UNITED STATES SECURITIES AND EXCHANGE COMMISSION



Washington,
D.C. 20549



FORM 10-K



(Mark One)

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

|For the fiscal year ended | December 31, 2016 | 
|------------------------- | ----------------- | 



OR



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



For
the transition period from_____________ to _____________



Commission
File Number 000-53297



ENB
Financial Corp

(Exact
name of registrant as specified in its charter)



|Pennsylvania                                                 |  | 51-0661129                       
|------------------------------------------------------------ |  | ---------------------------------
|State or other jurisdiction of incorporation or organization |  | (IRS Employer Identification No.)
|                                                             |  |                                  
|31 E. Main St. Ephrata, PA                                   |  | 17522                            
|(Address of principal executive offices)                     |  | (Zip Code)                       



|Registrant’s telephone number, including area code          | (717) 733-4181 | 
|----------------------------------------------------------- | -------------- | 
|                                                            |                | 
|Securities registered pursuant to Section 12(b) of the Act: | None           | 



Securities
registered pursuant to Section 12(g) of the Act:



Title of
each class

Common Stock,
Par Value $0.20 Per Share



Indicate by
check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o          No
x



Indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes o          No
x



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 Website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulations 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. x



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 the 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







The aggregate
market value of the voting and non-voting common equity held by non-affiliates of the registrant as of June 30, 2016, was approximately
$57,345,047.



The number of
shares of the registrant’s Common Stock outstanding as of February 15, 2017, was 2,850,382.







DOCUMENTS
INCORPORATED BY REFERENCE



The Registrant’s
Definitive Proxy Statement for its 2017 Annual Meeting of Shareholders to be held on May 9, 2017, is incorporated into Parts III
and IV hereof.







2






ENB FINANCIAL
CORP



Table of Contents



|Part I   |               |                                                                                                               |    
|-------- | ------------- | ------------------------------------------------------------------------------------------------------------- | ---
|         |               |                                                                                                               |    
|         | Item 1.       | Business                                                                                                      | 4  
|         |               |                                                                                                               |    
|         | Item 1A.      | Risk Factors                                                                                                  | 16 
|         |               |                                                                                                               |    
|         | Item 1B.      | Unresolved Staff Comments                                                                                     | 25 
|         |               |                                                                                                               |    
|         | Item 2.       | Properties                                                                                                    | 25 
|         |               |                                                                                                               |    
|         | Item 3.       | Legal Proceedings                                                                                             | 27 
|         |               |                                                                                                               |    
|         | Item 4.       | Mine Safety Disclosures                                                                                       | 27 
|         |               |                                                                                                               |    
|Part II  |               |                                                                                                               |    
|         |               |                                                                                                               |    
|         | Item 5.       | Market for Registrant’s Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities | 27 
|         |               |                                                                                                               |    
|         | Item 6.       | Selected Financial Data                                                                                       | 30 
|         |               |                                                                                                               |    
|         | Item 7.       | Management’s Discussion and Analysis of Financial Condition and Results of Operations                         | 31 
|         |               |                                                                                                               |    
|         | Item 7A.      | Quantitative and Qualitative Disclosures about Market Risk                                                    | 68 
|         |               |                                                                                                               |    
|         | Item 8.       | Financial Statements and Supplementary Data                                                                   | 74 
|         |               |                                                                                                               |    
|         | Item 9.       | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                          | 124
|         |               |                                                                                                               |    
|         | Item 9A.      | Controls and Procedures                                                                                       | 124
|         |               |                                                                                                               |    
|         | Item 9B.      | Other Information                                                                                             | 125
|         |               |                                                                                                               |    
|Part III |               |                                                                                                               |    
|         |               |                                                                                                               |    
|         | Item 10.      | Directors, Executive Officers, and Corporate Governance                                                       | 126
|         |               |                                                                                                               |    
|         | Item 11.      | Executive Compensation                                                                                        | 126
|         |               |                                                                                                               |    
|         | Item 12.      | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters                | 126
|         |               |                                                                                                               |    
|         | Item 13.      | Certain Relationships and Related Transactions, and Director Independence                                     | 126
|         |               |                                                                                                               |    
|         | Item 14.      | Principal Accountant Fees and Services                                                                        | 126
|         |               |                                                                                                               |    
|Part IV  |               |                                                                                                               |    
|         |               |                                                                                                               |    
|         | Item 15.      | Exhibits and Financial Statement Schedules                                                                    | 127
|         |               |                                                                                                               |    
|         | Item 16.      | Form 10-K Summary                                                                                             | 128
|         |               |                                                                                                               |    
|         | Signatures    | 128                                                                                                          
|         |               |                                                                                                               |    
|         | Exhibit Index | 129                                                                                                          



3


Table of Contents ENB FINANCIAL CORP




Part I



Forward-Looking Statements



The U.S. Private Securities Litigation Reform Act of 1995 provides
safe harbor in regard 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
predictions, 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:



| | · | Economic conditions
| | - | -------------------

| | · | Monetary and interest rate policies of the Federal Reserve Board
| | - | ----------------------------------------------------------------

| | · | Volatility of the securities markets
| | - | ------------------------------------

| | · | Possible impacts of the capital and liquidity requirements of Basel III standards and other regulatory pronouncements
| | - | ---------------------------------------------------------------------------------------------------------------------

| | · | Effects of short- and long-term federal budget and tax negotiations and their effects on economic and business conditions
| | - | -------------------------------------------------------------------------------------------------------------------------

| | · | Effects of the failure of the Federal government to reach agreement to raise the debt ceiling and the negative effects on economic
or business conditions as a result
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Effects of weak market conditions, specifically the effect on loan customers to repay loans
| | - | -------------------------------------------------------------------------------------------

| | · | Political changes and their impact on new laws and regulations
| | - | --------------------------------------------------------------

| | · | Competitive forces
| | - | ------------------

| | · | Changes in deposit flows, loan demand, or real estate and investment securities values
| | - | --------------------------------------------------------------------------------------

| | · | 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
| | - | -------------------------------------

| | · | 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
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The impact of new laws and regulations, including the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act
of 2010 and the regulations issued thereunder.
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 ENB Financial
Corp 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 ENB Financial Corp periodically
with the Securities and Exchange Commission, including Item 1A. of this Annual Report on Form 10-K, Quarterly Reports on Form 10-Q,
and Current Reports on Form 8-K.



Item 1. Business



General



ENB Financial Corp (“the Corporation”) is a bank holding
company that was formed on July 1, 2008. The Corporation’s wholly owned subsidiary, Ephrata National Bank (“the Bank”),
also referred to as ENB, is a full service commercial bank organized under the laws of the United States. Presently, no other subsidiaries
exist under

4


Table of Contents ENB FINANCIAL CORP


the bank holding company. The Corporation and the Bank are both headquartered in Ephrata, Lancaster County, Pennsylvania.
The Bank was incorporated on April 11, 1881, pursuant to The National Bank Act under a charter granted by the Office of the Comptroller
of the Currency (OCC). The Federal Deposit Insurance Corporation (FDIC) insures deposit accounts to the maximum extent provided
by law. The Corporation’s retail, operational, and administrative offices are predominantly located in Lancaster County,
southeastern Lebanon County, and southern Berks County, Pennsylvania. Ten full service offices are located in Lancaster County
with one full service office in Lebanon County and one full service office in Berks County, Pennsylvania.



The basic business of the Corporation is to provide a broad range
of financial services to individuals and small-to-medium-sized businesses in Lancaster County as well as Berks and Lebanon Counties.
The Corporation utilizes funds gathered through deposits from the general public to originate loans. The Corporation offers a range
of demand accounts, in addition to savings and time deposits. The Corporation also offers secured and unsecured commercial, real
estate, and consumer loans. Ancillary services that provide added convenience to customers include direct deposit and direct payments
of funds through Electronic Funds Transfer, ATMs linked to the Star® network, telephone banking, MasterCard® debit cards,
Visa® or MasterCard credit cards, and safe deposit box facilities. In addition, the Corporation offers internet banking including
bill pay and wire transfer capabilities, remote deposit capture, and an ENB Bank on the Go! app for iPhones or Android phones.
The Corporation also offers a full complement of trust and investment advisory services through ENB’s Money Management Group.



As of December 31, 2016, the Corporation employed 270 persons, consisting
of 231 full-time and 39 part-time employees. The number of full-time employees increased by thirty-six employees, and the number
of part-time employees decreased by five from the previous year-end.The increase in the number of full-time employees
is attributable to various items in 2016; the addition of two full-service branch offices and back office personnel to support
the new locations, growth in the mortgage sales and support staff, additional commercial relationship managers, and general staff
increases due to bank asset and loan growth.  The Bank expects to continue growing in 2017 but at a lower rate than in 2016. 
A collective bargaining agent does not represent the employees.



Operating Segments



The Corporation’s business is providing financial products
and services. These products and services are provided through the Corporation’s wholly owned subsidiary, the Bank. The Bank
is presently the only subsidiary of the Corporation, and the Bank only has one reportable operating segment, community banking,
as described in Note A of the Notes to the Consolidated Financial Statements included in this Report. The segment reporting information
in Note A is incorporated by reference into this Part I, Item 1.



Business Operations



Products and Services with Reputation Risk

The Corporation offers a diverse range of financial and banking
products and services. In the event one or more customers and/or governmental agencies becomes dissatisfied with or objects to
any product or service offered by the Corporation, negative publicity with respect to any such product or service, whether legally
justified or not, could have a negative impact on the Corporation’s reputation. The discontinuance of any product or service,
whether or not any customer or governmental agency has challenged any such product or service, could have a negative impact on
the Corporation’s reputation.



Market Area and Competition

The Corporation’s primary
market area is Lancaster County, Pennsylvania, where ten full service offices are located. However, the Corporation’s market
area also extends into contiguous Lebanon and Berks Counties. The Corporation opened a full service office in southeastern Lebanon
County in 2013 and a full service office in southern Berks County in 2016 to extend physical presence to those counties. The Corporation’s
greater service area is considered to be Lancaster, Lebanon, and Berks Counties of Pennsylvania. The area served by the Corporation
is a mix of rural communities and small to mid-sized towns.



The Corporation’s headquarters
and main campus are located in Ephrata, Pennsylvania. The Corporation’s main office and drive-up are located in downtown
Ephrata, while the Cloister office is also located within Ephrata Borough. As such, the Corporation has a very strong presence
in Ephrata Borough, a community with a population of approximately 13,000. When surrounding areas that also share an Ephrata address
and zip code are included, the population is over 32,000 based on 2010 census data. The Corporation ranks a commanding first in
deposit market

5


Table of Contents ENB FINANCIAL CORP


share in the Ephrata area with 43.7% of deposits as of June 30, 2016, based on data compiled annually by the Federal
Deposit Insurance Corporation (FDIC). The Corporation’s deposit market share in the Ephrata area was 43.3% as of June 30,
2015. The Corporation’s very high market share in the Ephrata area equates to a saturation of the local market that has led
to the expansion of the Corporation’s branch network.



In the past 15 years, the Corporation’s
market area has expanded beyond the greater Ephrata area to encompass most of northern Lancaster County, with the exception of
the most western parts of the County. The majority of this expansion has occurred in recent history with the addition of eight
new branch offices since 1999, bringing the total offices to twelve. Lancaster County ranks high nationally as a favored place
to reside due to its scenic and fertile farmland, low cost of living, diverse local economy, and proximity to several large metropolitan
areas. As a result, the area has experienced significant population growth and development. The population growth of Lancaster
County has remained above both Pennsylvania and national growth levels over the past fifty years. Additionally, the population
of Lancaster County has recently eclipsed half a million, with 2010 census information showing an estimated population of 508,000.
The FDIC deposit market share data ranked the Corporation 5th in deposit market share in Lancaster County, with 7.1%
of deposits as of June 30, 2016. The Corporation held 6.3% of deposit market share as of June 30, 2015.



In the course of attracting and
retaining deposits and originating loans, the Corporation faces considerable competition. The Corporation competes with other commercial
banks, savings and loan institutions, and credit unions for traditional banking products, such as deposits and loans. Based on
FDIC summary of deposit data, there were 20 banks and savings associations and 12 credit unions operating in Lancaster County as
of June 30, 2016, representing one less bank and the same number of credit unions compared to the prior year. The Corporation competes
with consumer finance companies for loans, mutual funds, and other investment alternatives for deposits. The Corporation competes
for deposits based on the ability to provide a range of products, low fees, quality service, competitive rates, and convenient
locations and hours. The competition for loan origination generally relates to interest rates offered, products available, quality
of service, and loan origination fees charged. Several competitors within the Corporation’s primary market have substantially
higher legal lending limits that enable them to service larger loans and larger commercial customers.



The Corporation continues to assess the competition and market area
to determine the best way to meet the financial needs of the communities it serves. Management also continues to pursue new market
opportunities based on the strategic plan to efficiently grow the Corporation, improve earnings performance, and bring the Corporation’s
products and services to customers currently not being reached. Management strategically addresses growth opportunities versus
competitive issues by determining the new products and services to be offered, expansion of existing footprint with new locations,
as well as investing in the expertise of staffing for expansion of these services.



Subsequent to December 31, 2016, but prior to the filing of
this document, the Corporation settled on a parcel of land in January 2017 in Strasburg, Pennsylvania for a planned
full-service branch office. Branch construction is scheduled to begin in the second quarter of 2017 with planned completion
and opening by year-end 2017. Management estimates the aggregate of the purchase price and other costs related to building
the branch to be approximately $3.6 million.



Concentrations and Seasonality

The Corporation does not have any portion of its businesses dependent
on a single or limited number of customers, the loss of which would have a material adverse effect on its businesses. No substantial
portion of loans or investments is concentrated within a single industry or group of related industries, although a significant
amount of loans are secured by real estate located in northern Lancaster County, Pennsylvania. Agricultural purpose loans make
up approximately 32% of the loan portfolio; however, these loans are further diversified according to type of agriculture, of which
dairy is the largest component accounting for approximately 15% of the loan portfolio. The business activities of the Corporation
are generally not seasonal in nature. The sizable agricultural portfolio has minority elements that are predominately seasonal
in nature due to typical farming operations. Financial instruments with concentrations of credit risk are described in Note P of
the Notes to Consolidated Financial Statements included in this Report. The concentration of credit risk information in Note P
is incorporated by reference into this Part I, Item 1.



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Table of Contents ENB FINANCIAL CORP




Supervision and Regulation



Bank holding companies operate in a highly regulated environment
and are routinely examined by federal and state regulatory authorities. The following discussion concerns various federal and state
laws and regulations and the potential impact of such laws and regulations on the Corporation and the Bank.



To the extent that the following information describes statutory
or regulatory provisions, it is qualified in its entirety by reference to the particular statutory or regulatory provisions themselves.
Proposals to change laws and regulations are frequently introduced in Congress, the state legislatures, and before the various
bank regulatory agencies. The Corporation cannot determine the likelihood or timing of any such proposals or legislation, or the
impact they may have on the Corporation and the Bank. A change in law, regulations, or regulatory policy may have a material effect
on the Corporation and the Bank’s business.



The operations of the Bank are subject to federal and state statutes
applicable to banks chartered under the banking laws of the United States, to members of the Federal Reserve System, and to banks
whose deposits are insured by the FDIC. Bank operations are subject to regulations of the OCC, the Consumer Financial Protection
Bureau (CFPB), the Board of Governors of the Federal Reserve System, and the FDIC.



Bank Holding Company Supervision and Regulation



The Bank Holding Company Act of 1956

The Corporation is subject to the provisions of the Bank Holding
Company Act of 1956, as amended, and to supervision by the Federal Reserve Board. The following restrictions apply:



General Supervision by the Federal Reserve Board

As a bank holding company, the Corporation’s activities are
limited to the business of banking and activities closely related or incidental to banking. Bank holding companies are required
to file periodic reports with and are subject to examination by the Federal Reserve Board. The Federal Reserve Board has adopted
a risk-focused supervision program for small shell bank holding companies that is tied to the examination results of the subsidiary
bank. The Federal Reserve Board has issued regulations under the Bank Holding Company Act that require a bank holding company to
serve as a source of financial and managerial strength to its subsidiary banks. As a result, the Federal Reserve Board may require
that the Corporation stand ready to provide adequate capital funds to the Bank during periods of financial stress or adversity.



Restrictions on Acquiring Control of Other Banks and Companies

A bank holding company may not:



| | · | acquire direct or indirect control of more than 5% of the outstanding shares of any class of voting stock, or substantially
all of the assets of any bank, or
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | merge or consolidate with another bank holding company, without prior approval of the Federal Reserve Board.
| | - | ------------------------------------------------------------------------------------------------------------



In addition, a bank holding company may not:



| | · | engage in a non-banking business, or
| | - | ------------------------------------

| | · | acquire ownership or control of more than 5% of the outstanding shares of any class of voting stock of any company engaged
in a non-banking business,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------



unless the Federal Reserve Board determines the business to be so
closely related to banking as to be a proper incident to banking. In making this determination, the Federal Reserve Board considers
whether these activities offer benefits to the public that outweigh any possible adverse effects.



Anti-Tie-In Provisions

A bank holding company and its subsidiaries may not engage in tie-in
arrangements in connection with any extension of credit or provision of any property or services. These anti-tie-in provisions
state generally that a bank may not:



| | · | extend credit,
| | - | --------------

7


Table of Contents ENB FINANCIAL CORP


| | · | lease or sell property, or
| | - | --------------------------

| | · | furnish any service to a customer,
| | - | ----------------------------------



on the condition that the customer provides additional credit or
service to a bank or its affiliates, or on the condition that the customer not obtain other credit or service from a competitor
of the bank.



Restrictions on Extensions of Credit by Banks to their Holding
Companies

Subsidiary banks of a holding company are also subject to restrictions
imposed by the Federal Reserve Act on:



| | · | any extensions of credit to the bank holding company or any of its subsidiaries,
| | - | --------------------------------------------------------------------------------

| | · | investments in the stock or other securities of the Corporation, and
| | - | --------------------------------------------------------------------

| | · | taking these stock or securities as collateral for loans to any borrower.
| | - | -------------------------------------------------------------------------



Risk-Based Capital Guidelines

Bank holding companies must comply with the Federal Reserve Board’s
current risk-based capital guidelines, which are amended provisions of the Bank Holding Company Act of 1956. The required minimum
ratio of total capital to risk-weighted assets, including some off-balance sheet activities, such as standby letters of credit,
is 8%. At least half of the total capital is required to be Tier I Capital, consisting principally of common shareholders’
equity, less certain intangible assets. The remainder, Tier II Capital, may consist of:



| | · | some types of preferred stock,
| | - | ------------------------------

| | · | a limited amount of subordinated debt,
| | - | --------------------------------------

| | · | some hybrid capital instruments,
| | - | --------------------------------

| | · | other debt securities, and
| | - | --------------------------

| | · | a limited amount of the general loan loss allowance.
| | - | ----------------------------------------------------



The risk-based capital guidelines are required to take adequate
account of interest rate risk, concentrations of credit risk, and risks of nontraditional activities.



Capital Leverage Ratio Requirements

The Federal Reserve Board requires a bank holding company to maintain
a leverage ratio of a minimum level of Tier I capital, as determined under the risk-based capital guidelines, equal to 3% of average
total consolidated assets for those bank holding companies that have the highest regulatory examination rating and are not contemplating
or experiencing significant growth or expansion. All other bank holding companies are required to maintain a ratio of at least
1% to 2% above the stated minimum. The Bank is subject to similar capital requirements pursuant to the Federal Deposit Insurance
Act.



Restrictions on Control Changes

The Change in Bank Control Act of 1978 requires persons seeking
control of a bank or bank holding company to obtain approval from the appropriate federal banking agency before completing the
transaction. The law contains a presumption that the power to vote 10% or more of voting stock confers control of a bank or bank
holding company. The Federal Reserve Board is responsible for reviewing changes in control of bank holding companies. In doing
so, the Federal Reserve Board reviews the financial position, experience and integrity of the acquiring person, and the effect
the change of control will have on the financial condition of the Corporation, relevant markets, and federal deposit insurance
funds.



Sarbanes-Oxley Act of 2002

The Sarbanes-Oxley Act (SOX), also known as the “Public Company
Accounting Reform and Investor Protection Act,” was established in 2002 and introduced major changes to the regulation of
financial practice. SOX was established as a reaction to the outbreak of corporate and accounting scandals, including Enron and
WorldCom. SOX represents a comprehensive revision of laws affecting corporate governance, accounting obligations, and corporate
reporting. SOX is applicable to all companies with equity or debt securities that are either registered, or file reports under
the Securities Exchange Act of 1934.



Section 404 of SOX requires publicly held companies to document
and test their internal controls that impact financial reporting and report on the findings, known as Section 404a. External auditors
also must test and report on the effectiveness of a company’s internal controls to ensure accurate financial reporting, which
is known as Section 404b. Companies must report any deficiencies or material weaknesses in their internal controls, as well as
their

8


Table of Contents ENB FINANCIAL CORP


remediation efforts. To ensure greater investor confidence in corporate disclosures from public companies, SOX restricts
the services that public accounting firms can provide to publicly traded companies. The Corporation does not engage the same professional
accounting firm for external and internal auditing.



The provisions of Sections 404a and 404b of SOX vary according to
the publically traded market capitalization, referred to as accelerated or non-accelerated filers. While accelerated filers had
to comply with Section 404a and 404b since 2004, with their auditors required to report on the effectiveness of internal controls,
the Corporation has been a non-accelerated filer with a publicly traded market capitalization under $75 million, and therefore
was not required to comply with Section 404b. The Corporation has always been subject to Section 404a.



In 2008, the SEC expanded the definitions of smaller public companies
beyond non-accelerated filers to include a new definition of smaller reporting company. The smaller reporting company definition
was more favorable to smaller businesses that qualified under certain conditions. On July 1, 2008, the Corporation came into existence
as ENB Financial Corp, which succeeded Ephrata National Bank. With the new entity and new SEC registration, the Corporation changed
the filing status from non-accelerated filer to smaller reporting company. The Corporation continues to meet the definition of
a smaller reporting company as it has a public equity float of approximately $57.3 million as of June 30, 2016.



On July 21, 2010, when the Dodd-Frank Act was signed into law, Section
404b was permanently deferred for all smaller reporting companies. The Corporation would become subject to Section 404b requirements
of SOX at the end of 2017 if public float exceeds $75 million on June 30, 2017, at which time the Corporation would be considered
an accelerated filer.



Bank Supervision and Regulation



Safety and Soundness

The primary regulator for the Bank is the OCC. The OCC has the authority
under the Financial Institutions Supervisory Act and the Federal Deposit Insurance Act to prevent a national bank from engaging
in any unsafe or unsound practice in conducting business or from otherwise conducting activities in violation of the law.



Federal and state banking laws and regulations govern, but are not
limited to, the following:



| | · | Scope of a bank’s business
| | - | --------------------------

| | · | Investments a bank may make
| | - | ---------------------------

| | · | Reserves that must be maintained against certain deposits
| | - | ---------------------------------------------------------

| | · | Loans a bank makes and collateral it takes
| | - | ------------------------------------------

| | · | Merger and consolidation activities
| | - | -----------------------------------

| | · | Establishment of branches
| | - | -------------------------



The Corporation is a member of the Federal Reserve System. Therefore,
the policies and regulations of the Federal Reserve Board have a significant impact on many elements of the Corporation’s
operations, including:



| | · | Loan and deposit growth
| | - | -----------------------

| | · | Rate of interest earned and paid
| | - | --------------------------------

| | · | Types of securities
| | - | -------------------

| | · | Breadth of financial services provided
| | - | --------------------------------------

| | · | Levels of liquidity
| | - | -------------------

| | · | Levels of required capital
| | - | --------------------------



Management cannot predict the effect of changes to such policies
and regulations upon the Corporation’s business model and the corresponding impact they may have on future earnings.



FDIC Insurance Assessments

The FDIC imposes a risk-related premium schedule for all insured
depository institutions that results in the assessment of premiums based on the Bank’s capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a semi-annual basis, each depository institution to one of three
capital groups, the best of these being “Well Capitalized.” For purposes of calculating the insurance assessment, the
Bank was considered “Well Capitalized” as of December 31, 2016, and December 31, 2015. This designation has benefited

9


Table of Contents ENB FINANCIAL CORP


the Bank in the past and continues to benefit it in terms of a lower quarterly FDIC rate. The FDIC adjusts the insurance rates
when necessary. FDIC insurance rates have been significantly higher in recent years compared to years prior to the financial crisis.
In 2008, during the financial crisis, the FDIC insurance limit was increased from $100,000 to $250,000 along with unlimited insurance
coverage on non-interest bearing deposits and interest bearing deposit balances with interest rates less than or equal to 0.50%.
Significant increases in the FDIC insurance costs were assessed in 2009 to both cover the increased level of bank failures that
were occurring and the higher level of coverage. Since then the number of bank failures has significantly declined and the FDIC
has been able to decrease the cost of the insurance. The total FDIC assessments paid by the Bank in 2016 were $370,000, compared
to $440,000 in 2015.



In addition to FDIC insurance costs, the Bank is subject to assessments
to pay the interest on Financing Corporation Bonds. Congress created the Financing Corporation to issue bonds to finance the resolution
of failed thrift institutions. These assessment rates are set quarterly. The total Financing Corporation assessments paid by the
Bank in 2016 were $42,000 compared to $47,000 in 2015.



On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer
Protection Act made the temporary $250,000 FDIC insurance coverage the permanent standard maximum deposit insurance amount. 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.



Community Reinvestment Act

Under the Community Reinvestment Act (CRA), as amended, the OCC
is required to assess all financial institutions that it regulates to determine whether these institutions are meeting the credit
needs of the community that they serve. The Act focuses specifically on low and moderate income neighborhoods. The OCC takes an
institution’s CRA record into account in its evaluation of any application made by any of such institutions for, among other
things:



| | · | Approval of a new branch or other deposit facility
| | - | --------------------------------------------------

| | · | Closing of a branch or other deposit facility
| | - | ---------------------------------------------

| | · | An office relocation or a merger
| | - | --------------------------------

| | · | Any acquisition of bank shares
| | - | ------------------------------



The CRA, as amended, also requires that the OCC make publicly available
the evaluation of a bank’s record of meeting the credit needs of its entire community, including low and moderate income
neighborhoods. This evaluation includes a descriptive rating of either outstanding, satisfactory, needs to improve, or substantial
noncompliance, along with a statement describing the basis for the rating. These ratings are publicly disclosed. The Bank received
an outstanding rating on the most recent CRA Performance Evaluation completed on June 22, 2015.



The Federal Deposit Insurance Corporation Improvement Act
of 1991



Capital Adequacy

Under the Federal Deposit Insurance Corporation Improvement Act
of 1991 (FDICIA), institutions are classified in one of five defined categories as illustrated below:



|                               |                     | Tier I Capital | Common Equity Tier I |               
|------------------------------ | ------------------- | -------------- | -------------------- | --------------
|Capital Category               | Total Capital Ratio | Ratio          | Capital Ratio        | Leverage Ratio
|                               |                     |                |                      |               
|Well Capitalized               | >10.0               | > 8.0          | > 6.5                | > 5.0         
|Adequately Capitalized         | >  8.0              | > 6.0          | > 4.5                | > 4.0*        
|Undercapitalized               | <  8.0              | < 6.0          | < 4.5                | < 4.0*        
|Significantly Undercapitalized | <  6.0              | < 4.0          | < 3.5                | < 3.0         
|Critically Undercapitalized    |                     |                |                      | < 2.0         



*3.0 for those banks having the
highest available regulatory rating.



The Bank’s and Corporation’s capital ratios exceed the
regulatory requirements to be considered well capitalized for Total Risk-Based Capital, Tier I Risk-Based Capital, Common Equity
Tier I Capital, and Tier I Leverage Capital. The capital ratio table and Consolidated Financial Statement Note M – Regulatory
Matters and Restrictions, are

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incorporated by reference herein, from Item 8, and made a part hereof. Note M discloses capital ratios
for both the Bank and the Corporation, shown as Consolidated.



Regulatory Capital Changes

In July 2013, the federal banking agencies issued final rules to
implement the Basel III regulatory capital reforms and changes required by the Dodd-Frank Act. The phase-in period for community
banking organizations began January 1, 2015, while larger institutions (generally those with assets of $250 billion or more) began
compliance on January 1, 2014. The final rules call for the following capital requirements:



| | · | A minimum ratio of common equity tier I capital to risk-weighted assets of 4.5%
| | - | -------------------------------------------------------------------------------

| | · | A minimum ratio of tier I capital to risk-weighted assets of 6%
| | - | ---------------------------------------------------------------

| | · | A minimum ratio of total capital to risk-weighted assets of 8%
| | - | --------------------------------------------------------------

| | · | A minimum leverage ratio of 4%
| | - | ------------------------------



In addition, the final rules established a common equity tier I
capital conservation buffer of 2.5% of risk-weighted assets applicable to all banking organizations. If a banking organization
fails to hold capital above the minimum capital ratios and the capital conservation buffer, it will be subject to certain restrictions
on capital distributions and discretionary bonus payments. The phase-in period for the capital conservation and countercyclical
capital buffers for all banking organizations began on January 1, 2016.



Under the initially proposed rules, accumulated other comprehensive
income (AOCI) would have been included in a banking organization’s common equity tier I capital. The final rules allowed
community banks to make a one-time election not to include these additional components of AOCI in regulatory capital and instead
use the existing treatment under the general risk-based capital rules that excludes most AOCI components from regulatory capital.
The opt-out election was made by the Corporation with the filing of the first quarter Call Report as of March 31, 2015.



The final rules permanently grandfather non-qualifying capital instruments
(such as trust preferred securities and cumulative perpetual preferred stock) issued before May 19, 2010 for inclusion in the tier
I capital of banking organizations with total consolidated assets less than $15 billion as of December 31, 2009, and banking organizations
that were mutual holding companies as of May 19, 2010. The Corporation does not have trust preferred securities or cumulative perpetual
preferred stock with no plans to add these to the capital structure.



The proposed rules would have modified the risk-weight framework
applicable to residential mortgage exposures to require banking organizations to divide residential mortgage exposures into two
categories in order to determine the applicable risk weight. In response to commenter concerns about the burden of calculating
the risk weights and the potential negative effect on credit availability, the final rules do not adopt the proposed risk weights
but retain the current risk weights for mortgage exposures under the general risk-based capital rules.



Consistent with the Dodd-Frank Act, the new rules replace the ratings-based
approach to securitization exposures, which is based on external credit ratings, with the simplified supervisory formula approach
in order to determine the appropriate risk weights for these exposures. Alternatively, banking organizations may use the existing
gross-up approach to assign securitization exposures to a risk weight category or choose to assign such exposures a 1,250 percent
risk weight. The Corporation does not securitize assets and has no plans to do so.



Under the new rules, mortgage servicing assets (MSAs) and certain
deferred tax assets (DTAs) are subject to stricter limitations than those applicable under the current general risk-based capital
rule. The new rules also increase the risk weights for past-due loans, certain commercial real estate loans, and some equity exposures,
and makes selected other changes in risk weights and credit conversion factors.



Management has evaluated the impact of the above rules on levels
of the Corporation’s capital. The final rulings were highly favorable in terms of the items that would have a more significant
impact to the Corporation and community banks in general. Specifically, the AOCI final ruling, which would have had the greatest
impact, now provides the Corporation with an opt-out provision. The final ruling on the risk weightings of mortgages was favorable
and did not have a material negative impact. The rulings as to trust preferred securities, preferred stock, and securitization
of assets are not applicable to the Corporation, and presently the revised treatment of MSAs is not material to capital. The remaining
changes to risk weightings on several items mentioned above such as past-due loans and certain

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commercial real estate loans do
not have a material impact to capital presently, but could change as these levels change.



Real Estate Lending Standards

Pursuant to the FDICIA, federal banking agencies adopted real estate
lending guidelines which would set loan-to-value (“LTV”) ratios for different types of real estate loans. The LTV ratio
is generally defined as the total loan amount divided by the appraised value of the property at the time the loan is originated.
If the institution does not hold a first lien position, the total loan amount would be combined with the amount of all junior liens
when calculating the ratio. In addition to establishing the LTV ratios, the guidelines require all real estate loans to be based
upon proper loan documentation and a recent appraisal or certificate of inspection of the property.



Prompt Corrective Action

In the event that an institution’s capital deteriorates to
the Undercapitalized category or below, FDICIA prescribes an increasing amount of regulatory intervention, including:



| | · | Implementation of a capital restoration plan and a guarantee of the plan by a parent institution
| | - | ------------------------------------------------------------------------------------------------

| | · | Placement of a hold on increases in assets, number of branches, or lines of business
| | - | ------------------------------------------------------------------------------------



If capital reaches the significantly or critically undercapitalized
level, further material restrictions can be imposed, including restrictions on interest payable on accounts, dismissal of management,
and (in critically undercapitalized situations) appointment of a receiver. For well-capitalized institutions, FDICIA provides authority
for regulatory intervention where they deem the institution to be engaging in unsafe or unsound practices, or if the institution
receives a less than satisfactory examination report rating for asset quality, management, earnings, liquidity, or sensitivity
to market risk.



Other FDICIA Provisions

Each depository institution must submit audited financial statements
to its primary regulator and the FDIC, whose reports are made publicly available. In addition, the audit committee of each depository
institution must consist of outside directors and the audit committee at “large institutions” (as defined by FDIC regulation)
must include members with banking or financial management expertise. The audit committee at “large institutions” must
also have access to independent outside counsel. In addition, an institution must notify the FDIC and the institution’s primary
regulator of any change in the institution’s independent auditor, and annual management letters must be provided to the FDIC
and the depository institution’s primary regulator. The regulations define a “large institution” as one with
over $500 million in assets, which does include the Bank. Also, under the rule, an institution's independent public accountant
must examine the institution's internal controls over financial reporting and perform agreed-upon procedures to test compliance
with laws and regulations concerning safety and soundness.



Under the FDICIA, each federal banking agency must prescribe certain
safety and soundness standards for depository institutions and their holding companies. Three types of standards must be prescribed:



| | · | asset quality and earnings
| | - | --------------------------

| | · | operational and managerial, and
| | - | -------------------------------

| | · | compensation
| | - | ------------



Such standards would include a ratio of classified assets to capital,
minimum earnings, and, to the extent feasible, a minimum ratio of market value to book value for publicly traded securities of
such institutions and holding companies. Operational and managerial standards must relate to:



| | · | internal controls, information systems and internal audit systems
| | - | -----------------------------------------------------------------

| | · | loan documentation
| | - | ------------------

| | · | credit underwriting
| | - | -------------------

| | · | interest rate exposure
| | - | ----------------------

| | · | asset growth, and
| | - | -----------------

| | · | compensation, fees and benefits
| | - | -------------------------------



The FDICIA also sets forth Truth in Savings disclosure and advertising
requirements applicable to all depository institutions.



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USA PATRIOT Act of 2001/Bank Secrecy Act

In October 2001, the USA Patriot Act of 2001 (Patriot Act) was enacted
in response to the terrorist attacks in New York, Pennsylvania and Washington, D.C., which occurred on September 11, 2001. The
Patriot Act is intended to strengthen U.S. law enforcement’s and the intelligence communities’ abilities to work cohesively
to combat terrorism on a variety of fronts. The impact of the Patriot Act on financial institutions of all kinds is significant
and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations,
including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions,
regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.



Under the Bank Secrecy Act (BSA), banks and other financial institutions
are required to report to the Internal Revenue Service currency transactions of more than $10,000 or multiple transactions of which
a bank is aware in any one day that aggregate in excess of $10,000 and to report suspicious transactions under specified criteria.
Civil and criminal penalties are provided under the BSA for failure to file a required report, for failure to supply information
required by the BSA, or for filing a false or fraudulent report.



Loans to Insiders/Regulation O

Regulation O, also known as Loans to Insiders, governs the permissible
lending relationships between a bank and its executive officers, directors, and principal shareholders and their related interests.
The primary restriction of Regulation O is that loan terms and conditions, including interest rates and collateral coverage, can
be no more favorable to the insider than loans made in comparable transactions to non-covered parties. Additionally, the loan may
not involve more than normal risk. The regulation requires quarterly reporting to regulators of the total amount of credit extended
to insiders.



Under Regulation O, a bank is not required to obtain approval from
the bank’s Board of Directors prior to making a loan to an executive officer or Board of Director member as long as a first
lien on the executive officer’s residence secures the loan. The Corporation’s policy requires prior Board of Director
approval of any Executive Officer or Director loan that when aggregated with other outstanding extensions of credit to the Insider
and their related interests exceeds $500,000. Loans to any Executive Officer or Director with aggregate exposure of under $500,000
must be reported at the next scheduled Board of Director meeting. Further amendments allow bank insiders to take advantage of
preferential loan terms that are available to substantially all employees. Regulation O does permit an insider to participate
in a plan that provides more favorable credit terms than the bank provides to non-employee customers provided that the plan:



| | · | Is widely available to employees
| | - | --------------------------------

| | · | Does not give preference to any insider over other employees
| | - | ------------------------------------------------------------



The Bank has a policy in place that offers general employees more
favorable loan terms than those offered to non-employee customers. The Bank’s policy on loans to insiders allows insiders
to participate in the same favorable rate and terms offered to all other employees; however, any loan to an insider that does not
fall within permissible regulatory exceptions must receive the prior approval of the Bank’s Board of Directors.



Dodd-Frank Wall Street Reform and Consumer Protection Act

Dodd-Frank, signed into law on July 21, 2010 by President Barack
Obama, was the culmination of the legislative efforts in response to the financial crisis of 2007 - 2008. The act reshaped Wall
Street and the American banking industry by bringing the most significant changes to financial regulation in the United States
since the regulatory reform that followed the Great Depression. The Act’s numerous provisions were to be implemented over
a period of several years and were intended to decrease various risks in the U.S. financial system. Dodd-Frank created a new Financial
Stability Oversight Council to identify systemic risks in the financial system and gave federal regulators new authority to take
control of and liquidate financial firms. Dodd-Frank was expected to and did have an impact on the Corporation’s business
operations as its provisions began to take effect. To date the provisions that did go into effect, or began to phase in, did at
a minimum increase the Corporation’s operating and compliance costs. Some of the provisions could possibly reduce fee revenue
and/or increase interest expense. It is difficult to predict at this time what additional provisions of the Dodd-Frank Act will
occur or be rolled back under President Donald Trump and his administration. President Trump has already signed an executive order
on February 3, 2017 designed to scale back the Dodd-Frank Act. The order lays the groundwork for sweeping change to the current
law and if successfully pushed through Congress, could eventually lead to a replacement of Dodd-Frank. As such it is difficult
to predict the impact that this legislation, or replacement legislation, will have on community banks going forward.

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Among the
provisions that have either begun to affect the Corporation, or are likely to in the future, 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.



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 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.



Consumer Financial Protection Bureau (CFPB)

Dodd-Frank created a new, independent federal agency called 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 are subject to rules promulgated by the CFPB but continue to be examined
and supervised by federal banking regulators for consumer compliance purposes. The CFPB has authority to prevent unfair, deceptive,
or abusive practices in connection with the offering of consumer financial products. Dodd-Frank authorized 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 allows 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.

Ability-to-Repay and Qualified Mortgage Rule

Pursuant to the Dodd-Frank Act, the CFPB issued a final rule on
January 10, 2013 (effective on January 10, 2014), amending Regulation Z as implemented by the Truth in Lending Act, requiring mortgage
lenders to make a reasonable and good faith determination based on verified and documented information that a consumer applying
for a mortgage loan has a reasonable ability to repay the loan according to its terms. Mortgage lenders are required to determine
consumers’ ability to repay in one of two ways. The first alternative requires the mortgage lender to consider the following
eight underwriting factors when making the credit decision: (1) current or reasonably expected income or assets; (2) current
employment status; (3) the monthly payment on the covered transaction; (4) the monthly payment on any simultaneous loan;
(5) the monthly payment for mortgage-related obligations; (6) current debt obligations, alimony, and child support; (7) the
monthly debt-to-income ratio or residual income; and (8) credit history. Alternatively, the mortgage lender can originate
“qualified mortgages,” which are entitled to a presumption that the creditor making the loan satisfied the ability-to-repay
requirements. In general, a “qualified mortgage” is a mortgage loan without negative amortization, interest-only payments,
balloon payments, or terms exceeding 30 years. In addition, to be a qualified mortgage the points and fees paid by a consumer cannot
exceed 3% of the total loan amount. Loans which meet these criteria will be considered qualified mortgages, and as a result generally
protect lenders from fines or litigation in the event of foreclosure. Qualified mortgages that are “higher-priced”
(e.g. subprime loans) garner a rebuttable presumption of compliance with the ability-to-repay rules, while qualified mortgages
that are not “higher-priced” (e.g. Prime loans) are given a safe harbor of compliance. The final

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rule, as issued, is
not expected to have a material impact on the Corporation’s lending activities and on the Corporation’s Statements
of Income or Financial Condition.



Interchange Fees

Under the Durbin Amendment to the Dodd-Frank Act, the Federal Reserve
adopted rules establishing standards for assessing whether the interchange fees that may be charged with respect to certain electronic
debit transactions are “reasonable and proportional” to the costs incurred by issuers for processing such transactions.



Interchange fees or “swipe” fees, are charges that
merchants pay to the Corporation and other card-issuing banks for processing electronic payment transactions. The Federal Reserve
Board has ruled that for financial institutions with assets of $10 billion or more the maximum permissible interchange fee for
an electronic debit transaction is the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction.
The Federal Reserve Board also has rules governing routing and exclusivity that require issuers to offer two unaffiliated networks
for routing transactions on each debit or prepaid product. While the Corporation’s asset size is presently under $1 billion,
there is concern that these requirements impacting financial institutions over $10 billion in assets will eventually be pushed
down to either financial institutions over $1 billion or to all financial institutions. This would negatively impact the Corporation’s
non-interest income.



TILA/RESPA Integrated Disclosure (TRID) Rules

The TRID rules were mandated by Dodd-Frank to address the problem
of the sometimes duplicative and overlapping disclosures required by the Truth in Lending Act (TILA) and Real Estate Settlement
Procedures Act (RESPA) involving consumer purpose, closed end loans secured by real property. The CFPB was tasked with developing
the new disclosures, defining the regulatory compliance parameters, and implementation. The timing elements built around these
new disclosures were established to provide the consumer with ample time to consider the credit transaction and its associated
costs. The final rules were implemented by amending the Truth in Lending Act; however implementation proved to be difficult as
this marked the first time in thirty years that these standard disclosures were changed. Much reliance was placed on third party
providers to the financial institutions to make all the necessary changes to the disclosures. After one delay, the rules became
effective October 3, 2015. The Corporation partnered with its loan document software providers to ensure timely, compliant implementation.



Department of Defense Military Lending Rule

In 2015, the U.S. Department of Defense issued a final rule which
restricts pricing and terms of certain credit extended to active duty military personnel and their families.  This rule, which
was implemented effective October 3, 2016, caps the interest rate on certain credit extensions to an annual percentage rate of
36% and restricts other fees.  The rule requires financial institutions to verify whether customers are military personnel
subject to the rule.  The impact of this final rule, and any subsequent amendments thereto, on the Corporation’s lending
activities and the Corporation’s statements of income or condition has had little or no impact; however, management will
continue to monitor the implementation of the rule for any potential side effects on the Corporation’s business.



Cybersecurity



In March 2015, federal regulators issued two related statements
regarding cybersecurity. One statement instructed financial institutions to design multiple layers of security controls to establish
lines of defense and to ensure that their risk management practices cover the risk of compromised customer credentials, including
security measures to reliably authenticate customers accessing internet-based services of the financial institution. The other
statement indicates that a financial institution’s management is expected to maintain sufficient business continuity planning
processes to ensure the rapid recovery, resumption and maintenance of the institution’s operations after a cyber-attack involving
malware. Financial institutions are expected to develop appropriate processes to enable recovery of data and business operations
and address the rebuilding of network capabilities and restoring data if the institution or its critical service providers are
victim to a cyber-attack. The Corporation could be subject to fines or penalties if it fails to observe this regulatory guidance.
See Item 1A. Risk Factors for further discussion of risks related to cybersecurity.



Ongoing Legislation



As a consequence of the extensive regulation of the financial services
industry and specifically commercial banking activities in the United States, the Corporation’s business is particularly
susceptible to changes in federal and state legislation and regulations. Over the course of time, various federal and state proposals
for legislation could result

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Table of Contents ENB FINANCIAL CORP


in additional regulatory and legal requirements for the Corporation. Management cannot predict if
any such legislation will be adopted, or if adopted, how it would affect the business of the Corporation. Past history has demonstrated
that new legislation or changes to existing legislation usually results in a heavier compliance burden and generally increases
the cost of doing business.



Management believes that the effect of any current legislative proposals
on the liquidity, capital resources and the results of operations of the Corporation and the Bank will be minimal. It is possible
that there will be regulatory proposals which, if implemented, could have a material effect upon our liquidity, capital resources
and results of operations. In addition, the general cost of compliance with numerous federal and state laws does have, and in the
future may have, a negative impact on our results of operations. As with other banks, the status of the financial services industry
can affect the Bank. Consolidations of institutions are expected to continue as the financial services industry seeks greater efficiencies
and market share. Bank management believes that such consolidations may enhance the Bank’s competitive position as a community
bank. See Item 1A. Risk Factors for more information.



Statistical Data



The statistical disclosures required by this item are incorporated
by reference herein, from Item 6 on page 30 and the Consolidated Statements of Income on page 77 as found in this Form 10-K filing.



Available Information



A copy of the Corporation’s Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q, and Current Reports on Form 8-K, as required to be filed with the Securities and Exchange Commission pursuant
to Securities Exchange Act Rule 13a-1, may be obtained, without charge, from our website: www.enbfc.com or by request via
e-mail to bharting@epnb.com. This information may also be obtained via written request to Mr. Barry W. Harting, Vice President
and Corporate Secretary at ENB Financial Corp, 31 East Main Street, P.O. Box 457, Ephrata, PA, 17522.



The Corporation’s reports, proxy statements, and other information
are available for inspection and copying at the SEC Public Reference Room at 100 F Street, N.E., Washington, DC, 20549 at prescribed
rates. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.
The Corporation is an electronic filer with the Commission. The Commission maintains a website that contains reports, proxy and
information statements, and other information regarding registrants that file electronically with the Commission. The address
of the Commission’s website is http://www.sec.gov.





Item 1A. Risk Factors



An investment in the Corporation’s common stock is subject
to risks inherent to the banking industry and the equity markets. The material risks and uncertainties that management believes
affect the Corporation are described below. Before making an investment decision, you should carefully consider the risks and uncertainties
described below together with all of the other information included or incorporated by reference in this report. The risks and
uncertainties described below are not the only ones facing the Corporation. Additional risks and uncertainties that management
is not aware of or is not focused on, or currently deems immaterial, may also impair the Corporation’s business operations.
This report is qualified in its entirety by these risk factors.



