   81    81        97     
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   81    81        97     
                          
Total with no related allowance   2,538    2,635        2,617    55 
                          
With an allowance recorded:                         
Commercial real estate                         
    Commercial mortgages                    
    Agriculture mortgages                    
    Construction                    
Total commercial real estate                    
                          
Commercial and industrial                         
    Commercial and industrial                    
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial                    
                          
Total with a related allowance                    
                          
Total by loan class:                         
Commercial real estate                         
    Commercial mortgages   888    985        940     
    Agriculture mortgages   1,569    1,569        1,580    55 
    Construction                    
Total commercial real estate   2,457    2,554        2,520    55 
                          
Commercial and industrial                         
    Commercial and industrial   81    81        97     
    Tax-free loans                    
    Agriculture loans                    
Total commercial and industrial   81    81        97     
                          
Total   2,538    2,635        2,617    55 

 

18 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2015:

 

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

 

   Commercial
Real Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total
   $  $  $  $  $  $
Allowance for credit losses:                              
Beginning balance - December 31, 2014   3,834    1,367    1,301    66    573    7,141 
                               
    Charge-offs   (272)           (1)       (273)
    Recoveries   2        70            72 
    Provision   623    (283)   (147)   (11)   18    200 
                               
Balance - March 31, 2015   4,187    1,084    1,224    54    591    7,140 
                               
    Charge-offs           (2)   (3)       (5)
    Recoveries   1        11    2        14 
    Provision   (29)   (20)   157    22    (30)   100 
                               
Ending Balance - June 30, 2015   4,159    1,064    1,390    75    561    7,249 

 

During the six months ended June 30, 2015, provision expense was recorded for the commercial real estate segment with minimal provisions or credit provisions recorded in all other loan categories. There were $272,000 of commercial real estate loan charge-offs during the first quarter of 2015, which increased the historical loss rates and ultimately resulted in a higher required reserve amount for the commercial real estate category. Qualitative factors have been shifting, with more factors declining than increasing. The consumer real estate area had declines in five of nine qualitative factors resulting in a lower required provision. To a lesser degree, the historic loss experience on commercial and industrial loans has been very favorable with more recoveries than charge-offs and two qualitative factors were reduced, resulting in a lower required provision. The consumer loan area saw three qualitative factors reduced with one increased, resulting in a lower required provision on a much smaller loan amount. The higher commercial real estate loan charge-offs and loan growth during the first quarter of 2015 overshadowed the reduction in provisions in the other areas, resulting in a higher total provision required through June 30, 2015.

 

19 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following table details activity in the allowance for loan losses by portfolio segment for the six months ended June 30, 2014:

 

ALLOWANCE FOR CREDIT LOSSES

(DOLLARS IN THOUSANDS)

 

   Commercial
Real Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total
   $  $  $  $  $  $
Allowance for credit losses:                              
Beginning balance - December 31, 2013   3,657    1,346    1,416    102    698    7,219 
                               
    Charge-offs               (15)       (15)
    Recoveries   4    5    43            52 
    Provision   (150)   51    (117)   17    (1)   (200)(1)
                               
Balance - March 31, 2014   3,511    1,402    1,342    104    697    7,056 
                               
    Charge-offs                        
    Recoveries   3        9            12 
    Provision   (106)   44    12    (24)   (26)   (100)(1)
                               
Ending Balance - June 30, 2014   3,408    1,446    1,363    80    671    6,968 

 

(1) The Corporation recognized a $200,000 credit provision in the first quarter of 2014 and a $100,000 credit provision in the second quarter of 2014 as a result of lower levels of substandard loans, and continued  low levels of total classified loans, impaired loans, non-accrual loans, recoveries in excess of charge-offs, continuing declines in historic loss ratio, and improving qualitative factors.  

 

During the six months ended June 30, 2014, credit provisions were recorded for the commercial real estate, commercial and industrial, and consumer loan categories while there was provision expense required for the consumer real estate loan category. There had been no commercial loan charge-offs during the past year, which reduced the historical loss rates and ultimately resulted in a lower required reserve amount for the commercial loan categories. Qualitative factors have been shifting, with some increasing and some decreasing, but overall, qualitative factors across the board have been declining. Conversely, factors in the allowance calculation related to consumer real estate were increased in the first half of 2014 as a result of the mortgage initiative and focus on increasing volume in this area.

