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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2022
or
☐ 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: 001-33912
Enterprise Bancorp, Inc.
(Exact name of registrant as specified in its charter)
| | | | | | | | | | | |
Massachusetts | 04-3308902 |
(State or other jurisdiction of | (I.R.S. Employer Identification No.) |
incorporation or organization) | |
| | | |
222 Merrimack Street, | Lowell, | Massachusetts | 01852 |
(Address of principal executive offices) | (Zip code) |
(978) 459-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $0.01 par value per share | | EBTC | | NASDAQ Stock Market |
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. x Yes o No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition for "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer x
Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
☐ Yes x No
As of April 29, 2022, there were 12,103,946 shares of the issuer's common stock outstanding, par value $0.01 per share.
ENTERPRISE BANCORP, INC.
INDEX
PART I-FINANCIAL INFORMATION
Item 1 -Financial Statements
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
(Unaudited) | | | | | | | | | | | | | | |
(Dollars in thousands, except per share data) | | March 31, 2022 | | December 31, 2021 |
Assets | | | | |
Cash and cash equivalents: | | | | |
Cash and due from banks | | $ | 45,233 | | | $ | 33,572 | |
Interest-earning deposits with banks | | 384,454 | | | 403,004 | |
| | | | |
Total cash and cash equivalents | | 429,687 | | | 436,576 | |
Investments: | | | | |
Debt securities at fair value (amortized cost of $959,181 and $950,523, respectively) | | 907,052 | | | 956,430 | |
Equity securities at fair value | | 2,961 | | | 1,785 | |
Total investment securities at fair value | | 910,013 | | | 958,215 | |
Federal Home Loan Bank ("FHLB") stock | | 2,048 | | | 2,164 | |
| | | | |
Loans: | | | | |
Total loans | | 2,962,721 | | | 2,920,684 | |
Allowance for credit losses | | (48,424) | | | (47,704) | |
Net loans | | 2,914,297 | | | 2,872,980 | |
Premises and equipment, net | | 45,130 | | | 44,689 | |
Lease right-of-use asset | | 24,915 | | | 24,295 | |
Accrued interest receivable | | 14,272 | | | 13,354 | |
Deferred income taxes, net | | 32,999 | | | 19,644 | |
Bank-owned life insurance | | 63,249 | | | 62,954 | |
Prepaid income taxes | | 2,018 | | | 279 | |
Prepaid expenses and other assets | | 10,190 | | | 7,013 | |
Goodwill | | 5,656 | | | 5,656 | |
Total assets | | $ | 4,454,474 | | | $ | 4,447,819 | |
Liabilities and shareholders' Equity | | | | |
Liabilities | | | | |
| | | | |
| | | | |
| | | | |
Deposits | | $ | 4,034,500 | | | $ | 3,980,239 | |
Borrowed funds | | 2,974 | | | 5,479 | |
Subordinated debt | | 59,009 | | | 58,979 | |
Lease liability | | 24,301 | | | 23,627 | |
Accrued expenses and other liabilities | | 22,405 | | | 31,063 | |
| | | | |
Accrued interest payable | | 746 | | | 1,537 | |
Total liabilities | | 4,143,935 | | | 4,100,924 | |
Commitments and Contingencies | | | | |
Shareholders' Equity | | | | |
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued | | — | | | — | |
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 12,103,188 and 12,038,382 shares issued and outstanding, respectively | | 121 | | | 120 | |
Additional paid-in capital | | 101,139 | | | 100,352 | |
Retained earnings | | 249,579 | | | 241,761 | |
Accumulated other comprehensive (loss) income | | (40,300) | | | 4,662 | |
Total shareholders' equity | | 310,539 | | | 346,895 | |
Total liabilities and shareholders' equity | | $ | 4,454,474 | | | $ | 4,447,819 | |
See the accompanying notes to the unaudited consolidated interim financial statements.