If any of the following risks actually occur, the Corporation’s
financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of
the Corporation’s common stock could decline significantly, and you could lose all or part of your investment.



Risks Related To The Corporation’s Business



The Corporation Is Subject To Interest Rate Risk

The Corporation’s earnings and cash flows are largely dependent
upon its net interest income. Net interest income is the difference between interest income earned on interest earning assets,
such as loans and securities, and interest expense paid on interest bearing liabilities, such as deposits and borrowed funds. Interest
rates are highly sensitive to many factors that are beyond the Corporation’s control, including general economic conditions
and policies of various governmental and regulatory agencies, particularly, the Board of Governors of the Federal Reserve System.
Changes in monetary policy, including changes in interest rates, could influence not only the interest the

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Corporation receives
on loans and securities, but also the amount of interest it pays on deposits and borrowings. Changes in interest rates could also
affect:



| | · | The Corporation’s ability to originate loans and obtain deposits
| | - | ----------------------------------------------------------------

| | · | The fair value of the Corporation’s financial assets and liabilities
| | - | --------------------------------------------------------------------

| | · | The average duration of the Corporation’s assets and liabilities
| | - | ----------------------------------------------------------------

| | · | The future liquidity of the Corporation
| | - | ---------------------------------------



If the interest rates paid on deposits and other borrowings increase
at a faster rate than the interest rates received on loans and other securities, the Corporation’s net interest income, and
therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans
and other securities fall more quickly than the interest rates paid on deposits and other borrowings.



Although management believes it has implemented effective asset
and liability management strategies to reduce the potential effects of changes in interest rates on the Corporation’s results
of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on the
Corporation’s financial condition and results of operations.



The Corporation Is Subject To Lending Risk

There are inherent risks associated with the Corporation’s
lending activities. These risks include, among other things, the impact of changes in interest rates and changes in the economic
conditions in the markets where the Corporation operates, as well as those across the Commonwealth of Pennsylvania and the United
States. Increases in interest rates and/or weakening economic conditions could adversely impact the ability of borrowers to repay
outstanding loans or the value of the collateral securing these loans. The Corporation is also subject to various laws and regulations
that affect its lending activities. Failure to comply with applicable laws and regulations could subject the Corporation to regulatory
enforcement action that could result in the assessment of significant civil money penalties against the Corporation.



As of December 31, 2016, 48.2% of the Corporation’s loan
portfolio consisted of commercial, industrial, and construction loans secured by real estate. Another 13.5% of the Corporation’s
loan portfolio consisted of commercial loans not secured by real estate. These types of loans are generally viewed as having more
risk of default than consumer real estate loans or other consumer loans. These types of loans are also typically larger than consumer
real estate loans and other consumer loans. Because the Corporation’s loan portfolio contains a significant number of commercial
and industrial, construction, and commercial real estate loans with relatively large balances, the deterioration of one or a few
of these loans could cause a significant increase in non-performing loans. An increase in non-performing loans could result in
a net loss of earnings from these loans, an increase in the provision for possible loan losses, and an increase in loan charge-offs,
all of which could have a material adverse effect on the Corporation’s financial condition and results of operations.



The Corporation’s Allowance For Possible Loan Losses
May Be Insufficient

The Corporation maintains an allowance for possible loan losses,
which is a reserve established through a provision for loan losses, charged to expense. The allowance represents management’s
best estimate of expected losses inherent in the existing portfolio of loans. The allowance, in the judgment of management, is
necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the allowance reflects management’s
continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality,
present economic, political, and regulatory conditions, and unidentified losses inherent in the current loan portfolio. Determining
the appropriate level of the allowance for possible loan losses understandably involves a high degree of subjectivity and requires
the Corporation to make significant estimates of current credit risks and future trends, all of which may undergo material changes.
Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem
loans, and other factors, both within and outside of the Corporation’s control, may require an increase in the allowance
for possible loan losses. In addition, bank regulatory agencies periodically review the Corporation’s allowance for loan
losses and may require an increase in the provision for possible loan losses or the recognition of further loan charge-offs, based
on judgments different than those of management. In addition, if charge-offs in future periods exceed the allowance for possible
loan losses, the Corporation will need additional provisions to increase the allowance for possible loan losses. Any increases
in the allowance for possible loan losses will result in a decrease in net income, and may have a material adverse effect on the
Corporation’s financial condition and results of operations.



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The Basel III Capital Requirements May Require Us To Maintain
Higher Levels Of Capital, Which Could Reduce Our Profitability

Basel III targets higher levels of base capital, certain capital
buffers, and a migration toward common equity as the key source of regulatory capital. Although the new capital requirements are
phased in over the next decade, Basel III signals a growing effort by domestic and international bank regulatory agencies to require
financial institutions, including depository institutions, to maintain higher levels of capital. As Basel III is implemented,
regulatory viewpoints could change and require additional capital to support our business risk profile. If the Corporation and
the Bank are required to maintain higher levels of capital, the Corporation and the Bank may have fewer opportunities to invest
capital into interest-earning assets, which could limit the profitable business operations available to the Corporation and the
Bank and adversely impact our financial condition and results of operations.



Future Credit Downgrades Of The United States Government Due
To Issues Relating To Debt And The Deficit May Adversely Affect The Corporation

As a result of past difficulties of the federal government to reach
agreement over federal debt and issues connected with the debt ceiling, certain rating agencies placed the United States Government’s
long-term sovereign debt rating on their equivalent of negative watch and announced the possibility of a rating downgrade. 
The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored enterprises
in which the Corporation invests and receives lines of credit on negative watch and a downgrade of the United States credit rating
would trigger a similar downgrade in the credit rating of these government-sponsored enterprises.  Furthermore, the credit
rating of other entities, such as state and local governments, may also be downgraded should the United States credit rating be
downgraded. Credit downgrades often cause a lower valuation of the Corporation’s securities.



The Corporation Is Subject To Environmental Liability Risk
Associated With Lending Activities

A significant portion of the Corporation’s loan portfolio
is secured by real property. During the ordinary course of business, the Corporation may foreclose on and take title to properties
securing certain loans. In doing so, there is a risk that hazardous or toxic substances could be found on these properties. If
hazardous or toxic substances are found, the Corporation may be liable for remediation costs, as well as for personal injury and
property damage. Environmental laws may require the Corporation to incur substantial expenses and may materially reduce the affected
property’s value or limit the Corporation’s ability to use or sell the affected property. In addition, future laws
or more stringent interpretations or enforcement policies with respect to existing laws, may increase the Corporation’s exposure
to environmental liability. Although the Corporation has policies and procedures to perform an environmental review before initiating
any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect
on the Corporation’s financial condition and results of operations.



If The Corporation Concludes That The Decline In Value Of
Any Of Its Investment Securities Is Other Than Temporary, The Corporation is Required To Write Down The Value Of That Security
Through A Charge To Earnings

The Corporation reviews the investment securities portfolio at each
quarter-end reporting period to determine whether the fair value is below the current carrying value. When the fair value of any
of the investment securities has declined below its carrying value, the Corporation is required to assess whether the decline is
other than temporary. If it concludes that the decline is other than temporary, it is required to write down the value of that
security through a charge to earnings. Changes in the expected cash flows of these securities and/or prolonged price declines have
resulted and may result in concluding in future periods that there is additional impairment of these securities that is other than
temporary, which would require a charge to earnings to write down these securities to their fair value. Due to the complexity of
the calculations and assumptions used in determining whether an asset is impaired, the impairment disclosed may not accurately
reflect the actual impairment in the future.



The Corporation’s Profitability Depends Significantly
On Economic Conditions In The Commonwealth Of Pennsylvania And Its Market Area

The Corporation’s success depends primarily on the general
economic conditions of the Commonwealth of Pennsylvania, and more specifically, the local markets in which the Corporation operates.
Unlike larger national or other regional banks that are more geographically diversified, the Corporation provides banking and financial
services to customers primarily located in Lancaster County, as well as Berks, Chester, and Lebanon Counties. The local economic
conditions in these areas have a significant impact on the demand for the Corporation’s products and services as well as
the ability of the Corporation’s customers to repay loans, the value of the collateral securing loans, and the stability
of the Corporation’s deposit funding sources. A significant decline in general economic

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conditions, caused by inflation,
recession, acts of terrorism, outbreak of hostilities or other international or domestic occurrences, unemployment, changes in
securities markets, or other factors could impact these local economic conditions and, in turn, have a material adverse effect
on the Corporation’s financial condition and results of operations.



The Earnings Of Financial Services Companies Are Significantly
Affected By General Business And Economic Conditions

The Corporation’s operations and profitability are impacted
by general business and economic conditions in the United States and abroad. These conditions include short-term and long-term
interest rates, inflation, money supply, political issues, legislative and regulatory changes, fluctuations in both debt and equity
capital markets, broad trends in industry and finance, and the strength of the U.S. economy and the local economies in which the
Corporation operates, all of which are beyond the Corporation’s control. Deterioration in economic conditions could result
in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for
the Corporation’s products and services, among other things, any of which could have a material adverse impact on the Corporation’s
financial condition and results of operations.



The Corporation Operates In A Highly Competitive Industry
And Market Area

The Corporation faces substantial competition in all areas of its
operations from a variety of different competitors, many of which are larger and may have more financial resources. Such competitors
primarily include national, regional, and community banks within the various markets in which the Corporation operates. Additionally,
various out-of-state banks have begun to enter or have announced plans to enter the market areas in which the Corporation currently
operates. The Corporation also faces competition from many other types of financial institutions, including, without limitation,
online banks, savings and loans, credit unions, finance companies, brokerage firms, insurance companies, and other financial intermediaries.
The financial services industry could become even more competitive as a result of legislative, regulatory and technological changes,
and continued consolidation. Banks, securities firms, and insurance companies can merge under the umbrella of a financial holding
company, which can offer virtually any type of financial service, including banking, securities underwriting, insurance (both agency
and underwriting), and merchant banking. Also, technology has lowered barriers to entry and made it possible for non-banks to offer
products and services traditionally provided by banks, such as automatic transfer and automatic payment systems. Many of the Corporation’s
competitors have fewer regulatory constraints and may have lower cost structures. Additionally, due to their size, many competitors
may be able to achieve economies of scale and, as a result, may offer a broader range of products and services as well as better
pricing for those products and services than the Corporation can offer.



The Corporation’s ability to compete successfully depends
on a number of factors, including, among other things:



| | · | The ability to develop, maintain, and build upon long-term customer relationships based on quality service, high ethical standards,
and safe, sound management practices
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | The ability to expand the Corporation’s market position
| | - | -------------------------------------------------------

| | · | The scope, relevance, and pricing of products and services offered to meet customer needs and demands
| | - | -----------------------------------------------------------------------------------------------------

| | · | The rate at which the Corporation introduces new products and services relative to its competitors
| | - | --------------------------------------------------------------------------------------------------

| | · | Customer satisfaction with the Corporation’s level of service
| | - | -------------------------------------------------------------

| | · | Industry and general economic trends
| | - | ------------------------------------



Failure to perform in any of these areas could significantly weaken
the Corporation’s competitive position, which could adversely affect the Corporation’s growth and profitability and
have a material adverse effect on the Corporation’s financial condition and results of operations.



The Corporation Is Subject To Extensive Government Regulation
And Supervision

The Corporation is subject to extensive federal and state
regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit
insurance funds, and the banking system as a whole, not shareholders. These regulations affect the Corporation’s
lending practices, capital structure, investment practices, dividend policy, and growth, among other things. Congress and
federal regulatory agencies continually review banking laws, regulations, and policies for possible changes. Changes to
statutes, regulations, or regulatory policies, including changes in interpretation or implementation of statutes,
regulations, or policies, could affect the Corporation in substantial and unpredictable ways. Such changes could subject the
Corporation to additional costs, limit the types of financial services and products the Corporation may offer, and/or
increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply
with laws, regulations, or

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policies could result in sanctions by regulatory agencies, civil money penalties, and/or
reputation damage, which could have a material adverse effect on the Corporation’s business, financial condition, and
results of operations. While the Corporation has policies and procedures designed to prevent any such violations, there can
be no assurance that such violations will not occur.



Future Governmental Regulation And Legislation Could Limit
The Corporation’s Future Growth

The Corporation is a registered bank holding company,
and its subsidiary bank is a depository institution whose deposits are insured by the FDIC. As a result, the Corporation is subject
to various regulations and examinations by various regulatory authorities. In general, statutes establish the corporate governance
and eligible business activities for the Corporation, certain acquisition and merger restrictions, limitations on inter-company
transactions such as loans and dividends, capital adequacy requirements, requirements for anti-money laundering programs and other
compliance matters, among other regulations. The Corporation is extensively regulated under federal and state banking laws and
regulations that are intended primarily for the protection of depositors, federal deposit insurance funds and the banking system
as a whole. Compliance with these statutes and regulations is important to the Corporation’s ability to engage in new activities
and consummate additional acquisitions.



In addition, the Corporation is subject to changes in federal and
state tax laws as well as changes in banking and credit regulations, accounting principles and governmental economic and monetary
policies. The Corporation cannot predict whether any of these changes may adversely and materially affect it. Federal and state
banking regulators also possess broad powers to take supervisory actions as they deem appropriate. These supervisory actions may
result in higher capital requirements, higher insurance premiums and limitations on the Corporation’s activities that could
have a material adverse effect on its business and profitability. While these statutes are generally designed to minimize potential
loss to depositors and the FDIC insurance funds, they do not eliminate risk, and compliance with such statutes increases the Corporation’s
expense, requires management’s attention and can be a disadvantage from a competitive standpoint with respect to non-regulated
competitors.



The Regulatory Environment For The Financial Services Industry
Is Being Significantly Impacted By Financial Regulatory Reform Initiatives In The United States And Elsewhere, Including Dodd-Frank
And Regulations Promulgated To Implement It

Dodd-Frank, which was signed into law on July 21, 2010, comprehensively
reforms the regulation of financial institutions, products and services. Dodd-Frank requires various federal regulatory agencies
to implement numerous rules and regulations. Because the federal agencies are granted broad discretion in drafting these rules
and regulations, many of the details and the impact of Dodd-Frank may not be known for many months or years.



While much of how the Dodd-Frank and other financial industry reforms
will change our current business operations depends on the specific regulatory reforms and interpretations, many of which have
yet to be released or finalized, it is clear that the reforms, both under Dodd-Frank and otherwise, will have a significant effect
on our entire industry. Although Dodd-Frank and other reforms will affect a number of the areas in which we do business, it is
not clear at this time the full extent of the adjustments that will be required and the extent to which we will be able to adjust
our businesses in response to the requirements. Although it is difficult to predict the magnitude and extent of these effects at
this stage, we believe compliance with Dodd-Frank and implementing its regulations and initiatives will negatively impact revenue
and increase the cost of doing business, both in terms of transition expenses and on an ongoing basis, and it may also limit our
ability to pursue certain business opportunities.



The Corporation’s Banking Subsidiary May Be Required
To Pay Higher FDIC Insurance Premiums Or Special Assessments Which May Adversely Affect Its Earnings

Poor economic conditions and
the resulting bank failures have increased the costs of the FDIC and depleted its deposit insurance fund.  Additional bank
failures may prompt the FDIC to increase its premiums above the recently increased levels or to issue special assessments. The
Corporation generally is unable to control the amount of premiums or special assessments that its subsidiary is required to pay
for FDIC insurance. Any future changes in the calculation or assessment of FDIC insurance premiums may have a material adverse
effect on the Corporation’s results of operations, financial condition, and the ability to continue to pay dividends on common
stock at the current rate or at all.



The Corporation’s Controls And Procedures May Fail Or
Be Circumvented

Management regularly reviews and updates the Corporation’s
internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls,
however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances
that the objectives of

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the system are met. Any failure or circumvention of the Corporation’s controls and procedures or failure
to comply with regulations related to controls and procedures could have a material adverse effect on the Corporation’s business,
results of operations, and financial condition.



New Lines Of Business Or New Products And Services May Subject
The Corporation To Additional Risks

From time to time, the Corporation may implement new lines of business
or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated
with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines
of business and/or new products and services, the Corporation may invest significant time and resources. Initial timetables for
the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability
targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting
market preferences, may also impact the successful implementation of a new line of business or a new product or service. Furthermore,
any new line of business and/or new product or service could have a significant impact on the effectiveness of the Corporation’s
system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of
business or new products or services could have a material adverse effect on the Corporation’s business, results of operations,
and financial condition.



The Corporation’s Ability To Pay Dividends Depends On
Earnings And Is Subject To Regulatory Limits

The Corporation’s ability to pay dividends is also subject
to its profitability, financial condition, capital expenditures, and other cash flow requirements. Dividend payments are subject
to legal and regulatory limitations, generally based on net profits and retained earnings, imposed by the various banking regulatory
agencies. There is no assurance that the Corporation will have sufficient earnings to be able to pay dividends or generate adequate
cash flow to pay dividends in the future. The Corporation’s failure to pay dividends on its common stock could have a material
adverse effect on the market price of its common stock.



Future Acquisitions May Disrupt The Corporation’s Business
And Dilute Stockholder Value

The Corporation may use its common stock to acquire other companies
or make investments in corporations and other complementary businesses. The Corporation may issue additional shares of common stock
to pay for future acquisitions, which would dilute the ownership interest of current shareholders of the Corporation. Future business
acquisitions could be material to the Corporation, and the degree of success achieved in acquiring and integrating these businesses
into the Corporation could have a material effect on the value of the Corporation’s common stock. In addition, any acquisition
could require the Corporation to use substantial cash or other liquid assets or to incur debt. In those events, the Corporation
could become more susceptible to economic downturns and competitive pressures.



The Corporation May Need To Or Be Required To Raise Additional
Capital In The Future, And Capital May Not Be Available When Needed And On Terms Favorable To Current Shareholders

Federal banking regulators
require the Corporation and its subsidiary bank to maintain adequate levels of capital to support their operations. These capital
levels are determined and dictated by law, regulation, and banking regulatory agencies.  In addition, capital levels
are also determined by the Corporation’s management and board of directors based on capital levels that they believe are
necessary to support the Corporation’s business operations.



If the Corporation raises
capital through the issuance of additional shares of its common stock or other securities, it would likely dilute the ownership
interests of current investors and could dilute the per share book value and earnings per share of its common stock. Furthermore,
a capital raise through issuance of additional shares may have an adverse impact on the Corporation’s stock price. New investors
also may have rights, preferences and privileges senior to the Corporation’s current shareholders, which may adversely impact
its current shareholders.



The Corporation’s ability
to raise additional capital will depend on conditions in the capital markets at that time, which are outside of its control, and
on its financial performance. Accordingly, the Corporation cannot be certain of its ability to raise additional capital on acceptable
terms and acceptable time frames or to raise additional capital at all. If the Corporation cannot raise additional capital in sufficient
amounts when needed, its ability to comply with regulatory capital requirements could be materially impaired. Additionally, the
inability to raise capital in sufficient amounts may adversely affect the Corporation’s financial condition and results of
operations.



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The Corporation May Not Be Able To Attract And Retain Skilled
People

The Corporation’s success highly depends on its ability to
attract and retain key people. Competition for the best people in most activities engaged in by the Corporation can be intense
and the Corporation may not be able to hire people or to retain them. The unexpected loss of services of one or more of the Corporation’s
key personnel could have a material adverse impact on the Corporation’s business because of their skills, knowledge of the
Corporation’s market, years of industry experience, and the difficulty of promptly finding qualified replacement personnel.
The Corporation does not currently have employment agreements or non-competition agreements with any of its senior officers.



The Corporation’s Information Systems May Experience
An Interruption Or Breach In Security

The Corporation relies heavily on communications and information
systems to conduct its business. Any failure, interruption, or breach in security of these systems could result in failures or
disruptions in the Corporation’s customer relationship management, general ledger, deposit, loan, and other systems. While
the Corporation has policies and procedures designed to prevent or limit the effect of the failure, interruption, or security
breach of its information systems, there can be no assurance that any such failures, interruptions, or security breaches will
not occur or, if they do occur, that they will be adequately addressed. Further, while the Corporation maintains insurance coverage
that may, subject to policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber
risks, such insurance coverage may be insufficient to cover all losses. The occurrence of any failures, interruptions, or security
breaches of the Corporation’s information systems could damage the Corporation’s reputation, adversely affecting customer
or consumer confidence, result in a loss of customer business, subject the Corporation to additional regulatory scrutiny and possible
regulatory penalties, or expose the Corporation to civil litigation and possible financial liability, any of which could have
a material adverse effect on the Corporation’s financial condition and results of operations.



The Corporation Continually Encounters Technological Change

The financial services industry is continually undergoing rapid
technological change with frequent introductions of new technology-driven products and services. The effective use of technology
increases efficiency and enables financial institutions to better serve customers and to reduce costs. The Corporation’s
future success depends, in part, upon its ability to address the needs of its customers by using technology to provide products
and services that will satisfy customer demands, as well as to create additional efficiencies in the Corporation’s operations.
Many of the Corporation’s competitors have substantially greater resources to invest in technological improvements. The Corporation
may not be able to effectively implement new technology-driven products and services or be successful in marketing these products
and services to its customers. Failure to successfully keep pace with technological change affecting the financial services industry
could have a material adverse impact on the Corporation’s business, financial condition, and results of operations.



The Corporation’s Operations Of Its Business, Including
Its Interaction With Customers, Are Increasingly Done Via Electronic Means, And This Has Increased Its Risks Related To Cyber Security

The Corporation is exposed to the risk of cyber-attacks in the normal
course of business. In general, cyber incidents can result from deliberate attacks or unintentional events. The Corporation has
observed an increased level of attention in the industry focused on cyber-attacks that include, but are not limited to, gaining
unauthorized access to digital systems for purposes of misappropriating assets or sensitive information, corrupting data, or causing
operational disruption. To combat against these attacks, policies and procedures are in place to prevent or limit the effect on
the possible security breach of its information systems. While the Corporation maintains insurance coverage that may, subject to
policy terms and conditions including significant self-insured deductibles, cover certain aspects of cyber risks, such insurance
coverage may be insufficient to cover all losses. While the Corporation has not incurred any material losses related to cyber-attacks,
nor is it aware of any specific or threatened cyber-incidents as of the date of this report, it may incur substantial costs and
suffer other negative consequences if it falls victim to successful cyber-attacks. Such negative consequences could include remediation
costs that may include liability for stolen assets or information and repairing system damage that may have been caused; deploying
additional personnel and protection technologies, training employees, and engaging third party experts and consultants; lost revenues
resulting from unauthorized use of proprietary information or the failure to retain or attract customers following an attack; disruption
or failures of physical infrastructure, operating systems or networks that support our business and customers resulting in the
loss of customers and business opportunities; additional regulatory scrutiny and possible regulatory penalties; litigation; and
reputational damage adversely affecting customer or investor confidence.



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The Increasing Use Of Social Media Platforms Presents New
Risks And Challenges And Our Inability Or Failure To Recognize, Respond To And Effectively Manage The Accelerated Impact Of Social
Media Could Materially Adversely Impact Our Business

There has been a marked increase in the use of social media platforms,
including weblogs (blogs), social media websites, and other forms of Internet-based communications which allow individuals access
to a broad audience of consumers and other interested persons. Social media practices in the banking industry are evolving, which
creates uncertainty and risk of noncompliance with regulations applicable to our business. Consumers value readily available information
concerning businesses and their goods and services and often act on such information without further investigation and without
regard to its accuracy. Many social media platforms immediately publish the content their subscribers and participants post, often
without filters or checks on accuracy of the content posted. Information posted on such platforms at any time may be adverse to
our interests and/or may be inaccurate. The dissemination of information online could harm our business, prospects, financial condition,
and results of operations, regardless of the information’s accuracy. The harm may be immediate without affording us an opportunity
for redress or correction.



Other risks associated with the use of social media include improper
disclosure of proprietary information, negative comments about our business, exposure of personally identifiable information, fraud,
out-of-date information, and improper use by employees and customers. The inappropriate use of social media by our customers or
employees could result in negative consequences including remediation costs including training for employees, additional regulatory
scrutiny and possible regulatory penalties, litigation or negative publicity that could damage our reputation adversely affecting
customer or investor confidence.



The Corporation Is Subject To Claims And Litigation Pertaining
To Fiduciary Responsibility

From time to time, customers make claims and take legal action pertaining
to the Corporation’s performance of its fiduciary responsibilities. Whether customer claims and legal action related to the
Corporation’s performance of its fiduciary responsibilities are founded or unfounded, if such claims and legal actions are
not resolved in a manner favorable to the Corporation, they may result in significant financial liability and/or adversely affect
the market perception of the Corporation and its products and services as well as impact customer demand for those products and
services. Any financial liability or reputation damage could have a material adverse effect on the Corporation’s business,
financial condition, and results of operations.



Financial Services Companies Depend On The Accuracy And Completeness
Of Information About Customers And Counterparties

In deciding whether to extend credit or enter into other transactions,
the Corporation may rely on information furnished by, or on behalf of, customers and counterparties, including financial statements,
credit reports, and other financial information. The Corporation may also rely on representations of those customers, counterparties,
or other third parties, such as independent auditors, as to the accuracy and completeness of that information. Reliance on inaccurate
or misleading financial statements, credit reports, or other financial information could have a material adverse impact on the
Corporation’s business and, in turn, the Corporation’s financial condition and results of operations.



Consumers May Decide Not To Use Banks To Complete Their Financial
Transactions

Technology and other changes are allowing parties to complete financial
transactions that historically have involved banks through alternative methods. For example, consumers can now maintain funds that
would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions
such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries,
known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and
the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of
funds could have a material adverse effect on the Corporation’s financial condition and results of operations.



The Recent Change In Control Of The United States Government
And Issues Relating To Debt And The Deficit May Adversely Affect The Corporation

Due to the Republican Party gaining control of the White House,
as well as the Republican Party maintaining control of both the House of Representatives and Senate of the United States in the
congressional election, could result in significant changes (or uncertainty) in governmental policies, regulatory environments,
spending sentiment and many other factors and conditions, some of which could adversely impact the Corporation’s business,
financial condition and results of operations.

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In addition, as a result of past difficulties of the federal
government to reach agreement over federal debt and issues connected with the debt ceiling, certain rating agencies placed the
United States government's long-term sovereign debt rating on their equivalent of negative watch and announced the possibility
of a rating downgrade. The rating agencies, due to constraints related to the rating of the United States, also placed government-sponsored
enterprises in which the Corporation invests and receives lines of credit on negative watch and a downgrade of the United States
government's credit rating would trigger a similar downgrade in the credit rating of these government-sponsored enterprises. Furthermore,
the credit rating of other entities, such as state and local governments, may also be downgraded should the United States government's
credit rating be downgraded. The impact that a credit rating downgrade may have on the national and local economy could have an
adverse effect on the Corporation’s financial condition and results of operations.





Other Events



Natural Disasters, Acts Of War Or Terrorism, and Other External
Events Could Significantly Impact The Corporation’s Business

Severe weather, natural disasters, acts of war or terrorism, and
other adverse external events could have a significant impact on the Corporation’s ability to conduct business. Such events
could affect the stability of the Corporation’s deposit base; impair the ability of borrowers to repay outstanding loans,
impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause the Corporation
to incur additional expenses. Severe weather or natural disasters, acts of war or terrorism, or other adverse external events,
may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such
event could have a material adverse effect on the Corporation’s business, financial condition, and results of operations.





Risks Associated With The Corporation’s Common Stock



The Corporation’s Stock Price Can Be Volatile

Stock price volatility may make it more difficult for shareholders
to resell their shares of common stock when they desire and at prices they find attractive. The Corporation’s stock price
can fluctuate significantly in response to a variety of factors including, among other things:



| | · | Actual or anticipated variations in quarterly results of operations                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | · | Recommendations by securities analysts                                                                                                                                
| | · | Operating and stock price performance of other companies that investors deem comparable to the Corporation                                                            
| | · | News reports relating to trends, concerns, and other issues in the financial services industry                                                                        
| | · | Perceptions in the marketplace regarding the Corporation and/or its competitors                                                                                       
| | · | New technology used, or services offered, by competitors                                                                                                              
| | · | Significant acquisitions or business combinations, strategic partnerships, joint ventures, or capital commitments by, or involving, the Corporation or its competitors
| | · | Changes in government regulations                                                                                                                                     
| | · | Geopolitical conditions such as
        acts or threats of terrorism or military conflicts                                                                            

General market fluctuations, industry factors, and general economic
and political conditions and events, such as economic slowdowns or recessions, interest rate changes, or credit loss trends, could
also cause the Corporation’s stock price to decrease regardless of operating results.



The Trading Volume In The Corporation’s Common Stock
Is Less Than That Of Other Larger Financial Services Companies

The Corporation’s common stock is listed for trading on the
Over the Counter Bulletin Board (OTCBB) exchange. The trading volume in its common stock is a fraction of that of other larger
financial services companies. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends
on the presence in the marketplace of willing buyers and sellers of the Corporation’s common stock at any given time. This
presence depends on the individual decisions of investors and general economic and market conditions over which the Corporation
has no control. Given the lower trading volume of the Corporation’s common stock, significant sales of the Corporation’s
common stock, or the expectation of these sales, could cause the Corporation’s stock price to fall.



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An Investment In The Corporation’s Common Stock Is Not
An Insured Deposit

The Corporation’s common stock is not a bank deposit and,
therefore, is not insured against loss by the FDIC, any other deposit insurance fund, or by any other public or private entity.
Investment in the Corporation’s common stock is inherently risky for the reasons described in this “Risk Factors”
section and elsewhere in this report and is subject to the same market forces that affect the price of common stock in any company.
As a result, an investor in the Corporation’s common stock may lose some or all of their investment.



The Corporation’s Articles Of Association And Bylaws,
As Well As Certain Banking Laws, May Have An Anti-Takeover Effect

Provisions of the Corporation’s articles of incorporation
and bylaws, federal banking laws, including regulatory approval requirements, and the Corporation’s stock purchase rights
plan, could make it more difficult for a third party to acquire the Corporation, even if doing so would be perceived to be beneficial
to the Corporation’s shareholders. The combination of these provisions effectively inhibits a non-negotiated merger or other
business combination that could adversely affect the market price of the Corporation’s common stock.





Item 1B. Unresolved Staff Comments



None





Item 2. Properties



ENB Financial Corp’s headquarters and main office of Ephrata
National Bank are located at 31 East Main Street, Ephrata, Pennsylvania.



Listed below are the office locations of properties owned or leased
by the Corporation. No mortgages, liens, or encumbrances exist on any of the Corporation’s owned properties. As of December
31, 2016, the Corporation leased four properties.



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|                                   |  | Owned or |  | Location |  | Bldg  
|---------------------------------- |  | -------- |  | -------- |  | ------
|Property Location                  |  | Leased   |  | Acreage  |  | Sq Ftg
|                                   |  |          |  |          |  |       
|Corporate Headquarters/Main Office |  | Owned    |  | 0.50     |  |       
|31 East Main Street                |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|ENB's Money Management Group       |  | Owned    |  | 0.17     |  |       
|47 East Main Street                |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Technology Center                  |  | Owned    |  | 0.43     |  |       
|31 East Franklin Street            |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Administrative Offices             |  | Leased   |  | N/A      |  |       
|124 East Main Street               |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Main Street Drive-In               |  | Owned    |  | 0.41     |  |       
|42 East Main Street                |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Cloister Office                    |  | Owned    |  | 2.00     |  |       
|809 Martin Avenue                  |  |          |  |          |  |       
|Ephrata, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Hinkletown Office                  |  | Owned    |  | 1.30     |  |       
|935 North Railroad Avenue          |  |          |  |          |  |       
|New Holland, Pennsylvania          |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Denver Office                      |  | Owned    |  | 1.40     |  |       
|1 Main Street                      |  |          |  |          |  |       
|Denver, Pennsylvania               |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Akron Office                       |  | Owned    |  | 1.50     |  |       
|351 South 7th Street               |  |          |  |          |  |       
|Akron, Pennsylvania                |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Lititz Office                      |  | Owned    |  | 3.53     |  |       
|3190 Lititz Pike                   |  |          |  |          |  |       
|Lititz, Pennsylvania               |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Blue Ball Office                   |  | Owned    |  | 2.27     |  |       
|110 Marble Avenue                  |  |          |  |          |  |       
|East Earl, Pennsylvania            |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Manheim Office                     |  | Owned    |  | 2.81     |  |       
|1 North Penryn Road                |  |          |  |          |  |       
|Manheim, Pennsylvania              |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Leola Office                       |  | Leased   |  | N/A      |  |       
|361 West Main Street               |  |          |  |          |  |       
|Leola, Pennsylvania                |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Myerstown Office                   |  | Owned    |  | 2.07     |  |       
|615 East Lincoln Avenue            |  |          |  |          |  |       
|Myerstown, Pennsylvania            |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Morgantown Office                  |  | Owned    |  | 0.52     |  |       
|6296 Morgantown Road               |  |          |  |          |  |       
|Morgantown, Pennsylvania           |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Georgetown Drive-Thru Office       |  | Leased   |  | N/A      |  |       
|1298 Georgetown Road               |  |          |  |          |  |       
|Quarryville, Pennsylvania          |  |          |  |          |  |       
|                                   |  |          |  |          |  |       
|Strasburg Office                   |  | Leased   |  | N/A      |  |       
|100 Historic Drive, Suite 117      |  |          |  |          |  |       
|Strasburg, Pennsylvania            |  |          |  |          |  |       



26


Table of Contents ENB FINANCIAL CORP






In addition to the above properties, the Corporation owns two other
properties located in the Corporation’s Ephrata Main Street Campus. These properties were acquired in 2002, when a group
of properties adjacent to and surrounding the Corporation’s Main Office was purchased. These two properties are being held
for future use or possible sale. The other properties purchased in 2002 have been remodeled as office or operational space and
are reflected in the offices shown above. The Corporation also owns a four acre parcel of land in Ephrata Borough that was converted
from other real estate owned to Bank property as of December 31, 2011. The parcel is being evaluated for future expansion plans.





Item 3. Legal Proceedings



The nature of the Corporation’s business generates a certain
amount of litigation involving matters arising in the ordinary course of business; however, in the opinion of management, there
are no material proceedings pending to which the Corporation is a party to, or which would be material in relation to the Corporation’s
undivided profits or financial condition. There are no proceedings pending other than ordinary routine litigation incident to the
business of the Corporation. In addition, no material proceedings are pending, known to be threatened, or contemplated against
the Corporation by governmental authorities.





Item 4. Mine Safety Disclosures – Not Applicable





Part II



Item 5. Market for Registrant’s Common Equity, Related
Shareholder Matters, and Issuer Purchases of Equity Securities



The Corporation has only one class of stock authorized, issued,
and outstanding, which consists of common stock with a par value of $0.20 per share. As of December 31, 2016, there were 12,000,000
shares of common stock authorized with 2,869,557 shares issued, and 2,850,382 shares outstanding to approximately 1,430 shareholders.
The Corporation’s common stock is traded on a limited basis on the OTCBB under the symbol “ENBP.” Prices presented
in the table below reflect high and low prices of actual transactions known to management. Prices and dividends per share are
adjusted for stock splits. Market quotations reflect inter-dealer prices, without retail mark up, mark down, or commission and
may not reflect actual transactions.



|               |  | 2016 |       | 2015
|-------------- |  | ---- | ----- | ----
|               |  | High |       | Low 
|               |  |      |       |     
|First quarter  |  | $    | 32.80 |     
|Second quarter |  |      | 34.00 |     
|Third quarter  |  |      | 33.25 |     
|Fourth quarter |  |      | 34.40 |     



Source - SNL Financial LC



Dividends

Since 1973, the Corporation has paid quarterly cash dividends on
or around March 15, June 15, September 15, and December 15 of each year. The Corporation currently expects to continue the practice
of paying quarterly cash dividends to its shareholders for the foreseeable future. However, future dividends are dependent upon
future earnings. The dividend payments reflected above amount to a 44.6 % and 41.1% dividend payout ratio for 2015 and 2016, respectively.
The dividend payout ratio is only one element of management’s plan for managing capital. Certain laws restrict the amount
of dividends that may be paid to shareholders in any given year. In addition, under Pennsylvania corporate law, the Corporation
may not pay a dividend if, after issuing the dividend (1) the Corporation would be unable to pay its debts as they become due,
or (2) the Corporation’s total assets would be less than its total liabilities plus the amount needed to satisfy any preferential
rights of shareholders. In addition, as declared by the Board of Directors, Ephrata National Bank’s dividend restrictions
apply indirectly to ENB Financial Corp because cash available for dividend distributions will initially come from dividends Ephrata
National Bank

27


Table of Contents ENB FINANCIAL CORP


pays to ENB Financial Corp. See Note M to the consolidated financial
statements in this Form 10-K filing, for information that discusses and quantifies this regulatory restriction.



ENB Financial Corp offers its shareholders the convenience of a
Dividend Reinvestment Plan (DRP) and the direct deposit of cash dividends. The DRP gives shareholders registered with the Corporation
the opportunity to have their quarterly dividends invested automatically in additional shares of the Corporation’s common
stock. Shareholders who prefer a cash dividend may have their quarterly dividends deposited directly into a checking or savings
account at their financial institution. For additional information on either program, contact the Corporation’s stock registrar
and dividend paying agent, Computershare Shareholder Services, P.O. Box 30170, College Station, TX 77842-3170.



Purchases

The following table details the Corporation’s purchase of
its own common stock during the three months ended December 31, 2016.



|Issuer Purchase of Equity Securites
|-----------------------------------
|                                   
|                                   
|                                   
|Period                             
|                                   
|October 2016                       
|November 2016                      
|December 2016                      
|                                   
|Total                              



* On June 17, 2015, the Board of Directors of ENB Financial Corp announced the approval of a plan to purchase,
in open market and privately negotiated transactions, up to 140,000 shares of its outstanding common stock. Shares repurchased
are being held as treasury shares to be utilized in connection with the Corporation’s three stock purchase plans. The first
purchase of common stock under this plan occurred on July 31, 2015. By December 31, 2016, a total of 26,135 shares were repurchased
at a total cost of $862,000, for an average cost per share of $32.98. Management may choose to repurchase additional shares in
2017 under this plan.



Recent Sales of Unregistered Securities and Equity Compensation
Plan



The Corporation does not have an equity compensation plan and has
not sold any unregistered securities.



Shareholder Performance Graph

Set forth below is a line graph comparing the yearly change in the
cumulative total shareholder return on ENB Financial Corp’s common stock against the cumulative total return of the Russell
2000 Index, the Mid-Atlantic Custom Peer Group Index, and the SNL Small Cap Bank Index for the period of five fiscal years commencing
December 31, 2011, and ending December 31, 2016. The graph shows that the cumulative investment return to shareholders, based on
the assumption that a $100 investment was made on December 31, 2011, in each of the following: the Corporation’s common stock,
the Russell 2000 Index, the Mid-Atlantic Custom Peer Group Index, and the SNL Small Cap Bank Index and that all dividends were
reinvested in those securities over the past five years, the cumulative total return on such investment would be $193.18, $196.45,
$177.07, and $265.89, respectively. The shareholder return shown on the graph below is not necessarily indicative of future performance.



28


Table of Contents ENB FINANCIAL CORP






|                                |  |          |        |               |  |          |        |          |  |          |        |         
|------------------------------- |  | -------- | ------ | ------------- |  | -------- | ------ | -------- |  | -------- | ------ | --------
|                                |  |          |        | Period Ending |  |         
|Index                           |  | 12/31/11 |        | 12/31/12      |  | 12/31/13 |        | 12/31/14 |  | 12/31/15 |        | 12/31/16
|ENB Financial Corp              |  |          | 100.00 |               |  |          | 134.33 |          |  |          | 152.22 |         
|Russell 2000                    |  |          | 100.00 |               |  |          | 116.35 |          |  |          | 161.52 |         
|Mid-Atlantic Custom Peer Group* |  |          | 100.00 |               |  |          | 114.81 |          |  |          | 132.86 |         
|SNL Small Bank                  |  |          | 100.00 |               |  |          | 116.48 |          |  |          | 162.46 |         



*Mid-Atlantic Custom Peer Group consists of 101 commercial banks located in the Mid-Atlantic states of Pennsylvania,
New York, New Jersey, Maryland, and Washington D.C. The largest bank in this peer group had assets of $991 million and the smallest
had assets of $40 million.

29


Table of Contents ENB FINANCIAL CORP




Item 6  - Selected Financial Data

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



The selected financial data set forth below should be read in conjunction with the Corporation's financial statements

and their accompanying notes presented
elsewhere herein.



|                                       |  | Year Ended December 31,
|-------------------------------------- |  | -----------------------
|                                       |  | 2016                   
|                                       |  | $                      
|INCOME STATEMENT DATA                  |  |                        
|Interest income                        |  |                        
|Interest expense                       |  |                        
|Net interest income                    |  |                        
|Provision (credit) for loan losses     |  |                        
|Other income                           |  |                        
|Other expenses                         |  |                        
|Income before income taxes             |  |                        
|Provision for federal income taxes     |  |                        
|Net income                             |  |                        
|                                       |  |                        
|PER SHARE DATA                         |  |                        
|Net income (basic and diluted)         |  |                        
|Cash dividends paid                    |  |                        
|Book value at year-end                 |  |                        
|                                       |  |                        
|BALANCE SHEET DATA                     |  |                        
|Total assets                           |  |                        
|Total loans                            |  |                        
|Securities                             |  |                        
|Deposits                               |  |                        
|Total long-term debt                   |  |                        
|Stockholders' equity                   |  |                        
|                                       |  |                        
|SELECTED RATIOS                        |  |                        
|Return on average assets               |  |                        
|Return on average stockholders' equity |  |                        
|Average equity to average assets ratio |  |                        
|Dividend payout ratio                  |  |                        
|Efficiency ratio                       |  |                        
|Net interest margin                    |  |                        



30


Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Item 7. 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 annual report. The financial condition
and results of operations presented are not indicative of future performance.



Results of Operations



Overview



The Corporation recorded net income of $7,553,000 for the year ended
December 31, 2016, a 9.3% increase from the $6,910,000 earned during the same period in 2015. The 2015 net income was 2.6% lower
than the 2014 net income of $7,092,000. Earnings per share, basic and diluted, were $2.65 in 2016, compared to $2.42 in 2015, and
$2.48 in 2014.



Higher 2016 earnings were driven primarily by a $2.2 million, or
9.5% increase, in net interest income, a $1.1 million, or 10.8% increase in other income, partially offset by a $2.5 million, or
10.0% increase in operating expenses. Additionally, the provision for loan losses was $325,000 in 2016 compared to $150,000 in
2015, an increase of $175,000.



Net interest income accounts for nearly 70% of the gross income
stream of the Corporation. The 9.5% increase in 2016 was higher than the 2.8% increase in net interest income that occurred in
2015. During 2016, there was non-recurring amortization recorded in the amount of $1,681,000 as a result of accelerated amortization
on bonds issued by two U.S. sub-agencies. CoBank and AgriBank, sub-agencies of the Federal Farm Credit Bureau, a primary U.S.
government sponsored enterprise, exercised an unusual regulatory call feature to call bonds at par two years and three years respectively,
prior to their maturity dates. The Corporation owned both CoBank and AgriBank agency high coupon instruments at high premium prices,
which exposed the bonds to accelerated amortization given a shorter call date. When notification was received on March 11, 2016
for the CoBank bonds and on April 26, 2016 for the AgriBank bonds, management had to accelerate the amortization of the premium
to the much earlier call dates of April 15, 2016 and July 15, 2016, respectively. This caused management to expense an additional
$1,681,000 of amortization to the later July 15, 2016 call date than would have been experienced had the bond premiums continued
to amortize to the original maturity dates. Without the accelerated amortization, net interest income for the year would have
increased by 16.8% (Non-GAAP), compared to the 9.5% actual increase over 2015. The Corporation’s net interest margin increased
in 2016 to 3.12% from 3.07% in 2015, driven primarily by decreases in funding costs. Excluding the non-recurring sub-agency amortization,
net interest margin for 2016 would have been 3.31% (Non-GAAP), compared to 3.12% actual. Sufficient volume growth in the loan
portfolio offset the effect of slightly lower yields and resulted in a significant increase of $2.3 million, or 11.5% in loan
interest income. Lower market interest rates made it possible to continue to achieve savings on funding costs for both deposit
accounts and borrowings, also contributing to higher net interest income.



The Corporation’s non-interest income increased by $1,089,000,
or 10.8%, from 2015 to 2016. Gains on securities of $2.4 million remained the largest single element of non-interest income. While
slightly lower than the $2.8 million taken during 2015, the gains on securities remained at a very high level. These gains are
a function of management executing on favorable bond pricing given historically low interest rates. Gains on the sale of mortgages
were up by $706,000, or 87.6%, which more than offset the decline in securities gains.



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 Corporation’s
2016 ROA was 0.80%, compared to 0.79% in 2015; ROE increased from 7.38% in 2015 to 7.74% in 2016. The increase in ROA and ROE was
primarily due to higher earnings compared to the growth in assets and equity.



31


Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




|Key Ratios               |  | Year Ended  
|------------------------ |  | ------------
|                         |  | December 31,
|                         |  | 2016        
|Return on Average Assets |  |             
|Return on Average Equity |  |             



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
| | - | ------------------

| | · | Income taxes
| | - | ------------



The following discussion analyzes each of these
five components.



Net Interest Income



Net interest income (NII) represents the largest portion of the
Corporation’s operating income. In 2016, NII generated 69.4% of the Corporation’s gross revenue stream, compared to
69.7% in 2015, and 70.2% in 2014. Since NII comprises a significant portion of the operating income, the direction and rate of
increase or decrease will often indicate the overall performance of the Corporation.



