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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, 2023
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 28, 2023, there were 12,221,905 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, 2023 | | December 31, 2022 |
Assets | | | | |
Cash and cash equivalents: | | | | |
Cash and due from banks | | $ | 42,843 | | | $ | 36,901 | |
Interest-earning deposits with banks | | 172,850 | | | 230,688 | |
| | | | |
Total cash and cash equivalents | | 215,693 | | | 267,589 | |
Investments: | | | | |
Debt securities at fair value (amortized cost of $923,485 and $940,227, respectively) | | 825,520 | | | 816,102 | |
Equity securities at fair value | | 5,375 | | | 4,269 | |
Total investment securities at fair value | | 830,895 | | | 820,371 | |
Federal Home Loan Bank ("FHLB") stock | | 2,343 | | | 2,343 | |
Loans held for sale | | 362 | | | — | |
Loans: | | | | |
Total loans | | 3,230,156 | | | 3,180,518 | |
Allowance for credit losses | | (55,002) | | | (52,640) | |
Net loans | | 3,175,154 | | | 3,127,878 | |
Premises and equipment, net | | 43,821 | | | 44,228 | |
Lease right-of-use asset | | 24,751 | | | 24,923 | |
Accrued interest receivable | | 18,540 | | | 17,117 | |
Deferred income taxes, net | | 44,432 | | | 51,981 | |
Bank-owned life insurance | | 64,463 | | | 64,156 | |
Prepaid income taxes | | 3,636 | | | 683 | |
Prepaid expenses and other assets | | 12,150 | | | 11,408 | |
Goodwill | | 5,656 | | | 5,656 | |
Total assets | | $ | 4,441,896 | | | $ | 4,438,333 | |
Liabilities and shareholders' Equity | | | | |
Liabilities | | | | |
| | | | |
| | | | |
| | | | |
Deposits | | $ | 4,016,156 | | | $ | 4,035,806 | |
Borrowed funds | | 3,199 | | | 3,216 | |
Subordinated debt | | 59,261 | | | 59,182 | |
Lease liability | | 24,285 | | | 24,415 | |
Accrued expenses and other liabilities | | 25,737 | | | 31,442 | |
| | | | |
Accrued interest payable | | 1,940 | | | 2,005 | |
Total liabilities | | 4,130,578 | | | 4,156,066 | |
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; 12,222,717 and 12,133,516 shares issued and outstanding, respectively | | 122 | | | 121 | |
Additional paid-in capital | | 104,621 | | | 103,793 | |
Retained earnings | | 282,534 | | | 274,560 | |
Accumulated other comprehensive loss | | (75,959) | | | (96,207) | |
Total shareholders' equity | | 311,318 | | | 282,267 | |
Total liabilities and shareholders' equity | | $ | 4,441,896 | | | $ | 4,438,333 | |
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) | | | | | | 2023 | | 2022 |
Interest and dividend income: | | | | | | | | |
Loans and loans held for sale | | | | | | $ | 39,556 | | $ | 30,695 |
Investment securities | | | | | | 5,073 | | 4,588 |
Other interest-earning assets | | | | | | 2,208 | | 181 |
Total interest and dividend income | | | | | | 46,837 | | 35,464 |
Interest expense: | | | | | | | | |
Deposits | | | | | | 5,987 | | 600 |
Borrowed funds | | | | | | 12 | | 13 |
Subordinated debt | | | | | | 867 | | 818 |
Total interest expense | | | | | | 6,866 | | | 1,431 | |
Net interest income | | | | | | 39,971 | | | 34,033 | |
Provision for credit losses | | | | | | 2,736 | | | 530 | |
Net interest income after provision for credit losses | | | | | | 37,235 | | | 33,503 | |
Non-interest income: | | | | | | | | |
Wealth management fees | | | | | | 1,587 | | 1,729 |
Deposit and interchange fees | | | | | | 2,048 | | 1,802 |
Income on bank-owned life insurance, net | | | | | | 307 | | 295 |
| | | | | | | | |
Net gains on sales of debt securities | | | | | | — | | 1,062 |
Net gains on sales of loans | | | | | | 14 | | 22 |
| | | | | | | | |
Loss on equity securities | | | | | | (16) | | (67) |
Other income | | | | | | 817 | | 752 |
Total non-interest income | | | | | | 4,757 | | | 5,595 | |
Non-interest expense: | | | | | | | | |
Salaries and employee benefits | | | | | | 18,521 | | 16,792 |
Occupancy and equipment expenses | | | | | | 2,501 | | 2,415 |
Technology and telecommunications expenses | | | | | | 2,675 | | 2,636 |
Advertising and public relations expenses | | | | | | 681 | | 667 |
Audit, legal and other professional fees | | | | | | 640 | | 710 |
Deposit insurance premiums | | | | | | 675 | | 556 |