 

20 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the balance in the allowance for credit losses and the recorded investment in loans receivable by portfolio segment based on impairment method as of June 30, 2015 and December 31, 2014:

 

ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)

             

As of June 30, 2015:  Commercial
Real Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total
   $  $  $  $  $  $
Allowance for credit losses:                              
Ending balance: individually evaluated                              
  for impairment                        
Ending balance: collectively evaluated                              
  for impairment   4,159    1,064    1,390    75    561    7,249 
                               
Loans receivable:                              
Ending balance   253,212    165,131    62,344    3,606         484,293 
Ending balance: individually evaluated                              
  for impairment   1,825        56             1,881 
Ending balance: collectively evaluated                              
  for impairment   251,387    165,131    62,288    3,606         482,412 

 

 

As of December 31, 2014:  Commercial
Real Estate
  Consumer
Real Estate
  Commercial
and Industrial
  Consumer  Unallocated  Total
   $  $  $  $  $  $
Allowance for credit losses:                              
Ending balance: individually evaluated                              
  for impairment   1                    1 
Ending balance: collectively evaluated                              
  for impairment   3,833    1,367    1,301    66    573    7,140 
                               
Loans receivable:                              
Ending balance   243,623    163,266    60,300    3,517         470,706 
Ending balance: individually evaluated                              
  for impairment   2,285        73             2,358 
Ending balance: collectively evaluated                              
  for impairment   241,338    163,266    60,227    3,517         468,348 

21 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

4. Fair Value Presentation

 

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

 

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

 

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

 

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

 

The following tables present the assets reported on the consolidated balance sheets at their fair value as of June 30, 2015, and December 31, 2014, by level within the fair value hierarchy. As required by U.S. generally accepted accounting principles, financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

 

 

Fair Value Measurements:

 

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)  

 

   June 30, 2015
   Level I  Level II  Level III  Total
   $  $  $  $
             
U.S. government agencies       34,267        34,267 
U.S. agency mortgage-backed securities       39,059        39,059 
U.S. agency collateralized mortgage obligations       60,400        60,400 
Corporate bonds       60,309        60,309 
Obligations of states & political subdivisions       96,477        96,477 
Marketable equity securities   5,547            5,547 
                     
Total securities   5,547    290,512        296,059 

 

On June 30, 2015, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable, but not necessarily quotes on identical securities traded in active markets on a daily basis. The Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their own quoted prices in an active market. As of June 30, 2015, the CRA fund investments had a $5,000,000 book and fair market value and the bank stock portfolio had a book value of $517,000, and fair market value of $547,000.

22 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Fair Value Measurements:

ASSETS MEASURED ON A RECURRING BASIS

(DOLLARS IN THOUSANDS)  

 

   December 31, 2014
   Level I  Level II  Level III  Total
   $  $  $  $
             
U.S. government agencies       46,159        46,159 
U.S. agency mortgage-backed securities       37,950        37,950 
U.S. agency collateralized mortgage obligations       48,066        48,066 
Corporate bonds       65,108        65,108 
Obligations of states & political subdivisions       93,331        93,331 
Marketable equity securities   5,208            5,208 
                     
Total securities   5,208    290,614        295,822 

 

On December 31, 2014, the Corporation held no securities valued using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. As of December 31, 2014, the Corporation’s CRA fund investments had a book and fair market value of $5,000,000 and the bank stock portfolio had a book value of $189,000 and a market value of $208,000 utilizing level I pricing.

 

Financial instruments are considered level III when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques, and at least one significant model assumption or input is unobservable. In addition to these unobservable inputs, the valuation models for level III financial instruments typically also rely on a number of inputs that are readily observable either directly or indirectly. Level III financial instruments also include those for which the determination of fair value requires significant management judgment or estimation. There were no level III securities as of June 30, 2015 or December 31, 2014.