3
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands, except per share data) | | | | | | 2022 | | 2021 |
Interest and dividend income: | | | | | | | | |
Loans and loans held for sale | | | | | | $ | 30,695 | | $ | 33,650 |
Investment securities | | | | | | 4,588 | | 3,394 |
Other interest-earning assets | | | | | | 181 | | 65 |
Total interest and dividend income | | | | | | 35,464 | | 37,109 |
Interest expense: | | | | | | | | |
Deposits | | | | | | 600 | | 1,323 |
Borrowed funds | | | | | | 13 | | 8 |
Subordinated debt | | | | | | 818 | | 1,042 |
Total interest expense | | | | | | 1,431 | | | 2,373 | |
Net interest income | | | | | | 34,033 | | | 34,736 | |
Provision for credit losses | | | | | | 530 | | | 680 | |
Net interest income after provision for credit losses | | | | | | 33,503 | | | 34,056 | |
Non-interest income: | | | | | | | | |
Wealth management fees | | | | | | 1,729 | | 1,612 |
Deposit and interchange fees | | | | | | 1,802 | | 1,606 |
Income on bank-owned life insurance, net | | | | | | 295 | | 136 |
| | | | | | | | |
Net gains on sales of debt securities | | | | | | 1,062 | | 128 |
Net gains on sales of loans | | | | | | 22 | | 128 |
| | | | | | | | |
Other income | | | | | | 685 | | 689 |
Total non-interest income | | | | | | 5,595 | | | 4,299 | |
Non-interest expense: | | | | | | | | |
Salaries and employee benefits | | | | | | 16,792 | | 15,721 |
Occupancy and equipment expenses | | | | | | 2,415 | | 2,381 |
Technology and telecommunications expenses | | | | | | 2,636 | | 2,554 |
Advertising and public relations expenses | | | | | | 667 | | 514 |
Audit, legal and other professional fees | | | | | | 710 | | 567 |
Deposit insurance premiums | | | | | | 556 | | 356 |
Supplies and postage expenses | | | | | | 220 | | 227 |
Loss on extinguishment of subordinated debt | | | | | | — | | 713 |
Other operating expenses | | | | | | 1,761 | | 1,651 |
Total non-interest expense | | | | | | 25,757 | | | 24,684 | |
Income before income taxes | | | | | | 13,341 | | | 13,671 | |
Provision for income taxes | | | | | | 3,054 | | | 3,319 | |
Net income | | | | | | $ | 10,287 | | | $ | 10,352 | |
| | | | | | | | |
Basic earnings per share | | | | | | $ | 0.85 | | | $ | 0.87 | |
Diluted earnings per share | | | | | | $ | 0.85 | | | $ | 0.86 | |
| | | | | | | | |
Basic weighted average common shares outstanding | | | | | | 12,055,991 | | | 11,959,469 | |
Diluted weighted average common shares outstanding | | | | | | 12,119,836 | | | 11,994,437 | |
See the accompanying notes to the unaudited consolidated interim financial statements.
4
ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | | | | | 2022 | | 2021 |
Net income | | | | | | $ | 10,287 | | | $ | 10,352 | |
Other comprehensive loss, net of tax | | | | | | | | |
Net change in fair value of debt securities | | | | | | (44,962) | | | (8,721) | |
Net change in fair value of cash flow hedges | | | | | | — | | | 583 | |
Total other comprehensive loss, net of tax | | | | | | (44,962) | | | (8,138) | |
Total comprehensive (loss) income, net | | | | | | $ | (34,675) | | | $ | 2,214 | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See the accompanying notes to the unaudited consolidated interim financial statements.
5
ENTERPRISE BANCORP, INC.
Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive (Loss)/Income | | Total Shareholders' Equity |
(Dollars in thousands, except per share data) | | Shares | | Amount |
Balance at December 31, 2021 | | 12,038,382 | | | $ | 120 | | | $ | 100,352 | | | $ | 241,761 | | | $ | 4,662 | | | $ | 346,895 | |
Net income | | | | | | | | 10,287 | | | | | 10,287 | |
| | | | | | | | | | | | |
Other comprehensive loss, net | | | | | | | | | | (44,962) | | | (44,962) | |
Common stock dividend declared ($0.205 per share) | | | | | | | | (2,469) | | | | | (2,469) | |
Common stock issued under dividend reinvestment plan | | 8,915 | | | — | | | 346 | | | | | | | 346 | |
Common stock issued, other | | 241 | | | — | | | 10 | | | | | | | 10 | |
Stock-based compensation, net | | 59,949 | | | 1 | | | 659 | | | | | | | 660 | |
Net settlement for employee taxes on restricted stock and options | | (7,728) | | | — | | | (286) | | | | | | | (286) | |
Stock options exercised, net | | 3,429 | | | — | | | 58 | | | | | | | 58 | |
Balance at March 31, 2022 | | 12,103,188 | | | $ | 121 | | | $ | 101,139 | | | $ | 249,579 | | | $ | (40,300) | | | $ | 310,539 | |
| | | | | | | | | | | | |
Balance at December 31, 2020 | | 11,937,795 | | | $ | 119 | | | $ | 97,137 | | | $ | 214,977 | | | $ | 22,193 | | | $ | 334,426 | |
Net income | | | | | | | | 10,352 | | | | | 10,352 | |
Cumulative effect adjustment for ("CECL") adoption | | | | | | | | (6,510) | | | | | (6,510) | |
Other comprehensive loss, net | | | | | | | | | | (8,138) | | | (8,138) | |
Common stock dividend declared ($0.185 per share) | | | | | | | | (2,209) | | | | | (2,209) | |
Common stock issued under dividend reinvestment plan | | 10,241 | | | — | | | 313 | | | | | | | 313 | |
Common stock issued, other | | 251 | | | — | | | 7 | | | | | | | 7 | |
Stock-based compensation, net | | 64,725 | | | 1 | | | 670 | | | | | | | 671 | |
Net settlement for employee taxes on restricted stock and options | | (5,157) | | | — | | | (159) | | | | | | | (159) | |
Stock options exercised, net | | 143 | | | — | | | 2 | | | | | | | 2 | |
Balance at March 31, 2021 | | 12,007,998 | | | $ | 120 | | | $ | 97,970 | | | $ | 216,610 | | | $ | 14,055 | | | $ | 328,755 | |
See the accompanying notes to the unaudited consolidated interim financial statements.
6
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
| | | | | | | | | | | | | | | |
| | | Three months ended March 31, |
(Dollars in thousands) | | | 2022 | | 2021 |
Cash flows from operating activities: | | | | | |
Net income | | | $ | 10,287 | | | $ | 10,352 | |
Adjustments to reconcile net income to net cash (used in) provided by operating activities: | | | | | |
Provision for credit losses | | | 530 | | | 680 | |
Depreciation and amortization | | | 1,733 | | | 1,890 | |
Stock-based compensation expense | | | 478 | | | 451 | |
Income on bank-owned life insurance, net | | | (295) | | | (136) | |
Net gains on sales of debt securities | | | (1,062) | | | (128) | |
Mortgage loans originated for sale | | | (819) | | | (12,009) | |
Proceeds from mortgage loans sold | | | 841 | | | 4,963 | |
Net gains on sales of loans | | | (22) | | | (128) | |
Net losses (gains) on equity securities | | | 66 | | | (84) | |
| | | | | |
| | | | | |
| | | | | |
Changes in: | | | | | |
Net (increase) decrease in other assets | | | (6,123) | | | 3,284 | |
Net decrease in other liabilities | | | (8,879) | | | (4,352) | |
Net cash (used in) provided by operating activities | | | (3,265) | | | 4,783 | |
Cash flows from investing activities: | | | | | |
Proceeds from sales of debt securities | | | 32,715 | | | 3,059 | |
Purchase of debt securities | | | (66,833) | | | (55,567) | |
Proceeds from maturities, calls and pay-downs of debt securities | | | 26,067 | | | 22,049 | |
Net purchases of equity securities | | | (1,243) | | | (367) | |
Net sales (purchases) of FHLB capital stock | | | 116 | | | (105) | |
Net increase in loans | | | (42,142) | | | (37,336) | |
Additions to premises and equipment, net | | | (1,719) | | | (804) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net cash used in investing activities | | | (53,039) | | | (69,071) | |
Cash flows from financing activities: | | | | | |
Net increase in deposits | | | 54,261 | | | 264,898 | |
Net (decrease) increase in borrowed funds | | | (2,505) | | | 3,857 | |
Repayment of subordinated debt | | | — | | | (15,600) | |
Loss on extinguishment of subordinated debt | | | — | | | 713 | |
| | | | | |
Cash dividends paid, net of dividend reinvestment plan | | | (2,123) | | | (1,896) | |
Proceeds from issuance of common stock | | | 10 | | | 7 | |
Net settlement for employee taxes on restricted stock and options | | | (286) | | | (159) | |
Net proceeds from stock option exercises | | | 58 | | | 2 | |
Net cash provided by financing activities | | | 49,415 | | | 251,822 | |
| | | | | |
Net (decrease) increase in cash and cash equivalents | | | (6,889) | | | 187,534 | |
Cash and cash equivalents at beginning of period | | | 436,576 | | | 253,782 | |
Cash and cash equivalents at end of period | | | $ | 429,687 | | | $ | 441,316 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
See the accompanying notes to the unaudited consolidated interim financial statements.