Supplies and postage expenses | | | | | | 255 | | 220 |
| | | | | | | | |
Other operating expenses | | | | | | 2,092 | | 1,761 |
Total non-interest expense | | | | | | 28,040 | | | 25,757 | |
Income before income taxes | | | | | | 13,952 | | | 13,341 | |
Provision for income taxes | | | | | | 3,184 | | | 3,054 | |
Net income | | | | | | $ | 10,768 | | | $ | 10,287 | |
| | | | | | | | |
Basic earnings per share | | | | | | $ | 0.89 | | | $ | 0.85 | |
Diluted earnings per share | | | | | | $ | 0.88 | | | $ | 0.85 | |
| | | | | | | | |
Basic weighted average common shares outstanding | | | | | | 12,155,320 | | | 12,055,991 | |
Diluted weighted average common shares outstanding | | | | | | 12,193,756 | | | 12,119,836 | |
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) | | | | | | 2023 | | 2022 |
Net income | | | | | | $ | 10,768 | | | $ | 10,287 | |
Other comprehensive income (loss), net of tax | | | | | | | | |
Net change in fair value of debt securities | | | | | | 20,248 | | | (44,962) | |
| | | | | | | | |
Total other comprehensive income (loss), net of tax | | | | | | 20,248 | | | (44,962) | |
Total comprehensive income (loss), net | | | | | | $ | 31,016 | | | $ | (34,675) | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
| | | | | | | | |
See the accompanying notes to the unaudited consolidated interim financial statements.
5
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Additional Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Total Shareholders' Equity |
(Dollars in thousands, except per share data) | | Shares | | Amount |
Balance at December 31, 2022 | | 12,133,516 | | | $ | 121 | | | $ | 103,793 | | | $ | 274,560 | | | $ | (96,207) | | | $ | 282,267 | |
Net income | | | | | | | | 10,768 | | | | | 10,768 | |
| | | | | | | | | | | | |
Other comprehensive income, net | | | | | | | | | | 20,248 | | | 20,248 | |
Common stock dividend declared ($0.230 per share) | | | | | | | | (2,794) | | | | | (2,794) | |
Common stock issued under dividend reinvestment plan | | 10,395 | | | — | | | 370 | | | | | | | 370 | |
Common stock issued, other | | 207 | | | — | | | 7 | | | | | | | 7 | |
Stock-based compensation, net | | 70,943 | | | 1 | | | 710 | | | | | | | 711 | |
Net settlement for employee taxes on restricted stock and options | | (5,954) | | | — | | | (348) | | | | | | | (348) | |
Stock options exercised, net | | 13,610 | | | — | | | 89 | | | | | | | 89 | |
Balance at March 31, 2023 | | 12,222,717 | | | $ | 122 | | | $ | 104,621 | | | $ | 282,534 | | | $ | (75,959) | | | $ | 311,318 | |
| | | | | | | | | | | | |
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 | |
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) | | | 2023 | | 2022 |
Cash flows from operating activities: | | | | | |
Net income | | | $ | 10,768 | | | $ | 10,287 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | |
Provision for credit losses | | | 2,736 | | | 530 | |
Depreciation and amortization | | | 1,660 | | | 1,733 | |
Stock-based compensation expense | | | 522 | | | 478 | |
Income on bank-owned life insurance, net | | | (307) | | | (295) | |
Net gains on sales of debt securities | | | — | | | (1,062) | |
Mortgage loans originated for sale | | | (1,188) | | | (819) | |
Proceeds from mortgage loans sold | | | 840 | | | 841 | |
Net gains on sales of loans | | | (14) | | | (22) | |
Net loss on equity securities | | | 16 | | | 67 | |
| | | | | |
| | | | | |
| | | | | |
Changes in: | | | | | |
Net increase in other assets | | | (3,597) | | | (6,124) | |
Net decrease in other liabilities | | | (5,762) | | | (8,879) | |
Net cash provided by (used in) operating activities | | | 5,674 | | | (3,265) | |
Cash flows from investing activities: | | | | | |
Proceeds from sales of debt securities | | | — | | | 32,715 | |
Purchase of debt securities | | | — | | | (66,833) | |
Proceeds from maturities, calls and pay-downs of debt securities | | | 16,433 | | | 26,067 | |
Net purchases of equity securities | | | (1,122) | | | (1,243) | |
Net purchases of FHLB capital stock | | | — | | | 116 | |
Net increase in loans | | | (49,594) | | | (42,142) | |
Additions to premises and equipment, net | | | (944) | | | (1,719) | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Net cash used in investing activities | | | (35,227) | | | (53,039) | |