The following table shows a summary analysis of NII 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. This differs from the NII reflected on
the Corporation’s Consolidated Statements of Income, where the NII is simply the interest earned on loans and securities
less the interest paid on deposits and borrowings. By calculating the NII on an FTE basis, the added benefit of having tax-free
loans and securities is factored in to more accurately represent what the Corporation earns through the NII. The FTE adjustment
shows the benefit these loans and securities bring in a dollar amount because the Corporation does not pay tax on the income they
generate. As a result, the FTE NII shown in both tables below will exceed the NII reported on the consolidated statements of income.
The amount of FTE adjustment totaled $2,151,000 for 2016, $1,859,000 for 2015, and $1,841,000 for 2014.



|Net Interest Income        |  |            |        |      |  |     
|-------------------------- |  | ---------- | ------ | ---- |  | ----
|(DOLLARS IN THOUSANDS)     |  |            |        |      |  |     
|                           |  |            |        |     
|                           |  | Year ended
|                           |  | 2016       |        | 2015 |  | 2014
|                           |  | $          |        | $    |  | $   
|                           |  |            |        |      |  |     
|Total interest income      |  |            | 28,341 |      |  |     
|Total interest expense     |  |            | 3,054  |      |  |     
|                           |  |            |        |      |  |     
|Net interest income        |  |            | 25,287 |      |  |     
|Tax equivalent adjustment  |  |            | 2,151  |      |  |     
|                           |  |            |        |      |  |     
|Net interest income        |  |            |        |      |  |     
|(fully taxable equivalent) |  |            | 27,438 |      |  |     



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



| | · | The rates charged on interest earning assets and paid on interest bearing liabilities
| | - | -------------------------------------------------------------------------------------

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



32


Table of Contents 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. Until December 16, 2015,
the Federal funds rate had not changed since December 16, 2008. On December 16, 2015, the Federal funds rate was increased 25
basis points to 0.50%, from 0.25%. Then again, on December 14, 2016, the Federal funds rate was increased another 25 basis points
to 0.75%. Prior to December of 2015, the period of seven years with extremely low and unchanged overnight rates was the lowest
and longest in U.S. history. The impact has been a lower net interest margin to the Corporation and generally across the financial
industry. The increase in December of 2015 and 2016 resulted in higher short-term U.S. Treasury rates, but the long-term rates
initially decreased after the Federal Reserve’s decision to increase rates in December of 2015, resulting in a flattening
of the yield curve. It was only during the fourth quarter of 2016 that long-term rates saw an increase. However, long-term rates
like the ten-year U.S. Treasury were 130 basis points under the 3.75% Prime rate as of December 31, 2016. It appears this interest
rate environment will continue into 2017 until at least the next Federal Reserve rate action. That action could occur as early
as March 2017 but more likely May or June of 2017. Management anticipates at least two 0.25% Federal Reserve rate increases in
2017. A third 0.25% Federal Reserve rate increase could be possible but experience has shown Federal Reserve actions to be well
delayed from initial projections. It remains to be seen whether mid and long-term U.S. Treasury rates will also increase to the
same degree that the Federal Reserve will likely move the overnight Federal Funds rate. If they do not, the yield curve would
flatten making it harder for the Corporation to increase asset yield.



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 increased from 3.25%
to 3.50% on December 16, 2015, and from 3.50% to 3.75% on December 14, 2016. Depending on the loan instrument, the Corporation’s
Prime-based loans would reprice either a day after the Federal Reserve rate movement or after a 45-day notification period. Commercial
rates generally reprice the next business day while some consumer loans require the 45-day notification period.



The fact that the Federal funds rate and the Prime rate had remained
at these very low levels for seven years and only increased by 25 basis points in December of 2015 and 25 more basis points in
December of 2016 has made it difficult to make improvements in the Corporation’s net interest margin. Initially, in the early
part of this seven-year period, management was able to grow interest-earning assets sufficiently to offset the loss of margin,
to increase NII. However, in 2012 and 2013, the Corporation’s NII and margin experienced declines. In 2014 and 2015, NII
on a tax equivalent basis increased, but the Corporation’s margin still showed a decline. In 2016, NII on a tax equivalent
basis increased substantially by $2,481,000, or 9.9%, and the Corporation’s margin showed an increase from 3.07% in 2015,
to 3.12% in 2016. It was important to show NIM improvement after years of decline. The Fed rate increases in December of 2015 and
2016 certainly helped to drive NIM improvement as well as continued cost of funds savings. Factoring out the non-recurring sub-agency
amortization of $1,681,000 that was recorded during 2016, the Corporation’s NIM would have been 3.31% (Non-GAAP), an increase
of 24 basis points over the 3.07% NIM achieved in 2015.



The extended extremely low Federal funds rate has enabled management
to reduce the cost of funds on overnight borrowings and allowed lower interest rates paid on deposits, reducing the Corporation’s
interest expense. Even with two 25-basis point Fed rate increases, the Corporation did not raise deposit rates. While the low Prime
rate reduced the yield on the Corporation’s loans for many years, the rate increases in December of 2015 and December of
2016 did act to boost interest income and help improve the Corporation’s margin. With a higher Prime rate and elevated Treasury
rates, higher asset yields should be possible in 2017. Due to the increasing number of variable rate loans in the Corporation’s
loan portfolio, the 25 basis point increase in the Prime rate at the end of 2015 and 2016 did cause higher NII in the month of
December 2015, and for the entire year of 2016. The full impact of both of these increases will be experienced in the first quarter
of 2017. Additionally, with two more anticipated Fed rate increases in 2017, the Corporation should see even more benefit due to
the near immediate repriceability of the Prime-based variable loans.



Security yields fluctuate more rapidly than loan yields based primarily
on the changes to the U.S. Treasury rates and yield curve. With lower U.S. Treasury rates on average in the first three quarters
of 2016 compared to 2015, most of the security reinvesting was occurring at lower rates. As the volume of securities sold at gains
continued at a higher level, this also resulted in more reinvestment at lower rates. Management did generally direct a large portion
of the security sale proceeds into loan growth during 2016 resulting in higher overall asset yields. The Corporation’s loan
yield has continued to decline as new loans are going on at among the lowest loan rates of this

33


Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


interest rate cycle. Management
does price above the Prime rate on variable rate loans, which helps with loan yield, however, these rates on average are still
lower than the typical fixed rate loan. Therefore, any increases in total variable rate loans will generally reduce overall loan
portfolio yield. An element of the Corporation’s Prime-based commercial loans is priced above the Prime rate based on the
level of credit risk of the borrower. Additionally, certain variable rate consumer loans are priced above Prime. Prime-based pricing
continues to be driven largely by local competition.



Mid-term and long-term interest rates on average were lower in
2016 compared to 2015, but the rates at the end of the year were higher than they were at the start of the year. The average rate
of the 10-year U.S. Treasury was 1.84% in 2016 compared to 2.14% in 2015, but it stood at 2.45% on December 31, 2016, compared
to 2.27% at December 31, 2015. The slope of the yield curve was compressed for most of the year, and even with the Fed rate increase
in December of 2016, there was slightly less slope between the short end and long end of the curve. There was a difference of
170 basis points between overnight rates and the 10-year U.S. Treasury as of December 31, 2016, compared to 177 basis points as
of December 31, 2015. With a flatter yield curve, management was not able to increase loan rates to improve yield. Additionally,
with lower rates for much of the year, security amortization increased and yields on new purchases were low resulting in a lower
overall securities yield. The non-recurring sub-agency amortization of $1,681,000 during 2016 also negatively affected security
yield and had a direct impact on the NII of the Corporation. As a result, the Corporation’s asset yield continued to decline.
With the recent December 14, 2016 Federal Reserve action raising the Federal Funds rate by 0.25% to 0.75% and higher U.S. Treasury
rates as 2017 began, the Corporation’s asset yield is projected to increase in early 2017.



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 2.50% in 2015, and 2.60% in 2016, and as low as 1.68% in 2015, and 1.37%
in 2016. The increase in Treasury rates in the fourth quarter of 2016 has increased unrealized losses on the Corporation’s
securities, which in turn decreased capital.



While it is becoming increasingly difficult to achieve savings on
the Corporation’s overall cost of funds, management was able to selectively reprice time deposits and borrowings to lower
levels during 2016 resulting in savings on these instruments. Generally, it was longer-term CDs repricing at lower rates that helped
to achieve interest expense savings on deposits. It is not anticipated that interest rates on interest bearing core deposits can
be reduced further in 2017 as these rates have already been reduced significantly over the course of the past few years. While
CD rate reductions are also limited, there are still small savings to be achieved in CDs repricing down from higher rates five
years ago. Borrowing costs and the wholesale borrowing curves that they are based on generally follow the direction and slope of
the U.S. Treasury curve. However, these curves can be quicker to rise and slower to fall as the providers of these funds seek to
protect themselves from rate movements. The Corporation was able to refinance some borrowings at lower rates in 2016 but it will
be difficult to do this going forward as rates are higher now and most borrowings are already at low rates.



Management currently anticipates that the overnight interest rate
and Prime rate will remain at the current levels through the first quarter of 2017 with the possibility of at least one 0.25% rate
increase by mid-year and another 0.25% increase before year-end. It is likely that mid and long-term U.S. Treasury rates will increase
throughout 2017 in anticipation of additional Federal Reserve rate movements. This would allow management to achieve higher earnings
on assets if the opportunity for higher yielding securities and the ability to price new loans at higher market rates occurred.
However, it is also possible that even after Federal Reserve rate increases the yield curve could flatten, making it more difficult
for management to lend out or reinvest at higher interest rates out further on the yield curve. Additionally, Federal Reserve rate
increases would begin to affect the repricing of the Corporation’s liabilities. Management would also expect to have to increase
deposit rates to remain competitive in the market and maturing borrowings would likely begin to reprice to higher rates.



The following table provides an analysis of year-to-year 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.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




RATE/VOLUME ANALYSIS OF CHANGES IN NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN
THOUSANDS)



|                                    |  | 2016 vs. 2015       |       | 2015 vs. 2014      
|----------------------------------- |  | ------------------- | ----- | -------------------
|                                    |  | Increase (Decrease) |       | Increase (Decrease)
|                                    |  | Due To Change In    |       | Due To Change In   
|                                    |  |                     |       |                    
|                                    |  | Average             |       | Interest           
|                                    |  | Balances            |       | Rates              
|                                    |  | $                   |       | $                  
|INTEREST INCOME                     |  |                     |       |                    
|                                    |  |                     |       |                    
|Interest on deposits at other banks |  |                     | 1     |                    
|                                    |  |                     |       |                    
|Securities available for sale:      |  |                     |       |                    
|Taxable                             |  |                     | (192  | )                  
|Tax-exempt                          |  |                     | 781   |                    
|Total securities                    |  |                     | 589   |                    
|Loans                               |  |                     | 2,634 |                    
|Regulatory stock                    |  |                     | 53    |                    
|                                    |  |                     |       |                    
|Total interest income               |  |                     | 3,277 |                    
|                                    |  |                     |       |                    
|INTEREST EXPENSE                    |  |                     |       |                    
|                                    |  |                     |       |                    
|Deposits:                           |  |                     |       |                    
|Demand deposits                     |  |                     | 45    |                    
|Savings deposits                    |  |                     | 12    |                    
|Time deposits                       |  |                     | (251  | )                  
|Total deposits                      |  |                     | (194  | )                  
|                                    |  |                     |       |                    
|Borrowings:                         |  |                     |       |                    
|Total borrowings                    |  |                     | 14    |                    
|                                    |  |                     |       |                    
|Total interest expense              |  |                     | (180  | )                  
|                                    |  |                     |       |                    
|NET INTEREST INCOME                 |  |                     | 3,457 |                    



In 2016, the Corporation’s NII on an FTE basis increased by
$2,481,000, a 9.9% increase over 2015. Total interest income on an FTE basis for 2016 increased $1,791,000, or 6.2%, from 2015,
while interest expense decreased $690,000, or 18.4%, from 2015 to 2016. The FTE interest income from the securities portfolio decreased
by $536,000, or 6.8%, while loan interest income increased $2,310,000, or 11.3%. During 2016, loan demand increased and additional
loan volume added $2,634,000 to net interest income, but the lower yields caused a $324,000 reduction, resulting in a net increase
of $2,310,000. Higher balances in the securities portfolio caused an increase of $589,000 in net interest income, while lower yields
on securities caused a $1,125,000 reduction, resulting in a net decrease
of $536,000. The Corporation recorded non-recurring accelerated amortization on U.S. sub-agency securities during 2016 in the amount
of $1,681,000, which was responsible for the lower yields on securities and the decrease in interest income.



The average balance of interest bearing liabilities increased by
5.0% during 2016, driven by the growth in deposit balances. The shift between time deposit balances and demand and savings accounts
resulted in a more favorable net interest income. Lower balances of higher cost deposits contributed to savings of $194,000 on
deposit costs while lower interest rates on all deposit groups caused $223,000 of savings, resulting in total savings of $417,000.



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. The Corporation reduced
demand deposit interest expense by $41,000 due to lower rates. Time deposit balances decreased resulting in a $251,000 reduction
to expense, and time deposits repricing to lower interest rates reduced interest expense by an additional $180,000, causing a net
reduction of $431,000 in time deposit interest expense. Even with the low rate environment, the Corporation was successful in increasing
balances of other deposit types. As 2016 progressed and interest rates remained low, the Corporation was able to continue to reprice
time deposits maturing at lower interest rates thereby reducing the cost of these funds significantly.



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Table of Contents ENB FINANCIAL CORP Management’s
                                                                                                                                                                                                                                  Discussion and Analysis




The average balance of outstanding borrowings increased by $1.1
million, or 1.4%, from December 31, 2015, to December 31, 2016. The increase in total borrowings increased interest expense by
$14,000. The decline in interest rates decreased interest expense by $287,000, as long-term borrowings at higher rates matured
and were replaced with new advances at significantly lower rates. The aggregate of these amounts was a decrease in interest expense
of $273,000 related to total borrowings.



The following table shows a more detailed analysis of net interest
income on an FTE basis shown 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 net interest margin (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.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




COMPARATIVE AVERAGE BALANCE SHEETS AND NET INTEREST INCOME

(TAXABLE EQUIVALENT BASIS, DOLLARS IN
THOUSANDS)



|                                         |  | December 31,
|---------------------------------------- |  | ------------
|                                         |  | 2016        
|                                         |  |             
|                                         |  | Average     
|                                         |  | Balance     
|                                         |  | $           
|ASSETS                                   |  |             
|Interest earning assets:                 |  |             
|Federal funds sold and                   |  |             
|deposits at other banks                  |  |             
|                                         |  |             
|Securities available for sale:           |  |             
|Taxable                                  |  |             
|Tax-exempt                               |  |             
|Total securities (d)                     |  |             
|                                         |  |             
|Loans (a)                                |  |             
|                                         |  |             
|Regulatory stock                         |  |             
|                                         |  |             
|Total interest earning assets            |  |             
|                                         |  |             
|Non-interest earning assets (d)          |  |             
|                                         |  |             
|Total assets                             |  |             
|                                         |  |             
|LIABILITIES &                            |  |             
|STOCKHOLDERS' EQUITY                     |  |             
|Interest bearing liabilities:            |  |             
|Demand deposits                          |  |             
|Savings accounts                         |  |             
|Time deposits                            |  |             
|Borrowed funds                           |  |             
|Total interest bearing liabilities       |  |             
|                                         |  |             
|Non-interest bearing liabilities:        |  |             
|Demand deposits                          |  |             
|Other                                    |  |             
|                                         |  |             
|Total liabilities                        |  |             
|                                         |  |             
|Stockholders' equity                     |  |             
|                                         |  |             
|Total liabilities & stockholders' equity |  |             
|                                         |  |             
|Net interest income (FTE)                |  |             
|                                         |  |             
|Net interest spread (b)                  |  |             
|Effect of non-interest                   |  |             
|bearing funds                            |  |             
|Net yield on interest earning assets (c) |  |             



|(a) | Includes balances of non-accrual loans and the recognition of any related interest income.  Average balances also include
net deferred loan costs of $836,000 in 2016, $534,000 in 2015, and $402,000 in 2014. Such fees recognized through income and included
in the interest amounts totaled ($382,000) in 2016, ($230,000) in 2015, and ($141,000) in 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(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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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis






The Corporation’s interest income increased and interest expense
decreased, resulting in a higher NIM of 3.12% for 2016, compared to 3.07% for 2015. The yield earned on assets dropped seven basis
points while the rate paid on liabilities dropped 15 basis points. The lower rate paid on liabilities more than offset the decrease
in asset yield resulting in the NIM improvement in 2016. Management anticipates further improvements in NIM in 2017 as asset yields
improve and no unexpected security amortization events occur. Loan yields were at historically low levels during 2016 due to the
extended low-rate environment as well as extremely competitive pricing for the loan opportunities in the market. It is anticipated
that these yields will improve slightly throughout 2017 as the economy improves and loan demand increases, reducing pricing pressures
and intense competition for loans. The growth in the loan portfolio made up for the decrease in interest income due to lower yields.



Loan pricing was challenging in 2016 resulting in fixed-rate loans
being priced at very low levels and variable-rate loans priced at the Prime rate, or below Prime, by other local competition in
the market. The Prime rate is below typical fixed-rate business and commercial loans, which generally range between 3.50% and 5.50%,
depending on term and credit risk. Management was able to price customers with higher levels of credit risk at Prime plus pricing
but these rates were still generally below the fixed rate loan-pricing levels. While Prime-based loans will aid the Corporation
as interest rates rise, any increase in Prime-based loans will generally cause the Corporation’s average loan yield to decrease
since the absolute rate is lower. 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, please refer to Item 7A. Quantitative and Qualitative Disclosures about
Market Risk.



Yields on the Corporation’s securities declined 20 basis points
for the year ended December 31, 2016, compared to 2015. This compares to a 30 basis point decline in securities yield that occurred
from 2014 to 2015. In recent years, most of the cash flow received from the securities portfolio was reinvested at significantly
lower yields. The low point in reinvestment at lower rates was in July 2016 when the 10-year U.S. Treasury was as low as 1.37%.
Even though U.S. Treasury rates had declined through much of 2016, rates increased during the fourth quarter of the year and management
anticipates that the U.S. Treasury rates will generally increase during 2017. If the average 10-year yield does finish moderately
higher in 2017, portfolio yield would then likely improve. Higher long-term rates would bring a more favorable slope to the yield
curve and a slowing of amortization on CMO and MBS securities. As interest rates rise, principal prepayments will slow down causing
amortization of premiums on these securities to decline.



The interest rate paid on deposits and borrowings decreased for
the year ended December 31, 2016, from the same period in 2015. 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 not changed in 2016, but some time deposits were still repricing
to lower rates which helped to reduce the cost of funds on these instruments by 10 basis points during the year. Management captured
rate savings on time deposits as large portions of the time deposit portfolio matured and repriced to lower interest rates when
renewed. Typically, the Corporation sees increases in time deposits during periods when consumers are not confident in the stock
market and economic conditions deteriorate. During these periods, there is a “flight to safety” to federally insured
deposits. This trend occurred in past years, but time deposit balances declined throughout 2014, 2015, and 2016. As the rate between
time deposits and core deposits narrowed, many customers chose to transfer funds from maturing time deposits into checking and
savings accounts.



Since the financial crisis, depositors have been more concerned
about the financial health of their financial institution. This concern affects their desire to obtain the best possible market
interest rates. This trend benefits the Corporation due to its high capital levels and track record of strong and stable earnings.
The Corporation’s Bauer Financial rating of 5, the highest level of their rating scale, has assisted the Bank in gaining
core deposits over the past several years.



The Corporation’s average rate on borrowed funds decreased
by 39 basis points from 2015 to 2016, as several long-term borrowings matured and management was able to refinance into new long-term
borrowings at lower interest rates, or not replace the matured borrowings at all. Throughout most of 2016, the new fixed borrowing
rates were lower than the average rate paid on the Corporation’s existing borrowings. The Corporation will have limited opportunities
to decrease borrowing costs in 2017 because the fixed rate borrowings that are maturing are already at relatively low rates and
market rates increased in the fourth quarter of 2016 with more increases likely throughout 2017.



Provision for Loan Losses



The allowance for loan losses 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

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


that management determines is necessary to ensure that the allowance for loan losses is
adequate to cover any losses inherent in the loan portfolio. The Corporation gives special attention to the level of underperforming
loans when calculating the necessary provision for loan losses. The analysis of the loan loss allowance takes into consideration,
among other things, the following factors:



| | · | levels and trends in delinquencies, non-accruals, and charge-offs,
| | - | ------------------------------------------------------------------

| | · | levels of classified loans,
| | - | ---------------------------

| | · | 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.
| | - | ----------------------------------------------



A provision expense of $325,000 was
recorded in 2016, compared to $150,000 in 2015. The provision expense in 2016 was primarily due to significant loan portfolio growth
throughout the year. This marked the second year of provision expense after a number of years of credit provisions. The credit
provisions in prior years were primarily due to the following factors:



| | · | Lower levels of delinquent and non-performing loans,
| | - | ----------------------------------------------------

| | · | Lower balances of classified loans compared to prior years,
| | - | -----------------------------------------------------------

| | · | Decreased charge-offs, and
| | - | --------------------------

| | · | Improved economic conditions resulting in lower qualitative factors.
| | - | --------------------------------------------------------------------



Prior to 2012, the annual provision
expense was at increased levels to provide for the impact very difficult economic conditions had on the financial health of the
Corporation’s borrowers. This brought the Corporation’s allowance for loan losses to a historically high level. With
economic conditions improving in 2012 and subsequent years, the allowance was in a position to be reduced. Throughout 2012, 2013,
and 2014, the allowance for loan loss calculation indicated a need to reduce the provision because of significant improvements
in the loan portfolio related to delinquent, non-performing, and classified loans, as well as more recent improved economic metrics,
which allowed for a reduction of several qualitative factors within the calculation. In 2015 and 2016, the Corporation returned
to a more normal provision expense, which was consistent with the level of loan growth. Loan growth accelerated in 2016 requiring
more provision expense than in 2015. Despite a heavier provision expense, the allowance as a percentage of loans decreased slightly
from 1.36% at December 31, 2015, to 1.32% by the end of 2016. Total charge-offs for 2016 amounted to $54,000, compared to $362,000
in 2015 with recoveries of $213,000 in 2016 compared to $149,000 in the prior year. It is anticipated that the Corporation will
record a provision expense again in 2017 based on projected loan growth and stable delinquency.



Management also continues to provide
for estimated losses on pools of similar loans based on historical loss experience. Management employs qualitative factors every
quarter in addition to historical loss experience to take into consideration the current trends in loan volume, concentrations
of credit, delinquencies, 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 considered when calculating an appropriate
loan loss allowance for each loan pool. Qualitative factors decreased for six of ten pools in 2016. Qualitative factors for dairy
loans increased the most as a result of continued growth and the changes among agricultural lending staff. Factors were increased
for other pools as well, primarily in relation to the experience and depth of management and trends in each loan pool. Special
asset quality adjustments for business loans and CRE loans fell dramatically in 2016 because of fewer substandard loans in these
pools. The quarterly adjustment of qualitative factors allows the Corporation to continually update our adjusted loss ratio to
accurately project estimated credit losses.



Management continues to evaluate the allowance for loan losses in
relation to the growth or decline of the loan portfolio and its associated credit risk, and believes the provision and the allowance
for loan losses are adequate to provide for future loan losses. For further discussion of the calculation, see the “Allowance
for Loan Losses” section.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Other Income



Other income for 2016 was $11,144,000, an increase of $1,089,000,
or 10.8%, compared to the $10,055,000 earned in 2015. The following table details the categories that comprise other income.



|OTHER INCOME                          |  |               |        |               |  |                     |        |     
|------------------------------------- |  | ------------- | ------ | ------------- |  | ------------------- | ------ | ----
|(DOLLARS IN THOUSANDS)                |  |               |        |               | 
|                                      |  |               |        |               |  |                     |        |     
|                                      |  | 2016 vs. 2015 |        | 2015 vs. 2014
|                                      |  | 2016          |        | 2015          |  | Increase (Decrease) |        | 2015
|                                      |  | $             |        | $             |  | $                   |        | %   
|Trust and investment services         |  |               | 1,475  |               |  |                     | 1,286  |     
|Service charges on deposit accounts   |  |               | 1,123  |               |  |                     | 1,081  |     
|Other fees                            |  |               | 1,136  |               |  |                     | 938    |     
|Commissions                           |  |               | 2,169  |               |  |                     | 2,033  |     
|Net realized gains on sales           |  |               |        |               |  |                     |        |     
|of securities available for sale      |  |               | 2,370  |               |  |                     | 2,840  |     
|Gains on sale of mortgages            |  |               | 1,512  |               |  |                     | 806    |     
|Earnings on bank-owned life insurance |  |               | 785    |               |  |                     | 726    |     
|Other miscellaneous income            |  |               | 574    |               |  |                     | 345    |     
|                                      |  |               |        |               |  |                     |        |     
|Total other income                    |  |               | 11,144 |               |  |                     | 10,055 |     



Trust and investment services income increased by $189,000, or 14.7%, from 2015 to 2016, after decreasing
1.2% from 2014 to 2015. In 2016, trust and investment services revenue accounted for 4.0% of the Corporation’s gross revenue
stream, including gains and losses on securities and mortgages, compared to 3.9% in 2015 and 4.1% in 2014. Trust and investment
services revenue consists of income from traditional trust services and income from investment services provided through a third
party. In 2016, the traditional trust business accounted for $1,007,000, or 68.3%, of total trust and investment services income,
with the investment services totaling $468,000, or 31.7%. In 2016, traditional trust services income increased by $137,000, or
15.7%, from 2015 levels, while investment services income increased $52,000, or 12.5%. The amount of customer investment activity
drives the investment services income. Market increases and a larger customer base primarily caused the increase in trust revenue
in 2016. The trust and investment services area continues to be an area of strategic focus for the Corporation. Management believes
there is a great need for retirement, estate, and small business planning 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 for the year ended December
31, 2016, increased by $42,000, or 3.9%, compared to 2015. Overdraft service charges for 2016, which comprise 79.7% of the total
deposit service charges, increased to $895,000, from $871,000 in 2015, a 2.8% increase. Several other categories of fees increased
or decreased to lesser amounts.



Other fees increased for the year ended December 31, 2016, by $198,000,
or 21.1%, compared to the previous year. This increase was primarily due to mortgage-related fees, which increased due to the increase
in volume of mortgage production during 2016. Loan administration fees increased by $92,000, or 29.9% for the year ended December
31, 2016, compared to 2015. Additionally, mortgage origination fees increased by $73,000, or 38.4%, for the same period. Various
other fee income categories increased or decreased slightly accounting for the remainder of the change.



Commissions increased by $136,000, or 6.7%, for the year ended December
31, 2016, compared to the previous year. This was primarily caused by debit card interchange income, which increased by $73,000,
or 4.0%. The interchange income is a direct result of the volume of debit card transactions processed and this income increases
as customer accounts increase or as customers utilize their debit cards to a higher degree. Additionally, commissions from Bankers
Settlement Services increased by $52,000, or 130.9%, for the year ended December 31, 2016, compared to the prior year.



Gains on security transactions were lower for the year ended December
31, 2016, with a total of $2,370,000 recorded compared to $2,840,000 for 2015, a $470,000, or 16.5% decrease. Gains or losses taken
on securities fluctuate based on market conditions including:



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




| | · | large swings in market pricing, utilizing volatility and market timing to the Corporation’s advantage,
| | - | ------------------------------------------------------------------------------------------------------

| | · | appreciation or deterioration of securities values due to changes in interest rates, credit risk, financial performance, or
market dynamics such as spread and liquidity,
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | sale of securities at gains to fund loan growth,
| | - | ------------------------------------------------

| | · | opportunities to reposition the securities portfolio to improve long-term earnings, or
| | - | --------------------------------------------------------------------------------------

| | · | management’s asset liability goals to improve liquidity or reduce interest rate or fair value risk.
| | - | ---------------------------------------------------------------------------------------------------



The gains or losses recorded depend entirely on management’s
active trades based on the above. Losses can be in the form of active sales of securities, or impairment of securities, which involve
writing the security down to a lower value based on anticipated credit losses. In 2014, net securities gains amounted to $3,131,000,
offsetting $22,000 of impairment charges for the year resulting in net securities gains of $3,109,000. There were no impairment
charges in 2015 or 2016, therefore all security gains and losses incurred during 2015 and 2016 were designed to either take gains
or reposition the portfolio.



The sales of securities in 2014, 2015, and 2016 were greater than
prior years because of the very low interest rate environment that presented many opportunities to sell securities at large gains.
Management had desired to take a significant amount of gains in 2016, but planned on fewer gains compared to the previous year.
Bond pricing continually improved throughout the year, providing opportunities for management to capitalize on higher pricing.
Meanwhile, loan growth was strong in 2016 providing opportunities to both sell securities at gains and use the proceeds to fund
new loans. This is one of the core elements of management’s plan to increase asset yield and protect margin, by converting
securities into loans and improving the Corporation’s loan to deposit ratio.



Gains on the sale of mortgages in 2016 increased $706,000, or 87.6%,
from 2015. Refinance activity was lower in 2016 compared to 2015, so most gains generated during the year were from new purchase
fundings. A higher percentage of volume was sold on the secondary market in 2016 compared to 2015, and production was higher in
2016 resulting in a higher level of gains received. Management has budgeted for an increase in the gains on the sale of mortgages
in 2017, as this is an area of strategic initiative and the Corporation believes there is room for growth and obtaining a higher
percentage of the market share in the mortgage area.



Earnings on bank-owned life insurance (BOLI) increased by $59,000,
or 8.1%, for the year ended December 31, 2016, compared to the prior year. Increases and decreases in BOLI income depend on insurance
cost components on the Corporation’s BOLI policies, the actual annual return of the policies, and any benefits paid upon
death that exceed the policy’s cash surrender value. Increases in cash surrender value are a function of the return of the
policy net of all expenses.



The miscellaneous income category increased by $229,000, or 66.4%,
for the year ended December 31, 2016, compared to the same period in 2015. The primary reason for the increase was an increase
in income related to the provision for off balance sheet credit losses. Larger reductions to this off balance sheet provision occurred
in 2016 than 2015 resulting in additional income of $95,000 when comparing both years. The Corporation also renewed a vendor contract
in 2016 resulting in retention fees that increased income by $55,000 when comparing 2016 to 2015. Income from customer check orders
increased by $18,000, or 12.7% and mortgage servicing income net of amortization increased by $17,000, or 52.8%, when comparing
both years.



Operating Expenses



The following table provides details of the Corporation’s
operating expenses for the last three years along with the percentage increase or decrease compared to the previous year.

41


Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




|OPERATING EXPENSES               |  |               |        |               |  |                     |        |      | 
|-------------------------------- |  | ------------- | ------ | ------------- |  | ------------------- | ------ | ---- | 
|(DOLLARS IN THOUSANDS)           |  |               |        |               |  |                     |        |      | 
|                                 |  | 2016 vs. 2015 |        | 2015 vs. 2014
|                                 |  | 2016          |        | 2015          |  | Increase (Decrease) |        | 2015 | 
|                                 |  | $             |        | $             |  | $                   |        | %    | 
|                                 |  |               |        |               |  |                     |        |      | 
|Salaries and employee benefits   |  |               | 16,769 |               |  |                     | 14,796 |      | 
|Occupancy expenses               |  |               | 2,183  |               |  |                     | 2,092  |      | 
|Equipment expenses               |  |               | 1,091  |               |  |                     | 1,126  |      | 
|Advertising & marketing expenses |  |               | 614    |               |  |                     | 552    |      | 
|Computer software & data         |  |               |        |               |  |                     |        |      | 
|processing expenses              |  |               | 1,831  |               |  |                     | 1,594  |      | 
|Shares tax                       |  |               | 807    |               |  |                     | 781    |      | 
|Professional services            |  |               | 1,590  |               |  |                     | 1,443  |      | 
|Other operating expenses         |  |               | 2,315  |               |  |                     | 2,351  |      | 
|Total operating expenses         |  |               | 27,200 |               |  |                     | 24,735 |      | 



Salaries and employee benefits are the largest category of other expenses. In general, they comprise close
to 60% of the Corporation’s total operating expenses. For the year 2016, salaries and benefits increased $1,973,000, or 13.3%,
compared to 2015. Salaries increased by $1,455,000, or 13.3% for the year, while employee benefits increased by $518,000, or 13.4%.
Salary and benefit expenses are growing because of the expansion of the branch network as well as the mortgage and commercial lending
departments and other support positions within the Bank. These staff additions were on top of normal merit increases. Insurance
costs increased $159,000, or 7.7%, from 2015 to 2016, due primarily to an increase in health insurance expense of $148,000, or
8.0%. Pension and 401(k) expenses were $918,000 in 2016, compared to $722,000 in 2015, a 27.1% increase. The pension portion experienced
a $155,000, or 31.1% increase. Changes were made to the Corporation’s pension plan at the end of 2015 for 2016 that converted
the pension plan to a profit sharing plan, and made several other changes consistent with safe harbor provisions of non-discriminatory
profit sharing plans. Before 2016, management made a non-elective contribution equal to 5% of all employee compensation into the
Corporation’s pension plan for all qualifying employees. Beginning in 2016, management split the 5% into two components as
part of a new profit sharing plan with a contribution of 3% of all employee compensation for the year plus an elective contribution
of up to 2% of all employee compensation based on the performance of the Corporation. The plan conversion also included changes
that resulted in an accelerating vesting schedule for new employees and provided better benefits to a long-term employee in the
year of termination. These changes along with both a record number of new hires and record year for employee turnover caused the
Corporation’s pension expense to accelerate in 2016. The 401(k) portion of these expenses is much smaller in scope than the
pension expenses since the Corporation is matching a maximum of up to 2.5% of salary depending on employee contributions, compared
to contributing up to 5.0% of salary in the pension plan. The 401(k) expenses increased $41,000, or 18.4%, a function of a larger
workforce and heavier employee participation.



Occupancy expenses consist of the following:



| | · | Depreciation of bank buildings
| | - | ------------------------------

| | · | Real estate taxes and property insurance
| | - | ----------------------------------------

| | · | Utilities
| | - | ---------

| | · | Building repair and maintenance
| | - | -------------------------------

| | · | Lease expense
| | - | -------------



Occupancy expenses have increased by $91,000, or 4.3%, for 2016
compared to 2015. The increase was caused by higher building repair and maintenance costs with heavier increases on the Corporation’s
older structures. Occupancy expense was also driven higher due to a $22,000, or 19.7% increase in lease expense for 2016, compared
to the prior year. This was due to the new lease of the drive-through facility located in Georgetown, as well as leased space
in Strasburg for the loan and deposit production office both of which were opened in 2016. Both lease expense and occupancy expenses
are expected to increase at a faster pace in 2017, due to anticipated further expansion of leased office space and the impact
of a full year into the new facilities obtained in 2016.



Equipment expenses decreased by $35,000, or 3.1%, for 2016 compared
to 2015. Furniture and equipment depreciation costs decreased by $36,000, or 4.7%, for the year ended December 31, 2016, compared
to the prior year as assets purchased in years past became fully depreciated and more than offset new assets being put on the books.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Advertising and marketing expenses for the year increased by $62,000,
or 11.2%, from 2015 levels. These expenses can be further broken down into two categories, marketing expenses and public relations.
The marketing expenses alone totaled $414,000 in 2016, which was a $37,000, or 9.8% increase, over 2015. Marketing expenses support
the overall business strategies of the Corporation; therefore, the timing of these expenses is dependent upon those strategies.
Public relations, the smaller category of advertising and marketing expenses, totaled $200,000 for 2016, compared to $175,000
for 2015, an increase of $25,000, or 14.3%. Fairs and expos, promotional items, and sponsorships make up this category. Management
has increased marketing outreach efforts consistent with the Corporation’s expanded market area in 2016.



Computer software and data processing expenses increased by $237,000,
or 14.9%, for 2016, compared to 2015. Software-related expenses were up $256,000, or 34.0%, for the year ended December 31, 2016,
compared to the prior year, primarily because of increased amortization on existing software as well as purchases of new software
platforms to support the strategic initiatives of the Corporation. These fees are likely to continue to increase in 2017 but at
a slower percentage. Actual software expense incurred will be dependent on how quickly new software platforms are identified, analyzed,
approved and placed into service.



Bank shares tax expense was $807,000 for 2016, an increase of $26,000,
or 3.3%, from 2015. 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. Prior to 2014, the shares tax calculation formula utilized a rolling six-year
average of taxable shares, which was the average shareholders’ equity of the Bank less the average amount of exempt U.S.
obligations held. The shares tax calculation in 2014 changed to using a period-end balance of shareholders’ equity and a
tax rate of 0.89% versus 1.25% in 2013 and prior years. However, in 2016, the tax rate was changed to 0.95% causing an increase
in costs compared to the prior year.



Professional services expense increased $147,000, or 10.2%, for
2016, compared to 2015. These services include accounting and auditing fees, legal fees, and fees for other third-party services.
Trust department processing fees increased by $61,000 for the year ended December 31, 2016, compared to the prior year. Courier
services increased by $14,000, or 54.7%, for the year as a result of courier services provided to customers in our new branch communities,
primarily in southern Lancaster County. Other outside service fees increased by $41,000, or 6.5%, for the year ended December 31,
2016, compared to the year-to-date period in 2015.



Management uses the efficiency ratio as one metric to evaluate
the Corporation’s level of operating expenses. The efficiency ratio measures the efficiency of the Corporation in producing
one dollar of revenue. For example, an efficiency ratio of 70% means it costs seventy cents to generate one dollar of revenue.
A lower ratio represents better operational efficiency. The formula for calculating the efficiency ratio is total operating expenses,
excluding foreclosed property and OREO expenses, divided by net interest income on an FTE basis, prior to the provision for loan
losses, plus other income, excluding gain or loss on the sale of securities. A higher level of operation expenses may be justified
if the Corporation is growing interest earning assets and is increasing net interest income and other income at faster levels.
This was the case in 2016 as the Corporation’s efficiency ratio was 75.1%, compared to 76.9% for 2015. The Corporation’s
operating expenses have been growing at a more rapid pace as the Corporation increases locations and expands market area. Management
is willing to incur expenses now in the effort to win business during the current market disruption. However, management has been
successful in increasing both net interest income and fee income during this expansionary period, resulting in improved efficiency.
In 2017, management anticipates further improvements in net interest margin, which will provide higher net interest income and
better efficiency, outside of improvements caused by normal growth. In the near term, management’s goal is to reduce the
efficiency ratio to below 75% with a longer-term goal of reducing it to 70%. While management desires a lower efficiency ratio,
the desire to capture additional market share in the near future and the interest rate environment, including the timing of the
Federal Reserve’s rate actions, will play a large part in determining when the Corporation’s efficiency ratio improves
and the degree to which improvements can be made.



Income Taxes



Nearly all of the Corporation’s income is taxed at a corporate
rate of 34% for Federal income tax purposes. The Corporation is also subject to Pennsylvania Corporate Net Income Tax; however,
no taxable activity is conducted at the corporate level. The Corporation’s wholly owned subsidiary, Ephrata National Bank,
is not subject to state income tax, but does pay Pennsylvania Bank Shares Tax. The Bank Shares Tax expense appears on the Corporation’s
Consolidated Statements of Income under operating expenses.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Certain items of income are not subject to Federal income tax, such
as tax-exempt interest income on loans and securities, and increases in the cash surrender value of life insurance; 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 income tax by the pre-tax income for the applicable period.



For the year ended December 31, 2016, the Corporation recorded a
tax provision of $1,353,000, compared to $1,358,000 for 2015. The effective tax rate for the Corporation was 15.2% for 2016, compared
to 16.4% for 2015. A higher level of tax-exempt assets as a percentage of total assets caused the lower effective Federal income
tax rate for 2016. The majority of the Corporation’s tax-free assets are in the form of obligations of states and political
subdivisions, referred to as municipal bonds. Management significantly increased the Corporation’s municipal bond holdings
in 2016 causing the percentage of tax-exempt assets to increase and the effective tax rate to decline. Any material reduction in
municipal bond holdings in 2017 would have the opposite impact.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Financial Condition



Cash and Cash Equivalents



Cash and cash equivalents consist of the cash on hand in the Corporation’s
vaults, operational transaction accounts with the Federal Reserve Bank (FRB), and deposits in other banks. The FRB requires a specified
amount of cash available either in vault cash or in an FRB account. Known as cash reserves, these funds provide for the daily clearing
house activity of the Corporation and fluctuate based on the volume of each day’s transactions. Beyond these requirements,
the Corporation maintains additional cash levels as part of Management’s active asset liability and liquidity strategy. Management
has been carrying larger cash balances to provide an immediate hedge against interest rate risk and liquidity risk. As of December
31, 2016, the Corporation had $45.6 million in cash and cash equivalents, compared to $44.2 million as of December 31, 2015.



As a result of the actions of the Board of Governors on December
16, 2008, financial institutions have been able to receive a rate equivalent to the Federal funds rate on reserves held at the
FRB. Because this rate matched the Federal funds rate that could be obtained at other correspondent banks, management began to
keep larger balances at the FRB and less Federal funds. After the Federal Reserve action to raise the Federal funds rate to 0.50%
on December 16, 2015, and to 0.75% on December 14, 2016, the Federal Reserve followed with incremental increases to the overnight
rate that financial institutions received until that rate became 0.75%. The Corporation expects to maintain an element of total
cash at the Federal Reserve as part of a diversified cash management plan. Management also invests excess cash in two money market
accounts at other financial institutions. One money market account yielded a return of 0.85% at December 31, 2016, and the other
money market account yielded a return of 0.95%, both more than the return received from the FRB. This diversification alters the
mix of cash and cash equivalents to more interest bearing deposits in banks and less Federal funds sold. The cash and cash equivalents
represent only one element of liquidity. For further discussion on liquidity management, refer to Item 7A Quantitative and Qualitative
Disclosures about Market Risk.



Sources and Uses of Funds



The following table shows an overview of the Corporation’s
primary sources and uses of funds. This table utilizes average balances to explain the change in the sources and uses of funding.
Management uses this analysis tool to evaluate changes in each balance sheet category. For purposes of this analysis, securities
available for sale are shown based on book value and not fair market value. Additionally, short-term investments only include interest-bearing
funds. Trends identified from past performance assist management with decisions concerning future growth.



Some conclusions drawn from the following table are as follows:



| | · | Balance sheet growth rate was 8.2% in 2016 compared to 3.5% in 2015.
| | - | --------------------------------------------------------------------

| | · | Balance sheet mix changed with average balances of loans growing at a rate of 13.1%, compared to a 0.4% increase in securities.
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | Interest bearing demand deposits and savings deposits grew significantly in 2016 compared to a decline in time deposits.
| | - | ------------------------------------------------------------------------------------------------------------------------

| | · | Non-interest bearing deposits, the most beneficial deposits, grew at a rate of 18.3% in 2016, compared to 13.8% growth in 2015.
| | - | -------------------------------------------------------------------------------------------------------------------------------

| | · | Time deposits continue to decline both in amount and as a percentage of total deposits with a 12.4% decrease in 2016 compared
to a 10.4% decline in 2015.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Borrowings increased by 1.4% in 2016, a decrease from 3.8% in 2015.
| | - | -------------------------------------------------------------------



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




SOURCES AND USES OF FUNDS

(DOLLARS IN THOUSANDS)



|                              |  | 2016 vs. 2015 |         | 2015 vs. 2014
|----------------------------- |  | ------------- | ------- | -------------
|                              |  | 2016          |         | 2015         
|Average Balances              |  | $             |         | $            
|                              |  |               |         |              
|Short-term investments        |  |               | 24,325  |              
|Securities available for sale |  |               | 296,925 |              
|Regulatory stock              |  |               | 4,851   |              
|Loans                         |  |               | 553,994 |              
|Total Uses                    |  |               | 880,095 |              
|                              |  |               |         |              
|Interest bearing demand       |  |               | 188,758 |              
|Savings accounts              |  |               | 163,210 |              
|Time deposits                 |  |               | 168,182 |              
|Borrowings                    |  |               | 74,381  |              
|Non-interest bearing demand   |  |               | 247,730 |              
|Total Sources                 |  |               | 842,261 |              



Securities Available For Sale



The Corporation classifies all of its securities as available for
sale and reports the portfolio at fair market value. As of December 31, 2016, the Corporation had $308.1 million of securities
available for sale, which accounted for 31.3% of assets, compared to 32.0% as of December 31, 2015. The securities portfolio increased
in size, but decreased as a percentage of the balance sheet due to significant loan growth in 2016. Some proceeds from securities
sales, calls, and maturities were deployed into new loans rather than being reinvested into new securities. However, deposits also
grew at a rapid pace allowing for additional investments in the securities portfolio resulting in a higher absolute balance at
the end of 2016 compared to the prior year. While the ending balance of securities increased 6.5% from December 31, 2015 to December
31, 2016, the average balance of securities only increased 0.7% for the year compared to 2015.



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



| | · | Performance of the various instruments including spreads over U.S. Treasury rates
| | - | ---------------------------------------------------------------------------------

| | · | Slope of the U.S. Treasury yield curve
| | - | --------------------------------------

| | · | Level of and projected direction of interest rates
| | - | --------------------------------------------------

| | · | ALCO positions as to liquidity, interest rate risk, and net portfolio value
| | - | ---------------------------------------------------------------------------

| | · | Changes in credit risk of the various instruments
| | - | -------------------------------------------------

| | · | State of the economy and projected economic trends
| | - | --------------------------------------------------



The securities policy of the Corporation imposes guidelines to ensure
diversification within the portfolio. The diversity specifications are designed to control the level of risk presented by each
security type. The amount of diversity permitted through the policy allows management to pursue security types with better total
return profiles or securities with higher yields. However, those securities that can provide higher levels of return will often
bring higher elements of duration or credit risk. Management’s goal is to optimize portfolio total return performance while
staying within portfolio policy guidelines. The composition of the securities portfolio at year end based on fair market value
is shown in the following table.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




|SECURITIES PORTFOLIO                             |  |              |         |      |  |      |       |   |  |   |         |  
|------------------------------------------------ |  | ------------ | ------- | ---- |  | ---- | ----- | - |  | - | ------- | -
|(DOLLARS IN THOUSANDS)                           |  |              |         |      |  |      |       |   |  |   |         |  
|                                                 |  | December 31,
|                                                 |  | 2016         |         | 2015 |  | 2014
|                                                 |  | $            |         | %    |  | $    |       | % |  | $ |         | %
|                                                 |  |              |         |      |  |      |       |   |  |   |         |  
|U.S. government agencies                         |  |              | 32,261  |      |  |      | 10.5  |   |  |   | 29,691  |  
|U.S. agency mortgage-backed securities           |  |              | 55,869  |      |  |      | 18.1  |   |  |   | 41,980  |  
|U.S. agency collateralized mortgage obligations  |  |              | 37,936  |      |  |      | 12.3  |   |  |   | 47,331  |  
|Corporate bonds                                  |  |              | 52,091  |      |  |      | 16.9  |   |  |   | 63,305  |  
|Obligations of states and political subdivisions |  |              | 124,430 |      |  |      | 40.4  |   |  |   | 101,583 |  
|Marketable equity securities                     |  |              | 5,524   |      |  |      | 1.8   |   |  |   | 5,533   |  
|                                                 |  |              |         |      |  |      |       |   |  |   |         |  
|Total securities available for sale              |  |              | 308,111 |      |  |      | 100.0 |   |  |   | 289,423 |  



The Corporation typically invests excess liquidity into securities,
primarily fixed-income bonds which account for 98.2% of all securities. 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. Refer to Item 7A Quantitative and Qualitative Disclosures about Market Risk for further discussion
of risk strategies. To provide maximum flexibility for management of liquidity and interest rate risks, the securities portfolio
is classified as available for sale and reported at fair value. Management adjusts the value of the portfolio 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 the bonds that are currently
valued below book value. Impairment was recorded in 2014 on several of the Corporation’s private collateralized mortgage
obligations (PCMOs) when it was determined that projected credit losses would occur. No additional impairment was recorded on PCMOs
subsequent to 2014 as all remaining PCMOs were sold in 2014.