7
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(1)Summary of Significant Accounting Policies
(a) Organization of the Company and Basis of Presentation
The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2021 audited consolidated financial statements and notes thereto contained in the 2021 Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") as filed with the Securities and Exchange Commission (the "SEC") on March 10, 2022 (the "2021 Annual Report on Form 10-K"). The Company has not materially changed its significant accounting policies from those disclosed in its 2021 Annual Report on Form 10-K. See Item (c), "Recent Accounting Pronouncements," below in this Note 1.
The accompanying unaudited consolidated interim financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries.
The Bank's subsidiaries include Enterprise Insurance Services, LLC and Enterprise Wealth Services, LLC, both organized under the laws of the State of Delaware, to engage in insurance sales activities and offer non-deposit investment products and services, respectively, and 239 Littleton Road, LLC, organized in 2021 in the State of Massachusetts for the purpose of maintaining and disposing of real estate acquired through the Bank's lending functions. In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III. The security corporations, which hold various types of qualifying securities, are limited to conducting investment activities that the Bank itself would be allowed to conduct under applicable laws. The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.
The accompanying unaudited consolidated interim financial statements, and notes thereto, in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (this "Form 10-Q"), have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the SEC instructions for Quarterly Reports on Form 10-Q. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments, consisting of normal recurring accruals and elimination of intercompany balances, for a fair presentation. Certain previous years' amounts in the unaudited consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.
(b) Uses of Estimates
In preparing the unaudited consolidated interim financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. These assumptions and estimates affect the reported values of assets and liabilities as of the balance sheet dates and income and expenses for the period then ended. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. Changes in those estimates resulting from continuing changes in the economic environment and other factors will be reflected in the consolidated financial statements and results of operations in future periods.
As discussed in the Company's 2021 Annual Report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses ("ACL") for loans and available for sale securities, the reserve for unfunded commitments, and the impairment review of goodwill. Refer to Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements included in the Company's 2021 Annual Report on Form 10-K for accounting policies related to these significant estimates.
| | | | | | | | |
| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
(c) Recent Accounting Pronouncements
Accounting pronouncements not yet adopted by the Company
In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. This ASU clarifies the guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. For entities that have adopted ASU 2017-12, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2017-12. The Company expects that this ASU will not have a material impact to the consolidated financial statements.
In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit loss ("CECL") methodology for estimating allowances for credit losses and enhances the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross charge-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,, such as the Company, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. The Company is in the process of assessing the impact of this ASU on the consolidated financial statements.
Accounting pronouncements adopted by the Company
In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946). This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The rules reduce the required reporting periods to align them with the relevant financial statement periods required by SEC rules and requires certain statistical disclosures for annual periods, and interim disclosures if a material change in the information, or trend, has occurred. The amendments in this update are effective upon addition to the FASB Codification and apply to fiscal years ending on or after December 15, 2021. However, voluntary early compliance is permitted upon the effective date, provided that the rules are applied in their entirety. The amended disclosures did not have a material impact on the consolidated financial statements.