 

The following tables present the assets measured on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of June 30, 2015 and December 31, 2014, by level within the fair value hierarchy:

 

ASSETS MEASURED ON A NONRECURRING BASIS

(Dollars in Thousands)

   June 30, 2015 
   Level I
$
   Level II
$
   Level III
$
   Total
$
 
Assets:                    
   Impaired Loans           1,881    1,881 
   OREO           64    64 
Total           1,945    1,945 

 

 

   December 31, 2014 
   Level I
$
   Level II
$
   Level III
$
   Total
$
 
Assets:                    
   Impaired Loans           2,357    2,357 
   OREO           69    69 
Total           2,426    2,426 

 

The Corporation had a total of $1,881,000 of impaired loans as of June 30, 2015, with no specific allocation against these loans and $2,358,000 of impaired loans as of December 31, 2014, with $1,000 of specifically allocated allowance against these loans. The value of impaired loans is generally determined through independent appraisals of the underlying collateral.

23 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Other real estate owned (OREO) is measured at fair value, less estimated costs to sell at the date of foreclosure, establishing a new cost basis. Subsequent to foreclosure, valuations are periodically performed by management. The Corporation’s OREO balance consisted of one residential property that was classified as OREO as of June 30, 2015, and a different residential property that was classified as OREO as of December 31, 2014, and sold prior to June 30, 2015. Management has estimated the current value of the OREO property held at June 30, 2015, at $64,000 utilizing level III pricing. Income and expenses from operations and changes in valuation allowance are included in the net expenses from OREO.

 

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

 

QUANTITATIVE INFORMATION ABOUT LEVEL III FAIR VALUE MEASUREMENTS

(DOLLARS IN THOUSANDS)  

 

   June 30, 2015 
   Fair Value   Valuation  Unobservable  Range
   Estimate   Techniques  Input  (Weighted Avg)
              
Impaired loans   1,881   Appraisal of  Appraisal  -20% (-20%)
        collateral (1)  adjustments (2)   
           Liquidation  -10% (-10%)
           expenses (2)   
               
OREO   64   Appraisal of  Appraisal   
        collateral (1),(3)  adjustments (2)  -40% (-40%)
           Liquidation   
           expenses (2)  -1% (-1%)

 

 

   December 31, 2014 
   Fair Value   Valuation  Unobservable  Range
   Estimate   Techniques  Input  (Weighted Avg)
              
Impaired loans   2,357   Appraisal of  Appraisal  -20% (-20%)
        collateral (1)  adjustments (2)   
           Liquidation   -10% (-10%)
           expenses (2)   
               
OREO   69   Appraisal of  Appraisal   
        collateral (1),(3)  adjustments (2)  -40% (-40%)
           Liquidation   
           expenses (2)  -1% (-1%)

 

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

 

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

 

(3) Includes qualitative adjustments by management and estimated liquidation expenses.

24 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Interim Disclosures about Fair Value of Financial Instruments

 

The following methods and assumptions were used to estimate the fair value of each class of financial instrument:

 

Cash and Cash Equivalents

For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

 

Securities Available for Sale

Management utilizes quoted market pricing for the fair value of the Corporation's securities that are available for sale, if available. If a quoted market rate is not available, fair value is estimated using quoted market prices for similar securities.

 

Regulatory Stock

Regulatory stock is valued at a stable dollar price, which is the price used to purchase or liquidate shares; therefore, the carrying amount is a reasonable estimate of fair value.

 

Loans Held for Sale

Loans held for sale are individual loans for which the Corporation has a firm sales commitment; therefore, the carrying value is a reasonable estimate of the fair value.

 

Loans

The fair value of fixed and variable rate loans is estimated by discounting back the scheduled future cash flows of the particular loan product, using the market interest rates of comparable loan products in the Corporation’s greater market area, with the same general structure, comparable credit ratings, and for the same remaining maturities.

 

Accrued Interest Receivable

The carrying amount of accrued interest receivable is a reasonable estimate of fair value.

 

Bank Owned Life Insurance

Fair value is equal to the cash surrender value of the life insurance policies.