The Corporation’s marketable equity securities include an
investment in qualified Community Reinvestment Act (CRA) mutual funds and a small portfolio of bank stocks held at the holding
company level. A total of $5,250,000 has been invested into one qualified CRA fund that carried an AAA credit rating as of December
31, 2016. The fund is a Small Business Administration (SBA) CRA fund with a $5,250,000 book value and market value as it has a
stable dollar price. The current guideline used by management for the minimum amount to be invested in CRA-approved investments
is approximately 0.5% of assets. The current $5,250,000 of CRA investments is equivalent to 0.5% of assets. The small portfolio
of bank stocks included in marketable equity securities had a book value of $219,000 and a fair market value of $274,000 as of
December 31, 2016.



Overall, the tax equivalent yield on all of the Corporation’s
securities declined from 2.68% for 2015, to 2.48% for 2016. The slope of the yield curve declined throughout 2016 until rates started
to rise in the middle of the fourth quarter so the vast majority of securities that matured or were sold had higher yields than
the securities purchased to replace them. Additionally, non-recurring U.S. sub-agency amortization of $1,681,000 was recorded during
2016 that resulted in a lower yield for the corporate sector and for the portfolio as a whole. The Corporation’s securities
portfolio underwent a number of changes during 2016 including an increase in obligations of states and political subdivisions and
a decrease in corporate bonds. The fair market value of the Corporation’s securities portfolio increased by $18.7 million,
or 6.5%, from December 31, 2015 to December 31, 2016, but the portfolio accounted for a smaller amount of the Corporation’s
assets at 31.3% as of December 31, 2016, compared to 32.0% as of December 31, 2015.



Management increased the amount of obligations of states and political
subdivisions in 2016 in an effort to provide higher yields within the securities portfolio. While these securities have the longest
maturities and interest rate and fair value risk, they do provide the highest returns and help to offset lower yields experienced
within other sectors of the portfolio.



Management views the U.S. government agency sector as foundational
to the building of the securities portfolio. U.S. agencies have very low risk and high liquidity, and depending on structure, are
fairly predictable in terms of their performance. Non-callable agencies have a set maturity date with no principal payments until
maturity. Callable agencies offer a higher yield but carry option risk, the risk that the agency could call the issue after it
reaches the call date. This typically occurs if interest rates decline. The non-callable structures have lower yield but a better
total return profile when considering all rate scenarios, however given a slow progression of higher rates the callable structure
would outperform given the higher yield. As a result, management uses a blend of non-callable and callable instruments to

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


enhance
yield performance but ensure a predictable cash flow ladder is built out into the future. Management prefers to use corporate bonds
to supplement U.S. agencies in building a ladder of steady maturities in the one-year to five-year timeframe. Corporate bonds outperform
U.S. agencies, especially in this shorter time frame, since they provide better yields, are not callable, and the credit risk
of the corporate bonds is greatly mitigated by maintaining shorter maturities.



Investments in MBS and CMOs assist management 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
U.S. agency bonds, 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 monthly principal and interest. The combined effect of all of these instruments paying
monthly principal and interest provides the Corporation with a significant and reasonably stable cash flow. Cash flows coming off
of MBS and CMOs do slow down and speed up as interest rates increase or decrease. During the majority of 2016, cash flows from
these securities were high as a result of low Treasury rates. Management desires and pursues those MBS and CMO securities that
do not experience significant changes in prepayment speeds given changes in interest rates. Since nearly all of these securities
are purchased at a premium, management is most concerned with how quickly that premium will be amortized based on the average life
of the security. Therefore, management attempts to guard against those securities with fast or volatile prepayment speeds in favor
of those that demonstrate more consistent principal payments.



Non-recurring amortization of $385,000 was recorded in the fourth
quarter of 2015 due to a clean-up call on a Ginnie Mae CMO security. This was an unusual event specific to Ginnie Mae high coupon
paper with low factors and the particular trustee that was exercising the call. This type of event should not reoccur in the future
as management has evaluated all similar bonds held in an effort to ensure that no other bonds are subject to a premature clean-up
call when a material amount of premium still exists. Management will continue to monitor prepayment speeds and characteristics
going forward to evaluate the performance of the MBS and CMO segment of the investment portfolio.



Obligations of states and political subdivisions, often referred
to as municipal bonds, are tax-free securities that generally provide the highest yield in the securities portfolio on a tax-equivalent
basis. In the continued prolonged period of historically low interest rates, the municipal bond sector has by far outperformed
all other sectors of the portfolio. Municipal tax-equivalent yields generally start well above other taxable bonds; however, they
generally carry the longest duration and highest interest rate risk exposure out of all the Corporation’s securities. As
interest rates increased during the fourth quarter of 2016, the valuations of these instruments decreased and reached an unrealized
loss position of $3,998,000 for that segment of the securities portfolio as of December 31, 2016, compared to an unrealized gain
position of $1,375,000 as of December 31, 2015, when interest rates were lower.



The vast majority of the municipal bonds held by the Corporation
on December 31, 2016 carried between an A and an AA credit rating, with 8.3% carrying the highest AAA rating. These are stronger
ratings on average than the ratings on the corporate bonds held by the Corporation. These ratings reflect the final rating or the
rating with any insurance backing or credit enhancements. The Corporation’s securities policy requires that municipal bonds
not carrying insurance have a minimum S&P credit rating of A- or a minimum Moody’s credit rating of A3 at the time of
purchase. It is possible that municipalities have an underlying rating of S&P BBB+ or Moody’s Baa1 rating prior to insurance
or credit enhancement while having a final rating of S&P A- or Moody’s A3 with the insurance and/or credit enhancement.
In the current environment, the major rating services have tightened their credit underwriting procedures and are more apt to downgrade
municipalities. Additionally, the weaker economy has reduced revenue streams for many municipalities and has called into question
the basic premise that municipalities have unlimited power to tax, i.e. the ability to raise taxes to compensate for revenue shortfalls.
Therefore, management closely monitors any municipal bonds that have their credit ratings downgraded below initial purchase guidelines.
The Corporation has not experienced any losses due to defaults or bankruptcies of states or political subdivisions. As of December
31, 2016, all of the municipal bonds carried credit ratings within the Corporation’s initial purchase policy requirements.



As of December 31, 2016, the Corporation held corporate bonds with
a total book value of $52.9 million and fair market value of $52.1 million. Normal corporate bonds consisting of bonds issued by
public companies as unsecured credit carry a 100% risk weighting for capital purposes and therefore are viewed as a higher risk
security. Because of the higher risk posed by corporate bonds, the Corporation has a policy that limits corporates to 20% of the
portfolio book value. As of December 31, 2016, this $52.9 million book value of corporate debt amounted to 17.1% of the portfolio
book value, compared to $51.1 million book value, or 18.0% of portfolio book value as of December 31, 2015.



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 relative 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

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


the corporate paper fails. As a result of the higher level of credit risk taken on by purchasing a corporate
bond, management has in place certain minimal credit ratings that must be met in order for management to purchase a corporate bond.
The financial performance of any corporate bond being considered for purchase is analyzed both prior to and after purchase. Management
conducts periodic monitoring throughout the year including an internal financial analysis. An independent credit review is conducted
at least annually in addition to management’s periodic monitoring. Additionally, the Corporation’s securities policy
calls for corporate bonds purchased to not have maturities greater than six years with the preferred maturity range of two to five
years. Credit risk grows exponentially with length. The shorter the maturity the more assurance the company’s financial position
will remain sufficiently strong to ensure full payment of the bond at maturity. The longer the time horizon the more difficult
it is to project the financial health of the company.



Management closely monitors the unrealized gain or loss positions
of all the corporate bonds to identify any potential weakness. The trading levels of these securities are closely linked to the
financial performance and health of the entity. Significant declines in the valuations of these securities, beyond what can be
attributed to movement in interest rates, are generally an indication of higher credit risk. Management reviews all securities
with unrealized losses approaching 10% or those carrying unrealized losses for prolonged periods of time, for possible impairment.
As of December 31, 2016, the highest percentage of unrealized loss for any corporate bond was 3.5%. All but five of the corporate
bonds had at least an A credit rating by one of the major credit rating services, with all corporate bonds considered investment
grade. Currently, there are no indications that any of these bonds would discontinue contractual payments.



The entire securities portfolio is reviewed monthly for credit risk
and evaluated quarterly for possible impairment. Corporate bonds have the most potential credit risk out of the Corporation’s
debt instruments. Due to the rapidly changing credit environment and improving but sluggish economic conditions, management is
closely monitoring all corporate bonds. For further information on impairment see Note B. For further details regarding credit
risk see Note P.



The following table shows the weighted-average life and yield on
the Corporation’s securities by maturity intervals as of December 31, 2016, based on amortized cost. All of the Corporation’s
securities are classified as available for sale and are reported at fair value; however, for purposes of this schedule they are
shown at amortized cost.



SECURITIES PORTFOLIO MATURITY ANALYSIS

(DOLLARS IN THOUSANDS)



|                                                 |  | Within |        | 1 - 5 |  | 5 - 10 |      | Over 10 |  |       |        |      
|------------------------------------------------ |  | ------ | ------ | ----- |  | ------ | ---- | ------- |  | ----- | ------ | -----
|                                                 |  | 1 Year |        | Years |  | Years  |      | Years   |  | Total
|                                                 |  |        |        | %     |  |        |      | %       |  |       |        | %    
|                                                 |  | $      |        | Yield |  | $      |      | Yield   |  | $     |        | Yield
|                                                 |  |        |        |       |  |        |      |         |  |       |        |      
|U.S. government agencies                         |  |        | —      |       |  |        | —    |         |  |       | 6,090  |      
|U.S. agency mortgage-backed securities           |  |        | 12,935 |       |  |        | 1.62 |         |  |       | 28,742 |      
|U.S. agency collateralized mortgage obligations  |  |        | 1,875  |       |  |        | 2.48 |         |  |       | 10,510 |      
|Corporate bonds                                  |  |        | 2,008  |       |  |        | 2.32 |         |  |       | 37,952 |      
|Obligations of states and political subdivisions |  |        | —      |       |  |        | —    |         |  |       | 5,315  |      
|Marketable equity securities                     |  |        | —      |       |  |        | —    |         |  |       | —      |      
|                                                 |  |        |        |       |  |        |      |         |  |       |        |      
|Total securities available for sale              |  |        | 16,818 |       |  |        | 1.80 |         |  |       | 88,609 |      



Securities are assigned to categories based on stated contractual
maturity except for MBS and CMOs, which are based on anticipated payment periods.



The yield on the securities portfolio, including equity securities,
was 3.03% as of December 31, 2016, compared to 3.09% as of December 31, 2015. As of December 31, 2016 and 2015, the effective duration
of the Corporation’s fixed income security portfolio was 4.4 years for the base case or rates unchanged scenario. Effective
duration is the estimated duration or length of a security or portfolio, which is implied by the price volatility. Effective duration
is calculated by converting price volatility to a standard measurement representing length, expressed in years. It is a measurement
of price sensitivity, with lower durations being advantageous in periods of rising rates and longer durations benefiting the holder
in periods of declining rates. An effective duration of 3.0 years would approximate the duration of a three-year U.S. Treasury,
a security that has no option risk or call provisions. Management receives effective duration and price volatility information
quarterly on an individual security basis. Management’s target base case, or rates unchanged effective duration, is 2.5 years.
The Corporation manages duration, along with interest rate sensitivity and fair value

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


risk, across the entire balance sheet. Currently,
assets are repricing quicker than liabilities, meaning the Corporation is asset sensitive and benefits by higher interest rates.
As a result, management has taken on more duration in the securities portfolio to enhance earnings performance. Regardless of the
Corporation’s asset sensitive balance sheet position, management still desires to lower the securities portfolio’s
effective duration from the current 4.4 years closer to the targeted 2.5 years throughout 2017 to further improve rates-up performance.



Effective duration is only one measurement of the length of the
securities portfolio. Management receives and monitors a number of other measurements. In general, a shorter portfolio will adjust
more quickly in a rising interest rate environment, whereas a longer portfolio will tend to generate more return over the long-term
and will outperform a shorter portfolio when interest rates decline. Because the Corporation’s securities portfolio is longer
than the average peer bank, it will generally outperform the average peer bank given static rates or a decline in interest rates,
and will generally underperform given higher interest rates. Additionally, with fixed rate instruments, the longer the term of
the security, generally the more fair value risk there is when interest rates rise. The converse is true when interest rates decline.
The securities portfolio is a significant piece of the Corporation’s assets, but there are other crucial elements that management
also uses to manage the Corporation’s asset liability position such as cash and cash equivalents and borrowings. Beyond these,
management also utilizes other elements of the Corporation’s balance sheet to reduce exposure to higher interest rates. As
of December 31, 2016, Prime-based loans accounted for over 35% of the Corporation’s total loans. This is a historic high
driven up by the prolonged low rate environment. The unusually extended period of historically low rates also caused the Corporation’s
deposits to undergo major changes in consistency with non-interest bearing accounts and savings accounts responsible for a larger
percentage of deposits while time deposits have declined markedly. This has benefited the Corporation’s asset liability position
with more core deposits which model with longer lives causing liabilities to extend. The combination of improvements in both Prime-based
loans and longer core deposits have allowed management to take on more duration in the securities portfolio. See Item 7A Quantitative
and Qualitative Disclosures about Market Risk for further discussion on the Corporation’s management of asset liability risks
including interest rate risk and fair value risk.



The majority of the Corporation’s securities are held at the
bank level with only a very small portfolio of bank stocks held at the holding company level. With only $219,000 of book value
as of December 31, 2016, the non-maturity nature of the Corporation’s bank stock portfolio is not material to the duration
of the Corporation’s securities portfolio or assets. The decision to purchase these equity securities at the holding company
level took into account tax strategies, market conditions, and other strategic decisions.



Loans



Net loans outstanding increased $50.8 million, or 9.9%, from $513.2
million at December 31, 2015, to $564.0 million at December 31, 2016. The following table shows the composition of the loan portfolio
as of December 31 for each of the past five years.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




LOANS BY MAJOR CATEGORY

(DOLLARS IN THOUSANDS)



|                                 |  | December 31,
|-------------------------------- |  | ------------
|                                 |  | 2016        
|                                 |  | $           
|                                 |  |             
|Commercial real estate           |  |             
|Commercial mortgages             |  |             
|Agriculture mortgages            |  |             
|Construction                     |  |             
|Total commercial real estate     |  |             
|                                 |  |             
|Consumer real estate (a)         |  |             
|1-4 family residential mortgages |  |             
|Home equity loans                |  |             
|Home equity lines of credit      |  |             
|Total consumer real estate       |  |             
|                                 |  |             
|Commercial and industrial        |  |             
|Commercial and industrial        |  |             
|Tax-free loans                   |  |             
|Agriculture loans                |  |             
|Total commercial and industrial  |  |             
|                                 |  |             
|Consumer                         |  |             
|                                 |  |             
|Total loans                      |  |             
|Less:                            |  |             
|Deferred loan costs, net         |  |             
|Allowance for loan losses        |  |             
|Total net loans                  |  |             
|                                 |  |             



|(a) | Residential real estate loans do not include mortgage loans serviced for others.  These loans totaled $66,767,000 as
of December 31, 2016, $38,024,000 as of December 31, 2015, $16,670,000 as of December 31, 2014, $4,866,000 as of December 31,
2013, and $6,014,000 as of December 31, 2012.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The composition of the loan portfolio has remained relatively stable
in recent years, with the one major trend being the growth in agricultural mortgage lending. The total of all categories of real
estate loans comprised 85.7% of total loans as of December 31, 2016, compared to 85.1% of total loans as of December 31, 2015.
Commercial real estate remains the largest category of the loan portfolio, consisting of 48.3% of total loans as of December 31,
2016, compared to 50.2% of total loans as of December 31, 2015. Within the commercial real estate segment there has been an acceleration
of agricultural mortgages over the past five years, with commercial mortgages declining slightly and construction based mortgages
growing in 2015 and 2016 compared to the two previous years. The Corporation has a history of an agricultural focus, which coincides
with the market area and type of customers that we serve. In recent years management has allocated additional resources to build
agricultural lending including the hiring of additional agricultural lenders. The agricultural economy was quicker to recover
from the past prolonged recession than other elements of the economy, so management focused on the area that was generating the
largest amount of quality loan growth. Agricultural loan growth slowed down in 2016 but is still the most significant area of
growth over the past five years. Slower agricultural growth in 2016 was caused by a general slowing of the growth rate in the
local agricultural industry, a more challenging year for dairy farmers, which account for approximately half the Corporation’s
agricultural loans, and changes in the agricultural lending staff which temporarily impacted the pipeline of new agricultural
loans.



Commercial real estate loans increased to $275.1 million at December
31, 2016, from $260.9 million at December 31, 2015, a 5.4% increase. As of December 31, 2016, all types of commercial real estate
loans accounted for 78.1% of commercial purpose lending. Most of the commercial real estate growth occurred in the commercial construction
loans which represent a fairly small element of the Corporation’s total loan portfolio, accounting for 4.4% of total loans
as of December 31, 2016, and 2.9% of total loans as of December 31, 2015. These loan balances increased by $9.9 million, or 66.2%
from December 31, 2015 to December 31, 2016. The increase was due to construction projects being started that had been put on hold
in prior years until the economy showed signs of recovery. As the general economic conditions improve further in 2017, the commercial
real estate construction lending is expected to remain at these higher levels.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Agriculture mortgage loans increased to $163.8 million at December
31, 2016, from $158.3 million at December 31, 2015, a 3.5% increase. As of December 31, 2016, these loans made up 59.5% of total
commercial real estate loans compared to 60.7% as of December 31, 2015. As economic conditions improved in 2015 and 2016, and as
the Corporation had a more concerted agriculture initiative, agricultural mortgage loans grew at a significant pace. The trend
over the past five years has been for agricultural mortgages to grow as a percentage of total commercial mortgages and as a percentage
of the total loan portfolio, although 2016 marked a change in this trend with commercial loans beginning to grow faster, initially
through construction loans, while agricultural mortgage lending slowed. The agricultural mortgages, along with agricultural loans
not secured by real estate, accounted for 32.5% of the entire loan portfolio as of December 31, 2016, compared to 34.0% as of December
31, 2015. Management expects agricultural loans to continue to increase in 2017 but at a slower pace with commercial real estate
growing at a faster pace. Management believes as economic conditions improve further in 2017, other elements of the local diversified
economy outside of the agriculture industry will expand and cause commercial mortgages to grow faster.



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 13.5% of total loans as of December 31, 2016, compared to 14.2% as of December 31, 2015. In scope, the commercial
and industrial loans represent approximately 22% of the commercial real estate loans as of December 31, 2016. 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 increased from $73.6 million at December 31, 2015, to $77.2 million at December 31, 2016, a 4.9%
increase. 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 increase in the entire commercial and industrial segment in 2016 was primarily
due to an increase in commercial and industrial loans and agriculture loans. Tax-free loans, consisting of loans to local municipalities,
decreased by $6.0 million, or 31.4%, from December 31, 2015 to December 31, 2016, due to the payoff of one significant tax-free
loan relationship. Management anticipates that commercial loans not secured by real estate will continue to experience moderate
growth in 2017.



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. Businesses are also using more of their available credit from both unsecured and real estate secured
lines of credit as improving economic conditions resulted in more sales and accounts receivable impacted cash flow needs. Commercial
and industrial loans increased to $42.5 million at December 31, 2016, a $6.3 million, or 17.4% increase, over the $36.2 million
at December 31, 2015. The commercial and industrial agricultural loans grew over the same period, related to the improving agricultural
conditions. During 2016, these loans grew by $3.3 million, or 18.2%, over balances at December 31, 2015. The commercial and industrial
agricultural loans are expected to grow moderately in 2017.



As a result of the regulatory concerns regarding commercial real
estate (CRE) lending that arose out of the financial crisis, there has been a renewed focus on the amount of CRE loans as a percentage
of total risk-based capital. The CRE loans are viewed as having more risk due to the specific types of commercial loans that fall
into this category and their heavy reliance on the value of real estate that is used as collateral. During the financial crisis
and years immediately after, many financial institutions had CRE loans in excess of 400% of total risk-based capital. Regulators
were warning banks of concentrations in CRE loans and the increased risk that they could potentially bring. The Corporation’s
level of CRE loans has been low relative to other community banks and the CRE profile has not materially changed over the past
several years. The Corporation remains well below the CRE guidelines of 100% of total risk-based capital for construction and development
loans, and 300% of risk-based capital for total CRE loans. There are nine categories of CRE loans by definition.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




The following chart details the Corporation’s CRE loans as
of December 31, 2016 and December 31, 2015.



|CRE SUMMARY BY CATEGORY                   |  |              |         |            |  |             |      |           
|----------------------------------------- |  | ------------ | ------- | ---------- |  | ----------- | ---- | ----------
|(DOLLARS IN THOUSANDS)                    |  | December 31,
|                                          |  | 2016         |         | 2015      
|                                          |  | Total        |         |            |  | Total       |      |           
|                                          |  | Committed    |         | Risk-Based |  | Committed   |      | Risk-Based
|                                          |  | Loan Amount  |         | Capital    |  | Loan Amount |      | Capital   
|CRE Description                           |  | $            |         | %          |  | $           |      | %         
|Land Development Loans                    |  |              | 11,272  |            |  |             | 10.5 |           
|1-4 Family Residential Construction Loans |  |              | 3,435   |            |  |             | 3.2  |           
|Commercial Construction Loans             |  |              | 20,479  |            |  |             | 19.0 |           
|Other Land Loans                          |  |              | 1,548   |            |  |             | 1.4  |           
|Multi-Family Property                     |  |              | 7,385   |            |  |             | 6.9  |           
|Nonfarm, Nonresidential Property          |  |              | 23,450  |            |  |             | 21.8 |           
|Nonfarm, Nonresidential Property - Temp   |  |              | —       |            |  |             | —    |           
|Unsecured Loans to Developers             |  |              | 1,464   |            |  |             | 1.3  |           
|                                          |  |              | 69,033  |            |  |             | 64.1 |           
|                                          |  |              |         |            |  |             |      |           
|Corporation's Risk-Based Capital          |  |              | 107,732 |            |  |             |      |           



The Corporation’s level of CRE loans is low relative to other
financial institutions in its peer group and as a percentage of risk-based capital, with 64.1% as of December 31, 2016. Management
does not believe the Corporation’s CRE profile will change significantly during 2017. Management is closely monitoring all
CRE loan types to be able to determine any negative trends that may occur. Management does internally monitor the delinquencies
and risk ratings of these loans on a monthly basis and has established internal policy guidelines to restrict the amount of each
of the above eight types of CRE loans as a percentage of capital. As of December 31, 2016, the Corporation was well under internal
guidelines for all of the above CRE loan types.



Outside of commercial real estate loans, the consumer residential
real estate category represents the second largest group of loans for the Corporation. The consumer residential real estate category
of total loans increased from $181.2 million on December 31, 2015, to $213.8 million on December 31, 2016, an 18.0% 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 very close to 40% of total loans. In 2015,
this percentage was 34.9%, and in 2016 it increased to 37.4%. Management expects the consumer residential real estate category
to increase at a similar pace in 2017 due to a continued effort to increase mortgage volume. The economic conditions for consumers
have also improved slightly going into 2017. Consumer disposable income is higher and home valuations have increased, which has
increased the equity available in their homes. However, with the relatively fast growth rates being experienced in commercial and
agricultural lending, it is likely the entire consumer residential real estate component will remain under 40% of the loan portfolio.



The first lien 1-4 family mortgages increased by $16.7 million,
or 12.5%, from December 31, 2015, to December 31, 2016. These first lien 1-4 family loans made up 70% of the residential real estate
total as of December 31, 2016, and 74% as of December 31, 2015. 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. During 2016, mortgage production increased 60% over the prior year.  The
Corporation experienced significant increases in both portfolio and secondary market production, however, the percentage of mortgages
held in the Corporation’s mortgage portfolio decreased from 57% to 52% of overall volume, driving additional gain on sale
income in 2016.  The Corporation’s continued focus on the growth of the mortgage division led to an incremental increase
in purchase-money and new construction concentration; 43% of volume in 2016 was purchase, 28% was residential construction lending,
and only 29% was refinance activity.  The volume of residential mortgage production in 2016 led to a 12.5% increase in growth
of the overall residential loan portfolio, with a significant shift from fixed rate loans to interim adjustable rate mortgages
(ARMs), climbing from 14% of the residential loan portfolio at the end of 2015, to 28% at the end of 2016.  This shift in
production has decreased the bank’s interest rate risk profile and this trend is expected to continue in 2017.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




As of December 31, 2016, the remainder of the residential real estate
loans consisted of $10.4 million of fixed rate junior lien home equity loans, and $53.1 million of variable rate home equity lines
of credit (HELOCs). This compares to $10.3 million of fixed rate junior lien home equity loans, and $37.4 million of HELOCs as
of December 31, 2015. Therefore, combined, these two types of home equity loans increased from $47.7 million to $63.5 million,
an increase of 33.1%. The Prime rate had remained at a very low level of 3.25% for seven years beginning in December of 2008 and
increased by 25 basis points to 3.50% in December of 2015 and another 25 basis points to 3.75% in December of 2016. This rate is
still lower than fixed home equity rates, which generally ranged between 4.0% and 6.5%, resulting in customers shifting most new
home equity borrowings to HELOCs and either paying off or continuing to pay down their fixed rate home equity loans. The majority
of borrowers chose variable-rate HELOC products throughout 2015 and 2016 instead of fixed-rate home equity loans. In addition,
multiple HELOC specials with a low introductory rate were offered in 2015 and 2016, which encouraged more HELOC activity resulting
in the sizeable increase in this category of loans since the prior year. Management believes the trends experienced in 2016 will
continue until the Prime rate begins to increase more substantially.



Consumer loans not secured by real estate represent a very small
portion of the Corporation’s loan portfolio, accounting for 0.8% of total loans as of December 31, 2016, and 0.7% of loans
at December 31, 2015. In recent years, homeowners have turned to equity in their homes to finance cars and education rather than
traditional consumer loans for those expenditures. Due to the credit crisis that occurred in 2008 and 2009, specialized lenders
began pulling back on the availability of credit and more favorable credit terms. The underwriting standards of major financing
and credit card companies began to strengthen in the past few years after years of lower credit standards. This led consumers to
seek unsecured credit away from national finance companies and back to their bank of choice. Management has seen the need for additional
unsecured credit increase; however, this increased need for credit has only resulted in low levels of additional consumer loans
for the Corporation. Slightly higher demand for unsecured credit is being offset by principal payments on existing loans. Consumers
are still holding back in the weak economic conditions, many trying to consolidate or pay off their debt. This is controlling the
amount of new growth that is occurring in consumer loans.



Management anticipates that the Corporation’s level of consumer
loans will likely be relatively unchanged in the near future, as the need for additional unsecured credit in an environment of
slowly improving economic conditions is generally being 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.



Management does not anticipate that the loan portfolio composition
will change materially in 2017, or be subject to any adverse trends, events, or uncertainty. The robust agricultural mortgage growth
that occurred in 2015 and prior moderated in 2016 and will likely continue at this pace. Whereas the commercial mortgage growth
that started in 2016 in the form of a spike in construction mortgages, will likely transition to more standard commercial real
estate business in 2017. Commercial mortgage growth will be dependent on economic conditions continuing to improve. This has been
a trend that management has observed with agricultural lending doing well when the economy is weak and commercial loan activity
is diminished. As economic activity increases, the trend begins to reverse with agricultural lending slowing and commercial loan
growth increasing. Since commercial lending is highly linked to economic conditions it is likely the entire commercial real estate
area will grow as a percentage of total loans. The largest single category of 1-4 family residential mortgages will likely show
a slight increase, but could still decline as a percentage of the entire loan portfolio.



The following tables show the maturities for the loan
portfolio as of December 31, 2016, by time frame for the major categories, and also the loans, which are floating or
fixed, maturing after one year.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis








LOAN MATURITIES

(DOLLARS IN THOUSANDS)



|                                 |  |              |        | Due After  |  |            |        |      
|-------------------------------- |  | ------------ | ------ | ---------- |  | ---------- | ------ | -----
|                                 |  |              |        | One Year   |  |            |        |      
|                                 |  | Due in One   |        | Through    |  | Due After  |        |      
|                                 |  | Year or Less |        | Five Years |  | Five Years |        | Total
|                                 |  | $            |        | $          |  | $          |        | $    
|Commercial real estate           |  |              |        |            |  |            |        |      
|Commercial mortgages             |  |              | 4,928  |            |  |            | 3,794  |      
|Agriculture mortgages            |  |              | 9,672  |            |  |            | 2,640  |      
|Construction                     |  |              | 1,543  |            |  |            | 17     |      
|Total commercial real estate     |  |              | 16,143 |            |  |            | 6,451  |      
|                                 |  |              |        |            |  |            |        |      
|Consumer real estate             |  |              |        |            |  |            |        |      
|1-4 family residential mortgages |  |              | 7,653  |            |  |            | 4,381  |      
|Home equity loans                |  |              | 5,018  |            |  |            | 666    |      
|Home equity lines of credit      |  |              | —      |            |  |            | 639    |      
|Total consumer real estate       |  |              | 12,671 |            |  |            | 5,686  |      
|                                 |  |              |        |            |  |            |        |      
|Commercial and industrial        |  |              |        |            |  |            |        |      
|Commercial and industrial        |  |              | 24,607 |            |  |            | 14,218 |      
|Tax-free loans                   |  |              | —      |            |  |            | —      |      
|Agriculture loans                |  |              | 13,648 |            |  |            | 4,512  |      
|Total commercial and industrial  |  |              | 38,255 |            |  |            | 18,730 |      
|                                 |  |              |        |            |  |            |        |      
|Consumer                         |  |              | 1,139  |            |  |            | 3,295  |      
|Total amount due                 |  |              | 68,208 |            |  |            | 34,162 |      





FIXED AND FLOATING RATE LOANS DUE AFTER ONE YEAR

(DOLLARS IN THOUSANDS)



|                                 |  |             |         | Floating or      |  |      
|-------------------------------- |  | ----------- | ------- | ---------------- |  | -----
|                                 |  | Fixed Rates |         | Adjustable Rates |  | Total
|                                 |  | $           |         | $                |  | $    
|                                 |  |             |         |                  |  |      
|Commercial real estate           |  |             |         |                  |  |      
|Commercial mortgages             |  |             | 3,794   |                  |  |      
|Agriculture mortgages            |  |             | 2,830   |                  |  |      
|Construction                     |  |             | 896     |                  |  |      
|Total commercial real estate     |  |             | 7,520   |                  |  |      
|                                 |  |             |         |                  |  |      
|Consumer real estate             |  |             |         |                  |  |      
|1-4 family residential mortgages |  |             | 82,885  |                  |  |      
|Home equity loans                |  |             | 3,455   |                  |  |      
|Home equity lines of credit      |  |             | 6,192   |                  |  |      
|Total consumer real estate       |  |             | 92,532  |                  |  |      
|                                 |  |             |         |                  |  |      
|Commercial and industrial        |  |             |         |                  |  |      
|Commercial and industrial        |  |             | 16,593  |                  |  |      
|Tax-free loans                   |  |             | 10,588  |                  |  |      
|Agriculture loans                |  |             | 2,906   |                  |  |      
|Total commercial and industrial  |  |             | 30,087  |                  |  |      
|                                 |  |             |         |                  |  |      
|Consumer                         |  |             | 3,101   |                  |  |      
|                                 |  |             |         |                  |  |      
|Total amount due                 |  |             | 133,240 |                  |  |      



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


The majority of the Corporation’s fixed-rate loans have a
maturity date longer than five years. The primary reason for the longevity of the portfolio is the high percentage of real estate
loans, which typically have maturities of 15 or 20 years. Fixed-rate commercial mortgages have maturities that range from 3 years
to 25 years. The most popular commercial mortgage term is a 20-year amortization with a 5-year reset period. In this case, the
loan matures in twenty years but after five years either the loan rate resets to the Prime rate plus 0.75%, or a fixed rate for
another reset period. The original maturity date does not change. Customers will generally opt for another fixed reset period
within the original term.



Out of all the loans due after one year, 26.5% are fixed-rate loans
as of December 31, 2016. This is lower than the prior year end when 31.0% of the loans due after one year were fixed rate. These
loans will not reprice to a higher or lower interest rate unless they mature or are refinanced by the borrower. Floating or adjustable
rate loans reflect different types of repricing. Approximately 40% of the $369.1 million of floating or adjustable loans due after
one year are true floating loans. These loans are tied to the Prime rate and will reprice when the Prime rate changes. For commercial
customers, generally all pass credits have been granted access to the Prime rate since 2011. However, a number of the Corporation’s
business and commercial Prime-based loans have been priced at levels above the Prime rate due to the credit standing of the borrower.
In terms of consumer real estate loans utilizing the Prime rate for pricing, the most common rate is Prime; however, the Corporation
now utilizes risk-based pricing which causes HELOCs to be priced at various multiples of the Prime rate. Outside of a six-month
introductory rate, the majority of the Corporation’s HELOCs were priced at 3.75%, 4.00%, and 4.25% as of December 31, 2016.
The other 60% of the Corporation’s floating or adjustable loans due after one year are adjustable in nature and will reprice
at a predetermined time in the amortization of the loan. These loans are mostly real estate commercial loans.



As of December 31, 2015, 38% of the $315.5 million of floating or
adjustable loans due after one year were true floating rate loans that could reprice immediately, with the other 62% being adjustable
after an initial fixed rate period. The percentage of loans that can reprice immediately increased from 38% as of December 31,
2015, to 40% as of December 31, 2016. This increase was a function of more home equity lines of credit in 2016 which immediately
reprice whenever the Prime rate changes. True floating rate loans that would immediately reprice according to changes in the Prime
rate are favorable in reducing the Corporation’s total exposure to interest rate risk and fair value risk should interest
rates increase. It is likely the borrowing habits of commercial borrowers will change as they become more convinced interest rates
will be increasing in the near future. More commercial customers will desire to lock into an initial fixed interest rate period
to avoid future rate increases. This could cause a surge in commercial loan activity in early 2017 as commercial borrowers attempt
to act ahead of Federal Reserve rate actions.



For more details regarding how the length of the loan portfolio
and its repricing affects interest rate risk, please see Item 7A Quantitative and Qualitative Disclosures about Market Risk.



Non-Performing Assets



Non-performing assets include:



| | · | Non-accrual loans
| | - | -----------------

| | · | Loans past due 90 days or more and still accruing
| | - | -------------------------------------------------

| | · | Troubled debt restructurings
| | - | ----------------------------

| | · | Other real estate owned
| | - | -----------------------



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




NON-PERFORMING ASSETS

(DOLLARS IN THOUSANDS)



|                                                  |  | December 31,
|------------------------------------------------- |  | ------------
|                                                  |  | 2016        
|                                                  |  | $           
|                                                  |  |             
|Non-accrual loans                                 |  |             
|Loans past due 90 days or more and still accruing |  |             
|Troubled debt restructurings, non-performing      |  |             
|Total non-performing loans                        |  |             
|                                                  |  |             
|Other real estate owned                           |  |             
|                                                  |  |             
|Total non-performing assets                       |  |             
|                                                  |  |             
|Non-performing assets to net loans                |  |             



Non-performing assets increased by $347,000, or 45.8%, from
December 31, 2015, to December 31, 2016, primarily as a result of higher levels of non-accrual loans that resulted primarily
from adding one commercial loan relationship to non-accrual in the second quarter of 2016. If troubled debt restructuring
(TDR) is on non-accrual status, it is considered a non-accrual loan for purposes of this schedule. 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 were no
non-performing TDR loans as of December 31, 2015 or December 31, 2016. Management continues to monitor delinquency trends and
the level of non-performing loans as a leading indicator of future credit risk. At this time, management believes that the
potential for material losses related to non-performing loans remains low but is likely to trend higher. This is more of a
function of the Corporation’s non-performing assets already being at very low historical levels. It is far more likely
the level of non-performing assets would increase than decline to lower levels. While the level has increased in dollar
amount and as a percentage of net loans, it remains at very low levels relative to the size of the portfolio and relative to
peers.



As of December 31, 2016, there were four loans to three unrelated
borrowers totaling $721,000 on non-accrual compared to one loan totaling $380,000 as of December 31, 2015. The loan on non-accrual
status as of December 31, 2015, was a loan to a borrower in the trucking industry. This loan was also on non-accrual status as
of December 31, 2016, with a balance of $209,000. Normal principal payments were the reason for the decrease in balance from December
31, 2015 to December 31, 2016. A borrower in the home improvement industry was added to non-accrual in 2016 with two loans totaling
$492,000. These additions were the primary reason for the increase in non-accrual loans from December 31, 2015 to December 31,
2016.



The Corporation’s diverse customer base, with many small businesses
and industry types represented, has helped to avoid large concentrations in industries where significant non-performance is more
likely. See Note P for further discussion on concentrations of credit risk. Severe economic conditions naturally will impact nearly
all industries to some extent; however, the impact can vary greatly. Some businesses simply are not as successful in negotiating
more difficult times, or may be impacted by non-economic matters like succession planning and poor business practice. Based on
present economic conditions, management does not anticipate any significant new trends or the emergence of more severe trends beyond
those already discussed.



As of December 31, 2016 and 2015, the Corporation had no properties
classified as other real estate owned (OREO). Expenses related to OREO are included in other operating expenses and gains or losses
on the sale of OREO are included in other income on the Consolidated Statements of Income.



Total delinquencies include loans 30 to 59 days past due, loans
60 to 89 days past due, loans 90 days or more past due and still accruing, and non-accrual loans. Total delinquencies as a percentage
of total loans increased slightly from 0.56% as of December 31, 2015, to 0.59% as of December 31, 2016. Management believes that
the low levels of delinquencies experienced in 2015 and 2016 will continue in 2017 as economic conditions continue to improve.
All of the Corporation’s delinquency percentages are significantly below the Corporation’s national peer group average.
The potential for significant losses related to delinquent loans is difficult to predict as actual charge-offs are dependent on
more than the level of delinquency. Management does view that the levels of delinquency, as well as net charge-offs, are at such
historic lows that there is more likelihood they will increase going forward than decline. However, management currently does not
expect the overall level of delinquencies to change materially in 2017.



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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Allowance for Loan Losses



The allowance for loan 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 loan losses. This calculation is based upon a systematic methodology for determining the allowance
for loan losses in accordance with U.S. generally accepted accounting principles. The calculation includes estimates and is based
upon losses inherent in the loan portfolio. The calculation, and detailed analysis supporting it, emphasizes the level of delinquent,
non-performing and classified loans. The allowance calculation includes specific provisions for non-performing loans and general
allocations to cover anticipated losses on all loan types based on historical losses. Based on the quarterly loan loss calculation,
management will adjust the allowance for loan losses through the provision as necessary. Changes to the allowance for loan losses
during the year are primarily affected by three events:



| | · | Charge off of loans considered not recoverable
| | - | ----------------------------------------------

| | · | Recovery of loans previously charged off
| | - | ----------------------------------------

| | · | Provision or credit for loan losses
| | - | -----------------------------------



The Corporation’s strong credit and collateral policies have
been instrumental in producing a favorable history of loan losses. In 2009 and 2010, the Corporation experienced an increase in
the number of charged-off loans and a greater number of classified loans for which a loss is possible. The higher amount of charge-offs
coincided with the harsh economic conditions that followed the financial crisis that had a material impact on several of the Corporation’s
commercial borrowers. The Corporation began increasing the provision for loan losses to offset these higher than normal levels
of charged-off loans and classified loans in the portfolio. As a result, the allowance for loan losses grew from 1.38% of total
loans as of December 31, 2009, to 1.72% as of December 31, 2010, to 2.06% of total loans as of December 31, 2011. This was a sharp
increase in the allowance over a two-year period and marked an historic level for the Corporation. However, the amount of charged-off
loans had already started to decline back to more normal levels in 2011 and management was making steady progress in reducing classified
loans. Therefore, management was able to begin reducing the provision expense at the end of 2011, and then crediting provision
expense in 2012, 2013, and 2014 as further progress was made.



While many financial institutions experienced this pattern of an
escalation of allowance for loan losses after the financial crisis, then followed with reductions to the allowance in the form
of credit provisions, the Corporation generally lagged this trend. This was due to following a steady decline of the Corporation’s
classified assets, delinquencies and non-performing loans. It took a longer period to bring the allowance back down to levels supported
by the quarterly allowance for loan loss calculation. After three years of credit provisions, 2015 and 2016 marked a return to
a more normal provision expense.



The Allowance for Loan Losses table below shows the activity in
the allowance for loan losses for each of the past five years. 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 loan
losses as a percentage of total loans.



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ALLOWANCE FOR LOAN LOSSES

(DOLLARS IN THOUSANDS)



|                                                  |  | December 31,
|------------------------------------------------- |  | ------------
|                                                  |  | 2016        
|                                                  |  | $           
|                                                  |  |             
|Balance at January 1,                             |  |             
|Loans charged off:                                |  |             
|Commercial real estate                            |  |             
|Consumer real estate                              |  |             
|Commercial and industrial                         |  |             
|Consumer                                          |  |             
|Total charge-offs                                 |  |             
|                                                  |  |             
|Recoveries of loans previously charged off:       |  |             
|Commercial real estate                            |  |             
|Consumer real estate                              |  |             
|Commercial and industrial                         |  |             
|Consumer                                          |  |             
|Total recoveries                                  |  |             
|Net loans recovered (charged off)                 |  |             
|Provision charged (credited) to operating expense |  |             
|Balance at December 31,                           |  |             
|                                                  |  |             
|Net (charge-offs) recoveries  as a %              |  |             
|of average total loans outstanding                |  |             
|                                                  |  |             
|Allowance at year end as a % of total loans       |  |             





Charge-offs for the year ended December 31, 2016, were $54,000,
compared to $362,000 for the same period in 2015. The Corporation’s charge-offs are very low compared to the peer group average
and represent a fairly typical level of consumer and small business loan charge-offs that would result from management charging
off unsecured debt over 90 days delinquent with little likelihood of recovery.



During 2016, the Corporation recorded provision expense of $325,000
compared to $150,000 during 2015. The provision is used to increase or decrease the allowance for loan losses to a level considered
adequate to provide for losses inherent in the loan portfolio. Throughout
2012, 2013, and 2014, after analysis of various factors, the allowance for loan loss calculation resulted in a reduction of the
provision because of significant improvements in the loan portfolio related to delinquent, non-performing, and classified loans.
Provision expense was recorded in 2015 and 2016 primarily due to slightly higher charge-offs in 2015 as well as significant loan
portfolio growth in both years. Management closely tracks delinquent, non-performing, and classified loans as a percentage of capital
and of the loan portfolio.



From December 31, 2015 to December 31, 2016, there was a $476,000,
or 4.5% increase, in substandard loans, which are considered classified loans and receive the highest degree of attention from
management due to identified weaknesses. Special mention loans increased $11.6 million, from $1.3 million at December 31, 2015,
to $12.8 million at December 31, 2016. Special mention loans increased throughout 2016 due primarily to downgraded risk ratings
on multiple commercial borrowers with nearly half of the $11.6 million increase coming from one large commercial relationship with
four related businesses. Management is closely monitoring this commercial borrower, along with the other special mention loans
for any further deterioration of credit standing. Special mention loans, while not considered classified loans, do receive more
scrutiny than a standard pass grade commercial loan and are assigned higher allocations for loan losses due to their status. The
large increase in special mention is an accurate reflection of weaker 2015 and 2016 interim financial results for several commercial
borrowers. All of the Corporation’s substandard and special mention borrowers will be reassessed as final 2016 financial
information comes in during early 2017.



The allowance as a percentage of total loans represents the portion
of the total loan portfolio for which an allowance has been provided. For the five-year period from 2012 through 2016, the Corporation
maintained an allowance as a percentage of loans in a range between 1.32% and 1.81%. In 2016, the percentage decreased from 1.36%
at the beginning of the year, to 1.32% as of December 31, 2016. The composition of the Corporation’s loan portfolio has not
changed materially from 2015 to 2016 and management views the overall risk profile of the portfolio to be similar to what it was
in 2015. Management will continue to increase or decrease the allowance as a percentage of total loans based on the quarterly calculation
of the allowance for loan losses. Any increases are based on the need to allocate

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additional amounts based on estimated credit
losses inherent in the current portfolio, utilizing historical and projected credit losses and levels of qualitative and quantitative
risks that are appropriate based on the current credit environment. The Corporation’s allowance for loan losses as a percentage
of loans will likely remain relatively unchanged throughout 2017.



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. The Corporation
has historically experienced very low net charge-off percentages due to conservative credit practices. In 2016, net recoveries
represented 0.03% of average total loans outstanding compared to net charge-offs of 0.04% in 2015.



The following table provides the allocation of the Corporation’s
allowance for loan losses by major loan classifications. The percentage of loans indicates the percentage of the loan portfolio
represented by the indicated loan type.



ALLOCATION OF RESERVE

(DOLLARS IN THOUSANDS)



|                                |  | December 31,
|------------------------------- |  | ------------
|                                |  | 2016        
|                                |  |             
|                                |  | $           
|                                |  |             
|Real estate                     |  |             
|Commercial and industrial       |  |             
|Consumer                        |  |             
|Unallocated                     |  |             
|Total allowance for loan losses |  |             



Real estate loans represent a more substantial portion of the outstanding loan portfolio and, while real estate
secured loans have historically experienced lower losses than non-real estate secured loans, more of these types of loans have
indicated deteriorating valuation and financial health that may result in future losses. The prolonged weak economy has impacted
consumer financial strength and the value of residential homes continues to be down significantly. Meanwhile, the overall credit
quality of real estate backed business loans deteriorated as the value of the real estate collateral declined and business conditions
continued to be weak. The combined consumer and business real estate portion of the loan portfolio increased by $46.7 million,
or 10.6%, from December 31, 2015, to December 31, 2016. This portion of the loan portfolio has the highest reserve allocation due
primarily to the high balances. Real estate secured loans generally have less risk than non-real estate secured loans, but because
of the large portfolio and continued growth, a significant amount of the reserve is allocated to cover potential losses in this
sector. The dollar amount of allocation for all real estate loans increased by $213,000, or 4.1%, from December 31, 2015 to December
31, 2016.