(d) Subsequent Events
The Company has evaluated subsequent events and transactions from March 31, 2022, through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP and determined there were no material subsequent events requiring recognition or disclosure.
| | | | | | | | |
| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
(2)Investment Securities
Debt Securities
All of the Company's debt securities were classified as available-for-sale and carried at fair value as of the dates specified in the tables below. The amortized cost and fair values of debt securities at the dates specified are summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | |
U.S. treasury securities | | $ | 65,840 | | | $ | — | | | $ | 2,983 | | | $ | 62,857 | |
Residential federal agency MBS(1) | | 442,233 | | | 137 | | | 30,877 | | | 411,493 | |
Commercial federal agency MBS(1) | | 67,943 | | | 478 | | | 603 | | | 67,818 | |
Taxable municipal securities | | 279,183 | | | 765 | | | 20,062 | | | 259,886 | |
Tax-exempt municipal securities | | 86,718 | | | 1,395 | | | 143 | | | 87,970 | |
Corporate bonds | | 7,264 | | | 122 | | | 8 | | | 7,378 | |
Subordinated corporate bonds | | 10,000 | | | — | | | 350 | | | 9,650 | |
| | | | | | | | |
Total debt securities, at fair value | | $ | 959,181 | | | $ | 2,897 | | | $ | 55,026 | | | $ | 907,052 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
| | | | | | | | |
U.S. treasury securities | | $ | 62,850 | | | $ | — | | | $ | 684 | | | $ | 62,166 | |
Residential federal agency MBS(1) | | 412,902 | | | 2,406 | | | 9,113 | | | 406,195 | |
Commercial federal agency MBS(1) | | 99,681 | | | 3,783 | | | 52 | | | 103,412 | |
Taxable municipal securities | | 272,507 | | | 5,607 | | | 2,264 | | | 275,850 | |
Tax-exempt municipal securities | | 87,024 | | | 5,648 | | | — | | | 92,672 | |
Corporate bonds | | 8,559 | | | 441 | | | — | | | 9,000 | |
Subordinated corporate bonds | | 7,000 | | | 135 | | | — | | | 7,135 | |
| | | | | | | | |
Total debt securities, at fair value | | $ | 950,523 | | | $ | 18,020 | | | $ | 12,113 | | | $ | 956,430 | |
__________________________________________
(1)These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as investments guaranteed by Ginnie Mae ("GNMA"), a wholly owned government entity.
As of the dates reflected in the tables above, the majority of investments in the residential and commercial federal agency mortgage back securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. government agencies. The remaining MBS investments totaled $23.0 million and $22.9 million at March 31, 2022 and December 31, 2021, respectively.
At March 31, 2022, management performed its quarterly analysis of all securities with unrealized losses and determined that all were attributable to significant increases in market interest rates. Management concluded that no ACL for available-for-sale securities was considered necessary as of March 31, 2022.
Accrued interest receivable on available-for-sale debt securities, included in the "Accrued Interest Receivable” line item on the Company’s Consolidated Balance Sheets, amounted to $4.1 million and $3.2 million at March 31, 2022 and December 31, 2021, respectively.
| | | | | | | | |
| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
The following tables summarize the duration of unrealized losses for debt securities at March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2022 |
| | Less than 12 months | | 12 months or longer | | Total |
(Dollars in thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | # of Holdings |
| | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 62,857 | | | $ | 2,983 | | | $ | — | | | $ | — | | | $ | 62,857 | | | $ | 2,983 | | | 10 | |
Residential federal agency MBS | | 308,437 | | | 21,907 | | | 75,993 | | | 8,970 | | | 384,430 | | | 30,877 | | | 78 | |
Commercial federal agency MBS | | 17,560 | | | 603 | | | — | | | — | | | 17,560 | | | 603 | | | 5 | |
Taxable municipal securities | | 214,772 | | | 19,245 | | | 6,152 | | | 817 | | | 220,924 | | | 20,062 | | | 219 | |
Tax-exempt municipal securities | | 7,975 | | | 143 | | | — | | | — | | | 7,975 | | | 143 | | | 12 | |
Corporate bonds | | 745 | | | 8 | | | — | | | — | | | 745 | | | 8 | | | 3 | |
Subordinated corporate bonds | | 9,650 | | | 350 | | | — | | 350000 | — | | | 9,650 | | | 350 | | | 5 | |
Total | | $ | 621,996 | | | $ | 45,239 | | | $ | 82,145 | | | $ | 9,787 | | | $ | 704,141 | | | $ | 55,026 | | | 332 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2021 |
| | Less than 12 months | | 12 months or longer | | Total |
(Dollars in thousands) | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | # of Holdings |