 

Deposits

The fair value of non-interest bearing demand deposit accounts and interest bearing demand, savings, and money market deposit accounts is based on the amount payable on demand at the reporting date. The fair value of fixed-maturity time deposits is estimated by discounting back the expected cash flows of the time deposit using market interest rates from the Corporation’s greater market area currently offered for similar time deposits with similar remaining maturities.

 

Borrowings

The fair value of a term borrowing is estimated by comparing the rate currently offered for the same type of borrowing instrument with a matching remaining term.

 

Accrued Interest Payable

The carrying amount of accrued interest payable is a reasonable estimate of fair value.

 

Firm Commitments to Extend Credit, Lines of Credit, and Open Letters of Credit

These financial instruments are generally not subject to sale and estimated fair values are not readily available. The carrying value, represented by the net deferred fee arising from the unrecognized commitment or letter of credit, and the fair value, determined by discounting the remaining contractual fee over the term of the commitment, using fees currently charged to enter into similar agreements with similar credit risk, is not considered material for disclosure purposes. The contractual amounts of unfunded commitments are presented in Note 6.

 

25 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

Fair Value of Financial Instruments

 

The carrying amounts and estimated fair values of the Corporation's financial instruments at June 30, 2015 and December 31, 2014, are summarized as follows:

 

FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)

 

   June 30, 2015 
           Quoted Prices in         
           Active Markets   Significant Other   Significant 
           for Identical   Observable   Unobservable 
   Carrying       Assets   Inputs   Inputs 
   Amount   Fair Value   (Level 1)   (Level II)   (Level III) 
   $   $   $   $   $ 
Financial Assets:                         
Cash and cash equivalents   36,966    36,966    36,966         
Securities available for sale   296,059    296,059    5,547    290,512     
Regulatory stock   4,037    4,037    4,037         
Loans held for sale   1,294    1,294    1,294         
Loans, net of allowance   477,554    482,248            482,248 
Accrued interest receivable   3,721    3,721    3,721         
Bank owned life insurance   23,449    23,449    23,449         
                          
Financial Liabilities:                         
Demand deposits   207,826    207,826    207,826         
Interest-bearing demand deposits   10,446    10,446    10,446         
NOW accounts   80,571    80,571    80,571         
Money market deposit accounts   67,843    67,843    67,843         
Savings accounts   142,350    142,350    142,350         
Time deposits   193,514    194,695            194,695 
     Total deposits   702,550    703,731    509,036        194,695 
                          
Short-term borrowings   4,930    4,930    4,930         
Long-term debt   67,094    67,671            67,671 
Accrued interest payable   522    522    522         

 

26 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)

 

   December 31, 2014 
           Quoted Prices in         
           Active Markets   Significant Other   Significant 
           for Identical   Observable   Unobservable 
   Carrying       Assets   Inputs   Inputs 
   Amount   Fair Value   (Level 1)   (Level II)   (Level III) 
   $   $   $   $   $ 
Financial Assets:                         
Cash and cash equivalents   43,412    43,412    43,412         
Securities available for sale   295,822    295,822    5,208    290,614     
Regulatory stock   3,227    3,227    3,227         
Loans held for sale   506    506    506         
Loans, net of allowance   464,027    463,197            463,197 
Accrued interest receivable   3,706    3,706    3,706         
Bank owned life insurance   20,603    20,603    20,603         
                          
Financial Liabilities:                         
Demand deposits   210,444    210,444    210,444         
Interest-bearing demand deposits   14,039    14,039    14,039         
NOW accounts   72,951    72,951    72,951         
Money market deposit accounts   69,442    69,442    69,442         
Savings accounts   131,206    131,206    131,206         
Time deposits   201,569    203,787            203,787 
     Total deposits   699,651    701,869    498,082        203,787 
                          
Long-term debt   62,300    63,058            63,058 
Accrued interest payable   586    586    586         

 

 

6. Commitments and Contingent Liabilities

 

In order to meet the financing needs of its customers in the normal course of business, the Corporation makes various commitments that are not reflected in the accompanying consolidated financial statements. These commitments include firm commitments to extend credit, unused lines of credit, and open letters of credit. As of June 30, 2015, firm loan commitments were $33.9 million, unused lines of credit were $155.1 million, and open letters of credit were $10.9 million. The total of these commitments was $199.9 million, which represents the Corporation’s exposure to credit loss in the event of nonperformance by its customers with respect to these financial instruments. The actual credit losses that may arise from these commitments are expected to compare favorably with the Corporation’s loan loss experience on its loan portfolio taken as a whole. The Corporation uses the same credit policies in making commitments and conditional obligations as it does for balance sheet financial instruments.