In the past, commercial and industrial loans not secured by real
estate had historically experienced higher loan losses as a percentage of balances. It therefore required a larger relative percentage
of the reserve. However, the reserve allocated to these loans was on the decline in terms of an absolute number since 2012. In
2016, with the resurgence of more construction lending, the reserve allocated to commercial and industrial needed to be increased
despite representing a smaller portion of the outstanding loan portfolio. For 2016, the dollar amount of allocation for commercial
and industrial loans increased by $238,000, or 18.1%, with this allocation accounting for 20.5% of the total allowance as of December
31, 2016 compared to 18.6% of the total allowance as of December 31, 2015. The increase in the commercial and industrial allocation
is a reflection of the higher level of risk taken on in this category of loans.



As of December 31, 2016, 72.0% of the allowance was allocated to
real estate secured loans, both consumer and commercial, which make up 85.7% of all loans, while 20.5% of the allowance was allocated
to commercial and industrial loans, which make up 13.5% of all loans.



The amount of allowance allocated to consumer loans has always been
very small as generally consumer loans more than 90 days delinquent are charged off. The amount of allowance allocated to consumer
lines and personal loans is based on historical losses and qualitative factors.



The $481,000 unallocated portion of the allowance as of December
31, 2016, increased slightly from the balance at the end of 2015, and the unallocated portion as a percentage of the total allowance
declined from 6.6% at December 31, 2015, to 6.4% at December 31, 2016.



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Premises and Equipment



Premises and equipment, net of accumulated depreciation,
increased by $872,000, or 4.0%, to $22,568,000 on December 31, 2016, from $21,696,000 as of December 31, 2015. During 2016, capital
investments were made by the Corporation in new branch offices as well as investments at existing branches. The new investments
that did occur in premises and equipment were primarily due to purchases associated with the new branches in Morgantown, Georgetown,
and Strasburg, Pennsylvania. In 2016, $2,272,000 of new investments were made in premises and equipment, while the Corporation
recorded $1,400,000 of accumulated depreciation on existing assets, resulting in the increase in net premises and equipment during
the year. The Corporation had $180,000 in construction in process at the end of 2016 compared to $163,000 at the end of 2015. It
is anticipated that premises and equipment, net of accumulated depreciation, will increase in 2017 as a higher level of capital
improvements are expected with the addition of the full-service Strasburg branch office. For further information on the expected
Strasburg branch office, refer to Part I, Item 1. Business, under the Market Area and Competition subtopic of the Business Operations
section. For further information on fixed assets refer to Note D to the Consolidated Financial Statements.



Regulatory Stock



The Corporation owns multiple forms of regulatory
stock that is required to be a member of the Federal Reserve Bank (FRB) and members of banks such as the Federal Home Loan Bank
(FHLB) of Pittsburgh and Atlantic Community Bankers Bank (ACBB). The Corporation’s $5,372,000 of regulatory stock holdings
as of December 31, 2016, consisted of $5,184,000 of FHLB of Pittsburgh stock, $151,000 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 borrowings from
FHLB. Excess stock is typically repurchased from the Corporation on a quarterly basis at par if outstanding borrowings decline
to a predetermined level. The FHLB also pays a quarterly dividend on the outstanding shares held by the Corporation. The FHLB’s
quarterly dividend yield was 5.00% annualized on activity stock and 2.00% annualized on membership stock as of December 31, 2016.
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. In addition to the normal quarterly dividend, the FHLB paid a special dividend in the first quarter of 2015
due to their record earnings and strong financial position as of December 31, 2014. The Corporation will continue to monitor the
financial condition of the FHLB quarterly to assess its ability to continue to regularly repurchase excess capital stock and pay
a quarterly dividend.



Management believes that the FHLB will continue
to be a primary source of wholesale liquidity for both short-term and long-term funding. Management’s strategy in terms of
future use of FHLB borrowings is addressed under the Borrowings section of this Management’s Discussion and Analysis.



Bank-Owned Life Insurance (BOLI)



The Corporation owned life insurance with a total recorded cash
surrender value (CSV) of $24,687,000 on December 31, 2016, compared to $23,869,000 on December 31, 2015. The Corporation holds
two distinct BOLI programs. The first, with a CSV of $4,726,000, was the result of insurance policies taken out on directors of
the Corporation electing to participate in a directors’ deferred compensation plan. The program was designed to use the insurance
policies to fund future annuity payments as part of a directors’ deferred compensation plan that permitted deferral of Board
pay from 1979 through 1999. The plan was closed to entry in 1999, when directors were no longer provided the option of deferring
their Board pay. The Corporation pays the required premiums for the policies and is the owner and beneficiary of the policies.
The life insurance policies in the plan generally have annual premiums; however, the premium payments are not required after the
first five years. The Corporation continues to make the premium payments, which cover the cost of the insurance and generally add
to the cash surrender value of the policy.



The second BOLI plan was originated in 2006 when life insurance
was first taken out on a select group of the Corporation’s officers. The additional income generated from this BOLI plan
is to assist in offsetting the rising cost of benefits currently being provided to all employees. The most recent BOLI investment
was a $2.5 million investment made in May of 2015. This caused a sharper increase in BOLI CSV and income in 2015. The CSV for this
plan was $19,961,000 as of December 31, 2016, compared to $19,353,000 at December 31, 2015. The increase of $608,000 during 2016
was the result of the internal return generated from these policies, net of cost of insurance, reflected as

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


higher cash surrender
value. The Corporation purchased whole life policies for this BOLI plan and is the owner and beneficiary of the policies.



Deposits



The Corporation’s total ending deposits increased $77.4 million,
or 10.5%, from $740.1 million on December 31, 2015, to $817.5 million on December 31, 2016. Customer deposits are the Corporation’s
primary source of funding for loans and investments. In recent years, economic concerns, the credit crisis, and volatile performance
of the stock market and other types of investments like real estate led customers back to banks as safe places to invest money,
in spite of historically low interest rates. In addition to this trend, there was significant market disruption in the Corporation’s
market area beginning in 2015 that greatly impacted 2016 with the acquisition of several local banks which resulted in customers
seeking a new local financial institution to meet their needs. Most of the growth in deposit balances during 2015 was in non-interest
bearing demand accounts and savings accounts, with higher cost deposits like time deposits decreasing.



The Deposits by Major Classification table, shown below, provides
the average balances and rates paid on each deposit category for each of the past three years. The average 2016 balance carried
on all deposits was $767.9 million, compared to $701.9 million for 2015. This represents an increase of 9.4% on average deposit
balances. The increase in average deposit balances from 2014 to 2015 was 3.5%. Average balances provide a more accurate picture
of growth in deposits because deposit balances can vary throughout the year. In addition, the interest paid is based on average
deposit balances carried during the year calculated on a daily basis.



DEPOSITS BY MAJOR CLASSIFICATION

(DOLLARS IN THOUSANDS)



Average balances and average rates paid
on deposits by major category are summarized as follows:



|                              |  | December 31,
|----------------------------- |  | ------------
|                              |  | 2016        
|                              |  | $           
|                              |  |             
|Non-interest bearing demand   |  |             
|Interest-bearing demand       |  |             
|NOW accounts                  |  |             
|Money market deposit accounts |  |             
|Savings accounts              |  |             
|Time deposits                 |  |             
|Total deposits                |  |             





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



| | · | Convenience and service provided
| | - | --------------------------------

| | · | Fees
| | - | ----

| | · | Strength of the financial institution
| | - | -------------------------------------

| | · | Permanence of the financial institution
| | - | ---------------------------------------

| | · | Possible risks associated with other investment opportunities
| | - | -------------------------------------------------------------

| | · | Current rates paid on deposits compared to financial competition
| | - | ----------------------------------------------------------------



The Corporation has been a stable presence in the market area and
offers convenient locations, relatively low service fees, and competitive interest rates 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, which has provided stability to the deposit base.
In 2016, management saw significant deposit inflows due to merger activity in the local market. The Corporation continues to generally
benefit from the customers’ preference to conduct business with a smaller financial institution versus a larger institution.
The Corporation’s deposits also grew in the Morgantown and Georgetown market areas where new branches were opened in 2016.
These offices and the Morgantown office in particular, significantly expanded the Corporation’s market area, which management
continues to execute as part of the strategic plan.



The average balance of the Corporation’s
core deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, NOW accounts, MMDA accounts, and
savings accounts, grew $89.8 million, or 17.6%, since

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


December 31, 2015. Several converging factors are assisting in the increase
in core deposits. Primarily, local merger-related activity has increased deposit accounts at the Corporation. Additionally, interest
rates are at historic lows, which results in less motivation for customers to shop interest rates because the differential between
high and low rates is compressed. Management believes customers are trying to build more liquid funds as a matter of prudence with
an economy that is struggling to improve. The safety of FDIC-insured funds and immediate or nearly immediate funds in the current
environment appears to be more of a concern to customers than interest rates. Consumers appear to want to remain flexible and have
cash on hand should interest rates increase. As such, they want to remain short and not extend, choosing to retain more funds in
demand and savings accounts. Additionally, there is still consumer concern over the stability of some larger financial institutions
which has led customers seeking security at smaller community banks with high levels of capital and long-standing reputations.



Time deposits are typically a more rate-sensitive product making
them a less reliable source of funding. Time deposits fluctuate as consumers search for the best rates in the market, with less
allegiance to any particular financial institution. Due to current adequate funding levels from all sources, the Corporation’s
recent time deposit strategy has been to offer rates that meet or slightly exceed the average rates offered by the local competing
banks. This strategy will not grow time deposits in the current environment because interest rates being offered have been on the
decline and are at historically low levels not attractive to many depositors.



In 2016 time deposits continued to decline in both dollars and as
a percentage of the Corporation’s deposits with the average balance decreasing by $23.8 million, or 12.4%, compared to 2015
average balances. This is a function of the interest rate environment and the relatively small difference between time deposit
rates and interest bearing demand deposit and money market fund rates. The consumer weighs the benefit of the higher rate versus
the inability to gain access to the time deposit funds until the maturity date. The longer the low interest rate environment persists
and the higher the likelihood that the Federal Reserve will increase the overnight rates again in 2017, the more likely the consumer
will be content to not invest in time deposit accounts in favor of keeping their funds fully accessible. A portion of the decrease
in time deposit balances from 2015 to 2016 can also be attributed to customers redeploying their time deposits into the equity
market and other investments, and other competing financial institutions that have different pricing strategies. A reduction in
time deposits has worked in concert with management’s asset liability plan for a better mix of core deposits relative to
time deposits. Management was willing to see a decline in time deposit balances as the most expensive source of funding for the
Corporation.



Management follows a disciplined pricing strategy with regard to
time deposit funds desiring not to pay materially above wholesale pricing levels. In this regard, if some elements of market competition
prices materially above wholesale rates, management will not meet those pricing levels and will seek more cost effective wholesale
funding opportunities.



As of December 31, 2016, time deposits over $100,000 made up 31.5%
of the total time deposits. This compares to 32.3% on December 31, 2015. The total dollar amount of time deposits over $100,000
declined $7.6 million, or 13.1%, from December 31, 2015 to December 31, 2016. Since time deposits over $100,000 are made up of
relatively few customers with large dollar accounts, management monitors these accounts closely due to the potential for these
deposits to rapidly increase or decrease. The following table provides the total amount of time deposits of $100,000 or more for
the past three years by maturity distribution.



MATURITY OF TIME DEPOSITS OF $100,000 OR MORE

(DOLLARS IN THOUSANDS)



|                                      |  | December 31,
|------------------------------------- |  | ------------
|                                      |  | 2016        
|                                      |  | $           
|                                      |  |             
|Three months or less                  |  |             
|Over three months through six months  |  |             
|Over six months through twelve months |  |             
|Over twelve months                    |  |             
|Total                                 |  |             



In order to meet future funding obligations, it is necessary to
review the timing of maturity for large depositors, like the time deposits of $100,000 or more. The Corporation monitors all large
depositors to ensure that there is a steady flow of maturities. As of December 31, 2016, the Corporation had a typical laddering
of large time deposits; however the portfolio was smaller and more heavily weighted to longer time deposits. Shorter term time
deposits have declined as

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


depositors have either lengthened the term to pursue a higher interest rate or allowed the time deposit
to mature. For more information on liquidity management, refer to Item 7A Quantitative and Qualitative Disclosures about Market
Risk. Additionally, for more information on the maturity of time deposits, see Note F to the Consolidated Financial Statements.



Borrowings



Total borrowings were $69.6 million as of December 31, 2016, and
$68.3 million as of December 31, 2015. The Corporation had $8.3 million in short-term funds as of December 31, 2016, compared to
$8.7 million in short term funds as of December 31, 2015. 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.



Long-term borrowings increased to $61.3 million as of December 31,
2016, from $59.6 million as of December 31, 2015. The Corporation primarily uses Federal Home Loan Bank (FHLB) advances as the
source for long-term borrowings. These borrowings are used as a secondary source of funding and to mitigate interest rate risk.
Management will continue to analyze and compare the costs and benefits of borrowing versus obtaining funding from deposits as part
of an asset liability strategy to obtain the most effective long term funding sources.



The increase in FHLB borrowing balances during the year related
to the Corporation’s 2016 strategy of refinancing maturing FHLB borrowings to lock in lower cost funding for a longer period
of time. As of December 31, 2016 all the borrowings of FHLB were fixed-rate loans. The Corporation had in the past used several
convertible select loans that gave initial advantageous pricing compared to fixed-rate loans; however, they generally had additional
risk due to a call feature being included on the loan. The call feature may be based on a time requirement or a specific rate requirement.
The last convertible select loan was paid off in 2015.



To limit the Corporation’s exposure and reliance on 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 the Corporation’s total assets. As of December 31, 2016, the Corporation was well within this policy guideline
at 7.1% of asset size with $69.6 million of total FHLB borrowings; $8.3 million in short-term funding, and $61.3 million in long-term
funding. The Corporation also has a policy that limits total borrowings from all sources to 150% of the Corporation’s capital.
As of December 31, 2016, total borrowings from all sources amounted to 73.3% of the Corporation’s capital, well under the
policy guideline. The Corporation has maintained FHLB borrowings and total borrowings within these guidelines throughout the year.



The Corporation continues to be well under the FHLB maximum borrowing
capacity (MBC), which is $343.4 million as of December 31, 2016. The Corporation’s two internal policy limits are far more
restrictive than the FHLB MBC, which is calculated and set quarterly by FHLB.



Stockholders’ Equity



Federal regulatory authorities require banks to meet minimum capital
levels. The Corporation maintains capital ratios well above those minimum levels and higher than the peer group average. The risk-weighted
capital ratios are calculated by dividing capital by risk-weighted assets. Regulatory guidelines determine risk-weighted assets
by assigning assets to a pre-defined risk-weighted category. The calculation of Tier I Capital to Risk-Weighted Assets includes
an adjustment to remove the impact of the unrealized holding gains or losses on the Corporation’s securities portfolio, adjusted
for taxes. The Tier II or Total Capital to Risk-Weighted Assets ratio has the same adjustment but adds back any allowances for
loan losses thereby making this ratio higher than the Tier I Capital to Risk-Weighted Assets ratio. The new Common Equity Tier
I Capital Ratio could include an adjustment to Tier I Capital for deferred tax items, but there was no adjustment for the Corporation
as of December 31, 2016 or 2015, so the Common Equity Tier I Capital ratio was the same as Tier I Capital ratio. See Notes I and
M to the Consolidated Financial Statements for additional information on capital transactions.



The following table reflects the Corporation’s capital ratios
compared to regulatory capital requirements for prompt corrective action.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




|REGULATORY CAPITAL RATIOS                            |  | Capital Ratios |       | Regulatory Requirements
|---------------------------------------------------- |  | -------------- | ----- | -----------------------
|                                                     |  | As of          |       | As of                  
|                                                     |  | Dec. 31,       |       | Dec. 31,               
|                                                     |  | 2016           |       | 2015                   
|                                                     |  |                |       |                        
|Total Capital to Risk-Weighted Assets                |  |                | 15.2% |                        
|Tier I Capital to Risk-Weighted Assets               |  |                | 14.1% |                        
|Common Equity Tier I Capital to Risk-Weighted Assets |  |                | 14.1% |                        
|Tier I Capital to Average Assets                     |  |                | 10.2% |                        



The high level of capital maintained by the Corporation provides
a greater degree of financial security and acts as a non-interest bearing source of funds. Conversely, a high level of capital,
also referred to as equity, makes it more difficult for the Corporation to improve return on average equity, which is a benchmark
of shareholder return. The Corporation’s capital is affected by earnings, the payment of dividends, changes in accumulated
other comprehensive income or loss, and equity transactions.



Total dividends paid to shareholders during 2016,
were $3,107,000, or $1.09 per share, compared to $3,081,000, or $1.08 per share paid to shareholders during 2015. The Corporation
uses current earnings and available retained earnings to pay dividends. The Corporation’s current capital plan targets
Tier I Capital to Average Assets between 10.0% and 12.0%. The Corporation also desires a dividend payout ratio in the range of
35% to 40%. This ratio will vary according to income, but over the long term, management’s goal is to maintain a payout ratio
of 35% or above. For 2016, the dividend payout ratio was 41.1%. The Corporation anticipates that the payout ratio for 2017 will
be similar to the 2016 ratio.



The amount of unrealized gain or loss on the Corporation’s
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 Corporation’s balance sheet.
The change in unrealized holding gain or loss that occurred during 2016 is shown on the Corporation’s Consolidated Statements
of Comprehensive Income, along with a reclassification adjustment for gains included in the current year’s income. The Corporation’s
Consolidated Statements of Comprehensive Income shows the impact of changes in unrealized gains and losses during the year on the
Corporation’s net income to arrive at net comprehensive income or loss.



In terms of the Corporation’s balance sheets, an unrealized
gain increases capital while an unrealized loss reduces capital. This requirement takes the position that, if the Corporation liquidated
at the end of each period, the current unrealized gain or loss of the securities portfolio would directly impact the Corporation’s
capital. As of December 31, 2016, the Corporation showed unrealized losses, net of tax, of $4,885,000, compared to unrealized losses
of $252,000 as of December 31, 2015. The changes in unrealized gains or losses are due to normal changes in market valuations of
the Corporation’s securities as a result of interest rate movements. Due to a significant increase in U.S. Treasury rates
during the fourth quarter of 2016, the unrealized losses on the Corporation’s securities portfolio increased considerably.



On July 1, 2008, ENB Financial Corp was formed. The retirement of
all treasury shares was required as part of the formation of ENB Financial Corp. As a result, management needed treasury shares
to be utilized for the existing Employee Stock Purchase Plan and Dividend Reinvestment Plan. Therefore, on August 14, 2008, the
Board authorized a stock buyback plan for the purchase of up to 140,000 shares of common stock for corporate purposes. A total
of 133,290 shares were purchased under this plan before it was superseded by a new plan. On June 17, 2015, the Board of Directors
of ENB Financial Corp announced the approval of another new plan to purchase, in open market and privately negotiated transactions,
up to 140,000 shares of its outstanding common stock. Since formation of this new plan, 26,135 shares of treasury stock have been
repurchased. Under both plans, a total of 159,425 shares of treasury stock have been repurchased and 140,250 reissued, with 19,175
treasury shares existing on December 31, 2016. In 2016, the net capital impact of shares being purchased and reissued was not significant
with 14,000 shares being purchased and 14,858 shares reissued. A very similar level of stock purchase and reissue activity is expected
in 2017 as management desires to purchase a sufficient amount of shares to cover the needs of the existing stock purchase plans
and maintain a minimum level of treasury shares.



Contractual Cash Obligations



The Corporation has a number of contractual obligations that arise
from the normal course of business. The following table summarizes the contractual cash obligations of the Corporation as of December
31, 2016, and shows the future periods in which settlement of the obligations is expected. The contractual obligation numbers below
do not include

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


accrued interest. Refer to the Notes to the Consolidated Financial Statements referenced in the table for additional
details regarding these obligations.



CONTRACTUAL OBLIGATIONS

(DOLLARS IN THOUSANDS)



|                              |  | Less than |         | 1-3   |  | 4-5   |         | More than |  |      
|----------------------------- |  | --------- | ------- | ----- |  | ----- | ------- | --------- |  | -----
|                              |  | 1 year    |         | years |  | years |         | 5 years   |  | Total
|                              |  | $         |         | $     |  | $     |         | $         |  | $    
|                              |  |           |         |       |  |       |         |           |  |      
|Time deposits (Note F)        |  |           | 67,666  |       |  |       | 51,340  |           |  |      
|Borrowings (Notes G and H)    |  |           | 23,329  |       |  |       | 20,917  |           |  |      
|Operating Leases              |  |           | 177,624 |       |  |       | 240,121 |           |  |      
|                              |  |           |         |       |  |       |         |           |  |      
|Total contractual obligations |  |           | 268,619 |       |  |       | 312,378 |           |  |      





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 liquidity section to follow,
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 December 31, 2016. For further details regarding off-balance sheet arrangements, refer
to Note O to the Consolidated Financial Statements.



OFF-BALANCE SHEET ARRANGEMENTS

(DOLLARS IN THOUSANDS)



|                              |  | December 31,
|----------------------------- |  | ------------
|                              |  | 2016        
|                              |  | $           
|Commitments to extend credit: |  |             
|Revolving home equity loans   |  |             
|Construction loans            |  |             
|Real estate loans             |  |             
|Business loans                |  |             
|Consumer loans                |  |             
|Other                         |  |             
|Standby letters of credit     |  |             
|                              |  |             
|Total                         |  |             







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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




Recently Issued Accounting Standards



Refer to Note A to the Consolidated Financial Statements for discussion
on recently issued accounting standards.



Critical Accounting Policies



The presentation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to make estimates and assumptions that affect
many of the reported amounts and disclosures. Actual results could differ from these estimates.



Allowance for Loan Losses



A material estimate that is particularly susceptible to significant
change is the determination of the allowance for loan losses. Management believes that the allowance for loan losses is adequate
and reasonable. The Corporation’s methodology for determining the allowance for loan losses is described in an earlier section
of Management’s Discussion and Analysis. Given the very subjective nature of identifying and valuing loan losses, it is likely
that well-informed individuals could make materially different assumptions and, therefore, calculate a materially different allowance
amount. Management uses available information to recognize losses on loans; however, changes in economic conditions may necessitate
revisions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the
Corporation’s allowance for loan losses. Such agencies may require the Corporation to recognize adjustments to the allowance
based on their judgments of information available to them at the time of their examination.



Fair Values of Assets and Liabilities



ASC Topic 820 defines fair value as the price that would be received
to sell the financial asset or paid to transfer the financial liability in an orderly transaction between market participants at
the measurement date. The degree of management judgment involved in determining the fair value of assets and liabilities is dependent
upon the availability of quoted market prices or observable market parameters. For financial instruments that trade actively and
have quoted market prices or observable market parameters, there is minimal subjectivity involved in measuring fair value. When
observable market prices and parameters are not fully available, management judgment is necessary to estimate fair value. In addition,
changes in market conditions may reduce the availability of quoted prices or observable data. See Note R to the Consolidated Financial
Statements for a complete discussion and summary of the Corporation’s use of fair valuation of assets and liabilities and
the related measurement techniques.



Other than Temporary Impairment of Securities



Securities are evaluated periodically to determine whether a decline
in their value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline, in addition
to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term “other than
temporary” is not intended to indicate that the decline is permanent. It indicates that the prospect of a near-term recovery
of value is not necessarily favorable or that there is a lack of evidence to support fair values equal to, or greater than, the
carrying value of the security. Once a decline in value is determined to be other than temporary, the value of the security is
reduced and a corresponding charge to earnings is recognized.



Deferred Tax Assets



The Corporation uses an estimate of future earnings to support the
position that the benefit of deferred tax assets will be realized. If future income should prove non-existent or less than the
amount of the deferred tax assets within the tax years to which they may be applied, the asset may not be realized and the Corporation’s
net income will be reduced. Deferred tax assets are described further in Note L to the Consolidated Financial Statements.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


Item 7A. Quantitative and Qualitative Disclosures about Market
Risk



As a financial institution, the Corporation is subject to four primary
market risks:



| | · | Credit risk
| | - | -----------

| | · | Liquidity risk
| | - | --------------

| | · | Interest rate risk
| | - | ------------------

| | · | Fair value risk
| | - | ---------------



The Board of Directors has established an Asset Liability Management
Committee (ALCO) to measure, monitor, and manage these four primary market risks. The Asset Liability Policy has instituted guidelines
for all of these primary risks, as well as other financial performance measurements with target ranges. The Asset Liability goals
and guidelines are consistent with the Corporation’s Strategic Plan goals.



For discussion on credit risk, refer to the sections on
non-performing assets, allowance for loan losses, Note C, and Note P to the Consolidated Financial Statements.



Liquidity



Liquidity refers to having an adequate supply of cash available
to meet business needs. Financial institutions must ensure that there is adequate liquidity to meet a variety of funding needs,
at a minimal cost. Minimal cost is an important component of liquidity. If a financial institution is required to take significant
action to obtain funding, and is forced to utilize an expensive source, it has not properly planned for its liquidity needs. Funding
new loans and covering deposit withdrawals are the primary liquidity needs of the Corporation. The Corporation uses a variety of
funding sources to meet liquidity needs, such as:



| | · | Deposits
| | - | --------

| | · | Loan repayments
| | - | ---------------

| | · | Maturities and sales of securities
| | - | ----------------------------------

| | · | Borrowings from correspondent and member banks
| | - | ----------------------------------------------

| | · | Repurchase agreements
| | - | ---------------------

| | · | Brokered deposits
| | - | -----------------

| | · | Current earnings
| | - | ----------------



One of the measurements used in liquidity planning is the Maturity
Gap Analysis. The Maturity Gap Analysis below measures the amount of assets maturing within various time frames versus liabilities
maturing in those same periods. These time frames are referred to as gaps and are reported on a cumulative basis. For instance,
the one-year gap shows all assets maturing one year or less from a specific date versus the total liabilities maturing in the same
time period. The gap is then expressed as a percentage of assets over liabilities. Mismatches between assets and liabilities maturing
are identified and assist management in determining potential liquidity issues.



The maturity gap analysis does not include non-interest earning
assets and non-interest bearing liabilities, with the exception of non-interest bearing demand deposit accounts. The non-interest
bearing demand deposits are considered additional deposit liabilities with a 0.00% interest rate, which acts to lower the overall
interest rate paid on total deposits. For purposes of this analysis, items like cash, premises and equipment, bank owned life insurance,
and other assets are considered non-interest earning assets and are not included in assets maturing. On the liability side, the
only liability not included is other liabilities, which represent open obligations of the Corporation.



It is unlikely that maturing assets would equal maturing liabilities
because, on the balance sheet, assets do not equal liabilities. For purposes of this analysis, $894.9 million of assets mature
in all time frames while $888.6 million of liabilities mature in all time frames, resulting in a 100.7% cumulative maturity gap.
So, while a cumulative maturity gap of 100% would indicate that the same amount of assets and liabilities are maturing within the
specified period, this is rather unlikely to occur within any time frame, or on a cumulative basis.



Gap ratios have been increasing for the Corporation throughout 2016.
The Corporation’s assets are moderately long, but the length of the securities portfolio and the loan portfolio is more than
offset by the length of the Corporation’s core deposit liabilities in conjunction with holding higher levels of cash and
cash equivalents. Beyond the non-maturity deposits, management is able to utilize the length of wholesale funding instruments to
offset the declining length of the CD portfolio as customers invest in shorter terms in anticipation of higher interest rates.

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The size and length of the Corporation’s core deposit liabilities
provide the most extension in terms of lengthening the liabilities on the balance sheet. The length of the core deposits is significantly
longer than the Corporation’s longest term deposits and wholesale borrowings. The mix of the Corporation’s liabilities
alone would be sufficient to offset the Corporation’s longer assets and to maintain gap ratios within management’s
guidelines. However, due to the high likelihood that short term interest rates will continue to increase, management prefers to
enhance the gap ratio levels by carrying higher levels of cash and cash equivalents. A higher level of cash & cash equivalents
is the most effective immediate hedge against both interest rate risk and liquidity risk. The strategy of maintaining higher cash
levels to enhance gap ratios is expected to continue until the securities portfolio is materially shorter in duration.



The table below shows the six-month, one-year, three-year, and five-year
cumulative gaps as of December 31, 2016, along with the cumulative maturity gap guidelines monitored by management. For the purposes
of this analysis, core deposits without a specific maturity date are spread across all time periods based on historical behavior.



|MATURITY GAP ANALYSIS               |  |           |             |           |  |            |             |            |  |          
|----------------------------------- |  | --------- | ----------- | --------- |  | ---------- | ----------- | ---------- |  | ---------
|(DOLLARS IN THOUSANDS)              |  |           |             |           |  |            |             |            |  |          
|                                    |  |           |             | More than |  | More than  |             | More than  |  |          
|                                    |  | Less than |             | 6 months  |  | 1 year     |             | 3 years    |  | More than
|Maturity Gap                        |  | 6 months  |             | to 1 year |  | to 3 years |             | to 5 years |  | 5 years  
|                                    |  | $         |             | $         |  | $          |             | $          |  | $        
|Assets maturing                     |  |           | 103,159     |           |  |            | 71,564      |            |  |          
|Liabilities maturing                |  |           | 83,146      |           |  |            | 57,115      |            |  |          
|Maturity gap                        |  |           | 20,013      |           |  |            | 14,449      |            |  |          
|Cumulative maturity gap             |  |           | 20,013      |           |  |            | 34,462      |            |  |          
|                                    |  |           |             |           |  |            |             |            |  |          
|Maturity gap %                      |  |           | 124.1%      |           |  |            | 125.3%      |            |  |          
|                                    |  |           |             |           |  |            |             |            |  |          
|Cumulative maturity gap %           |  |           | 124.1%      |           |  |            | 124.6%      |            |  |          
|                                    |  |           |             |           |  |            |             |            |  |          
|Cumulative maturity gap % guideline |  |           | 45% to 155% |           |  |            | 60% to 140% |            |  |          



As of December 31, 2016, two cumulative maturity gap ratios were
within Corporate Policy guidelines and two were higher than the upper policy guideline. During much of 2016, U.S. Treasury rates
decreased, which increased prepayment speeds on the Corporation’s MBS and CMO securities. This increased cash flows and shortened
the Corporation’s assets. However, during the fourth quarter of 2016, Treasury rates increased resulting in slower prepayments
and fewer cash flows from the securities portfolio. The three-year cumulative gap ratio was 132.5% as of December 31, 2016, compared
to an upper guideline of 125% indicating more assets maturing in the 1-3 year time frame than is typical. Likewise, the five-year
cumulative gap ratio was 131.6% as of December 31, 2016, compared to an upper guideline of 115%. Given the likelihood of higher
rates in the future, these higher gap ratios are not of concern, but management will continue to monitor all gap ratios to ensure
proper positioning for future interest rate cycles.



Given the possibility that short term interest rates will
increase further in 2017, management’s current position is to maintain the cumulative maturity gap percentages within
guidelines and even towards the higher end of the guidelines in preparation for the opportunity to invest excess cash in
higher-yielding assets throughout the year. However, if interest rates do not rise, maintaining higher gap ratios would
result in more assets maturing and repricing to rates lower than the average portfolio rates. This is referred to as
repricing risk. Carrying high gap ratios in the current environment brings on an increased level of repricing risk, which
impacts the Corporation’s interest income and margin. The risk of liabilities repricing to interest rates was being
moderated through the end of 2016 due to a balance of shorter time deposits beginning to reprice higher, while longer term
time deposits were still repricing lower. By the end of 2016 only the four and five-year time deposits and longer term
borrowings were continuing to reprice to lower rates, but these were sufficient to generally offset the impact of the shorter
time deposit terms repricing to higher rates. However, if the Federal Reserve acts to increase short term interest rates in
early 2017, the short term time deposit rates will likely need to be increased and therefore the repricing risk to higher
rates would increase and overshadow any ongoing repricing savings on longer term deposits or borrowings. Given the
alternative investment options available currently, management also does not perceive significant risk that deposits maturing
in the shorter time frames will leave the Corporation. It is likely that, should market interest rates rise in 2017, customer
behavior patterns will change and deposits will be more rate sensitive with a greater portion potentially leaving the
Corporation. These maturity gaps are closely monitored along with additional liquidity

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


measurements discussed
below. Management will work to maintain these ratios on the high end of management’s policy guidelines throughout 2017
in order to position for the increased likelihood of rising interest rates in future time periods.



In addition to the cumulative maturity gap analysis discussed above,
management utilizes a number of other important liquidity measurements that management believes have advantages over, and give
better clarity to, the Corporation’s present and projected liquidity. The following is a listing of the Corporation’s
other liquidity measurements, along with a short definition, that are evaluated periodically in an effort to monitor and mitigate
liquidity risk:



| | · | Core Deposit Ratio – Core deposits as a percentage of assets
| | - | ------------------------------------------------------------

| | · | Funding Concentration Analysis – Alternative funding sources outside of core deposits as a percentage of assets
| | - | ---------------------------------------------------------------------------------------------------------------

| | · | Short-term Funds Availability – Readily available short-term funds as a percentage of assets
| | - | --------------------------------------------------------------------------------------------

| | · | Securities Portfolio Liquidity – Cash flows maturing in one year or less as a percentage of assets and securities
| | - | -----------------------------------------------------------------------------------------------------------------

| | · | Readily Available Unencumbered Securities and Cash – Unencumbered securities as a percentage of the securities portfolio
and as a percentage of total assets
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Borrowing Limits – Internal borrowing limits in terms of both FHLB and total borrowings
| | - | ---------------------------------------------------------------------------------------

| | · | Three, Six, and Twelve-month Projected Sources and Uses of Funds – Net projected liquidity surplus/shortage shown for
each period
| | - | ---------------------------------------------------------------------------------------------------------------------------------



These measurements are designed to prevent undue reliance on outside
sources of funding and ensure a steady stream of liquidity is available should events occur that would cause a sudden decrease
in deposits or large increase in loans or both, which would in turn draw significantly from the Corporation’s available liquidity
sources.



As of December 31, 2016, the Corporation was within guidelines for
all of the above measurements except the securities portfolio liquidity as a percentage of assets and as a percentage of the securities
portfolio. The policy calls for the Corporation to maintain securities portfolio cash flows maturing in one year or less between
4% and 8% of total assets. As of December 31, 2016, these cash flows represented 2.9% of total assets, which is under the lower
guideline. When factoring in available overnight cash, the Corporation’s securities portfolio liquidity represented 5.5%
of total assets which is also slightly below the lower target of 6%. Additionally, the policy calls for the Corporation to maintain
these cash flows between 10% and 20% of the total securities portfolio and as of December 31, 2016, these cash flows represented
9.2% of the portfolio, just under the lower target. However, when factoring in overnight cash, these cash flows represented 17.4%
of the portfolio which is within the target of 15% to 25%. It is important for the Corporation to prepare for a rates-up environment
and having more liquidity is advantageous as funds can be reinvested in higher yielding assets faster when sufficient liquidity
exists. Management had been carrying an average of approximately $30 million to $35 million of cash and cash equivalents on a daily
basis throughout most of 2016. Management anticipates carrying this higher level of cash again throughout most of 2017. These measurements
are tracked and reported quarterly by management to both observe trends and ensure the measurements stay within desired ranges.
Management is confident that a sufficient amount of internal and external liquidity exists to provide for significant unanticipated
liquidity needs.



Interest Rate Risk and Fair Value Risk



Identifying the interest rate risk of the Corporation’s interest
earning assets and interest bearing liabilities is essential to managing net interest margin and net interest income. In addition
to the impact on earnings, management is also concerned about how much the value of the Corporation’s assets might fall or
rise given an increasing or decreasing interest rate environment. Interest rate sensitivity analysis (IRSA) measures the impact
of a change in interest rates on the net interest income and net interest margin of the Corporation, while net portfolio value
(NPV) analysis measures the change in the Corporation’s capital fair value, given interest rate fluctuations. Therefore,
the two primary approaches to measuring the impact of interest rate changes on the Corporation’s earnings and fair value
are referred to as:





| | · | Changes in net interest income
| | - | ------------------------------

| | · | Changes in net portfolio value
| | - | ------------------------------



The Corporation’s asset liability model is able to perform
dynamic forecasting based on a wide range of assumptions provided. The model is flexible and can be used for many types of financial
projections. The Corporation uses

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


financial modeling to forecast balance sheet growth and earnings. The results obtained through
the use of forecasting models are based on a variety of factors. Both earnings and balance sheet forecasts make use of maturity
and repricing schedules to determine the changes to the Corporation’s balance sheet over the course of time. Additionally,
there are many assumptions that factor into the results. These assumptions include, but are not limited to:



| | · | Projected interest rates
| | - | ------------------------

| | · | Timing of interest rate changes
| | - | -------------------------------

| | · | Slope of the U.S. Treasury curve
| | - | --------------------------------

| | · | Spreads available on securities over the U.S. Treasury curve
| | - | ------------------------------------------------------------

| | · | Prepayment speeds on loans held and mortgage-backed securities
| | - | --------------------------------------------------------------

| | · | Anticipated calls on securities with call options
| | - | -------------------------------------------------

| | · | Deposit and loan balance fluctuations
| | - | -------------------------------------

| | · | Competitive pressures affecting loan and deposit rates
| | - | ------------------------------------------------------

| | · | Economic conditions
| | - | -------------------

| | · | Consumer reaction to interest rate changes
| | - | ------------------------------------------



For the interest rate sensitivity analysis and net portfolio value
analysis shown below, results are based on a static balance sheet reflecting no projected growth from balances as of December 31,
2016, and December 31, 2015. While it is unlikely that the balance sheet will not grow at all, management considers a static analysis
of this sort to be the most conservative and most accurate means to evaluate fair value and future interest rate risk. Management
does run expected growth scenarios through the asset liability model to most accurately predict future financial performance. This
is done separately and apart from the static balance sheet approach discussed above to test fair value and future interest rate
risk. The static balance sheet approach is used to reduce the number of variables in calculating the model’s accuracy in
predicting future net interest income. It is appropriate to pull out various balance sheet growth scenarios, which could be utilized
to compensate for a declining margin. By testing the model using a base model assuming no growth, this variable is eliminated and
management can focus on predicted net interest income based on the current existing balance sheet.



As a result of the many assumptions, this information should not
be relied upon to predict future results. Additionally, both of the analyses shown below do not consider any action that management
could take to minimize or offset the negative effect of changes in interest rates. These tools are used to assist management in
identifying possible areas of risk in order to address them before a greater risk is posed.



Changes in Net Interest Income



The changes in net interest income reflect how much the Corporation’s
net interest income would be expected to increase or decrease given a change in market interest rates. The changes in net interest
income shown are measured over a one-year time horizon and assume an immediate rate change on the rate sensitive assets and liabilities.
This is considered the more important measure of interest rate sensitivity due to the immediate effect that rate changes may have
on the overall performance of the Corporation. The following table takes into consideration when financial instruments would most
likely reprice and the duration of the pricing change. It is important to emphasize that the information shown in the table is
an estimate based on hypothetical changes in market interest rates.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis




CHANGES IN NET INTEREST INCOME



|                        |  | 2016       |      | 2015       |  | Policy    
|----------------------- |  | ---------- | ---- | ---------- |  | ----------
|                        |  | Percentage |      | Percentage |  | Guidelines
|                        |  | Change     |      | Change     |  | %         
|                        |  |            |      |            |  |           
|400 basis point rise    |  |            | 19.3 |            |  |           
|300 basis point rise    |  |            | 13.1 |            |  |           
|200 basis point rise    |  |            | 7.2  |            |  |           
|100 basis point rise    |  |            | 2.7  |            |  |           
|Base rate scenario      |  |            | —    |            |  |           
|50 basis point decline  |  |            | (0.6 | )          |  |           
|100 basis point decline |  |            | (3.3 | )          |  |           



This table shows the effect of an
immediate interest rate shock over a one-year period on the Corporation's net interest income. Base rate is the Prime rate.



The above analysis shows a slightly negative impact to the Corporation’s
net interest income in both down-rate scenarios. All up-rate scenarios show a positive impact. In the unique current rate environment,
the amount of the Corporation’s assets repricing higher will be fairly large due to the amount of variable rate loans that
will reprice immediately when Prime increases. On the liability side, if rates increase, it is typical for management to react
slowly in increasing deposit rates. Even when deposit rates are increased, they are typically increased at a fraction of the increase
in the Prime rate. In the current environment, if interest rates rise, it is expected that deposit rates will move upward, but
more slowly than asset rates. It is unlikely that rates will go down, but in the event that they would go lower, the Corporation
would have exposure to all maturing fixed-rate loans and securities that would reprice lower while most of the Corporation’s
interest-bearing deposits could not be repriced any lower. The analysis above focuses on immediate rate movements, referred to
as rate shocks, and measured over the course of one year. The Corporation’s model also has the ability to measure changes
to net interest income given interest rate changes that occur more slowly over time. This type of modeling is referred to as “interest
rate ramps,” where a set change in rates occurs over a period of time. If rates were to move upward slowly over the course
of the next year, the results are very close to the results using a rate shock.



In all rates-up scenarios, modeled net interest income increases,
with more significant increases after rates have increased at least 200 basis points. All rates-up scenarios show slightly more
benefit compared to the results as of December 31, 2015. When rates do go up, assets will reprice by the full amount of the rate
movement and liabilities will lag and reprice by a much smaller amount, a proportion of the asset increases. But that proportion
is expected to be slightly higher than in past rate cycles. Financial industry studies have revealed that financial institutions
are benefiting from a larger level of deposit balances as a result of the historically long and very low interest rate cycle. This
is often referred to as a surge of deposits with concern being that these deposits could leave banks once the overnight Federal
Funds rate reaches higher levels. As a result, it is anticipated that banks will need to be more competitive as interest rates
begin to rise to retain these deposits as other financial competition re-enters the market place and is able to be competitive
for these funds. Management has built more deposit sensitivity into the current model to reflect this anticipated impact. Importantly,
management’s analysis continues to show that the Corporation should benefit when rates rise by achieving a larger increase
in income associated with repricing assets than increased expense paid on repricing liabilities.



Additionally, the analysis shows that the Corporation’s net
interest income would decrease if rates did decline. This results from several types of deposit products’ current offering
rates being near the floor for pricing. For instance, savings accounts had an interest rate of 0.05% as of December 31, 2016. Management
is only able to reduce the rate to zero; therefore, any reduction in the savings rate only benefits earnings to the magnitude of
a 5-basis point rate decline. Meanwhile, if the Federal Reserve did decrease the overnight rate by 25 basis points, most of the
Corporation’s commercial Prime-based loans would decrease by the full 25 basis points, causing a net reduction to net interest
income. It is likely that, given any downward rate movement, management would act to help minimize the reduction in loan rates
to limit the reduction in net interest income. Management could hold off on reducing fixed rates on loans but would need to allow
Prime-based loans to price off their contract terms. In this manner, management influences customer behavior and encourages more
variable rate loans which would minimize the negative impact of future rate increases to the Corporation.



The assumptions and analysis of interest rate risk are based on
historical experience during varied economic cycles. Management believes these assumptions to be appropriate; however, actual results
could vary significantly.

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Table of Contents ENB FINANCIAL CORP Management’s Discussion and Analysis


Management uses this analysis to identify trends in interest rate sensitivity and determine if action
is necessary to mitigate asset liability risk.



Change in Net Portfolio Value



The change in NPV gives a long-term view of the exposure to changes
in interest rates. The NPV is calculated by discounting the future cash flows to the present value based on current market rates.
The NPV is the mathematical equivalent of the present value of assets minus the present value of liabilities.



The table below indicates the changes in the Corporation’s
NPV as of December 31, 2016 and December 31, 2015. As part of the Asset Liability Policy, the Board of Directors has established
risk measurement guidelines to protect the Corporation against decreases in the net portfolio value and net interest income in
the event of the interest rate changes described below.



As of December 31, 2016, the Corporation was within guidelines
for all rate scenarios with the exposures very comparable to the December 31, 2015 measurements. The impact of higher rates on
both loans and securities was down slightly from December 31, 2015, due to more variable rate loans while deposits modeled more
favorable to higher rates, showing more of a decline. On the liability side of the Corporation’s balance sheet, the value
of non-interest bearing deposit accounts has always been highly favorable in a rising rate environment as these balances are more
valuable to the Corporation, representing a decrease in liabilities as interest rates rise. The non-interest bearing demand deposit
accounts and low-interest bearing checking, NOW, and money market accounts provide more benefit to the Corporation when interest
rates are higher and the difference between the overnight funding costs compared to the average interest bearing core deposit
rates are greater. As interest rates increase, the discount rate used to value the Corporation’s interest bearing accounts
increases, causing a lower net present value. This improves the modeling of the Corporation’s fair value risk as the liability
amounts decrease causing the net present value or fair value of the Corporation’s balance sheet to increase. The large growth
in deposits in 2016 aided fair value. The impact of changes to both sides of the balance sheet was a low fair value exposure closely
mirroring the exposure as of the prior year.



CHANGES IN NET PORTFOLIO VALUE



|                        |  | 2016       |      | 2015       |  | Policy    
|----------------------- |  | ---------- | ---- | ---------- |  | ----------
|                        |  | Percentage |      | Percentage |  | Guidelines
|                        |  | Change     |      | Change     |  | %         
|                        |  |            |      |            |  |           
|400 basis point rise    |  |            | (6.8 | )          |  |           
|300 basis point rise    |  |            | (3.4 | )          |  |           
|200 basis point rise    |  |            | (0.9 | )          |  |           
|100 basis point rise    |  |            | 1.4  |            |  |           
|Base rate scenario      |  |            | —    |            |  |           
|50 basis point decline  |  |            | (1.6 | )          |  |           
|100 basis point decline |  |            | (7.4 | )          |  |           



This table shows the effect of an immediate
interest rate shock on the net portfolio value of the Corporation's assets and liabilities.  Base rate is the Prime
rate.



The results as of December 31, 2016, indicate that the Corporation’s
net portfolio value would experience a slight valuation gain of 1.4% in the rates-up 100 basis point scenario, and losses of 0.9%,
3.4%, and 6.8% in the rates-up 200, 300, and 400 basis point scenarios, respectively. Management’s maximum permitted declines
in net portfolio value by policy are -5% for rates-up 100 basis points, graduating up to -20% for rates-up 400 basis points. A
valuation loss indicates that the value of the Corporation’s assets is declining at a faster pace than the decrease in the
value of the Corporation’s liabilities. The valuation losses represented in the higher rates-up scenarios are indicative
of the Corporation’s longer-term assets like residential mortgages and municipal securities showing declines in value as
interest rates increase further. However, the value of the cash held by the Corporation and the non-interest bearing deposits
helps to offset this negative exposure to a large degree. As the composition of the balance sheet changes throughout 2017, it
is likely that the fair value analysis will show slightly more exposure than it is showing as of December 31, 2016. With potentially
higher Treasury rates and a different mix of deposits or loans, fair value could experience more volatility. Based on past decay
rate studies on the Corporation’s core deposits, management does not expect a material decline in core deposit accounts,
including the non-interest bearing accounts, when short term interest rates do increase further. The Corporation’s core
deposits have been stable through a number of rate cycles.