| | | | | | | | | | | | | | |
U.S. treasury securities | | $ | 62,166 | | | $ | 684 | | | $ | — | | | $ | — | | | $ | 62,166 | | | $ | 684 | | | 9 |
Residential federal agency MBS | | 272,863 | | | 6,992 | | | 51,281 | | | 2,121 | | | 324,144 | | | 9,113 | | | 44 |
Commercial federal agency MBS | | 4,897 | | | 52 | | | — | | | — | | | 4,897 | | | 52 | | | 1 | |
Taxable municipal securities | | 117,388 | | | 2,023 | | | 6,727 | | | 241 | | | 124,115 | | | 2,264 | | | 118 |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Total | | $ | 457,314 | | | $ | 9,751 | | | $ | 58,008 | | | $ | 2,362 | | | $ | 515,322 | | | $ | 12,113 | | | 172 | |
The contractual maturity distribution at March 31, 2022 of debt securities was as follows:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | Amortized Cost | | Fair Value |
Due in one year or less | | $ | 13,518 | | | $ | 13,580 | |
Due after one, but within five years | | 164,893 | | | 163,441 | |
Due after five, but within ten years | | 276,771 | | | 261,097 | |
Due after ten years | | 503,999 | | | 468,934 | |
Total debt securities | | $ | 959,181 | | | $ | 907,052 | |
Scheduled contractual maturities shown above may not reflect the actual maturities of the investments. The actual MBS/CMO cash flows likely will be faster than presented above due to prepayments and amortization. Similarly, included in the table above are callable securities, comprised of municipal securities and corporate bonds, with a fair value of $169.3 million, which can be redeemed by the issuers prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.
From time to time, the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the Federal Reserve Bank of Boston ("FRB"). The fair value of debt securities pledged as collateral for these purposes was $895.9 million and $949.3 million at March 31, 2022 and December 31, 2021, respectively.
| | | | | | | | |
| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
Sales of debt securities for the three months ended March 31, 2022 and March 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | | | | | 2022 | | 2021 |
Amortized cost of debt securities sold (1) | | | | | | $ | 31,653 | | | $ | 2,931 | |
Gross realized gains on sales | | | | | | 1,062 | | | 128 | |
Gross realized losses on sales | | | | | | — | | | — | |
Total proceeds from sales of debt securities | | | | | | $ | 32,715 | | | $ | 3,059 | |
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(1)Amortized cost of investments sold is determined on a specific identification basis and includes pending trades based on trade date, if applicable.
Equity Securities
The Company held equity securities with a fair value of $3.0 million at March 31, 2022 and $1.8 million at December 31, 2021. At March 31, 2022, the equity portfolio consisted primarily of investments in index funds and common stock of individual entities in the financial services industry held to support operations and mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.
Gains and losses on equity securities for the three months ended March 31, 2022 and March 31, 2021 are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | | | | | 2022 | | 2021 |
Net (losses) gains recognized during the period on equity securities | | | | | | $ | (66) | | | $ | 84 | |
Less: Net gains (losses) recognized on equity securities sold during the period | | | | | | — | | | — | |
Unrealized (losses) gains recognized during the reporting period on equity securities still held at the end of the period (included in other income) | | | | | | $ | (66) | | | $ | 84 | |
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| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
(3)Loans
Loan Portfolio Classifications
Major classifications of loans at the dates indicated were as follows:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | March 31, 2022 | | December 31, 2021 |
Commercial real estate | | $ | 1,779,691 | | | $ | 1,680,792 | |
Commercial and industrial | | 408,341 | | | 412,070 | |
Commercial construction | | 375,709 | | | 410,443 | |
SBA Paycheck Protection Program ("PPP") | | 32,153 | | | 71,502 | |
Total commercial loans | | 2,595,894 | | | 2,574,807 | |
| | | | |
Residential mortgages | | 280,507 | | | 256,940 | |
Home equity loans and lines | | 78,557 | | | 80,467 | |
Consumer | | 7,763 | | | 8,470 | |
Total retail loans | | 366,827 | | | 345,877 | |
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| | | | |
| | | | |
| | | | |
Total loans | | 2,962,721 | | | 2,920,684 | |
| | | | |
ACL for loans | | (48,424) | | | (47,704) | |
Net loans | | $ | 2,914,297 | | | |