ENB Financial Corp (ENBP)

I’ll put disclaimer upfront – this name is illiquid, boring, and unlikely to fit anything but a retail position size. But I like the bank so I’m going to write it up.

ENB Financial Corp (ENBP) of Ephrata, PA. ENB operates as Ephrata National Bank, and it is a small community bank that has served SE Pennsylvania (footprint is around Lancaster, PA) since 1881. Folks, ENB is as boring and straightforward as banking gets these days. Prudent and seasoned management team with a proven track record of performance positioned to compound ROE’s at ~10% while paying a 3%+ dividend.

At its current P/TBV (102%) and P/E (12.4x) valuations, an investment in ENBP at current levels positions a new shareholder alongside an excellent management team executing at a level that should compound returns, with very little fanfare, at high-single-digits levels over a complete cycle. Unlike other names mentioned on this site, I would not  assign much of a probability to an upside M&A scenario given ENBP’s mission statement (and current scholarship ownership structure; as an aside, the story of the ENBP scholarship is great: http://www.ephratareview.com/news/scholarship-strikes-gold/).

Primary drivers setting up ENBP shareholders for a nice investment over the near- and longer-term:

  1. Compounding Earnings: simply put, ENBP management is very good at operating a community bank. Given its conservative nature, I don’t think we will see ENBP print ROA’s and ROE’s much higher than the current 1% and 10% levels, respectively, but that comes with a (comforting) layer of security when the credit cycle turns as ENBP has proven, very clearly, how well they manage the balance sheet to protect income and capital. A prime example of this protection can be seen by looking back at the 2007-2009 financial crisis and ensuing credit overhang banks experienced thru 2012. ENBP reported net income each year of the financial crisis and its *worst* fiscal year performance was 2008’s 0.60% ROA and 5.9% ROE. NPL’s peaked at ~180bps in 2008 and its worst year of charge-offs saw a 0.29% NCO (that is impressive) in 2009. By 2010, ENBP had returned to a “normalized” earnings profile (again, that is impressive). With confidence in management’s ability to operate and minimize downside risks, I’ll gladly sacrifice a little upside in order to sit back and appreciate the 10% ROE.
  2. Dividend Income: ENBP pays a current dividend yield of ~3.3% and the current payout ratio is manageable at 41%.
  3. Asset Quality, Loan Mix, & Deposit Funding: all three of these continue to highlight ENBP’s stellar management. The Bank has not swayed its loan mix in decades, asset quality and loss reserving is pristine, and the deposit book is spectacular. Contributing to a Cost of Funds metric of 34bps, ENBP’s deposit book is a very valuable liability. Some deposit data points:
    • 39% of ENBP’s deposits are noninterest-bearing
    • The cost of the interest-bearing deposits is 0.37%
    • The total cost of funds on ENBP’s $890 Million deposit book is 0.36%
    • ENBP only has $670 Million loans on its balance sheet, meaning acquiring banks are looking at $220 Million of “excess” (and cheap) funding available to allocate towards stronger lending markets.
  4. Uplisting Potential: ENBP shares currently trade on the OTC Pink marketplace, but carry a market cap sufficient to warrant a strategic process to consider strategic opportunities to uplist to either the OTCQX or Nasdaq. Doing so will increase its exposure and universe of potential buyers.

Some concerns that could pressure earnings/profitability/growth to keep an eye on:

  • Limited-to-zero M&A upside
    • ENBP has grown organically from its founding and its mission statement is pretty clear: “To remain an independent community bank of undisputed integrity, serving the communities of Lancaster County and beyond.”
    • That aside, the business and valuation dynamic behind ENBP shares would make it a very attractive purchase for a multitude of acquirers if they ever entertained selling.
  • Economic Cycle
    • Hard to forecast where we are here, but all banks and shareholders, no matter the quality of management, bear the risk of a downturn in the local and national economy.

Bank Description & Geography

Based in Ephrata, Pennsylvania, ENB Financial Corp is the holding company for Ephrata National Bank, a full service, independent bank serving Lancaster County and parts of Lebanon and Berks county. ENBP has grown organically, rather than through mergers and acquisitions and ENBP is one of the few financial institutions in this market geography that remains an independent community bank.


Financial Overview


Notable Ownership

  • J Harry Hibsham Scholarship Fund – 31.3%
  • Directors / Named Executives – 2.25%

Author: Golden Belt Investments

Investor, primarily community banks, small/mid cap, specialty finance

2 thoughts on “ENB Financial Corp (ENBP)”

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