73


Table of Contents ENB FINANCIAL CORP






Item 8. Financial Statements and Supplementary Data



The following audited consolidated financial statements are set
forth in this Annual Report of Form 10-K on the following pages:







|Index to Consolidated Financial Statements                 | Page
|---------------------------------------------------------- | ----
|                                                           |     
|Report of Independent Registered Public Accounting Firm    | 75  
|                                                           |     
|Consolidated Balance Sheets                                | 76  
|                                                           |     
|Consolidated Statements of Income                          | 77  
|                                                           |     
|Consolidated Statements of Comprehensive Income            | 78  
|                                                           |     
|Consolidated Statements of Changes in Stockholders’ Equity | 79  
|                                                           |     
|Consolidated Statements of Cash Flows                      | 80  
|                                                           |     
|Notes to Consolidated Financial Statements                 | 81  



74


Table of Contents














REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





Board of Directors and Stockholders

ENB Financial Corp



We have audited the accompanying consolidated
balance sheet of ENB Financial Corp and subsidiary as of December 31, 2016 and 2015, and the related consolidated statements of
income, comprehensive income, changes in stockholders’ equity, and cash flows for each of the three years in the period ended
December 31, 2016. These consolidated financial statements are the responsibility of ENB Financial Corp’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.



We conducted our audits in accordance with
the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. ENB Financial
Corp is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits
included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate
in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of ENB Financial Corp’s internal
control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable
basis for our opinion.



In our opinion, the consolidated financial
statements referred to above present fairly, in all material respects, the financial position of ENB Financial Corp and subsidiary
as of December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2016, in conformity with U.S. generally accepted accounting principles.







Cranberry Township, Pennsylvania

March 29, 2017



S.R. Snodgrass, P.C. • 2009 Mackenzie Way,
Suite 340 • Cranberry Township, Pennsylvania 16066 • Phone: (724) 934-0344 • Fax: (724) 934-0345









75


Table of Contents ENB FINANCIAL CORP




Part I - Financial Information

Item 1. Financial Statements



CONSOLIDATED BALANCE SHEETS

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



|                                                            |  | December 31, |         |   | December 31, | 
|----------------------------------------------------------- |  | ------------ | ------- | - | ------------ | 
|                                                            |  | 2016         |         |   | 2015         | 
|                                                            |  | $            |         |   | $            | 
|ASSETS                                                      |  |              |         |   |              | 
|Cash and due from banks                                     |  |              | 19,852  |   |              | 
|Interest-bearing deposits in other banks                    |  |              | 25,780  |   |              | 
|                                                            |  |              |         |   |              | 
|Total cash and cash equivalents                             |  |              | 45,632  |   |              | 
|                                                            |  |              |         |   |              | 
|Securities available for sale (at fair value)               |  |              | 308,111 |   |              | 
|                                                            |  |              |         |   |              | 
|Loans held for sale                                         |  |              | 2,552   |   |              | 
|                                                            |  |              |         |   |              | 
|Loans (net of unearned income)                              |  |              | 571,567 |   |              | 
|                                                            |  |              |         |   |              | 
|Less: Allowance for loan losses                             |  |              | 7,562   |   |              | 
|                                                            |  |              |         |   |              | 
|Net loans                                                   |  |              | 564,005 |   |              | 
|                                                            |  |              |         |   |              | 
|Premises and equipment                                      |  |              | 22,568  |   |              | 
|Regulatory stock                                            |  |              | 5,372   |   |              | 
|Bank owned life insurance                                   |  |              | 24,687  |   |              | 
|Other assets                                                |  |              | 11,326  |   |              | 
|                                                            |  |              |         |   |              | 
|Total assets                                                |  |              | 984,253 |   |              | 
|                                                            |  |              |         |   |              | 
|LIABILITIES AND STOCKHOLDERS' EQUITY                        |  |              |         |   |              | 
|                                                            |  |              |         |   |              | 
|Liabilities:                                                |  |              |         |   |              | 
|Deposits:                                                   |  |              |         |   |              | 
|Noninterest-bearing                                         |  |              | 280,543 |   |              | 
|Interest-bearing                                            |  |              | 536,948 |   |              | 
|                                                            |  |              |         |   |              | 
|Total deposits                                              |  |              | 817,491 |   |              | 
|                                                            |  |              |         |   |              | 
|Short-term borrowings                                       |  |              | 8,329   |   |              | 
|Long-term debt                                              |  |              | 61,257  |   |              | 
|Other liabilities                                           |  |              | 2,237   |   |              | 
|                                                            |  |              |         |   |              | 
|Total liabilities                                           |  |              | 889,314 |   |              | 
|                                                            |  |              |         |   |              | 
|Stockholders' equity:                                       |  |              |         |   |              | 
|Common stock, par value $0.20;                              |  |              |         |   |              | 
|Shares:  Authorized 12,000,000                              |  |              |         |   |              | 
|Issued 2,869,557 and Outstanding  2,850,382                 |  |              |         |   |              | 
|(Issued 2,869,557 and Outstanding 2,849,524 as of 12/31/15) |  |              | 574     |   |              | 
|Capital surplus                                             |  |              | 4,403   |   |              | 
|Retained earnings                                           |  |              | 95,475  |   |              | 
|Accumulated other comprehensive loss net of tax             |  |              | (4,885  | ) |              | 
|Less: Treasury stock cost on 19,175 shares                  |  |              |         |   |              | 
|(20,033 shares as of 12/31/15)                              |  |              | (628    | ) |              | 
|                                                            |  |              |         |   |              | 
|Total stockholders' equity                                  |  |              | 94,939  |   |              | 
|                                                            |  |              |         |   |              | 
|Total liabilities and stockholders' equity                  |  |              | 984,253 |   |              | 



See Notes to the Consolidated Financial Statements

76


Table of Contents ENB FINANCIAL CORP




CONSOLIDATED STATEMENTS OF INCOME

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



|                                                             |  | Year Ended December 31,
|------------------------------------------------------------ |  | -----------------------
|                                                             |  | 2016                   
|                                                             |  | $                      
|Interest and dividend income:                                |  |                        
|Interest and fees on loans                                   |  |                        
|Interest on securities available for sale                    |  |                        
|Taxable                                                      |  |                        
|Tax-exempt                                                   |  |                        
|Interest on deposits at other banks                          |  |                        
|Dividend income                                              |  |                        
|                                                             |  |                        
|Total interest and dividend income                           |  |                        
|                                                             |  |                        
|Interest expense:                                            |  |                        
|Interest on deposits                                         |  |                        
|Interest on borrowings                                       |  |                        
|                                                             |  |                        
|Total interest expense                                       |  |                        
|                                                             |  |                        
|Net interest income                                          |  |                        
|                                                             |  |                        
|Provision (credit) for loan losses                           |  |                        
|                                                             |  |                        
|Net interest income after provision (credit) for loan losses |  |                        
|                                                             |  |                        
|Other income:                                                |  |                        
|Trust and investment services income                         |  |                        
|Service fees                                                 |  |                        
|Commissions                                                  |  |                        
|Gains on securities transactions, net                        |  |                        
|Impairment losses on securities:                             |  |                        
|Impairment gains on investment securities                    |  |                        
|Non-credit related losses on securities not expected         |  |                        
|to be sold in other comprehensive income before tax          |  |                        
|Net impairment losses on investment securities               |  |                        
|Gains on sale of mortgages                                   |  |                        
|Earnings on bank-owned life insurance                        |  |                        
|Other income                                                 |  |                        
|                                                             |  |                        
|Total other income                                           |  |                        
|                                                             |  |                        
|Operating expenses:                                          |  |                        
|Salaries and employee benefits                               |  |                        
|Occupancy                                                    |  |                        
|Equipment                                                    |  |                        
|Advertising & marketing                                      |  |                        
|Computer software & data processing                          |  |                        
|Shares tax                                                   |  |                        
|Professional services                                        |  |                        
|Other expense                                                |  |                        
|                                                             |  |                        
|Total operating expenses                                     |  |                        
|                                                             |  |                        
|Income before income taxes                                   |  |                        
|                                                             |  |                        
|Provision for federal income taxes                           |  |                        
|                                                             |  |                        
|Net income                                                   |  |                        
|                                                             |  |                        
|Earnings per share of common stock                           |  |                        
|                                                             |  |                        
|Cash dividends paid per share                                |  |                        
|                                                             |  |                        
|Weighted average shares outstanding                          |  |                        



See Notes to the Consolidated Financial Statements

77


Table of Contents ENB FINANCIAL CORP




CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(DOLLARS IN THOUSANDS)



|                                                                   |  | Year Ended December 31,
|------------------------------------------------------------------ |  | -----------------------
|                                                                   |  | 2016                   
|                                                                   |  | $                      
|                                                                   |  |                        
|Net income                                                         |  |                        
|                                                                   |  |                        
|Other comprehensive income (loss), net of tax:                     |  |                        
|Net change in unrealized gains:                                    |  |                        
|                                                                   |  |                        
|Other-than-temporarily impaired securities available for sale:     |  |                        
|                                                                   |  |                        
|Gains arising during the period                                    |  |                        
|Income tax effect                                                  |  |                        
|                                                                   |  |                        
|                                                                   |  |                        
|Losses recognized in earnings                                      |  |                        
|Income tax effect                                                  |  |                        
|                                                                   |  |                        
|                                                                   |  |                        
|Securities available for sale not other-than-temporarily impaired: |  |                        
|                                                                   |  |                        
|Unrealized gains (losses) arising during the period                |  |                        
|Income tax effect                                                  |  |                        
|                                                                   |  |                        
|                                                                   |  |                        
|Gains recognized in earnings                                       |  |                        
|Income tax effect                                                  |  |                        
|                                                                   |  |                        
|                                                                   |  |                        
|Other comprehensive income (loss), net of tax                      |  |                        
|                                                                   |  |                        
|Comprehensive Income                                               |  |                        



See Notes to the Consolidated Financial Statements



78


Table of Contents ENB FINANCIAL CORP




CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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



|                                         |  |        |     |         |  |          |       | Accumulated   |  |          |        |              
|---------------------------------------- |  | ------ | --- | ------- |  | -------- | ----- | ------------- |  | -------- | ------ | -------------
|                                         |  |        |     |         |  |          |       | Other         |  |          |        | Total        
|                                         |  | Common |     | Capital |  | Retained |       | Comprehensive |  | Treasury |        | Stockholders'
|                                         |  | Stock  |     | Surplus |  | Earnings |       | Income (Loss) |  | Stock    |        | Equity       
|                                         |  | $      |     | $       |  | $        |       | $             |  | $        |        | $            
|Balances, January 1, 2014                |  |        | 574 |         |  |          | 4,353 |               |  |          | 83,165 |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Net income                               |  |        | —   |         |  |          | —     |               |  |          | 7,092  |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Other comprehensive income, net of tax   |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          | —      |              
|Treasury stock purchased - 15,650 shares |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Treasury stock issued - 16,460 shares    |  |        | —   |         |  |          | 22    |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Cash dividends paid, $1.07 per share     |  |        | —   |         |  |          | —     |               |  |          | (3,057 | )            
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Balances, December 31, 2014              |  |        | 574 |         |  |          | 4,375 |               |  |          | 87,200 |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Net income                               |  |        | —   |         |  |          | —     |               |  |          | 6,910  |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Other comprehensive loss net of tax      |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          | —      |              
|Treasury stock purchased - 22,935 shares |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Treasury stock issued - 15,623 shares    |  |        | —   |         |  |          | 20    |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Cash dividends paid, $1.08 per share     |  |        | —   |         |  |          | —     |               |  |          | (3,081 | )            
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Balances, December 31, 2015              |  |        | 574 |         |  |          | 4,395 |               |  |          | 91,029 |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Net income                               |  |        | —   |         |  |          | —     |               |  |          | 7,553  |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Other comprehensive loss net of tax      |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          | —      |              
|Treasury stock purchased - 14,000 shares |  |        | —   |         |  |          | —     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Treasury stock issued - 14,858 shares    |  |        | —   |         |  |          | 8     |               |  |          | —      |              
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Cash dividends paid, $1.09 per share     |  |        | —   |         |  |          | —     |               |  |          | (3,107 | )            
|                                         |  |        |     |         |  |          |       |               |  |          |        |              
|Balances, December 31, 2016              |  |        | 574 |         |  |          | 4,403 |               |  |          | 95,475 |              



See Notes to the Consolidated Financial Statements

79


Table of Contents ENB FINANCIAL CORP




|CONSOLIDATED STATEMENTS OF CASH FLOWS                                   |  |                         |          |      |  |     
|----------------------------------------------------------------------- |  | ----------------------- | -------- | ---- |  | ----
|(DOLLARS IN THOUSANDS)                                                  |  | Year Ended December 31,
|                                                                        |  | 2016                    |          | 2015 |  | 2014
|                                                                        |  | $                       |          | $    |  | $   
|Cash flows from operating activities:                                   |  |                         |          |      |  |     
|Net income                                                              |  |                         | 7,553    |      |  |     
|Adjustments to reconcile net income to net cash                         |  |                         |          |      |  |     
|provided by operating activities:                                       |  |                         |          |      |  |     
|Net amortization of securities premiums and discounts and loan fees     |  |                         | 6,481    |      |  |     
|Decrease (increase) in interest receivable                              |  |                         | (150     | )    |  |     
|Decrease in interest payable                                            |  |                         | (72      | )    |  |     
|Provision (credit) for loan losses                                      |  |                         | 325      |      |  |     
|Gains on securities transactions, net                                   |  |                         | (2,370   | )    |  |     
|Impairment losses on securities                                         |  |                         | —        |      |  |     
|Gains on sale of mortgages                                              |  |                         | (1,512   | )    |  |     
|Loans originated for sale                                               |  |                         | (46,556  | )    |  |     
|Proceeds from sales of loans                                            |  |                         | 46,642   |      |  |     
|Earnings on bank-owned life insurance                                   |  |                         | (785     | )    |  |     
|Loss on sale of other real estate owned                                 |  |                         | —        |      |  |     
|Depreciation of premises and equipment and amortization of software     |  |                         | 1,623    |      |  |     
|Deferred income tax                                                     |  |                         | (381     | )    |  |     
|Other assets and other liabilities, net                                 |  |                         | (354     | )    |  |     
|Net cash provided by operating activities                               |  |                         | 10,444   |      |  |     
|                                                                        |  |                         |          |      |  |     
|Cash flows from investing activities:                                   |  |                         |          |      |  |     
|Securities available for sale:                                          |  |                         |          |      |  |     
|Proceeds from maturities, calls, and repayments                         |  |                         | 59,094   |      |  |     
|Proceeds from sales                                                     |  |                         | 163,085  |      |  |     
|Purchases                                                               |  |                         | (251,616 | )    |  |     
|Proceeds from sale of other real estate owned                           |  |                         | —        |      |  |     
|Purchase of regulatory bank stock                                       |  |                         | (2,267   | )    |  |     
|Redemptions of regulatory bank stock                                    |  |                         | 1,209    |      |  |     
|Purchase of bank-owned life insurance                                   |  |                         | (33      | )    |  |     
|Net increase in loans                                                   |  |                         | (51,507  | )    |  |     
|Purchases of premises and equipment, net                                |  |                         | (2,280   | )    |  |     
|Purchase of computer software                                           |  |                         | (326     | )    |  |     
|Net cash used for investing activities                                  |  |                         | (84,641  | )    |  |     
|                                                                        |  |                         |          |      |  |     
|Cash flows from financing activities:                                   |  |                         |          |      |  |     
|Net increase in demand, NOW, and savings accounts                       |  |                         | 96,929   |      |  |     
|Net decrease in time deposits                                           |  |                         | (19,500  | )    |  |     
|Net increase (decrease) in short-term borrowings                        |  |                         | (407     | )    |  |     
|Proceeds from long-term debt                                            |  |                         | 17,163   |      |  |     
|Repayments of long-term debt                                            |  |                         | (15,500  | )    |  |     
|Dividends paid                                                          |  |                         | (3,107   | )    |  |     
|Proceeds from sale of treasury stock                                    |  |                         | 489      |      |  |     
|Treasury stock purchased                                                |  |                         | (465     | )    |  |     
|Net cash provided by financing activities                               |  |                         | 75,602   |      |  |     
|Increase in cash and cash equivalents                                   |  |                         | 1,405    |      |  |     
|Cash and cash equivalents at beginning of period                        |  |                         | 44,227   |      |  |     
|Cash and cash equivalents at end of period                              |  |                         | 45,632   |      |  |     
|                                                                        |  |                         |          |      |  |     
|Supplemental disclosures of cash flow information:                      |  |                         |          |      |  |     
|Interest paid                                                           |  |                         | 3,126    |      |  |     
|Income taxes paid                                                       |  |                         | 1,840    |      |  |     
|                                                                        |  |                         |          |      |  |     
|Supplemental disclosure of non-cash investing and financing activities: |  |                         |          |      |  |     
|Net transfer of other real estate owned from loans                      |  |                         | —        |      |  |     
|Fair value adjustments for securities available for sale                |  |                         | 7,019    |      |  |     



See Notes to the Consolidated Financial Statements

80


Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Nature of Operations

ENB Financial Corp, through its wholly owned subsidiary, Ephrata
National Bank, provides financial services to Northern Lancaster County and surrounding communities. ENB Financial Corp, a bank
holding company, was formed on July 1, 2008, to become the parent company of Ephrata National Bank, which existed as a stand-alone
national bank since its formation on April 11, 1881. The Corporation’s wholly owned subsidiary, Ephrata National Bank, offers
a full array of banking services including loan and deposit products for both personal and commercial customers, as well as trust
and investment services, through twelve office locations.



Basis of Presentation

The consolidated financial statements of ENB Financial Corp and
its subsidiary, Ephrata National Bank, (collectively “the Corporation”) conform to U.S. generally accepted accounting
principles (GAAP). The preparation of these statements requires that management make estimates and assumptions that affect the
reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial
statements and the reported amounts of revenues and expenses during the reporting period. Material estimates of the Corporation,
including the allowance for loan losses, the fair market value of financial instruments, and deferred tax assets or liabilities,
are evaluated regularly by management. Actual results could differ from the reported estimates given different conditions or assumptions.



The accounting and reporting policies followed by the Corporation
conform with U.S. GAAP and to general practices within the banking industry. All significant intercompany transactions have been
eliminated in consolidation. The following is a summary of the more significant policies.



Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents
are identified as cash and due from banks and include cash on hand, collection items, amounts due from banks, and interest bearing
deposits in other banks with maturities of less than 90 days.



Securities Available for Sale

The Corporation classifies its entire portfolio of debt and equity
securities as available for sale securities, which the Corporation reports at fair value. Any unrealized valuation gains or losses
in the portfolio are reported as a separate component of stockholders' equity, net of deferred income taxes. The constant yield
method is used for the amortization of premiums and the accretion of discounts for all of the Corporation’s securities with
the exception of collateralized mortgage obligations (CMOs) and mortgage backed securities (MBS). The constant yield method maintains
a stable yield on the instrument through its maturity. For CMOs and MBS, a two-step/proration method is used for amortization and
accretion. The first step is a proration based on the current pay down. This component ensures that the book price stays level
with par. The second step amortizes or accretes the remaining premium or discount to the calculated final amortization or accretion
date based on the current three-month constant prepayment rates. Net gains or losses realized on sales or calls of securities are
reported as gains or losses on security transactions during the year of sale, using the specific identification method.



Other Than Temporary Impairment (“OTTI”)

Management monitors all of the Corporation’s securities for
OTTI on a monthly basis and determines whether any impairment should be recorded. A number of factors are considered in determining
whether a security is impaired, including, but not limited to, the following:



| | · | Percentage of unrealized losses,
| | - | --------------------------------

| | · | Period of time the security has had unrealized losses,
| | - | ------------------------------------------------------

| | · | Type of security,
| | - | -----------------

| | · | Maturity date of the instrument if a debt instrument,
| | - | -----------------------------------------------------

| | · | The intent to sell the security or whether it is more likely than not that the Corporation would be required to sell the security
before its anticipated recovery in market value,
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | Amount of projected credit losses based on current cash flow analysis, default and severity rates, and
| | - | ------------------------------------------------------------------------------------------------------

| | · | Market dynamics impacting the market for and liquidity of the security.
| | - | -----------------------------------------------------------------------



Management will more closely evaluate those securities that have
unrealized losses of 10% or more and have had unrealized losses for more than twelve months. If management determines that the
declines in value of the security

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are not temporary, or if management does not have the ability to hold the security until maturity,
which is the case with equity securities, then management will record impairment on the security. For equity securities, typically
the amount of impairment is the difference between the security’s book value and current fair market value determined by
obtaining independent market pricing. For debt securities evaluated for impairment, management will determine what portion of the
unrealized valuation loss is attributed to projected or known loss of principal, and what portion is attributed to market pricing
not reflective of the true value of the security, based on current cash flow analysis. Management will generally record impairment
equivalent to the projected or known loss of principal, known as the credit loss. The other portion of the fair market value loss
is attributed to market factors and it is management’s opinion that these fair value losses are temporary and not permanent.
All impairment is recorded as a loss on securities and is included in the Corporation’s Consolidated Statements of Income.



Loans Held for Investment

Loans receivable, that management has the intent and ability to
hold for the foreseeable future, or until maturity or payoff, generally are reported at the outstanding principal balances, reduced
by any charge-offs and net of any deferred loan origination fees or costs. Net loan origination fees and costs are deferred and
recognized as an adjustment of yield over the contractual life of the loan.



Interest accrues daily on outstanding loan balances. Generally,
the accrual of interest discontinues when the ability to collect the loan becomes doubtful or when a loan becomes more than 90
days past due as to principal and interest. These loans are referred to as non-accrual loans. Management may elect to continue
the accrual of interest based on the expectation of future payments and/or the sufficiency of the underlying collateral.



Loans Held for Sale

Loans originated and intended for sale on the secondary
market are carried at the lower of cost or fair value in the aggregate. Net unrealized losses, if any, are recognized through
a valuation allowance by charges to income. In general, fixed-rate residential mortgage loans originated by the Corporation
and held for sale are carried in the aggregate at the lower of cost or market. The Corporation originates loans for immediate
sale with servicing retained and servicing released to several investors. However, the vast majority of the sold mortgages
are sold to the Federal Home Loan Bank of Pittsburgh (FHLB) and Fannie Mae, with servicing retained.  As a result, the
Corporation has a growing portfolio of mortgages that are serviced on behalf of FHLB and Fannie Mae.  In addition, the
Corporation originates FHA, VA, and USDA mortgages which are originated for immediate sale to various investors on a
service-released basis.



Allowance for Loan Losses

The allowance for loan losses is maintained at a level considered
by management to be adequate to provide for known and inherent risks in the loan portfolio at the Consolidated Balance Sheets dates.
The monthly provision or credit for loan losses is an expense or a reduction of expense which increases or decreases the allowance,
and charge-offs, net of recoveries, decrease the allowance. The Corporation performs ongoing credit reviews of the loan portfolio
and considers current economic conditions, historical loan loss experience, and other factors in determining the adequacy of the
reserve balance. Loans determined to be uncollectible are charged to the allowance during the period in which such determination
is made.



In calculating the allowance, management will begin by compiling
the balance of loans by credit quality for each loan segment in order that allocations can be made in aggregate based on historic
losses and qualitative factors. Prior to calculating these aggregate allocations, management will individually evaluate commercial
and commercial real estate loans for impairment. A loan is impaired when it is probable that a creditor will be unable to collect
all principal and interest due according to the contractual terms of the loan agreement. All other loan types such as residential
mortgages, home equity loans and lines of credit, and all other consumer loans, are not individually evaluated for impairment and
are therefore allocated for in aggregate. These loans are considered to be large groups of smaller-balance homogenous loans and
are measured for impairment collectively. Loans that experience insignificant payment delays, which are defined as 90 days or less,
generally are not classified as impaired. Management determines the significance of payment delays on a case-by-case basis, taking
into consideration all circumstances concerning the loan, the creditworthiness and payment history of the borrower, the length
of the payment delay, and the amount of shortfall in relation to the principal and interest owed.



For loans deemed to be impaired, management will provide a specific
allocation. This loan balance is then subtracted from the total loan balances being allocated for in the aggregate. The remaining
balances, along with the full loan balances for the other loan types are then multiplied by an adjusted loss ratio, which is the
sum of both the

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historical loss ratio and a qualitative factor adjustment. Generally both the historical loss ratio and the qualitative
factor adjustment will increase as the credit rating of the loan deteriorates. The credit ratings begin with unclassified loans,
which represent the best internal credit rating, also referred to as a “pass” credit and then continue with declining
grades of special mention, substandard, doubtful, and loss. Special mention loans are no longer deemed to be a “pass”
credit and require additional management attention. They are essentially placed on “watched” status and attempts are
made to improve the credit to an unclassified status. If the credit would deteriorate further it would then be a substandard credit,
which for regulatory purposes, is deemed to be a classified loan. Doubtful and loss credit grades represent further credit deterioration
and are also considered classified loans.



For each loan type, all of these credit rating categories are broken
out with adjusted loss ratios. The loan balance is then multiplied by the adjusted loss ratio to produce the required allowance.
The allowances are totaled and added to any specific allocations on impaired loans to arrive at the total allowance for loan losses
for the Corporation.



Management tracks and assigns a historical loss percentage for each
loan rating category within each loan type. A rolling three-year historical loss ratio, calculated on a quarterly basis, with a
60%, 30%, and 10% weighting for the past three years is used. In this manner the historical loss percentage is heavily weighted
to the current loss environment, but has sufficient weighting assigned to prior periods to avoid unnecessary volatile fluctuations
based on just one period’s data.



Management currently utilizes nine qualitative factors that are
adjusted based on changes in the lending environment and economic conditions. The qualitative factors include the following:



| | · | levels of and trends in delinquencies, non-accruals, and charge-offs,
| | - | ---------------------------------------------------------------------

| | · | trends in the nature and volume of the loan portfolio,
| | - | ------------------------------------------------------

| | · | changes in lending policies and procedures,
| | - | -------------------------------------------

| | · | experience, ability, and depth of lending personnel and management oversight,
| | - | -----------------------------------------------------------------------------

| | · | national and local economic trends,
| | - | -----------------------------------

| | · | concentrations of credit,
| | - | -------------------------

| | · | external factors such as competition, legal, and regulatory requirements,
| | - | -------------------------------------------------------------------------

| | · | changes in the quality of loan review and Board oversight,
| | - | ----------------------------------------------------------

| | · | changes in the value of underlying collateral.
| | - | ----------------------------------------------



The number of qualitative factors can change. Factors can be added
for new risks or taken away if the risk no longer applies. Each loan type will have its own risk profile and management will evaluate
and adjust each qualitative factor for each loan type quarterly, if necessary. For example, if one area of the loan portfolio is
experiencing sharp increases in growth, it is likely the qualitative factor for trends in the loan portfolio would be increased
for that loan type. As levels of delinquencies and non-accrual loans decline for any segment of the loan portfolio it is likely
that factor would be reduced.



In terms of the Corporation’s loan portfolio, the commercial
and industrial loans and commercial real estate loans are deemed to have more risk than the consumer real estate loans and other
consumer loans in the portfolio. The commercial loans not secured by real estate are highly dependent on their financial condition
and therefore are more dependent on economic conditions. The commercial loans secured by real estate are also dependent on economic
conditions but generally have stronger forms of collateral. More recently, commercial real estate has been negatively impacted
by devaluation so these commercial loans carry a higher qualitative factor for changes in the value of collateral. The commercial
loans and commercial real estate loans have historically been responsible for the majority of the Corporation’s delinquencies,
non-accrual loans, and charge-offs, so both of these categories carry higher qualitative factors than consumer real estate loans
and other consumer loans. The Corporation has historically experienced very low levels of consumer real estate and consumer loan
charge-offs so these qualitative factors are set lower than the commercial real estate and commercial and industrial loans. More
recently, the agriculture segment of the loan portfolio is growing faster than all other segments and, therefore, the qualitative
factors for trends and collateral were increased in this area due to more volume and increased exposure to potential loss.



Impaired and Non-Accrual Loans

The definition of “impaired loans” is not the same as
the definition of “non-accrual loans,” although the two categories overlap. Generally, a non-accrual loan will always
be considered impaired due to payment delinquency or uncertain collection, but there are cases where an impaired loan is not considered
non-accrual. The primary

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factors considered by management in determining impairment include payment status and collateral value,
but could also include debt service coverage, financial health of the business, and other external factors that could impact the
ability of the borrower to fully repay the loan. The amount of impairment for these types of loans is determined by the difference
between the present value of the expected cash flows related to the loan using the original interest rate and its recorded value
or, as a practical expedient in the case of collateral-dependent loans, the difference between the fair value of the collateral
and the recorded amount of the loan. When foreclosure is probable, impairment is measured based on the fair value of the collateral
on a discounted basis, relative to the loan amount.



Management will place a business or commercial loan on non-accrual
status when it is determined that the loan is impaired, or when the loan is 90 days past due with a history of prolonged periods
of delinquency. These customers will generally be placed on non-accrual status at the end of each quarter. Consumer loans over
90 days delinquent are generally charged off or, in the case of larger residential real estate loans, they would be placed on non-accrual
status as the Corporation seeks to bring the customer current or pursue foreclosure options. When the borrower is on non-accrual,
the Corporation will reverse any accrued interest on the books and will discontinue recognizing any interest income until the borrower
is placed back on accrual status or fully pays off the loan balance plus any accrued interest. Payments received by the customer
while the loan is on non-accrual are fully applied against principal. The Corporation maintains records of the full amount of interest
that is owed by the borrower. A non-accrual loan will generally only be placed back on accrual status after the borrower has become
current and has demonstrated six consecutive months of non-delinquency.



Allowance for Off-Balance Sheet Extensions of Credit

The Corporation maintains an allowance for off-balance sheet extensions
of credit, which would include any unadvanced amount on lines of credit and any letters of credit provided to borrowers. The allowance
is carried as a liability and is included in other liabilities on the Corporation’s Consolidated Balance Sheets. The liability
was $345,000 as of December 31, 2016, and $455,000 as of December 31, 2015. As the unadvanced portion of lines of credit increases,
this provision will increase.



Management follows the same methodology as the allowance for loan
losses when calculating the allowance for off-balance sheet extensions of credit, with the exception of multiplying the unadvanced
total by a high/low balance variance to arrive at the expected unadvanced portion that could be drawn upon at any time, or the
amount at risk. The unadvanced amounts for each loan segment are broken down by credit classification. A historical loss ratio
and qualitative factor are calculated for each credit classification by loan type. The historical loss ratio and qualitative factor
are combined to produce an adjusted loss ratio, which is multiplied by the amount at risk for each credit classification within
each loan segment to arrive at an allocation. The allocations are summed to arrive at the total allowance for off-balance sheet
extensions of credit.



Other Real Estate Owned (OREO)

OREO represents properties acquired through customer loan defaults.
These properties are recorded at the lower of cost or fair value less projected disposal costs at acquisition date. Fair value
is determined by current appraisals. Costs associated with holding OREO are charged to operational expense. OREO is a component
of other assets on the Corporation’s Consolidated Balance Sheets. The Corporation had no OREO as of December 31, 2016, or
December 31, 2015.



Mortgage Servicing Rights (MSRs)

The Corporation has agreements for the express purpose of selling
residential mortgage loans on the secondary market, referred to as mortgage servicing rights. The Corporation maintains all servicing
rights for loans currently sold through FHLB and Fannie Mae. The Corporation had $410,000 of MSRs as of December 31, 2016, compared
to $240,000 as of December 31, 2015. Management expects MSRs to continue to grow as a result of the recently expanded mortgage
program. The value of newly originated MSRs is determined by estimating the life of the mortgage and how long the Corporation will
have access to the servicing income stream to determine the relative fair value. The Corporation utilizes a third party that calculates
the MSR valuation on a quarterly basis. A longer estimated life would increase the MSR while a shorter estimated life would decrease
the value of the asset. Management records the MSR value based on this reporting. Ultimately the value of the MSRs would be at
what level a willing buyer and seller would exchange the MSRs. MSRs are amortized in proportion to the estimated servicing income
over the estimated life of the servicing portfolio. Impairment is evaluated based on the fair value of the rights, portfolio interest
rates, and prepayment characteristics. MSRs are a component of other assets on the Consolidated Balance Sheets.



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Premises and Equipment

Land is carried at cost. Premises and equipment are carried at cost,
less accumulated depreciation. Book depreciation is computed using straight-line methods over the estimated useful lives of generally
fifteen to thirty-nine years for buildings and improvements and four to ten years for furniture and equipment. Maintenance and
repairs of property and equipment are charged to operational expense as incurred, while major improvements are capitalized. Net
gains or losses upon disposition are included in other income or operational expense, as applicable.



Transfer of Assets

Transfers of financial assets are accounted for as sales when control
over the assets has been surrendered.  Control over transferred assets is deemed to be surrendered when (1) the assets have
been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage
of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred
assets through an agreement to repurchase them before their maturity.



Bank-Owned Life Insurance (BOLI)

BOLI is carried by the Corporation at the cash surrender value of
the underlying policies. Income earned on the policies is based on any increase in cash surrender value less the cost of the insurance,
which varies according to age and health of the insured. The life insurance policies owned by the Corporation had a cash surrender
value of $24,687,000 and $23,869,000 as of December 31, 2016, and 2015, respectively. The increase in BOLI cash surrender value
was due to normal appreciation of the policies as a result of returns exceeding expenses.



Advertising Costs

The Corporation expenses advertising costs as incurred. Advertising
costs for the years ended December 31, 2016, 2015, and 2014, were 614,000, $552,000, and $474,000, respectively.



Income Taxes

An asset and liability approach is followed for financial accounting
and reporting for income taxes. Accordingly, a net deferred tax asset or liability is recorded in the consolidated financial statements
for the tax effects of temporary differences, which are items of income and expense reported in different periods for income tax
and financial reporting purposes. Deferred tax expense is determined by the change in the assets or liabilities related to deferred
income taxes. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision
for income taxes.



Earnings per Share

The Corporation currently maintains a simple capital structure with
no stock option plans that would have a dilutive effect on earnings per share. Earnings per share are calculated by dividing net
income by the weighted-average number of shares outstanding for the periods.



Comprehensive Income

The Corporation is required to present comprehensive
income in a full set of general-purpose consolidated financial statements for all periods presented. Other comprehensive income
(loss) consists of unrealized holding gains and losses on the available for sale securities portfolio.



Segment Disclosure

U.S. generally accepted accounting principles establish standards
for the manner in which public business enterprises report information about segments in the annual financial statements and requires
that those enterprises report selected information about operating segments in interim financial reports issued to shareholders.
It also establishes standards for related disclosures regarding financial products and services, geographic areas, and major customers.
The Corporation has only one operating segment consisting of its banking and fiduciary operations.



Pension Plans

The Corporation provides an optional 401(k) plan, in which employees
may elect to defer pre-tax salary dollars, subject to the maximum annual Internal Revenue Service contribution amounts.  The
Corporation will match 50% of employee contributions up to 5%, limiting the match to 2.5%.



As part of the 401(k) Plan, the Corporation also has a noncontributory
Profit Sharing Plan which covers substantially all employees. The Corporation provides a 3% Non-Elective contribution to all employees
and

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contributes a 2% Elective Contribution to all employees aged 21 or older who work 1,000 or
greater hours in a calendar year and have completed at least one full year of employment.



Trust Assets and Income

Assets held by ENB’s Money Management Group in a fiduciary
or agency capacity for customers are not included in the Corporation’s Consolidated Balance Sheets since these items are
not assets of the Corporation. In accordance with banking industry practice, trust income is recognized on a cash basis, as such
income does not differ significantly from amounts that would be recognized on an accrual basis. Trust income is reported in the
Corporation’s Consolidated Statements of Income under other income.



Reclassification of Comparative Amounts

Certain comparative amounts for the prior year
have been reclassified to conform to current-year classifications. Such reclassifications had no material effect on net income
or stockholders’ equity.



Recently Issued Accounting Standards

In January 2017, the FASB issued ASU 2017-01,
Business Combinations (Topic 805), Clarifying the Definition of a Business “ASU 2017-01”, which provides a more
robust framework to use in determining when a set of assets and activities (collectively referred to as a “set”) is
a business. The screen requires that when substantially all of the fair value of the gross assets acquired (or disposed of) is
concentrated in a single identifiable asset or a group of similar identifiable assets, the set is not a business. This screen reduces
the number of transactions that need to be further evaluated. Public business entities should apply the amendments in this Update
to annual periods beginning after December 15, 2017, including interim periods within those periods. All other entities should
apply the amendments to annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after
December 15, 2019. The amendments in this Update should be applied prospectively on or after the effective date. This Update is
not expected to have a significant impact on the Corporation’s financial statements.



In December 2016, the FASB issued ASU 2016-20,
Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers “ASU 2016-20”. This
Update, among others things, clarifies that guarantee fees within the scope of Topic 460, Guarantees, (other than product
or service warranties) are not within the scope of Topic 606. The effective date and transition requirements for ASU 2016-20 are
the same as the effective date and transition requirements for the new revenue recognition guidance. For public entities with a
calendar year-end, the new guidance is effective in the quarter and year beginning January 1, 2018. For all other entities with
a calendar year-end, the new guidance is effective in the year ending December 31, 2019, and interim periods in 2020. The Corporation
is currently evaluating the impact the adoption of the standard will have on the Company’s financial position or results
of operations.



In December 2016, the FASB issued ASU 2016-19,
Technical Corrections and Improvements, which represents changes to clarify, correct errors, or make minor improvements
to the Accounting Standards Codification. The amendments make the Accounting Standards Codification easier to understand and easier
to apply by eliminating inconsistencies and providing clarifications. Most of the amendments in this Update do not require transition
guidance and are effective upon issuance of this Update. This Update is not expected to have a significant impact on the Corporation’s
financial statements.



In October 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230) (“ASU 2016-18”), which requires that a statement of cash flows explains
the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted
cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included
with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement
of cash flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December
15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years
beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is
permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments
should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in this Update should
be applied using a retrospective transition method to each period presented. The Corporation is currently evaluating the impact
the adoption of the standard will have on the Corporation’s statement of cash flows.



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In October 2016, the FASB issued ASU 2016-17,
Consolidation (Topic 810) (“ASU 2016-17”), which amends the consolidation guidance on how a reporting entity
that is the single decision maker of a VIE should treat indirect interests in the entity held through related parties that are
under common control with the reporting entity when determining whether it is the primary beneficiary of that VIE. The primary
beneficiary of a VIE is the reporting entity that has a controlling financial interest in a VIE and, therefore, consolidates the
VIE. A reporting entity has an indirect interest in a VIE if it has a direct interest in a related party that, in turn, has a direct
interest in the VIE. Under the amendments, a single decision maker is not required to consider indirect interests held through
related parties that are under common control with the single decision maker to be the equivalent of direct interests in their
entirety. Instead, a single decision maker is required to include those interests on a proportionate basis consistent with indirect
interests held through other related parties. This Update is not expected to have a significant impact on the Corporation’s
financial statements.



In October 2016, the FASB issued ASU 2016-16,
Income Taxes (Topic 740) (“ASU 2016-16”), which requires recognition of current and deferred income taxes resulting
from an intra-entity transfer of any asset (excluding inventory) when the transfer occurs. Consequently, the amendments in this
Update eliminate the exception for an intra-entity transfer of an asset other than inventory. The amendments in this Update are
effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those
annual reporting periods. For all other entities, the amendments are effective for annual reporting periods beginning after December
15, 2018, and interim reporting periods within annual periods beginning after December 15, 2019. Early adoption is permitted for
all entities as of the beginning of an annual reporting period for which financial statements (interim or annual) have not been
issued or made available for issuance. That is, earlier adoption should be in the first interim period if an entity issues interim
financial statements. The amendments in this Update should be applied on a modified retrospective basis through a cumulative-effect
adjustment directly to retained earnings as of the beginning of the period of adoption. This Update is not expected to have a significant
impact on the Corporation’s financial statements.



In August 2016, the FASB issued ASU 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (“ASU 2016-15”),
which addresses eight specific cash flow issues with the objective of reducing diversity in practice. Among these include recognizing
cash payments for debt prepayment or debt extinguishment as cash outflows for financing activities; cash proceeds received from
the settlement of insurance claims should be classified on the basis of the related insurance coverage; and cash proceeds received
from the settlement of bank-owned life insurance policies should be classified as cash inflows from investing activities while
the cash payments for premiums on bank-owned policies may be classified as cash outflows for investing activities, operating activities,
or a combination of investing and operating activities. The amendments in this Update are effective for public business entities
for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the
amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning
after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments
in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
An entity that elects early adoption must adopt all of the amendments in the same period. The amendments in this Update should
be applied using a retrospective transition method to each period presented. If it is impracticable to apply the amendments retrospectively
for some of the issues, the amendments for those issues would be applied prospectively as of the earliest date practicable. The
Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s statement of cash
flows.



In June 2016, the FASB issued ASU 2016-13,
Financial Instruments - Credit Losses: Measurement of Credit Losses on Financial Instruments(“ASU 2016-13”),
which changes the impairment model for most financial assets. This Update is intended to improve financial reporting by requiring
timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations.
The underlying premise of the Update is that financial assets measured at amortized cost should be presented at the net amount
expected to be collected, through an allowance for credit losses that is deducted from the amortized cost basis. The allowance
for credit losses should reflect management’s current estimate of credit losses that are expected to occur over the remaining
life of a financial asset. The income statement will be effected for the measurement of credit losses for newly recognized financial
assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. ASU 2016-13
is effective for annual and interim periods beginning after December 15, 2019, and early adoption is permitted for annual and interim
periods beginning after December 15, 2018. With certain exceptions, transition to the new requirements will be through a cumulative
effect adjustment to opening retained earnings as of

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the beginning of the first reporting period in which the guidance is adopted.
The Corporation is currently evaluating the impact the adoption of the standard will have on the Corporation’s financial
position or results of operations.



In May 2016, the FASB issued ASU 2016-12, Revenue
from Contracts with Customers (Topic 606), which among other things clarifies the objective of the collectability criterion
in Topic 606, as well as certain narrow aspects of Topic 606. The amendments in this Update affect the guidance in ASU 2014-09,
Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements
for the amendments in this Update are the same as the effective date and transition requirements for Topic 606 (and any other Topic
amended by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date,
defers the effective date of Update 2014-09 by one year. This Update is not expected to have a significant impact on the Corporation’s
financial statements.



In May 2016, the FASB issued ASU 2016-11, Revenue
Recognition (Topic 605) and Derivative and Hedging (Topic 815), which rescinds SEC paragraphs pursuant to two SEC Staff Announcements
at the March 3, 2016, Emerging Issues Task Force meeting. This Update did not have a significant impact on the Corporation’s
financial statements.



In April 2016,
the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities
with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer
goods or services in exchange for consideration. The amendments in this Update do not change the core principle for revenue recognition
in Topic 606. Instead, the amendments provide (1) more detailed guidance in a few areas and (2) additional implementation guidance
and examples based on feedback the FASB received from its stakeholders. The amendments are expected to reduce the degree of judgment
necessary to comply with Topic 606, which the FASB expects will reduce the potential for diversity arising in practice and reduce
the cost and complexity of applying the guidance. The amendments in this Update affect the guidance in ASU 2014-09, Revenue
from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the
amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended
by Update 2014-09). ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral ofthe Effective
Date, defers the effective date of Update 2014-09 by one year. The Corporation is currently evaluating the impact the adoption
of the standard will have on the Corporation’s financial position or results of operations.



In March 2016,
the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718). The amendments in this Update affect all
entities that issue share-based payment awards to their employees. The standards in this Update provide simplification for several
aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards
as with equity or liabilities, and classification on the statement of cash flows. Some of the areas for simplification apply only
to nonpublic entities. In addition to those simplifications, the amendments eliminate the guidance in Topic 718 that was indefinitely
deferred shortly after the issuance of FASB Statement No. 123 (revised 2004), Share-Based Payment. This should not result
in a change in practice because the guidance that is being superseded was never effective. For public business entities, the amendments
in this Update are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
For all other entities, the amendments are effective for annual periods beginning after December 15, 2017, and interim periodswithin annual periods beginning after December 15, 2018. Early adoption is permitted for any entity in any interim or annual
period. This Update is not expected to have a significant impact on the Corporation’s financial statements.



In March 2016,
the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606). The amendments in this Update affect entities
with transactions included within the scope of Topic 606, which includes entities that enter into contracts with customers to transfer
goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The amendments
in this Update do not change the core principle of the guidance in Topic 606; they simply clarify the implementation guidance on
principal versus agent considerations. The amendments in this Update are intended to improve the operability and understandability
of the implementation guidance on principal versus agent considerations. The amendments in this Update affect the guidance in ASU
2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition
requirements for the amendments in this Update are the same as the effective date and transition requirements of Update 2014-09.
ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of theEffective Date,defers
the effective date of Update 2014-09 by one year. The Corporation is currently evaluating the impact the adoption of the standard
will have on the Corporation’s financial position or results of operations.



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In March 2016,
the FASB issued ASU 2016-07, Investments–Equity Method and Joint Ventures
(Topic 323). The Update affects all entities that have an investment that becomes qualified
for the equity method of accounting as a result of an increase in the level of ownership interest or degree of influence. The amendments
in this Update eliminate the requirement that when an investment qualifies for use of the equity method as a result of an increase
in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained
earnings retroactively on a step-by-step basis as if the equity method had been in effect during all previous periods that the
investment had been held. The amendments require that the equity method investor add the cost of acquiring the additional interest
in the investee to the current basis of the investor's previously held interest and adopt the equity method of accounting as of
the date the investment becomes qualified for equity method accounting. Therefore, upon qualifying for the equity method of accounting,
no retroactive adjustment of the investment is required. The amendments in this Update require that an entity that has an available-for-sale
equity security that becomes qualified for the equity method of accounting recognize through earnings the unrealized holding gain
or loss in accumulated other comprehensive income at the date the investment becomes qualified for use of the equity method. The
amendments in this Update are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2016. The amendments should be applied prospectively upon their effective date to increases in thelevel
of ownership interest or degree of influence that result in the adoption of the equity method. Earlier application is permitted.
This Update is not expected to have a significant impact on the Corporation’s financial statements.