Cash flows from financing activities: | | | | | |
Net (decrease) increase in deposits | | | (19,650) | | | 54,261 | |
Net decrease in borrowed funds | | | (17) | | | (2,505) | |
| | | | | |
| | | | | |
| | | | | |
Cash dividends paid, net of dividend reinvestment plan | | | (2,424) | | | (2,123) | |
Proceeds from issuance of common stock | | | 7 | | | 10 | |
Net settlement for employee taxes on restricted stock and options | | | (348) | | | (286) | |
Net proceeds from stock option exercises | | | 89 | | | 58 | |
Net cash (used in) provided by financing activities | | | (22,343) | | | 49,415 | |
| | | | | |
Net decrease in cash and cash equivalents | | | (51,896) | | | (6,889) | |
Cash and cash equivalents at beginning of period | | | 267,589 | | | 436,576 | |
Cash and cash equivalents at end of period | | | $ | 215,693 | | | $ | 429,687 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
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, 2022 audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") for the year ended December 31, 2022 (the "2022 Annual Report on Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") on March 8, 2023. The Company has not materially changed its significant accounting policies from those disclosed in its 2022 Annual Report on Form 10-K. See Item (d), "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. 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. In February 2023, the Bank organized the EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") under the laws of the State of Delaware, in conjunction with the Banks investment in a qualifying New Market Tax Credit ("NMTC") project. The NMTC Investment Fund is the Company's only unconsolidated Variable Interest Entity ("VIE"). 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, 2023 (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. 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 2022 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, available for sale securities and 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 2022 Annual Report on Form 10-K for accounting policies related to these significant estimates.
(c) Unconsolidated Variable Interest Entity / Proportional Accounting
In March 2023, the Bank made an equity contribution to the NMTC Investment Fund a newly formed Limited Liability Company in order to invest in NMTC, a program, which is administered by the U.S. Department of the Treasury's Community Development Financial Institutions Fund and allocated to Community Development Entities ("CDE").
The NMTC program provides federal tax incentives for investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTCs are available to investors
| | | | | | | | |
| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
over a seven-year period and are subject to recapture if certain events occur during such period. The Bank invested $3.7 million in the Investment Fund and anticipates receiving $4.8 million of federal tax credits over the next seven years (5% in each of the first three years, and 6% in each of the next four years). The underlying project is structured through a qualified CDE, which in turn has made loans to a qualified active low-income business. The Bank has no unfunded commitments associated with its NMTC investment. The Company has elected to account for the tax equity investment, using the proportional amortization method. Under this method the NMTC Investment Fund is not consolidated with the Company and instead, the initial cost of the investment is amortized in proportion to the amount of tax credits and other tax benefits received over the allotment period. The investment is carried within the line "Prepaid expenses and other assets" on the Company's Consolidated Balance Sheet and the investment amortization expense and tax credits are presented on a net basis within the line "Provision for income taxes" on the Company's Consolidated Statements of Income. During the three months ended March 31, 2023, the related amortization expense and tax credits amounted to $44 thousand and $153 thousand, respectively.