 

27 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

7. Accumulated Other Comprehensive Income (Loss)

 

The activity in accumulated other comprehensive income (loss) for the three and six months ended June 30, 2015 and 2014 is as follows:

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (1) (2)

(DOLLARS IN THOUSANDS)  

 

   Unrealized 
   Gains (Losses) 
   on Securities 
   Available-for-Sale 
   $ 
Balance at December 31, 2014   1,002 
  Other comprehensive income before reclassifications   1,529 
  Amount reclassified from accumulated other comprehensive income   (370)
Period change   1,159 
      
Balance at March 31, 2015   2,161 
  Other comprehensive loss before reclassifications   (2,246)
  Amount reclassified from accumulated other comprehensive loss   (396)
Period change   (2,642)
      
Balance at June 30, 2015   (481)
      
Balance at December 31, 2013   (3,940)
  Other comprehensive income before reclassifications   2,610 
  Amount reclassified from accumulated other comprehensive income   (437)
Period change   2,173 
      
Balance at March 31, 2014   (1,767)
  Other comprehensive income before reclassifications   1,962 
  Amount reclassified from accumulated other comprehensive income   (384)
Period change   1,578 
      
Balance at June 30, 2014   (189)

 

(1) All amounts are net of tax.  Related income tax expense or benefit is calculated using a Federal income  tax rate of 34%.
(2) Amounts in parentheses indicate debits.  

28 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

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

(DOLLARS IN THOUSANDS)      

 

   Amount Reclassified from    
   Accumulated Other Comprehensive    
   Income (Loss)    
   For the Three Months    
   Ended June 30,    
   2015   2014   Affected Line Item in the
   $   $   Statements of Income
Securities available-for-sale:             
  Net securities gains reclassified into earnings   600    582   Gains on securities transactions, net
     Related income tax expense   (204)   (198)  Provision for federal income taxes
  Net effect on accumulated other comprehensive             
     income for the period   396    384    

 

(1) Amounts in parentheses indicate debits.      

 

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

(DOLLARS IN THOUSANDS)      

 

   Amount Reclassified from    
   Accumulated Other Comprehensive    
   Income (Loss)    
   For the Six Months    
   Ended June 30,    
   2015   2014   Affected Line Item in the
   $   $   Statements of Income
Securities available-for-sale:             
  Net securities gains reclassified into earnings   1,161    1,267   Gains on securities transactions, net
     Related income tax expense   (395)   (431)  Provision for federal income taxes
  Net effect on accumulated other comprehensive             
     income for the period   766    836    
              
  Net impairment losses reclassified into earnings       (22)  Net impairment losses on investment securities
     Related income tax expense       7   Provision for federal income taxes
  Net effect on accumulated other comprehensive             
     income for the period       (15)   
  Total reclassifications for the period   766    821    

 

(1) Amounts in parentheses indicate debits.  

 

 

8. Recently Issued Accounting Standards

 

In January 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-01, Investments – Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. A reporting entity that uses the effective yield method to account for its investments in qualified affordable housing projects before the date of adoption may continue to apply the effective yield method for those preexisting investments. The amendments in this Update are effective for public business entities for annual periods and interim reporting periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted. This Update did not have a significant impact on the Corporation’s financial statements.

 

29 

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ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In January 2014, the FASB issued ASU 2014-04, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. An entity can elect to adopt the amendments in this Update using either a modified retrospective transition method or a prospective transition method. This Update did not have a significant impact on the Corporation’s financial statements.