In March 2016,
the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815). The amendments apply to all entities that are issuers
of or investors in debt instruments (or hybrid financial instruments that are determined to have a debt host) with embedded call
(put) options. The amendments in this Update clarify the requirements for assessing whether contingent call (put) options that
can accelerate the payment of principal on debt instruments are clearly and closely related to their debt host. An entity performing
the assessment under the amendments in this Update is required to assess the embedded call (put) options solely in accordance with
the four-step decision sequence. For public business entities, the amendments in this Update are effective for financial statements
issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. For entities other than
public business entities, the amendments in this Update are effective for financial statements issued for fiscal years beginning
after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018. Early adoption is permitted,
including adoption in aninterim period. This Update is not expected to have a significant impact on the Corporation’s
financial statements.



In March 2016, the FASB issued ASU 2016-05,
Derivatives and Hedging (Topic 815). The amendments in this Update apply to all reporting entities for which there is a
change in the counterparty to a derivative instrument that has been designated as a heading instrument under Topic 815.
The standards in this Update clarify that a change in the counterparty to a derivative instrument that has been designated as the
hedging instrument under Topic 815 does not, in and of itself, require designation of that hedging relationship provided that
all other hedge accounting criteria continue to be met. For public business entities, the amendments
in this Update are effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods
within those fiscal years. For all other entities, the amendments in this Update are effective for financial statements issued
for fiscal years beginning after December 15, 2017, and interim periods within fiscal years beginning after December 15, 2018.
An entity has an option to apply the amendments in this Updateon either a prospective basis or a modified retrospective
basis. Early adoption is permitted, including adoption in an interim period. This Update is not expected to have a significant
impact on the Corporation’s financial statements.



In March 2016, the FASB issued ASU 2016-04,
Liabilities –Extinguishments of Liabilities (Subtopic 405-20).The standard provides that liabilities related
to the sale of prepaid stored-value products within the scope of this Update are financial liabilities. The amendments in the Update
provide a narrow-scope exception to the guidance in Subtopic 405-20 to require that breakage for those liabilities be accounted
for consistent with the breakage guidance in Topic 606. The amendments in this Update are effective for public business entities,
certain not-for-profit entities, and certain employee benefit plans for financial statements issued for fiscal years beginning
after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for
financial statements issued for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning
after December 15, 2019. Earlier application is permitted, including adoption in an interim period. This Update is not expected
to have a significant impact on the Corporation’s financial statements.



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In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842). The standard requires lessees to recognize the assets and liabilities that arise from leases on the
balance sheet.  A lessee should recognize in the statement of financial position a liability to make lease payments (the lease
liability) and a right-of-use asset representing its right to use the underlying asset for the lease term.  A short-term lease
is defined as one in which (a) the lease term is 12 months or less and (b) there is not an option to purchase the underlying asset
that the lessee is reasonably certain to exercise. For short-term leases, lessees may elect to recognize lease payments over the
lease term on a straight-line basis. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2018, and interim periods within those years. For all other entities, the amendments in this Update
are effective for fiscal years beginning after December 15, 2019, and for interim periods within fiscal years beginning after December
15, 2020. The amendments should be applied at the beginning of the earliest period presented using a modified retrospective approach
with earlier application permitted as of the beginning of an interim or annual reporting period. The Corporation is currently assessing
the practical expedients it may elect at adoption, but does not anticipate the amendments will have a significant impact to the
financial statements. Based on the Corporation’s preliminary analysis of its current portfolio, the impact to the Corporation’s
balance sheet is estimated to result in less than a 1% increase in assets and liabilities. The Corporation also anticipates additional
disclosures to be provided at adoption.





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NOTE B - SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)



The amortized cost and fair value of securities held at December 31, 2016, and 2015, are as follows:



|                                                 |  |           |         | Gross      |  | Gross      |       |      
|------------------------------------------------ |  | --------- | ------- | ---------- |  | ---------- | ----- | -----
|                                                 |  | Amortized |         | Unrealized |  | Unrealized |       | Fair 
|                                                 |  | Cost      |         | Gains      |  | Losses     |       | Value
|                                                 |  | $         |         | $          |  | $          |       | $    
|                                                 |  |           |         |            |  |            |       |      
|December 31, 2016                                |  |           |         |            |  |            |       |      
|U.S. government agencies                         |  |           | 33,124  |            |  |            | —     |      
|U.S. agency mortgage-backed securities           |  |           | 56,826  |            |  |            | 22    |      
|U.S. agency collateralized mortgage obligations  |  |           | 38,737  |            |  |            | 41    |      
|Corporate bonds                                  |  |           | 52,928  |            |  |            | 8     |      
|Obligations of states and political subdivisions |  |           | 128,428 |            |  |            | 346   |      
|Total debt securities                            |  |           | 310,043 |            |  |            | 417   |      
|Marketable equity securities                     |  |           | 5,469   |            |  |            | 55    |      
|Total securities available for sale              |  |           | 315,512 |            |  |            | 472   |      
|                                                 |  |           |         |            |  |            |       |      
|December 31, 2015                                |  |           |         |            |  |            |       |      
|U.S. government agencies                         |  |           | 29,829  |            |  |            | 3     |      
|U.S. agency mortgage-backed securities           |  |           | 42,288  |            |  |            | 39    |      
|U.S. agency collateralized mortgage obligations  |  |           | 48,140  |            |  |            | 125   |      
|Corporate bonds                                  |  |           | 63,825  |            |  |            | 29    |      
|Obligations of states and political subdivisions |  |           | 100,208 |            |  |            | 1,780 |      
|Total debt securities                            |  |           | 284,290 |            |  |            | 1,976 |      
|Marketable equity securities                     |  |           | 5,515   |            |  |            | 23    |      
|Total securities available for sale              |  |           | 289,805 |            |  |            | 1,999 |      



The amortized cost and fair value of debt
securities available for sale at December 31, 2016, 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                |  |           | 16,818  |           
|Due after one year through five years  |  |           | 88,609  |           
|Due after five years through ten years |  |           | 83,077  |           
|Due after ten years                    |  |           | 121,539 |           
|Total debt securities                  |  |           | 310,043 |           
|                                       |  |           |         |           



Securities available for sale with a par value of $63,726,000 and
$60,295,000 at December 31, 2016 and 2015, respectively, were pledged or restricted for public funds, borrowings, or other purposes
as required by law. The fair market value of these pledged securities was $65,770,000 at December 31, 2016, and $65,137,000 at
December 31, 2015.



Proceeds from active sales of debt 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.

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PROCEEDS FROM SALES OF SECURITIES AVAILABLE FOR SALE

(DOLLARS IN THOUSANDS)



|                      |  | Securities Available for Sale
|--------------------- |  | -----------------------------
|                      |  | 2016                         
|                      |  | $                            
|                      |  |                              
|Proceeds from sales   |  |                              
|Gross realized gains  |  |                              
|Gross realized losses |  |                              



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.



Information pertaining to securities with gross unrealized losses
at December 31, 2016, and December 31, 2015, 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               |  |      
|                                                |  | Fair                |         | Unrealized          |  | Fair 
|                                                |  | Value               |         | Losses              |  | Value
|                                                |  | $                   |         | $                   |  | $    
|As of December 31, 2016                         |  |                     |         |                     |  |      
|U.S. government agencies                        |  |                     | 32,261  |                     |  |      
|U.S. agency mortgage-backed securities          |  |                     | 47,418  |                     |  |      
|U.S. agency collateralized mortgage obligations |  |                     | 33,206  |                     |  |      
|Corporate bonds                                 |  |                     | 45,335  |                     |  |      
|Obligations of states & political subdivisions  |  |                     | 101,229 |                     |  |      
|Total debt securities                           |  |                     | 259,449 |                     |  |      
|Marketable equity securities                    |  |                     | —       |                     |  |      
|Total temporarily impaired securities           |  |                     | 259,449 |                     |  |      
|                                                |  |                     |         |                     |  |      
|As of December 31, 2015                         |  |                     |         |                     |  |      
|U.S. government agencies                        |  |                     | 24,968  |                     |  |      
|U.S. agency mortgage-backed securities          |  |                     | 24,613  |                     |  |      
|U.S. agency collateralized mortgage obligations |  |                     | 26,563  |                     |  |      
|Corporate bonds                                 |  |                     | 50,530  |                     |  |      
|Obligations of states & political subdivisions  |  |                     | 21,913  |                     |  |      
|Total temporarily impaired securities           |  |                     | 148,587 |                     |  |      
|Marketable equity securities                    |  |                     | 142     |                     |  |      
|Total temporarily impaired securities           |  |                     | 148,729 |                     |  |      



In the debt security portfolio, there are 204 positions carrying
unrealized losses as of December 31, 2016. There were no instruments considered to be other-than-temporarily impaired at December
31, 2016.



The Corporation evaluates both equity and fixed income positions
for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic and market concerns warrant
such evaluation. Equity investments are bank stocks held by the Corporation with no maturity date, whereas the fixed income positions
are bonds held by the Corporation with fixed maturity dates. U.S. generally accepted accounting principles provide for

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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 (loss). 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. 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 2015 or 2016.



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



|CREDIT LOSSES ON DEBT SECURITIES                                  |  |                                 |   |      |  |     
|----------------------------------------------------------------- |  | ------------------------------- | - | ---- |  | ----
|(DOLLARS IN THOUSANDS)                                            |  | For the year ended December 31,
|                                                                  |  | 2016                            |   | 2015 |  | 2014
|                                                                  |  | $                               |   | $    |  | $   
|Beginning balance                                                 |  |                                 | — |      |  |     
|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                    |  |                                 | — |      |  |     
|Sale of debt securities with previously recognized impairment     |  |                                 | — |      |  |     
|Ending balance                                                    |  |                                 | — |      |  |     





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NOTE C - LOANS AND ALLOWANCE FOR LOAN LOSSES



The following table presents the Corporation’s loan portfolio
by category of loans for 2016 and 2015.



LOAN PORTFOLIO

(DOLLARS IN THOUSANDS)



|                                    |  | December 31,
|----------------------------------- |  | ------------
|                                    |  | 2016        
|                                    |  | $           
|Commercial real estate              |  |             
|Commercial mortgages                |  |             
|Agriculture mortgages               |  |             
|Construction                        |  |             
|Total commercial real estate        |  |             
|                                    |  |             
|Consumer real estate (a)            |  |             
|1-4 family residential mortgages    |  |             
|Home equity loans                   |  |             
|Home equity lines of credit         |  |             
|Total consumer real estate          |  |             
|                                    |  |             
|Commercial and industrial           |  |             
|Commercial and industrial           |  |             
|Tax-free loans                      |  |             
|Agriculture loans                   |  |             
|Total commercial and industrial     |  |             
|                                    |  |             
|Consumer                            |  |             
|                                    |  |             
|Gross loans prior to deferred costs |  |             
|and allowance for loan losses       |  |             
|                                    |  |             
|Deferred loan costs, net            |  |             
|Allowance for loan losses           |  |             
|Total net loans                     |  |             



|(a) | Real estate loans serviced for others, which are not included in the Consolidated Balance Sheets, totaled $66,767,000 and
$38,024,000  as of December 31, 2016, and 2015, 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 December 31, 2016 and 2015. The grading analysis estimates the capability of the borrower to repay the contractual obligations
under the loan agreements as scheduled or at all. The Corporation's internal commercial credit risk grading system is based on
experiences with similarly graded loans.



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



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

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

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

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

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



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COMMERCIAL CREDIT EXPOSURE

CREDIT RISK PROFILE BY INTERNALLY ASSIGNED GRADE

(DOLLARS IN THOUSANDS)



|                  |  |            |        |             |  |              |         | Commercial |  |          |        |             |  |      
|----------------- |  | ---------- | ------ | ----------- |  | ------------ | ------- | ---------- |  | -------- | ------ | ----------- |  | -----
|                  |  | Commercial |        | Agriculture |  |              |         | and        |  | Tax-free |        | Agriculture |  |      
|December 31, 2016 |  | Mortgages  |        | Mortgages   |  | Construction |         | Industrial |  | Loans    |        | Loans       |  | Total
|                  |  | $          |        | $           |  | $            |         | $          |  | $        |        | $           |  | $    
|Grade:            |  |            |        |             |  |              |         |            |  |          |        |             |  |      
|Pass              |  |            | 78,367 |             |  |              | 155,820 |            |  |          | 23,880 |             |  |      
|Special Mention   |  |            | 4,860  |             |  |              | 5,360   |            |  |          | —      |             |  |      
|Substandard       |  |            | 3,207  |             |  |              | 2,573   |            |  |          | 1,000  |             |  |      
|Doubtful          |  |            | —      |             |  |              | —       |            |  |          | —      |             |  |      
|Loss              |  |            | —      |             |  |              | —       |            |  |          | —      |             |  |      
|                  |  |            |        |             |  |              |         |            |  |          |        |             |  |      
|Total             |  |            | 86,434 |             |  |              | 163,753 |            |  |          | 24,880 |             |  |      





|December 31, 2015 |  | Commercial
 Mortgages |        | Agriculture 
Mortgages |  | Construction |         | Commercial 
and 
Industrial |  | Tax-free
 Loans |        | Agriculture 
Loans |  | Total
|----------------- |  | --------------------- | ------ | ---------------------- |  | ------------ | ------- | --------------------------- |  | --------------- | ------ | ------------------ |  | -----
|                  |  | $                     |        | $                      |  | $            |         | $                           |  | $               |        | $                  |  | $    
|Grade:            |  |                       |        |                        |  |              |         |                             |  |                 |        |                    |  |      
|Pass              |  |                       | 81,865 |                        |  |              | 154,507 |                             |  |                 | 13,822 |                    |  |      
|Special Mention   |  |                       | 511    |                        |  |              | 623     |                             |  |                 | —      |                    |  |      
|Substandard       |  |                       | 5,237  |                        |  |              | 3,191   |                             |  |                 | 1,144  |                    |  |      
|Doubtful          |  |                       | —      |                        |  |              | —       |                             |  |                 | —      |                    |  |      
|Loss              |  |                       | —      |                        |  |              | —       |                             |  |                 | —      |                    |  |      
|                  |  |                       |        |                        |  |              |         |                             |  |                 |        |                    |  |      
|Total             |  |                       | 87,613 |                        |  |              | 158,321 |                             |  |                 | 14,966 |                    |  |      



For consumer loans, the Corporation evaluates credit quality based on whether the loan is considered performing
or non-performing. A consumer loan is considered non-performing when it is over 90 days past due. Management will generally charge
off consumer loans more than 120 days past due for closed end loans and over 180 days for open-end consumer loans. The following
table presents the balances of consumer loans by classes of the loan portfolio based on payment performance as of December 31,
2016 and 2015:



CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)



|                     |  | 1-4 Family  |         |             |  | Home Equity |        |          |  |      
|-------------------- |  | ----------- | ------- | ----------- |  | ----------- | ------ | -------- |  | -----
|December 31, 2016    |  | Residential |         | Home Equity |  | Lines of    |        |          |  |      
|                     |  | Mortgages   |         | Loans       |  | Credit      |        | Consumer |  | Total
|Payment performance: |  | $           |         | $           |  | $           |        | $        |  | $    
|Performing           |  |             | 149,873 |             |  |             | 10,388 |          |  |      
|Non-performing       |  |             | 380     |             |  |             | 3      |          |  |      
|Total                |  |             | 150,253 |             |  |             | 10,391 |          |  |      



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CONSUMER CREDIT EXPOSURE

CREDIT RISK PROFILE BY PAYMENT PERFORMANCE

(DOLLARS IN THOUSANDS)



|                     |  | 1-4 Family  |         |             |  | Home Equity |        |          |  |      
|-------------------- |  | ----------- | ------- | ----------- |  | ----------- | ------ | -------- |  | -----
|December 31, 2015    |  | Residential |         | Home Equity |  | Lines of    |        |          |  |      
|                     |  | Mortgages   |         | Loans       |  | Credit      |        | Consumer |  | Total
|Payment performance: |  | $           |         | $           |  | $           |        | $        |  | $    
|                     |  |             |         |             |  |             |        |          |  |      
|Performing           |  |             | 133,220 |             |  |             | 10,278 |          |  |      
|Non-performing       |  |             | 318     |             |  |             | 10     |          |  |      
|                     |  |             |         |             |  |             |        |          |  |      
|Total                |  |             | 133,538 |             |  |             | 10,288 |          |  |      





The following tables present an age analysis of the Corporation’s
past due loans, segregated by loan portfolio class, as of December 31, 2016 and 2015:



AGING OF LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)



|                                 |  |            |       |            |  |         |       |            |  |         |     |             |  | Loans       
|-------------------------------- |  | ---------- | ----- | ---------- |  | ------- | ----- | ---------- |  | ------- | --- | ----------- |  | ------------
|December 31, 2016                |  |            |       |            |  | Greater |       |            |  |         |     |             |  | Receivable >
|                                 |  | 30-59 Days |       | 60-89 Days |  | than 90 |       | Total Past |  |         |     | Total Loans |  | 90 Days and 
|                                 |  | Past Due   |       | Past Due   |  | Days    |       | Due        |  | Current |     | Receivable  |  | Accruing    
|                                 |  | $          |       | $          |  | $       |       | $          |  | $       |     | $           |  | $           
|Commercial real estate           |  |            |       |            |  |         |       |            |  |         |     |             |  |             
|Commercial mortgages             |  |            | —     |            |  |         | 419   |            |  |         | 417 |             |  |             
|Agriculture mortgages            |  |            | 165   |            |  |         | —     |            |  |         | —   |             |  |             
|Construction                     |  |            | —     |            |  |         | —     |            |  |         | —   |             |  |             
|Consumer real estate             |  |            |       |            |  |         |       |            |  |         |     |             |  |             
|1-4 family residential mortgages |  |            | 565   |            |  |         | 662   |            |  |         | 380 |             |  |             
|Home equity loans                |  |            | 178   |            |  |         | —     |            |  |         | 3   |             |  |             
|Home equity lines of credit      |  |            | —     |            |  |         | —     |            |  |         | —   |             |  |             
|Commercial and industrial        |  |            |       |            |  |         |       |            |  |         |     |             |  |             
|Commercial and industrial        |  |            | 266   |            |  |         | —     |            |  |         | 75  |             |  |             
|Tax-free loans                   |  |            | —     |            |  |         | —     |            |  |         | —   |             |  |             
|Agriculture loans                |  |            | —     |            |  |         | —     |            |  |         | —   |             |  |             
|Consumer                         |  |            | 16    |            |  |         | 4     |            |  |         | 1   |             |  |             
|Total                            |  |            | 1,190 |            |  |         | 1,085 |            |  |         | 876 |             |  |             



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|                                 |  |            |       |            |  |         |     |            |  |         |     |             |  |             
|-------------------------------- |  | ---------- | ----- | ---------- |  | ------- | --- | ---------- |  | ------- | --- | ----------- |  | ------------
|                                 |  |            |       |            |  |         |     |            |  |         |     |             |  | Loans       
|December 31, 2015                |  |            |       |            |  | Greater |     |            |  |         |     |             |  | Receivable >
|                                 |  | 30-59 Days |       | 60-89 Days |  | than 90 |     | Total Past |  |         |     | Total Loans |  | 90 Days and 
|                                 |  | Past Due   |       | Past Due   |  | Days    |     | Due        |  | Current |     | Receivable  |  | Accruing    
|                                 |  | $          |       | $          |  | $       |     | $          |  | $       |     | $           |  | $           
|Commercial real estate           |  |            |       |            |  |         |     |            |  |         |     |             |  |             
|Commercial mortgages             |  |            | —     |            |  |         | 601 |            |  |         | —   |             |  |             
|Agriculture mortgages            |  |            | —     |            |  |         | —   |            |  |         | —   |             |  |             
|Construction                     |  |            | —     |            |  |         | —   |            |  |         | —   |             |  |             
|Consumer real estate             |  |            |       |            |  |         |     |            |  |         |     |             |  |             
|1-4 family residential mortgages |  |            | 1,264 |            |  |         | 123 |            |  |         | 318 |             |  |             
|Home equity loans                |  |            | 27    |            |  |         | 59  |            |  |         | 10  |             |  |             
|Home equity lines of credit      |  |            | 35    |            |  |         | —   |            |  |         | 47  |             |  |             
|Commercial and industrial        |  |            |       |            |  |         |     |            |  |         |     |             |  |             
|Commercial and industrial        |  |            | 20    |            |  |         | 9   |            |  |         | —   |             |  |             
|Tax-free loans                   |  |            | —     |            |  |         | —   |            |  |         | —   |             |  |             
|Agriculture loans                |  |            | —     |            |  |         | —   |            |  |         | —   |             |  |             
|Consumer                         |  |            | 17    |            |  |         | 17  |            |  |         | 3   |             |  |             
|Total                            |  |            | 1,363 |            |  |         | 809 |            |  |         | 378 |             |  |             



As of December 31, 2016, 2015, and 2014, all of the Corporation’s
loans on non-accrual status were also considered impaired. Interest income on loans would have increased by approximately $23,000,$23,000, and $39,000 during 2016, 2015, and 2014, respectively, if these loans had
performed in accordance with their original terms.





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The following table presents non-accrual loans by classes of the
loan portfolio as of December 31:



NON-ACCRUAL LOANS BY LOAN CLASS

(DOLLARS IN THOUSANDS)



|                                 |  | 2016 |     | 2015
|-------------------------------- |  | ---- | --- | ----
|                                 |  | $    |     | $   
|Commercial real estate           |  |      |     |     
|Commercial mortgages             |  |      | 646 |     
|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        |  |      | 75  |     
|Tax-free loans                   |  |      | —   |     
|Agriculture loans                |  |      | —   |     
|Consumer                         |  |      | —   |     
|Total                            |  |      | 721 |     



During 2016, 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 granted in order to improve the financial condition of the borrower
and improve the likelihood of full collection by the lender. 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.



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The following table summarizes information in regards to
impaired loans by loan portfolio class as of December 31, 2016:



IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)



|                                    |  | Recorded
 Investment |       | Unpaid 
Principal 
Balance |  | Related
 Allowance |       | Average 
Recorded
 Investment |  | Interest
 Income 
Recognized
|----------------------------------- |  | -------------------- | ----- | -------------------------- |  | ------------------ | ----- | ----------------------------- |  | ----------------------------
|                                    |  | $                    |       | $                          |  | $                  |       | $                             |  | $                           
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|With no related allowance recorded: |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial real estate              |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial mortgages                |  |                      | 646   |                            |  |                    | 743   |                               |  |                             
|Agriculture mortgages               |  |                      | 1,248 |                            |  |                    | 1,248 |                               |  |                             
|Construction                        |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial real estate        |  |                      | 1,894 |                            |  |                    | 1,991 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      | 75    |                            |  |                    | 75    |                               |  |                             
|Tax-free loans                      |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Agriculture loans                   |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial and industrial     |  |                      | 75    |                            |  |                    | 75    |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Total with no related allowance     |  |                      | 1,969 |                            |  |                    | 2,066 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|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                |  |                      | 646   |                            |  |                    | 743   |                               |  |                             
|Agriculture mortgages               |  |                      | 1,248 |                            |  |                    | 1,248 |                               |  |                             
|Construction                        |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial real estate        |  |                      | 1,894 |                            |  |                    | 1,991 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      | 75    |                            |  |                    | 75    |                               |  |                             
|Tax-free loans                      |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Agriculture loans                   |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial and industrial     |  |                      | 75    |                            |  |                    | 75    |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Total                               |  |                      | 1,969 |                            |  |                    | 2,066 |                               |  |                             





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The following table summarizes information
in regards to impaired loans by loan portfolio class as of December 31, 2015:



IMPAIRED LOAN ANALYSIS

(DOLLARS IN THOUSANDS)



|                                    |  | Recorded
 Investment |       | Unpaid
 Principal 
Balance |  | Related
 Allowance |       | Average
 Recorded 
Investment |  | Interest
 Income 
Recognized
|----------------------------------- |  | -------------------- | ----- | -------------------------- |  | ------------------ | ----- | ----------------------------- |  | ----------------------------
|                                    |  | $                    |       | $                          |  | $                  |       | $                             |  | $                           
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|With no related allowance recorded: |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial real estate              |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial mortgages                |  |                      | 380   |                            |  |                    | 952   |                               |  |                             
|Agriculture mortgages               |  |                      | 1,325 |                            |  |                    | 1,325 |                               |  |                             
|Construction                        |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial real estate        |  |                      | 1,705 |                            |  |                    | 2,277 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      | —     |                            |  |                    | 49    |                               |  |                             
|Tax-free loans                      |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Agriculture loans                   |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial and industrial     |  |                      | —     |                            |  |                    | 49    |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Total with no related allowance     |  |                      | 1,705 |                            |  |                    | 2,326 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|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                |  |                      | 380   |                            |  |                    | 952   |                               |  |                             
|Agriculture mortgages               |  |                      | 1,325 |                            |  |                    | 1,325 |                               |  |                             
|Construction                        |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial real estate        |  |                      | 1,705 |                            |  |                    | 2,277 |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      |       |                            |  |                    |       |                               |  |                             
|Commercial and industrial           |  |                      | —     |                            |  |                    | 49    |                               |  |                             
|Tax-free loans                      |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Agriculture loans                   |  |                      | —     |                            |  |                    | —     |                               |  |                             
|Total commercial and industrial     |  |                      | —     |                            |  |                    | 49    |                               |  |                             
|                                    |  |                      |       |                            |  |                    |       |                               |  |                             
|Total                               |  |                      | 1,705 |                            |  |                    | 2,326 |                               |  |                             



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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




The following table details activity in the allowance for loan losses
by portfolio segment for the year ended December 31, 2016:



ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)



|                             |  |             |         |             |  | Commercial |         |          |  |             |        |      
|---------------------------- |  | ----------- | ------- | ----------- |  | ---------- | ------- | -------- |  | ----------- | ------ | -----
|                             |  | Commercial  |         | Consumer    |  | and        |         |          |  |             |        |      
|                             |  | Real Estate |         | Real Estate |  | Industrial |         | Consumer |  | Unallocated |        | Total
|                             |  | $           |         | $           |  | $          |         | $        |  | $           |        | $    
|Allowance for credit losses: |  |             |         |             |  |            |         |          |  |             |        |      
|Beginning balance            |  |             | 3,831   |             |  |            | 1,403   |          |  |             | 1,314  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Charge-offs                  |  |             | —       |             |  |            | —       |          |  |             | (23    | )    
|Recoveries                   |  |             | —       |             |  |            | 10      |          |  |             | 193    |      
|Provision (credit)           |  |             | (36     | )           |  |            | 239     |          |  |             | 68     |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 3,795   |             |  |            | 1,652   |          |  |             | 1,552  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | —       |             |  |            | —       |          |  |             | —      |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 3,795   |             |  |            | 1,652   |          |  |             | 1,552  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Loans receivable:            |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 275,067 |             |  |            | 213,771 |          |  |             | 77,192 |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 1,894   |             |  |            | —       |          |  |             | 75     |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 273,173 |             |  |            | 213,771 |          |  |             | 77,117 |      



The dollar amount of the allowance increased for all loan segments
with the exception of commercial real estate since December 31, 2015. Loan growth resulted in higher allowance balances but delinquencies,
non-performing loans, and classified loans were all down from prior years’ levels so the Corporation is not carrying as large
of an allowance as a percentage of total loans. The amout of allowance allocated to commercial real estate remained at nearly the
same level as the prior year. While commercial real estate loans increased $14.2 million, or 5.4% from December 31, 2015 to December
31, 2016, the allowance remained at the same level due to improvements in the qualititative factors . The growth rate of agricultural
real estate lending slowed significantly and commercial real estate outside of agricultural real estate showed a slight decline.
While commercial real estate construction accounted for the majority of the commercial real estate growth, the health of the Corporation’s
developers had improved from 2015 to 2016 not requiring any additional reserves. The December 31, 2016 ending balance of the allowance
was up $484,000, or 6.8%, from December 31, 2015, but the allowance as a percentage of total loans declined from 1.36% as of December
31, 2015, to 1.32% as of December 31, 2016.



The Corporation recorded provision expense for the consumer real
estate segment to compensate for 7% growth in the residential mortgage portfolio and 32% growth in home equity loans. A smaller
provision was recorded for commercial and industrial loans to account for 1% growth coupled with a five basis point increase in
the qualitative factor adjustment for that pool. Provision expense of $41,000 was booked against the consumer loan segment in response
to $31,000 of charge-offs and a 16.6% increase in unsecured consumer loan balances.

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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




The following table details activity in the allowance for loan losses
by portfolio segment for the year ended December 31, 2015:



ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)



|                             |  |             |         |             |  | Commercial |         |          |  |             |        |      
|---------------------------- |  | ----------- | ------- | ----------- |  | ---------- | ------- | -------- |  | ----------- | ------ | -----
|                             |  | Commercial  |         | Consumer    |  | and        |         |          |  |             |        |      
|                             |  | Real Estate |         | Real Estate |  | Industrial |         | Consumer |  | Unallocated |        | Total
|                             |  | $           |         | $           |  | $          |         | $        |  | $           |        | $    
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Allowance for credit losses: |  |             |         |             |  |            |         |          |  |             |        |      
|Beginning balance            |  |             | 3,834   |             |  |            | 1,367   |          |  |             | 1,301  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Charge-offs                  |  |             | (272    | )           |  |            | (28     | )        |  |             | (44    | )    
|Recoveries                   |  |             | 34      |             |  |            | —       |          |  |             | 112    |      
|Provision (credit)           |  |             | 235     |             |  |            | 64      |          |  |             | (55    | )    
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 3,831   |             |  |            | 1,403   |          |  |             | 1,314  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | —       |             |  |            | —       |          |  |             | —      |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 3,831   |             |  |            | 1,403   |          |  |             | 1,314  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Loans receivable:            |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 260,900 |             |  |            | 181,200 |          |  |             | 73,577 |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 1,705   |             |  |            | —       |          |  |             | —      |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 259,195 |             |  |            | 181,200 |          |  |             | 73,577 |      



The dollar amount of the allowance for all major loan segments did
not change materially from December 31, 2014 to December 31, 2015, however the allowance as a percentage of loan balances did decline
for all segments. Delinquencies, non-performing loans, and classified loans were all down from prior years’ levels so the
Corporation was not carrying as large of an allowance as a percentage of total loans. The December 31, 2015 ending balance of the
allowance was down $63,000, or 0.9%, from December 31, 2014.



The Corporation recorded provision expense for the commercial real
estate segment to compensate for increased charge-off activity in that segment. Provision expense was also recorded for the consumer
real estate and consumer segments of the portfolio, but at smaller levels primarily due to limited charge-offs and growth within
those portfolios. The Corporation was able to record a credit provision for the commercial and industrial segment due to continued
improvements in credit loss experience and additional recoveries received. Commercial and industrial charge-offs in 2015 were only
$44,000, while recoveries totaled $112,000. This enabled management to record a $55,000 credit provision for this segment.



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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




The following table details activity in the allowance for loan losses
by portfolio segment for the year ended December 31, 2014:



ALLOWANCE FOR CREDIT LOSSES AND RECORDED INVESTMENT IN LOANS RECEIVABLE

(DOLLARS IN THOUSANDS)



|                             |  |             |         |             |  | Commercial |         |          |  |             |        |      
|---------------------------- |  | ----------- | ------- | ----------- |  | ---------- | ------- | -------- |  | ----------- | ------ | -----
|                             |  | Commercial  |         | Consumer    |  | and        |         |          |  |             |        |      
|                             |  | Real Estate |         | Real Estate |  | Industrial |         | Consumer |  | Unallocated |        | Total
|                             |  | $           |         | $           |  | $          |         | $        |  | $           |        | $    
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Allowance for credit losses: |  |             |         |             |  |            |         |          |  |             |        |      
|Beginning balance            |  |             | 3,657   |             |  |            | 1,346   |          |  |             | 1,416  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Charge-offs                  |  |             | (204    | )           |  |            | —       |          |  |             | (12    | )    
|Recoveries                   |  |             | —       |             |  |            | 5       |          |  |             | 201    |      
|Provision (credit)           |  |             | 381     |             |  |            | 16      |          |  |             | (304   | )    
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 3,834   |             |  |            | 1,367   |          |  |             | 1,301  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 1       |             |  |            | —       |          |  |             | —      |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 3,833   |             |  |            | 1,367   |          |  |             | 1,301  |      
|                             |  |             |         |             |  |            |         |          |  |             |        |      
|Loans receivable:            |  |             |         |             |  |            |         |          |  |             |        |      
|Ending balance               |  |             | 243,623 |             |  |            | 163,266 |          |  |             | 60,300 |      
|Ending balance: individually |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 2,285   |             |  |            | —       |          |  |             | 73     |      
|Ending balance: collectively |  |             |         |             |  |            |         |          |  |             |        |      
|evaluated for impairment     |  |             | 241,338 |             |  |            | 163,266 |          |  |             | 60,227 |      



In 2014, the Corporation allocated increased provisions to the commercial
real estate segment due to increased charge-off activity in that segment. The Corporation decreased the amount of the allowance
for loan loss allocated to the commercial and industrial segment due to continued improvements in credit loss experience and additional
recoveries received. Actual credit losses were materially below previous estimates. Commercial and industrial charge-offs in 2014
were only a third of the 2013 amount while recoveries nearly tripled. This enabled management to decrease this element of the allowance.
Delinquencies and credit losses remain very low in the three categories of commercial and industrial. This segment also includes
tax-free loans to municipalities and agricultural purpose loans, which account for nearly half of the total commercial and industrial
loans.



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NOTE D – PREMISES AND EQUIPMENT

(DOLLARS IN THOUSANDS)



The major classes of the Corporation’s premises and equipment
and accumulated depreciation are as follows:



|                              |  | December 31,
|----------------------------- |  | ------------
|                              |  | 2016        
|                              |  | $           
|Land                          |  |             
|Buildings and improvements    |  |             
|Furniture and equipment       |  |             
|Construction in process       |  |             
|Total                         |  |             
|Less accumulated depreciation |  |             
|Premises and equipment        |  |             



Depreciation expense, which is included in operating expenses, amounted
to $1,408,000 for 2016, $1,440,000 for 2015, and $1,356,000 for 2014. The construction in process category represents expenditures
for ongoing projects. When construction is completed, these amounts will be reclassified into buildings and improvements, and/or
furniture and equipment. Depreciation only begins when the project or asset is placed into service. As of December 31, 2016, the
construction in process consists primarily of costs associated with improvements being made to new or existing facilities expected
to be completed in 2017.





NOTE E – REGULATORY STOCK



The Bank is a member of the Federal Home Loan Bank (FHLB) of Pittsburgh,
which is one of 12 regional Federal Home Loan Banks. Each FHLB serves as a reserve or central bank for its members within its assigned
region.  As a member, the Bank is required to purchase and maintain stock in the FHLB in an amount equal to 0.10% of its asset
value plus an additional 4% of its outstanding advances from the FHLB and mortgage partnership finance loans sold to the FHLB. 
At December 31, 2016, the Bank held $5,184,000 in stock of the FHLB, and as of December 31, 2015, the Bank held $4,126,000
of FHLB stock.



The FHLB repurchases excess capital stock on a quarterly basis and
pays a quarterly dividend on stock held by the Corporation. The FHLB’s quarterly dividend yield was 5.00% annualized on activity
stock and 2.00% annualized on membership stock as of December 31, 2016. 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. In addition to the normal quarterly
dividend, the FHLB paid a special dividend in the first quarter of 2015 due to their record earnings and strong financial position
as of December 31, 2014. The Corporation will continue to monitor the financial condition of the FHLB quarterly to assess its ability
to continue to regularly repurchase excess capital stock and pay a quarterly dividend.



The Corporation also owned $151,000 of Federal Reserve Bank stock
and $37,000 of Atlantic Community Bankers’ Bank stock as of December 31, 2016 and December 31, 2015.



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NOTE F – DEPOSITS

(DOLLARS IN THOUSANDS)



Deposits by major classifications are summarized as follows:



|                                  |  | December 31,
|--------------------------------- |  | ------------
|                                  |  | 2016        
|                                  |  | $           
|                                  |  |             
|Non-interest bearing demand       |  |             
|Interest-bearing demand           |  |             
|NOW accounts                      |  |             
|Money market deposit accounts     |  |             
|Savings accounts                  |  |             
|Time deposits under $250,000      |  |             
|Time deposits of $250,000 or more |  |             
|Total deposits                    |  |             





At December 31, 2016, the scheduled maturities of time deposits are as follows:



|2017  |  |  | 67,666  | 
|----- |  |  | ------- | 
|2018  |  |  | 29,429  | 
|2019  |  |  | 21,911  | 
|2020  |  |  | 19,957  | 
|2021  |  |  | 22,641  | 
|      |  |  |         | 
|Total |  |  | 161,604 | 





NOTE G – SHORT TERM BORROWINGS

(DOLLARS IN THOUSANDS)



Short-term borrowings consist of Federal funds purchased that mature
one business day from the transaction date, overnight borrowings from the Federal Reserve Discount Window, and FHLB advances with
a term of less than one year.



A summary of short-term borrowings is as follows for the years ended
December 31, 2016, 2015, and 2014:



|                                                    |  | 2016 |        | 2015 |  | 2014
|--------------------------------------------------- |  | ---- | ------ | ---- |  | ----
|                                                    |  | $    |        | $    |  | $   
|                                                    |  |      |        |      |  |     
|Total short-term borrowings outstanding at year end |  |      | 8,329  |      |  |     
|Average interest rate at year end                   |  |      | 0.65   |      |  |     
|Maximum outstanding at any month end                |  |      | 16,532 |      |  |     
|Average amount outstanding for the year             |  |      | 11,087 |      |  |     
|Weighted-average interest rate for the year         |  |      | 0.49%  |      |  |     





As of December 31, 2016, the Corporation had approved
unsecured Federal funds lines of $32 million. The Corporation also has the ability to borrow through the FRB Discount Window. The
amount of borrowing available through the Discount Window was $31.0 million as of December 31, 2016. For further information on
borrowings from the FHLB see Note H.

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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




NOTE H – OTHER BORROWED FUNDS

(DOLLARS IN THOUSANDS)



Maturities of other borrowings at December 31, 2016, and 2015, are summarized as follows:



|                       |  | December 31,
|---------------------- |  | ------------
|                       |  | 2016        
|                       |  |             
|                       |  |             
|                       |  | Amount      
|                       |  | $           
|                       |  |             
|FHLB fixed rate loans  |  |             
|2016                   |  |             
|2017                   |  |             
|2018                   |  |             
|2019                   |  |             
|2020                   |  |             
|2021                   |  |             
|2022                   |  |             
|                       |  |             
|Total other borrowings |  |             



As a member of the FHLB of Pittsburgh, the
Corporation has access to significant credit facilities. Borrowings from FHLB are secured with a blanket security agreement and
the required investment in FHLB member bank stock. As part of the security agreement, the Corporation maintains unencumbered qualifying
assets (principally 1-4 family residential mortgage loans) in an amount at least as much as the advances from the FHLB. Additionally,
all of the Corporation’s FHLB stock is pledged to secure these advances.



The Corporation had an FHLB maximum borrowing capacity of $343.4
million as of December 31, 2016, with remaining borrowing capacity of $273.8 million. The borrowing arrangement with the FHLB is
subject to annual renewal. The maximum borrowing capacity is recalculated quarterly.



As of December 31, 2016 and 2015, the Corporation had no securities
sold under an agreement to repurchase, but as of December 31, 2014, there were two securities sold under an agreement to repurchase,
for $10.0 million. These repurchase agreements were accounted for as collateralized financing. All repurchase instruments had call
features with different variable-to-fixed and fixed-to-variable rate provisions. A summary of repurchase agreements for the years
ended December 31, 2016, 2015, and 2014 is as follows:



REPURCHASE AGREEMENTS

(DOLLAR IN THOUSANDS)

|                                              |  | 2016 |   | 2015 |  | 2014
|--------------------------------------------- |  | ---- | - | ---- |  | ----
|                                              |  | $    |   | $    |  | $   
|Repurchase agreements outstanding at year end |  |      | — |      |  |     
|Average interest rate at year end             |  |      | — |      |  |     
|Maximum outstanding at any month end          |  |      | — |      |  |     
|Average amount outstanding for the year       |  |      | — |      |  |     
|Weighted-average interest rate for the year   |  |      | — |      |  |     



The Corporation uses repurchase agreements as a secondary source
of funding after customer deposits as a way to mitigate interest rate risk and extend liability length. Management views repurchase
agreements as a diversification of funding outside of the FHLB. However, post the financial crisis period, repurchase agreements
have not been offered to the extent they were before and they also have not been as competitive compared to other long-term funding
options, hence no new repurchase agreements have been entered into since 2008.



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NOTE I – CAPITAL TRANSACTIONS



On June 17, 2015, the Board of Directors of ENB Financial Corp announced
the approval of a new plan to purchase, in open market and privately negotiated transactions, up to 140,000 shares of its outstanding
common stock. Shares repurchased are being held as treasury shares to be utilized in connection with the Corporation’s three
stock purchase plans. The first purchase of common stock under this plan occurred on July 31, 2015. As of December 31, 2016, a
total of 26,135 shares were repurchased under this plan at a weighted-average cost per share of $32.99.



Currently, the following three stock purchase plans are
in place:

| | · | a nondiscriminatory employee stock purchase plan (ESPP), which allows employees to purchase shares at a 10% discount from the
stock’s fair market value at the end of each quarter,
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | · | a dividend reinvestment plan (DRP), and;
| | - | ----------------------------------------

| | · | a directors’ stock purchase plan (DSPP).
| | - | ----------------------------------------



The ESPP was started in 2001 and is the largest of the three plans.
There were 6,880 shares issued through the ESPP in 2016 with 92,490 shares issued since existence. The DRP was started in 2005
and has grown to nearly as large as the ESPP with 6,265 shares issued in 2016 and 85,069 total shares issued since existence. Lastly,
the DSPP was started in 2010 as an additional option for board compensation. This plan is limited to outside directors. Only 1,713
shares were issued in connection with this plan in 2016 and 14,825 since existence. In 2015, there were 7,527 shares issued through
the ESPP, 6,371 shares issued through the DRP, and 1,725 shares issued through the DSPP. The plans are beneficial to the Corporation
as all reissued shares increase capital and since dividends are paid out in the form of additional shares, the plans act as a source
of funds.



All plans issue shares from treasury shares acquired. During 2016,
14,858 shares were reissued from treasury shares in connection with the plans. As of December 31, 2016, the Corporation held 19,175
treasury shares, at a weighted-average cost of $32.75 per share, with a cost basis of $628,000.





NOTE J – RETIREMENT PLANS



The Corporation provides an optional 401(k) plan, in which employees
may elect to defer pre-tax or after-tax salary dollars, subject to the maximum annual Internal Revenue Service contribution amounts.
The contribution maximum for 2016 and 2015 was $18,000, and in 2014 was $17,500 for persons under age 50, and for persons over
age 50 was $24,000 in 2016 and $23,000 in 2015 and 2014.  The Corporation matches employee contributions into the 401(k) plan
at a rate of 50% on the first 5.0% of employee contributions. The Corporation’s cost for this 401(k) match was $266,000,
$225,000 and $219,000 for 2016, 2015, and 2014, respectively.



Effective January 1, 2016, the Corporation consolidated its Money
Purchase Pension Plan and 401(k) Savings Plan. In the process of the consolidation the Money Purchase Pension feature was discontinued
and replaced with a Non-Elective Safe Harbor feature and a Non-Elective Employer Contribution feature. Under the new plan, the
Corporation provides a Non-Elective Safe Harbor Contribution equal to 3% of all employee’s compensation for the year. Additionally,
the Corporation may contribute a Non-Elective Employer Contribution of up to 2% annually to all employees aged 21 or older who
work 1,000 or greater hours in a calendar year and have met the eligibility requirements of the plan. In year 2015 and 2014, the
Corporation provided 5% of all employee compensation in the Money Purchase Pension Plan for qualifying employees. The qualification
for the Non-Elective Employer Contribution under the new 401(k) Savings Plan mirrors the requirements of the Money Purchase Pension
Plan. Effective January 1, 2016, the balance of the Money Purchase Pension Plan was transferred into the new 401(k) Savings Plan.



For purposes of the new 401(k) Savings Plan and the former Money
Purchase Pension Plan, covered compensation was limited to $265,000 in 2016, $265,000 in 2015, and $260,000 in 2014.  Total
expenses of the plan were $651,000, $497,000, and $470,000, for 2016, 2015, and 2014, respectively.  The Corporation’s
new 401(k) Savings Plan is fully funded as all obligations are funded monthly.



Employees who have met the eligibility requirements of the new
plan have the potential to receive employer contributions of 7.5% of their compensation. Employees that contributed at least 5%
of their compensation into the new 401(k) Savings Plan will continue to receive an employer matching contribution of 2.5% of their
compensation.

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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements


Employees who met the eligibility requirements under the new 401(k) Savings Plan will receive a Non-Elective Safe
Harbor Contribution of 3% of their compensation and may receive a Non-Elective Employer Contribution of 2% of their compensation.



NOTE K - DEFERRED COMPENSATION



Prior to 1999, directors of the Corporation had the ability to defer
their directors’ fees into a directors’ deferred compensation plan. Directors electing to defer their compensation
signed a contract that allowed the Corporation to take out a life insurance policy on the director designed to fund the future
deferred compensation obligation, which is paid out over a ten-year period at retirement age. A contract and life insurance policy
was taken out for each period of pay deferred. The amount of deferred compensation to be paid to each director was actuarially
determined based on the amount of life insurance the annual directors’ fees were able to purchase. This amount varies for
each director depending on age, general health, and the number of years until the director is entitled to begin receiving payments.
The Corporation is the owner and beneficiary of all life insurance policies on the directors.



At the time the directors’ pay was deferred, the Corporation
used the amount of the annual directors’ fees to pay the premiums on the life insurance policies. The Corporation could continue
to pay premiums after the deferment period, or could allow the policies to fund annual premiums through loans against the policy’s
cash surrender value. The Corporation has continued to pay the premiums on the life insurance policies and no loans exist on the
policies.



The life insurance policies had an aggregate face amount of $3,409,000
for December 31, 2016, and December 31, 2015. The death benefits totaled $6,399,000 at December 31, 2016 and 2015. The cash surrender
value of the above policies totaled $4,726,000 and $4,516,000 as of December 31, 2016, and 2015, respectively. The net present
value of the vested portion of deferred payments totaled $279,000 at December 31, 2016, and $435,000 at December 31, 2015. The
interest rate used to discount these obligations was 4.50% for 2016 and 2015. These net present value amounts are included in other
liabilities on the Corporation’s Consolidated Balance Sheets. Total charges to expense for deferred compensation amounted
to $16,000 for 2016, $23,000 for 2015, and $29,000 for 2014, and are included in other operating expenses in the Consolidated Statements
of Income.





NOTE L - INCOME TAXES



Federal income tax expense as reported differs from the amount
computed by applying the statutory Federal income tax rate to income before taxes. A reconciliation of the differences by amount
and percent is as follows:



|FEDERAL INCOME TAX SUMMARY      |  |                         |        |      |  |      |       |   |  |  
|------------------------------- |  | ----------------------- | ------ | ---- |  | ---- | ----- | - |  | -
|(DOLLARS IN THOUSANDS)          |  | Year Ended December 31,
|                                |  | 2016                    |        | 2015 |  | 2014
|                                |  | $                       |        | %    |  | $    |       | % |  | $
|                                |  |                         |        |      |  |      |       |   |  |  
|Income tax at statutory rate    |  |                         | 3,028  |      |  |      | 34.0  |   |  |  
|Tax-exempt interest income      |  |                         | (1,478 | )    |  |      | (16.6 | ) |  |  
|Non-deductible interest expense |  |                         | 52     |      |  |      | 0.6   |   |  |  
|Bank-owned life insurance       |  |                         | (267   | )    |  |      | (3.0  | ) |  |  
|Other                           |  |                         | 18     |      |  |      | 0.2   |   |  |  
|                                |  |                         |        |      |  |      |       |   |  |  
|Income tax expense              |  |                         | 1,353  |      |  |      | 15.2  |   |  |  



The ability to realize the benefit of deferred tax assets is dependent
upon a number of factors, including the generation of future taxable income, the ability to carry back losses to recover taxes
paid in previous years, the ability to offset capital losses with capital gains, the reversal of deferred tax liabilities, and
certain tax planning strategies.



The Corporation has a deferred tax asset for credits related to
Alternative Minimum Taxes (AMT) of $1,043,000 as of December 31, 2016, and $1,085,000 as of December 31, 2015. The AMT credits
have an unlimited carry-forward period. No valuation has been established for these deferred tax assets in view of the Corporation’s
ability to carry forward tax credits to future years, coupled with the anticipated future taxable income as evidenced by the Corporation’s
earnings potential.



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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements




U.S. generally accepted accounting principles prescribe a recognition
threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected
to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more
likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full
knowledge of all relevant information. A tax position that meets the more-likely-than-not recognition threshold is measured at
the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. Tax positions
that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial
reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not
recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no
longer met.



There is currently no liability for uncertain tax positions and
no known unrecognized tax benefits. The Corporation recognizes, when applicable, interest and penalties related to unrecognized
tax benefits in the provision for income taxes in the Consolidated Statements of Income. With few exceptions, the Corporation is
no longer subject to U.S. federal, state, or local income tax examinations by tax authorities for years before 2013.





|Significant components of income tax expense are as follows: |  |                         |       |      |  |     
|------------------------------------------------------------ |  | ----------------------- | ----- | ---- |  | ----
|(DOLLARS IN THOUSANDS)                                       |  | Year Ended December 31,
|                                                             |  | 2016                    |       | 2015 |  | 2014
|                                                             |  | $                       |       | $    |  | $   
|Current tax expense                                          |  |                         | 1,734 |      |  |     
|Deferred tax expense (benefit)                               |  |                         | (381  | )    |  |     
|Valuation allowance adjustment                               |  |                         | —     |      |  |     
|Income tax expense                                           |  |                         | 1,353 |      |  |     





|Components of the Corporation's net deferred tax position are as follows: |  |              |        |     
|------------------------------------------------------------------------- |  | ------------ | ------ | ----
|(DOLLARS IN THOUSANDS)                                                    |  | December 31,
|                                                                          |  | 2016         |        | 2015
|                                                                          |  | $            |        | $   
|                                                                          |  |              |        |     
|Deferred tax assets                                                       |  |              |        |     
|Allowance for loan losses                                                 |  |              | 2,571  |     
|Net unrealized holding losses on securities available for sale            |  |              | 2,516  |     
|Deferred compensation reserve                                             |  |              | 95     |     
|Capital loss carryforward                                                 |  |              | —      |     
|Tax credit carryforward                                                   |  |              | 1,043  |     
|Allowance for off-balance sheet extensions of credit                      |  |              | 117    |     
|Interest on non-accrual loans                                             |  |              | 166    |     
|Other                                                                     |  |              | 7      |     
|Total deferred tax assets                                                 |  |              | 6,515  |     
|Valuation allowance                                                       |  |              | —      |     
|Net deferred taxes                                                        |  |              | 6,515  |     
|                                                                          |  |              |        |     
|Deferred tax liabilities                                                  |  |              |        |     
|Premises and equipment                                                    |  |              | (1,497 | )   
|Net unrealized holding gains on securities available for sale             |  |              | —      |     
|Discount on investment securities                                         |  |              | —      |     
|Other                                                                     |  |              | (41    | )   
|Total deferred tax liabilities                                            |  |              | (1,538 | )   
|Net deferred tax assets                                                   |  |              | 4,977  |     



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NOTE M – REGULATORY MATTERS AND RESTRICTIONS



The Corporation and the Bank are subject to various regulatory capital
requirements administered by the Federal banking agencies. Failure to meet the minimum capital requirements can initiate certain
mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect
on the Corporation’s consolidated financial statements.



Under capital adequacy guidelines and the regulatory framework
for prompt corrective action, the Corporation and the Bank must meet specific capital guidelines that involve quantitative measures
of their assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital
amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and
other factors. The quantitative measures established by regulation to ensure capital adequacy require the Corporation and the
Bank to maintain minimum amounts and ratios (set forth below) of tier I capital to average assets, and common equity tier I capital,
tier I capital, and total capital to risk-weighted assets.



As of December 31, 2016 and 2015, the Corporation and Bank were
categorized as “well capitalized” under the regulatory framework for prompt corrective action. There are no conditions
or events since that notification that management believes have changed the institution’s category. The following chart details
the Corporation’s and the Bank’s capital levels as of December 31, 2016 and December 31, 2015, compared to regulatory
levels.



|CAPITAL LEVELS                                       |  |        |         |                   |  |                  |      |                   |  | To Be Well       
|---------------------------------------------------- |  | ------ | ------- | ----------------- |  | ---------------- | ---- | ----------------- |  | -----------------
|(DOLLARS IN THOUSANDS)                               |  |        |         |                   |  |                  |      |                   |  | Capitalized Under
|                                                     |  |        |         |                   |  | For Capital      |      | Prompt Corrective
|                                                     |  | Actual |         | Adequacy Purposes |  | Action Provision
|                                                     |  | $      |         | %                 |  | $                |      | %                 |  | $                
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|As of December 31, 2016                              |  |        |         |                   |  |                  |      |                   |  |                  
|Total Capital to Risk-Weighted Assets                |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 107,732 |                   |  |                  | 15.2 |                   |  |                  
|Bank                                                 |  |        | 106,084 |                   |  |                  | 15.0 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Tier I Capital to Risk-Weighted Assets               |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 99,824  |                   |  |                  | 14.1 |                   |  |                  
|Bank                                                 |  |        | 98,176  |                   |  |                  | 13.9 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Common Equity Tier I Capital to Risk-Weighted Assets |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 99,824  |                   |  |                  | 14.1 |                   |  |                  
|Bank                                                 |  |        | 98,176  |                   |  |                  | 13.9 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Tier I Capital to Average Assets                     |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 99,824  |                   |  |                  | 10.2 |                   |  |                  
|Bank                                                 |  |        | 98,176  |                   |  |                  | 10.1 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|As of December 31, 2015                              |  |        |         |                   |  |                  |      |                   |  |                  
|Total Capital to Risk-Weighted Assets                |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 102,891 |                   |  |                  | 15.9 |                   |  |                  
|Bank                                                 |  |        | 101,791 |                   |  |                  | 15.8 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Tier I Capital to Risk-Weighted Assets               |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 95,353  |                   |  |                  | 14.8 |                   |  |                  
|Bank                                                 |  |        | 94,258  |                   |  |                  | 14.6 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Common Equity Tier I Capital to Risk-Weighted Assets |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 95,353  |                   |  |                  | 14.8 |                   |  |                  
|Bank                                                 |  |        | 94,258  |                   |  |                  | 14.6 |                   |  |                  
|                                                     |  |        |         |                   |  |                  |      |                   |  |                  
|Tier I Capital to Average Assets                     |  |        |         |                   |  |                  |      |                   |  |                  
|Consolidated                                         |  |        | 95,353  |                   |  |                  | 10.8 |                   |  |                  
|Bank                                                 |  |        | 94,258  |                   |  |                  | 10.7 |                   |  |                  



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In addition to the capital guidelines, certain laws restrict the
amount of dividends paid to stockholders in any given year. The approval of the OCC shall be required if the total of all dividends
declared by the Corporation in any year shall exceed the total of its net profits for that year combined with retained net profits
of the preceding two years. Under this restriction, the Corporation could declare dividends in 2017, without the approval of the
OCC, of approximately $7.4 million, plus an additional amount equal to the Corporation’s net profits for 2017, up to the
date of any such dividend declaration.





NOTE N – TRANSACTIONS WITH DIRECTORS AND OFFICERS



The following table presents activity in the amounts due from directors,
executive officers, immediate family, and affiliated companies. These transactions are made on the same terms and conditions, including
interest rates and collateral requirements as those prevailing at the time for comparable transactions with others. An analysis
of the activity with respect to such aggregate loans to related parties is shown below.



|LOANS TO INSIDERS          |  |       
|-------------------------- |  | ------
|(DOLLARS IN THOUSANDS)     |  |       
|                           |  | Actual
|                           |  | $     
|                           |  |       
|Balance, January 1, 2015   |  |       
|Advances                   |  |       
|Repayments                 |  |       
|Other Changes              |  |       
|Balance, December 31, 2015 |  |       
|                           |  |       
|Balance, January 1, 2016   |  |       
|Advances                   |  |       
|Repayments                 |  |       
|Balance, December 31, 2016 |  |       



In the Corporation’s case, other changes in the table above
for the year ended December 31, 2015, represented two executive officers who retired during the year.



Deposits from the insiders totaled $4,999,000 as of December 31,
2016, and $5,282,000 as of December 31, 2015.





NOTE O - COMMITMENTS AND CONTINGENCIES



In the normal course of business, the Corporation makes various
commitments that are not reflected in the accompanying consolidated financial statements. These are commonly referred to as off-balance
sheet commitments and include firm commitments to extend credit, unused lines of credit, and open letters of credit. On December
31, 2016, firm loan commitments totaled approximately $35.1 million; unused lines of credit totaled $189.2 million; and open letters
of credit totaled $10.3 million. The sum of these commitments, $234.6 million, represents total exposure to credit loss in the
event of nonperformance by customers with respect to these financial instruments; however the vast majority of these commitments
are typically not drawn upon. The same credit policies for on-balance sheet instruments apply for making commitments and conditional
obligations and the actual credit losses that could arise from the exercise of these commitments is expected to compare favorably
with the loan loss experience on the loan portfolio taken as a whole. Commitments to extend credit on December 31, 2015, totaled
$217.3 million, representing firm loan commitments of $49.1 million, unused lines of credit of $156.5 million, and open letters
of credit totaling $11.7 million.



Firm commitments to extend credit and unused lines of credit are
agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally
have fixed expiration dates or other termination clauses. Since many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness

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Table of Contents ENB FINANCIAL CORP Notes to Consolidated Financial Statements


is evaluated on an individual basis. The amount of collateral obtained, if deemed necessary by the extension of credit, is based
on management’s credit evaluation of the customer. These commitments are supported by various types of collateral, where
it is determined that collateral is required.



Open letters of credit are conditional commitments issued to guarantee
the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing
arrangements. Most guarantees expire within one year. The credit risk involved in issuing letters of credit is essentially the
same as that involved in extending loans to customers. While various assets of the customer act as collateral for these letters
of credit, real estate is the primary collateral held for these potential obligations.





NOTE P - FINANCIAL INSTRUMENTS WITH CONCENTRATIONS OF CREDIT
RISK



The Corporation determines concentrations of credit risk by reviewing
loans by borrower, geographical area, and loan purpose. The amount of credit extended to a single borrower or group of borrowers
is capped by the legal lending limit, which is defined as 15% of the Bank’s risk-based capital, less the allowance for loan
losses. The Corporation’s lending policy further restricts the amount to 75% of the legal lending limit. As of December 31,
2016, the Corporation’s legal lending limit was $15,913,000, and the Corporation’s lending policy limit was $11,934,000.
This compared to a legal lending limit of $15,269,000, and lending policy limit of $11,451,000 as of December 31, 2015. As of December
31, 2016 and 2015, no lending relationships exceeded the Corporation’s internal lending policy limit.



Geographically, the primary lending area for the Corporation encompasses
Lancaster, Lebanon, and Berks counties of Pennsylvania, with the vast majority of the loans made in Lancaster County. The ability
of debtors to honor their loan agreements is impacted by the health of the local economy. The Corporation’s immediate market
area benefits from a diverse economy, which has resulted in a diverse loan portfolio. As a community bank, the largest amount of
loans outstanding consists of personal mortgages, residential rental loans, and personal loans secured by real estate. Beyond personal
lending, the Corporation’s business and commercial lending includes loans for agricultural, construction, specialized manufacturing,
service industries, many types of small businesses, and loans to governmental units and non-profit entities.



Management evaluates concentrations of credit based on loan purpose
on a quarterly basis. The Corporation’s greatest concentration of loans by purpose is residential real estate, which comprises
$213.8 million, or 37.5%, of the $570.6 million gross loans outstanding as of December 31, 2016. This compares to $181.2 million,
or 34.9%, of the $519.6 million of gross loans outstanding as of December 31, 2015. Residential real estate consists of first mortgages
and home equity loans. A concentration in commercial real estate of 48.2%, or $275.1 million, also exists; however, within that
category there is not a concentration by specific industry type.



The Corporation remains focused on agricultural purpose loans, of
which the vast majority are real estate secured. Agricultural mortgages made up 28.7% of gross loans as of December 31, 2016, compared
to 30.5% as of December 31, 2015; however these agricultural mortgages are spread over several broader types of agricultural purpose
loans. More specifically within these larger purpose categories, management monitors on a quarterly basis the largest concentrations
of non-consumer credit based on the North American Industrial Classification System (NAICS). As of December 31, 2016, the largest
specific industry type categories were dairy cattle and milk production loans of $88.3 million, or 15.5% of gross loans, non-residential
real estate investment loans with a balance of $39.5 million, or 6.9% of gross loans, and broilers and other chicken production
loans of $34.7 million, or 6.1% of gross loans.



Outside of consumer and commercial real estate, including agricultural
mortgages, the third largest component of the Corporation’s loans consist of commercial and industrial loans. These loans
are generally secured by personal guarantees, inventory or pledges of municipalities. Out of the $77.2 million of loans designated
as commercial and industrial for the Uniform Bank Performance Reports, the largest concentration within that area is $13.1 million
of loans to political subdivisions, which account for 2.3% of gross loans outstanding. For the Corporation, these loans consisted
of tax-free loans to local municipalities.



To evaluate risk for the securities portfolio, the Corporation reviews
both geographical concentration and credit ratings. The largest geographical concentrations as of December 31, 2016, were obligations
of states and political subdivisions located in the states of Pennsylvania, Texas, and Illinois. Based on fair market value, the
Corporation held $28.8 million of obligations issued by municipalities within the state of Pennsylvania, which is 23.1% of the

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municipal portfolio, and 9.5% of total debt securities. The Corporation held $21.9 million of obligations issued by municipalities
within the state of Texas, which is 17.6% of the municipal portfolio, and 7.2% of total debt securities. The Corporation also held
$20.7 million of obligations of states and political subdivisions issued by municipalities located within the state of Illinois,
which is 16.7% of the municipal portfolio, and 6.9% of total debt securities. Internal policy requires municipal bonds purchased
to be rated at least A3 by Moody’s and/or A- by Standard & Poor’s (S&P) at the time of purchase. As of December
31, 2016, no municipal bonds were below the A3/A- credit ratings the Corporation requires at the time of purchase.



The Corporation held $52.9 million of corporate bonds based on amortized
cost as of December 31, 2016. As a total, the $52.9 million represents 17.1% of the Corporation’s total debt securities.
Management has a policy limit of maintaining corporate bonds at less than 20% of the securities portfolio. Additionally, to limit
credit exposure to any one issuer, the Corporation’s policy limits investment to $3 million of par value per company. Out
of the $52.9 million of total corporate securities, $35.7 million is domestic and $17.2 million is foreign-issued debt. None of
the Corporation’s foreign corporate debt originates from the European countries that have struggled with the sovereign debt
crisis, namely Portugal, Italy, Ireland, Greece, and Spain. Most of the Corporation’s foreign-issued debt is from the United
Kingdom, Australia, and Canada.



Within the corporate bond segment of the portfolio, management has
preferred to invest in the banking, brokerage, and finance industry, where management is more comfortable analyzing and evaluating
the credit risk of these firms. As a result, based on amortized cost, $42.8 million, or 80.9%, of the corporate bonds held are
invested in national or foreign banks, bank holding companies, brokerage firms, or finance companies. In this broader finance-related
group, management has selectively pursued foreign bank-issued debt where there is governmental ownership of the bank, and/or implied
backing driven by the heavy reliance on these banks for the nation’s financial system. Out of the total $42.8 million of
financial and brokerage-related corporate issues, $25.6 million is domestic and $17.2 million is foreign. All of the $17.2 million
of foreign financial-related corporate paper is in the form of foreign bank-issued debt. Out of the $25.6 million of domestic financial-related
debt, $13.6 million is in bank debt and $12.0 million is in brokerage.



The remaining $10.1 million of non-financial related corporate paper
consists of $4.2 million in energy companies, $2.8 million in insurance companies, $2.1 million in cell phone and television companies,
and $1.0 million in farm equipment companies.



By internal policy, at time of purchase, all corporate bonds must
carry a credit rating of at least A3 by Moody’s or A- by S&P, and at all times corporate bonds are to be investment grade,
which is defined as Baa3 for Moody’s and BBB- for S&P, or above. As of December 31, 2016, all of the Corporation’s
corporate bonds carried at least a credit rating of A3 by Moody’s or A- by S&P.





NOTE Q - FAIR VALUE MEASUREMENTS



The following disclosures show the hierarchal disclosure framework
associated with the level of pricing observations utilized in measuring assets and liabilities at fair value. The three broad levels
defined by U.S. generally accepted accounting principles 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: | Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|---------- | -----------------------------------------------------------------------------------------------------------------------------------



This hierarchy requires the use of observable market data when available.



The following table presents the assets reported on the Consolidated
Balance Sheets at their fair value as of December 31, 2016, by level within the fair value hierarchy. Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

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ASSETS REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)



|                                                 |  | December 31, 2016
|------------------------------------------------ |  | -----------------
|                                                 |  | Level I          
|                                                 |  | $                
|                                                 |  |                  
|U.S. government agencies                         |  |                  
|U.S. agency mortgage-backed securities           |  |                  
|U. S. agency collateralized mortgage obligations |  |                  
|Corporate bonds                                  |  |                  
|Obligations of states and political subdivisions |  |                  
|Marketable equity securities                     |  |                  
|                                                 |  |                  
|Total securities                                 |  |                  



On December 31, 2016, the Corporation held no securities valued
using level III inputs. All of the Corporation’s debt instruments were valued using level II inputs, where quoted prices
are available and observable but not necessarily quotes on identical securities traded in active markets on a daily basis. The
Corporation’s CRA fund investments and bank stocks are fair valued utilizing level I inputs because the funds have their
own quoted prices in an active market. As of December 31, 2016, the CRA fund investments had a $5,250,000 book and market value
and the bank stocks had a book value of $219,000 and a market value of $274,000.



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



The following table presents the assets reported on the Consolidated
Balance Sheets at their fair value as of December 31, 2015, by level within the fair value hierarchy. Financial assets and liabilities
are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.



ASSETS REPORTED AT FAIR VALUE

(DOLLARS IN THOUSANDS)



|                                                 |  | December 31, 2015
|------------------------------------------------ |  | -----------------
|                                                 |  | Level I          
|                                                 |  | $                
|                                                 |  |                  
|U.S. government agencies                         |  |                  
|U.S. agency mortgage-backed securities           |  |                  
|U. S. agency collateralized mortgage obligations |  |                  
|Corporate bonds                                  |  |                  
|Obligations of states and political subdivisions |  |                  
|Marketable equity securities                     |  |                  
|                                                 |  |                  
|Total securities                                 |  |                  



On December 31, 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 December 31, 2015, the CRA fund investments had a $5,000,000 book and market value
and the bank stocks had a book value of $515,000 and a market value of $533,000.

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The following table presents the assets measured
on a nonrecurring basis on the Consolidated Balance Sheets at their fair value as of December 31, 2016, and December 31, 2015,
by level within the fair value hierarchy.





ASSETS MEASURED ON A NONRECURRING BASIS

(DOLLARS IN THOUSANDS)

|               |  | December 31, 2016
|-------------- |  | -----------------
|               |  | Level I          
|               |  | $                
|Assets:        |  |                  
|Impaired Loans |  |                  
|OREO           |  |                  
|Total          |  |                  







|               |  | December 31, 2015
|-------------- |  | -----------------
|               |  | Level I          
|               |  | $                
|Assets:        |  |                  
|Impaired Loans |  |                  
|OREO           |  |                  
|Total          |  |                  





The Corporation had a total of $1,969,000 of
impaired loans as of December 31, 2016, with no specific allocation against these loans. As of December 31, 2015, the Corporation
had a total of $1,705,000 of impaired loans with no specific allocation against these loans.



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 assets are carried at the lower of carrying amount or fair value, less estimated costs to sell. The
Corporation had no OREO as of December 31, 2016 or December 31, 2015.





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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)                                           |  |                  
|                                                                 |  | December 31, 2016
|                                                                 |  | Fair Value       
|                                                                 |  | Estimate         
|                                                                 |  |                  
|Impaired loans                                                   |  |                  
|                                                                 |  |                  
|                                                                 |  |                  



|               |  | December 31, 2015
|-------------- |  | -----------------
|               |  | Fair Value       
|               |  | Estimate         
|               |  |                  
|Impaired loans |  |                  
|               |  |                  



(1) Fair value is generally determined through independent appraisals of the underlying collateral, which generally

includes 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.





NOTE R - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS



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



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.

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Deposits

The fair value of non-interest bearing demand deposit accounts and
interest bearing demand deposit and savings 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, which are currently being 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 O.



The carrying amounts and estimated fair values of the Corporation's
financial instruments at December 31, 2016, are summarized as follows:



FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)



|                                 |  | December 31, 2016
|-------------------------------- |  | -----------------
|                                 |  |                  
|                                 |  |                  
|                                 |  |                  
|                                 |  | Carrying         
|                                 |  | Amount           
|                                 |  | $                
|Financial Assets:                |  |                  
|Cash and cash equivalents        |  |                  
|Securities available for sale    |  |                  
|Regulatory stock                 |  |                  
|Loans held for sale              |  |                  
|Loans, net of allowance          |  |                  
|Accrued interest receivable      |  |                  
|Bank owned life insurance        |  |                  
|                                 |  |                  
|Financial Liabilities:           |  |                  
|Demand deposits                  |  |                  
|Interest-bearing demand deposits |  |                  
|NOW accounts                     |  |                  
|Money market deposit accounts    |  |                  
|Savings accounts                 |  |                  
|Time deposits                    |  |                  
|Total deposits                   |  |                  
|                                 |  |                  
|Short-term borrowings            |  |                  
|Long-term debt                   |  |                  
|                                 |  |                  
|Accrued interest payable         |  |                  





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



FAIR VALUE OF FINANCIAL INSTRUMENTS

(DOLLARS IN THOUSANDS)



|                                 |  | December 31, 2015
|-------------------------------- |  | -----------------
|                                 |  |                  
|                                 |  |                  
|                                 |  |                  
|                                 |  | Carrying         
|                                 |  | Amount           
|                                 |  | $                
|Financial Assets:                |  |                  
|Cash and cash equivalents        |  |                  
|Securities available for sale    |  |                  
|Regulatory stock                 |  |                  
|Loans held for sale              |  |                  
|Loans, net of allowance          |  |                  
|Accrued interest receivable      |  |                  
|Bank owned life insurance        |  |                  
|                                 |  |                  
|Financial Liabilities:           |  |                  
|Demand deposits                  |  |                  
|Interest-bearing demand deposits |  |                  
|NOW accounts                     |  |                  
|Money market deposit accounts    |  |                  
|Savings accounts                 |  |                  
|Time deposits                    |  |                  
|Total deposits                   |  |                  
|                                 |  |                  
|Short-term borrowings            |  |                  
|Long-term debt                   |  |                  
|                                 |  |                  
|Accrued interest payable         |  |                  





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NOTE S – ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)



The activity in accumulated other comprehensive  loss for
the years ended December 31, 2016 and 2015 is as follows:



ACCUMULATED OTHER COMPREHENSIVE LOSS (1) (2)

(DOLLARS IN THOUSANDS)



|                                                                |  | Unrealized        
|--------------------------------------------------------------- |  | ------------------
|                                                                |  | Gains (Losses)    
|                                                                |  | on Securities     
|                                                                |  | Available-for-Sale
|                                                                |  | $                 
|Balance at January 1, 2016                                      |  |                   
|                                                                |  |                   
|Other comprehensive loss before reclassifications               |  |                   
|Amount reclassified from accumulated other comprehensive loss   |  |                   
|Period change                                                   |  |                   
|                                                                |  |                   
|Balance at December 31, 2016                                    |  |                   
|                                                                |  |                   
|Balance at January 1, 2015                                      |  |                   
|                                                                |  |                   
|Other comprehensive income before reclassifications             |  |                   
|Amount reclassified from accumulated other comprehensive income |  |                   
|Period change                                                   |  |                   
|                                                                |  |                   
|Balance at December 31, 2015                                    |  |                   
|                                                                |  |                   



(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.





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

(DOLLARS IN THOUSANDS)



|                                                |  | Amount Reclassified from        |       |                   
|----------------------------------------------- |  | ------------------------------- | ----- | ------------------
|                                                |  | Accumulated Other Comprehensive |       |                   
|                                                |  | Income (Loss)                   |       |                   
|                                                |  | For the Year Ended              |       |                   
|                                                |  | December 31,                    |       | Affected Line Item
|                                                |  | 2016                            |       | 2015              
|                                                |  | $                               |       | $                 
|Securities available-for-sale:                  |  |                                 |       |                   
|Net securities gains reclassified into earnings |  |                                 | 2,370 |                   
|Related income tax expense                      |  |                                 | (806  | )                 
|Net effect on accumulated other comprehensive   |  |                                 |       |                   
|loss for the period                             |  |                                 | 1,564 |                   
|                                                |  |                                 |       |                   
|Total reclassifications for the period          |  |                                 | 1,564 |                   



(1) Amounts in parentheses indicate debits.



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NOTE T – CONDENSED PARENT ONLY DATA



|Condensed Balance Sheets (Parent Company Only)   |  |             
|------------------------------------------------ |  | ------------
|(DOLLARS IN THOUSANDS)                           |  | December 31,
|                                                 |  | 2016        
|                                                 |  | $           
|Assets                                           |  |             
|Cash                                             |  |             
|Securities available for sale (at fair value)    |  |             
|Equity in bank subsidiary                        |  |             
|Other assets                                     |  |             
|Total assets                                     |  |             
|                                                 |  |             
|Stockholders' Equity                             |  |             
|Common stock                                     |  |             
|Capital surplus                                  |  |             
|Retained earnings                                |  |             
|Accumulated other comprehensive loss, net of tax |  |             
|Treasury stock                                   |  |             
|Total stockholders' equity                       |  |             







|Condensed Statements of Comprehensive Income |  |                         |       |      |  |     
|-------------------------------------------- |  | ----------------------- | ----- | ---- |  | ----
|(DOLLARS IN THOUSANDS)                       |  | Year Ended December 31,
|                                             |  | 2016                    |       | 2015 |  | 2014
|                                             |  | $                       |       | $    |  | $   
|Income                                       |  |                         |       |      |  |     
|Dividend income - investment securities      |  |                         | 29    |      |  |     
|Gains on securities transactions             |  |                         | 171   |      |  |     
|Dividend income                              |  |                         | 3,606 |      |  |     
|Undistributed earnings of bank subsidiary    |  |                         | 3,918 |      |  |     
|Total income                                 |  |                         | 7,724 |      |  |     
|                                             |  |                         |       |      |  |     
|Expense                                      |  |                         |       |      |  |     
|Shareholder expenses                         |  |                         | 125   |      |  |     
|Other expenses                               |  |                         | 46    |      |  |     
|Total expense                                |  |                         | 171   |      |  |     
|                                             |  |                         |       |      |  |     
|                                             |  |                         |       |      |  |     
|Net Income                                   |  |                         | 7,553 |      |  |     
|Comprehensive Income                         |  |                         | 2,920 |      |  |     



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|Condensed Statements of Cash Flows                   |  |                         |        |      |  |     
|---------------------------------------------------- |  | ----------------------- | ------ | ---- |  | ----
|(DOLLARS IN THOUSANDS)                               |  |                         |        |      |  |     
|                                                     |  | Year Ended December 31,
|                                                     |  | 2016                    |        | 2015 |  | 2014
|Cash Flows from Operating Activities:                |  | $                       |        | $    |  | $   
|Net Income                                           |  |                         | 7,553  |      |  |     
|Equity in undistributed earnings of subsidiaries     |  |                         | (3,918 | )    |  |     
|Gains on securities transactions, net                |  |                         | (171   | )    |  |     
|Net change in other assets                           |  |                         | 12     |      |  |     
|Net cash provided by operating activities            |  |                         | 3,476  |      |  |     
|                                                     |  |                         |        |      |  |     
|Cash Flows from Investing Activities:                |  |                         |        |      |  |     
|Proceeds from sales of securities available for sale |  |                         | 812    |      |  |     
|Purchases of securities available for sale           |  |                         | (358   | )    |  |     
|Net cash provided by (used for) investing activities |  |                         | 454    |      |  |     
|                                                     |  |                         |        |      |  |     
|Cash Flows from Financing Activities:                |  |                         |        |      |  |     
|Proceeds from issuance of treasury stock             |  |                         | 489    |      |  |     
|Payment to repurchase common stock                   |  |                         | (465   | )    |  |     
|Dividends paid                                       |  |                         | (3,107 | )    |  |     
|Net cash used for financing activities               |  |                         | (3,083 | )    |  |     
|                                                     |  |                         |        |      |  |     
|Cash and Cash Equivalents:                           |  |                         |        |      |  |     
|Net change in cash and cash equivalents              |  |                         | 847    |      |  |     
|Cash and cash equivalents at beginning of period     |  |                         | 509    |      |  |     
|Cash and cash equivalents at end of period           |  |                         | 1,356  |      |  |     





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The unaudited quarterly results of operations for the years ended
2016, 2015, and 2014 are as follows:



NOTE U - SUMMARY OF QUARTERLY FINANCIAL DATA (UNAUDITED)

(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)



|                                                             |  | 2016   
|------------------------------------------------------------ |  | -------
|                                                             |  | 1st Qtr
|                                                             |  | $      
|Interest income                                              |  |        
|Interest expense                                             |  |        
|Net interest income                                          |  |        
|Less provision (credit) for loan losses                      |  |        
|Net interest income after provision (credit) for loan losses |  |        
|Other income                                                 |  |        
|Operating expenses:                                          |  |        
|Salaries and employee benefits                               |  |        
|Occupancy and equipment expenses                             |  |        
|Other operating expenses                                     |  |        
|Total operating expenses                                     |  |        
|Income before income taxes                                   |  |        
|                                                             |  |        
|Provision for Federal income taxes                           |  |        
|Net income                                                   |  |        
|FINANCIAL RATIOS                                             |  |        
|Per share data:                                              |  |        
|Net income                                                   |  |        
|Cash dividends paid                                          |  |        





|                                                             |  | 2015   
|------------------------------------------------------------ |  | -------
|                                                             |  | 1st Qtr
|                                                             |  | $      
|Interest income                                              |  |        
|Interest expense                                             |  |        
|Net interest income                                          |  |        
|Less provision (credit) for loan losses                      |  |        
|Net interest income after provision (credit) for loan losses |  |        
|Other income                                                 |  |        
|Operating expenses:                                          |  |        
|Salaries and employee benefits                               |  |        
|Occupancy and equipment expenses                             |  |        
|Other operating expenses                                     |  |        
|Total operating expenses                                     |  |        
|Income before income taxes                                   |  |        
|                                                             |  |        
|Provision for Federal income taxes                           |  |        
|Net income                                                   |  |        
|FINANCIAL RATIOS                                             |  |        
|Per share data:                                              |  |        
|Net income                                                   |  |        
|Cash dividends paid                                          |  |        





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|                                                 |  | 2014   
|------------------------------------------------ |  | -------
|                                                 |  | 1st Qtr
|                                                 |  | $      
|Interest income                                  |  |        
|Interest expense                                 |  |        
|Net interest income                              |  |        
|Less provision (credit) for loan losses          |  |        
|Net interest income after credit for loan losses |  |        
|Other income                                     |  |        
|Operating expenses:                              |  |        
|Salaries and employee benefits                   |  |        
|Occupancy and equipment expenses                 |  |        
|Other operating expenses                         |  |        
|Total operating expenses                         |  |        
|Income before income taxes                       |  |        
|Provision for Federal income taxes               |  |        
|Net income                                       |  |        
|                                                 |  |        
|FINANCIAL RATIOS                                 |  |        
|Per share data:                                  |  |        
|Net income                                       |  |        
|Cash dividends paid                              |  |        





NOTE V – SUBSEQUENT EVENTS



Subsequent to December 31, 2016, but prior to the filing of this
document, the Corporation settled on a parcel of land in January 2017 in Strasburg, Pennsylvania for a planned full-service branch
office. Branch construction is scheduled to begin in the second quarter of 2017 with planned completion and opening by year-end
2017. Management estimates the aggregate of the purchase price and other costs related to building the branch to be approximately
$3.6 million.



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Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure



None





Item 9A. Controls and Procedures



(a) Evaluation of Disclosure Controls and Procedures.



Management carried out an evaluation, under the supervision
and with the participation of the Chief Executive Officer and Treasurer (Principal Financial Officer), of the effectiveness of
the design and the operation of the Corporation’s disclosure controls and procedures (as such term as defined in Rules 13a-15(e)
and 15d-15(e) under the Exchange Act) as of December 31, 2016, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation,
the Chief Executive Officer along with the Treasurer (Principal Financial Officer) concluded that the Corporation’s disclosure
controls and procedures as of December 31, 2016, are effective in timely alerting them to material information relating to the
Corporation required to be in the Corporation’s periodic filings under the Exchange Act.



(b) Changes in Internal Controls.



There have been no changes in the Corporation’s
internal controls over financial reporting that occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, the Corporation’s internal control over financial reporting.



(c) Report on Management’s Assessment of Internal
Control over Financial Reporting



The Corporation is responsible for the preparation, integrity,
and fair presentation of the financial statements included in this annual report. The financial statements and notes included in
this annual report have been prepared in conformity with United States generally accepted accounting principles and necessarily
include some amounts that are based on management's best estimates and judgments.



Management of the Corporation is responsible for establishing
and maintaining effective internal control over financial reporting that is designed to produce reliable financial statements in
conformity with United States generally accepted accounting principles. The system of internal control over financial reporting
as it relates to the financial statements is evaluated for effectiveness by management and tested for reliability through a program
of internal audits. Actions are taken to correct potential deficiencies as they are identified. Any system of internal control,
no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden
and misstatements due to error or fraud may occur and not be detected. Also, because of changes in conditions, internal control
effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance
with respect to financial statement preparation.



Management assessed the Corporation’s system of
internal control over financial reporting as of December 31, 2016, in relation to criteria for effective internal control over
financial reporting as described in "Internal Control - Integrated Framework," issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management concludes that, as of December 31, 2016, its system
of internal control over financial reporting is effective and meets the criteria of the "Internal Control – Integrated
Framework.”



This annual report does not include an attestation report
of the Corporation’s registered public accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by the Corporation’s registered public accounting firm pursuant to a provision of the
Dodd-Frank Act which eliminates such requirement for smaller reporting companies, as defined in SEC regulations.



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|/s/  Aaron L. Groff, Jr.              | /s/  Scott E. Lied           
|------------------------------------- | -----------------------------
|Aaron L. Groff, Jr.                   | Scott E. Lied                
|Chairman of the Board,                | Treasurer                    
|Chief Executive Officer and President | (Principal Financial Officer)
|                                      |                              
|Ephrata, PA                           |                              
|March 29, 2017                        |                              





Item 9B. Other Information

None





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Part III





Item 10. Directors, Executive Officers, and Corporate Governance



The information required by this Item, relating to directors, executive
officers, and control persons is set forth under the captions, “Election of Directors,” “Information and Qualifications
of Nominees for Director and Continuing Directors,” “Meetings and Committees of the Board of Directors – Audit
Committee,” “Executive Officers,” “Audit Committee Report,” and “Section 16(a) Beneficial Ownership
Reporting Compliance,” of the Corporation’s definitive Proxy Statement to be used in connection with the Annual Meeting
of Shareholders, to be held on May 9, 2017, which is incorporated herein by reference.



The Corporation has adopted a Code of Ethics that applies to directors,
officers, and employees of the Corporation and the Bank. The Code of Ethics is attached as Exhibit 14 to this Form 10-K.



There were no material changes to the procedures by which security
holders may recommend nominees to the Corporation’s Board of Directors during the fourth quarter of 2016.



Item 11. Executive Compensation



The information required by this Item, relating to executive compensation,
is set forth under the captions, “Summary Compensation Table,” “Compensation Discussion and Analysis,”
Compensation Committee Report,” and “Compensation Committee Interlocks and Insider Participation,” of the Corporation’s
definitive Proxy Statement to be used in connection with the Annual Meeting of Shareholders, to be held on May 9, 2017, which is
incorporated herein by reference.



Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters



The information required by this Item, related to beneficial ownership
of the Corporation’s common stock, is set forth under the caption, “Share Ownership” of the Corporation’s
definitive Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 9, 2017, which is
incorporated herein by reference.



Item 13. Certain Relationships and Related Transactions, and
Director Independence



The information required by this Item related to transactions with
management and others, certain business relationships, and indebtedness of management, is set forth under the caption, “Transactions
with Related Persons,” and “Governance of the Company” of the Corporation’s definitive Proxy Statement
to be used in connection with the Annual Meeting of Shareholders to be held on May 9, 2017, which is incorporated herein by reference.



Item 14. Principal Accountant Fees and Services



The information required by this Item related to fees and the audit
committees’ pre-approved policies are set forth under the caption, “Audit Committee Report” of the Corporation’s
definitive Proxy Statement to be used in connection with the Annual Meeting of Shareholders to be held on May 9, 2017, which is
incorporated herein by reference.



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Part IV



| | Item 15. | Exhibits and Financial Statement Schedules
| | -------- | ------------------------------------------



| | (a) | 1. | Financial Statements.
| | --- | -- | ---------------------



The following financial statements are
included by reference in Part II, Item 8 hereof:



| | · | Report of Independent Registered Accounting Firm
| | - | ------------------------------------------------

| | · | Consolidated Balance Sheets
| | - | ---------------------------

| | · | Consolidated Statements of Income
| | - | ---------------------------------

| | · | Consolidated Statements of Comprehensive Income
| | - | -----------------------------------------------

| | · | Consolidated Statements of Changes in Stockholders’ Equity
| | - | ----------------------------------------------------------

| | · | Consolidated Statements of Cash Flows
| | - | -------------------------------------

| | · | Notes to Consolidated Financial Statements
| | - | ------------------------------------------



| | 2. | The financial statement schedules required by this Item are omitted because the information is either inapplicable, not required,
or is shown in the respective consolidated financial statements or the notes thereto.
| | -- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3. | The Exhibits filed herewith or incorporated by reference as a part of this Annual Report, are set forth in (b), below.
| | -- | ----------------------------------------------------------------------------------------------------------------------





| | (b) | EXHIBITS
| | --- | --------



| | 3 (i) | Articles of Incorporation of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3(i) of the Corporation’s
Form 10-Q filed with the SEC on August 11, 2016.)
| | ----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3 (ii) | Bylaws of the Registrant, as amended. (Incorporated herein by reference to Exhibit 3.2 of the Corporation’s Form 8-K
filed with the SEC on January 15, 2010.)
| | ------ | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.1 | Form of Deferred Income Agreement. (Incorporated herein by reference to Exhibit 10.1 of the Corporation’s Form 10-Q,
filed with the SEC on August 13, 2008.)
| | ---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.2 | 2011 Employee Stock Purchase Plan (incorporated herein by reference to Exhibit 10.2 of the Corporation’s Annual Report
on Form 10-K for the year ended December 31, 2011, filed with the SEC on March 29, 2012.)
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10.3 | 2010 Non-Employee Directors’ Stock Plan (Incorporated herein by reference to Exhibit 10 of the Corporation’s Form
S-8 filed with the SEC on June 4, 2010.)
| | ---- | ----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11 | Statement re: Computation of Earnings per Share as found on pages 30 and 77 of this 2016 Form 10-K filing, which is included
herein.
| | -- | ------------------------------------------------------------------------------------------------------------------------------------



| | 12 | Statement re: Computation of Ratios as found on page 30 of this 2016 Form 10-K filing, which is included herein.
| | -- | ----------------------------------------------------------------------------------------------------------------



| | 14 | Code of Ethics Policy of Registrant as amended March 11, 2009. (Incorporated herein by reference to Exhibit 14 of the Corporation’s
Form 10-K filed with the SEC on March 12, 2009.)
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 21 | Subsidiaries of the Registrant
| | -- | ------------------------------



| | 23 | Consent of Independent Registered Public Accounting Firm
| | -- | --------------------------------------------------------



| | 31.1 | Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)/15a-14(a)).
| | ---- | -----------------------------------------------------------------------------------------



| | 31.2 | Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)/15a-14(a)).
| | ---- | ---------------------------------------------------------------------------------------------



| | 32.1 | Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).
| | ---- | --------------------------------------------------------------------------------



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| | 32.2 | Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).
| | ---- | ------------------------------------------------------------------------------------



| | 101 | Interactive Data File
| | --- | ---------------------





| | (c) | NOT APPLICABLE.
| | --- | ---------------



| | Item 16. | Form 10-K Summary
| | -------- | -----------------



None





SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.



| |     | ENB FINANCIAL CORP                         
| | --- | -------------------------------------------
| |     |                                            
| |     |                                            
| | By: | /s/    Aaron L. Groff, Jr.                 
| |     | Aaron L. Groff, Jr., Chairman of the Board,
| |     | Chief Executive Officer and President      



Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.



|/s/  Aaron L. Groff, Jr.       |  | Chairman of the Board,                | March 29, 2017
|------------------------------ |  | ------------------------------------- | --------------
|(Aaron L. Groff, Jr.)          |  | Chief Executive Officer and President |               
|                               |  |                                       |               
|                               |  |                                       |               
|/s/   Scott E. Lied            |  | Treasurer                             | March 29, 2017
|(Scott E. Lied)                |  | (Principal Financial Officer)         |               
|                               |  |                                       |               
|/s/    Willis R. Lefever       |  | Director                              | March 29, 2017
|(Willis R. Lefever)            |  |                                       |               
|                               |  |                                       |               
|/s/    Donald Z. Musser        |  | Director                              | March 29, 2017
|(Donald Z. Musser)             |  |                                       |               
|                               |  |                                       |               
|/s/  Susan Young Nicholas      |  | Director                              | March 29, 2017
|(Susan Young Nicholas)         |  |                                       |               
|                               |  |                                       |               
|/s/      Dr. Brian K. Reed     |  | Director                              | March 29, 2017
|(Dr. Brian K. Reed)            |  |                                       |               
|                               |  |                                       |               
|/s/     Mark C. Wagner         |  | Director                              | March 29, 2017
|(Mark C. Wagner)               |  |                                       |               
|                               |  |                                       |               
|/s/     Judith A. Weaver       |  | Director                              | March 29, 2017
|(Judith A. Weaver)             |  |                                       |               
|                               |  |                                       |               
|/s/    Paul W. Wenger          |  | Director                              | March 29, 2017
|(Paul W. Wenger)               |  |                                       |               
|                               |  |                                       |               
|/s/     Paul M. Zimmerman, Jr. |  | Director                              | March 29, 2017
|(Paul M. Zimmerman, Jr.)       |  |                                       |               







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EXHIBIT INDEX





|Exhibit
 No. | Description                                                                                                                                                                                                                      
|------------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3(i)         | Articles of Incorporation of the Registrant, as amended. (Incorporated
        herein by reference to Exhibit 3(i) of the Corporation’s Form 10-Q filed with the SEC on August 11, 2016.)                                        
|3 (ii)       | Bylaws of the Registrant, as amended. (Incorporated herein by reference
        to Exhibit 3.2 of the Corporation’s Form 8-K filed with the SEC on January 15, 2010.)                                                            
|10.1         | Form of Deferred Income Agreement. (Incorporated herein by reference
        to the Corporation’s Quarterly Report on Form 10-Q filed with the SEC on August 13, 2008.)                                                          
|10.2         | 2011 Employee Stock Purchase Plan. (Incorporated
        herein by reference to Exhibit 10.2 of the Corporation’s Annual Report on Form 10-K for the year ended December 31, 2011,
        filed with the SEC on March 29, 2012.)
|10.3         | 2010 Non-employee Directors’ Stock Plan.
        (Incorporated by reference to Exhibit 10 of the Corporation’s Form S-8 filed with the SEC on June 4, 2010.)                                                                     
|11           | Statement re: Computation of Earnings Per Share as found on pages
        30 and 77 of Form 10-K, which is included herein.                                                                                                      
|12           | Statement re: Computation of Ratios as found on page 30 of Form
        10-K, which is included herein.                                                                                                                          
|14           | Code of Ethics Policy of Registrant as amended March 11, 2009. (Incorporated
        herein by reference to Exhibit 14 of the Corporation’s Form 10-K filed with the SEC on March 12, 2009)                                      
|21           | Subsidiaries of the Registrant                                                                                                                                                                                                   
|23           | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                         
|31.1         | Section 302 Chief Executive Officer Certification (Required by Rule 13a-14(a)).                                                                                                                                                  
|31.2         | Section 302 Principal Financial Officer Certification (Required by Rule 13a-14(a)).                                                                                                                                              
|32.1         | Section 1350 Chief Executive Officer Certification (Required by Rule 13a-14(b)).                                                                                                                                                 
|32.2         | Section 1350 Principal Financial Officer Certification (Required by Rule 13a-14(b)).                                                                                                                                             
|101          | Interactive Data File                                                                                                                                                                                                            



129