 

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (a new revenue recognition standard). The Update’s core principle is that a company will recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In addition, this update specifies the accounting for certain costs to obtain or fulfill a contract with a customer and expands disclosure requirements for revenue recognition. This Update is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Corporation is evaluating the effect of adopting this new accounting Update.

 

In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures. The amendments in this Update change the accounting for repurchase-to-maturity transactions to secured borrowing accounting. For repurchase financing arrangements, the amendments require separate accounting for a transfer of a financial asset executed contemporaneously with a repurchase agreement with the same counterparty, which will result in secured borrowing accounting for the repurchase agreement. The amendments also require enhanced disclosures. The accounting changes in this Update are effective for the first interim or annual period beginning after December 15, 2014. An entity is required to present changes in accounting for transactions outstanding on the effective date as a cumulative-effect adjustment to retained earnings as of the beginning of the period of adoption. Earlier application is prohibited. The disclosure for certain transactions accounted for as a sale is required to be presented for interim and annual periods beginning after December 15, 2014, and the disclosure for repurchase agreements, securities lending transactions, and repurchase-to-maturity transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and for interim periods beginning after March 15, 2015. The disclosures are not required to be presented for comparative periods before the effective date. This Update did not have a significant impact on the Corporation’s financial statements.

 

In June 2014, the FASB issued ASU 2014-12, Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments when the Terms of an Award Provide that a Performance Target Could Be Achieved After the Requisite Service Period. The amendments require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. The amendments in this Update are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this Update either (a) prospectively to all awards granted or modified after the effective date or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this Update as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. Additionally, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In August 2014, the FASB issued ASU 2014-14, Receivables – Troubled Debt Restructurings by Creditors (Subtopic 310-40). The amendments in this Update require that a mortgage loan be derecognized and that a separate other receivable be recognized upon foreclosure if the following conditions are met: (1) the loan has a government guarantee that is not separable from the loan before foreclosure, (2) at the time of foreclosure, the creditor has the intent to convey the real estate property to the guarantor and make a claim on the guarantee, and the creditor has the ability to recover under that claim, and (3) at the time of foreclosure, any amount of the claim that is determined on the basis of the fair value of the real estate is fixed. Upon foreclosure, the separate other receivable should be measured based on the amount of the loan balance (principal and interest) expected to be recovered from the guarantor. The amendments in this Update are effective for public business entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2014. This Update did not have a significant impact on the Corporation’s financial statements.

 

30 

Index 

 

ENB FINANCIAL CORP

Notes to the Unaudited Consolidated Interim Financial Statements

In August 2014, the FASB issued ASU 2014-15, Presentation of Financial Statements -Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in accounting principles generally accepted in the United States of America about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In November 2014, the FASB issued ASU 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity (a consensus of the FASB Emerging Issues Task Force). This ASU clarifies how current U.S. GAAP should be interpreted in subjectively evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Public business entities are required to implement the new requirements in fiscal years and interim periods within those fiscal years beginning after December 15, 2015. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In November 2014, the FASB issued ASU 2014-17, Business Combinations (Topic 805): Pushdown Accounting. The amendments in this Update apply to the separate financial statements of an acquired entity and its subsidiaries that are a business or nonprofit activity (either public or nonpublic) upon the occurrence of an event in which an acquirer (an individual or an entity) obtains control of the acquired entity. An acquired entity may elect the option to apply pushdown accounting in the reporting period in which the change-in-control event occurs. If pushdown accounting is not applied in the reporting period in which the change-in-control event occurs, an acquired entity will have the option to elect to apply pushdown accounting in a subsequent reporting period to the acquired entity's most recent change-in-control event. The amendments in this Update are effective on November 18, 2014. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards. This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Corporation’s financial statements.

 

In February 2015, the FASB issued ASU 2015-02, Consolidation (Topic 810). The amendments in this Update affect reporting entities that are required to evaluate whether they should consolidate certain legal entities. All legal entities are subject to reevaluation under the revised consolidation model. Specifically, the amendments (1) Modify the evaluation of whether limited partnerships and similar legal entities are variable interest entities (VIEs) or voting interest entities; (2) Eliminate the presumption that a general partner should consolidate a limited partnership; (3) Affect the consolidation analysis