(d) Recent Accounting Pronouncements
Accounting pronouncements adopted by the Company
In March 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The election can be made for each individual qualifying tax credit investment. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of tax credits and other tax benefits received, with the amortization and tax credits recognized as a component of income tax expense. To qualify for the proportional amortization method, all of the following conditions must be met: (1) It is probable that the income tax credits allocated to the tax equity investor will be available; (2) The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project; (3) Substantially all of the projected benefits are from income tax credits and other income tax benefits; (4) The tax equity investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive; and (5) The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor's liability is limited to its capital investment. Under the proportional amortization method, the investment shall be tested for impairment when events or changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized. An impairment loss shall be measured as the amount by which the carrying amount of an investment exceeds its fair value. A previously recognized impairment loss shall not be reversed. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company has elected to early adopt ASU 2022-01 effective on January 1, 2023, applying the new guidance to a new investment in NMTC made in the first quarter of 2023, and the adoption did not have a significant impact on the financial statements.
In March 2022, the FASB issued 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. The Company adopted ASU 2022-01 effective on January 1, 2023 and the adoption did not have a significant impact on the 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. The Company adopted ASU 2022-02 effective on January 1, 2023, prospectively, and the adoption did not have a significant impact on the financial statements.
(e) Subsequent Events
The Company has evaluated subsequent events and transactions from March 31, 2023 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, 2023 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Federal agency obligations | | $ | 5,012 | | | $ | 1 | | | $ | — | | | $ | 5,013 | |
U.S. treasury securities | | 45,955 | | | — | | | 2,045 | | | 43,910 | |
Federal agency collateralized mortgage obligations ("CMO") | | 461,436 | | | 203 | | | 54,796 | | | 406,843 | |
Federal agency mortgage-backed securities ("MBS") | | 23,892 | | | 64 | | | 2,776 | | | 21,180 | |
Taxable municipal securities | | 287,421 | | | 36 | | | 37,173 | | | 250,284 | |
Tax-exempt municipal securities | | 82,182 | | | 246 | | | 485 | | | 81,943 | |
Corporate bonds | | 5,636 | | | — | | | 109 | | | 5,527 | |
Subordinated corporate bonds | | 11,951 | | | — | | | 1,131 | | | 10,820 | |
| | | | | | | | |
Total debt securities, at fair value | | $ | 923,485 | | | $ | 550 | | | $ | 98,515 | | | $ | 825,520 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31, 2022 |
(Dollars in thousands) | | Amortized Cost | | Unrealized Gains | | Unrealized Losses | | Fair Value |
Federal agency obligations | | $ | 5,014 | | | $ | — | | | $ | 37 | | | $ | 4,977 | |
U.S. treasury securities | | 45,942 | | | — | | | 2,691 | | | 43,251 | |
Federal agency CMO | | 474,777 | | | 3 | | | 67,798 | | | 406,982 | |
Federal agency MBS | | 24,172 | | | 27 | | | 3,178 | | | 21,021 | |
Taxable municipal securities | | 287,435 | | | 29 | | | 48,187 | | | 239,277 | |
Tax-exempt municipal securities | | 84,457 | | | 66 | | | 870 | | | 83,653 | |
Corporate bonds | | 6,480 | | | — | | | 186 | | | 6,294 | |
Subordinated corporate bonds | | 11,950 | | | — | | | 1,303 | | | 10,647 | |
| | | | | | | | |
Total debt securities, at fair value | | $ | 940,227 | | | $ | 125 | | | $ | 124,250 | | | $ | 816,102 | |
| | | | | | | | |
| | | | | | | | |
At March 31, 2023, management performed its quarterly analysis of all securities with unrealized losses and determined that the losses were primarily attributable to significant increases in market interest rates experienced during the last twelve months. Management concluded that no ACL for available-for-sale securities was necessary as of March 31, 2023 and anticipates they will mature or be called at par value.
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 $4.8 million and $4.0 million at March 31, 2023 and December 31, 2022, 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, 2023 and December 31, 2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2023 |
| | 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 | | $ | — | | | $ | — | | | $ | 43,910 | | | $ | 2,045 | | | $ | 43,910 | | | $ | 2,045 | | | 6 | |
Federal agency CMO | | 46,380 | | | 844 | | | 335,270 | | | 53,952 | | | 381,650 | | | 54,796 | | | 98 | |
Federal agency MBS | | — | | | — | | | 19,217 | | | 2,776 | | | 19,217 | | | 2,776 | | | 11 | |
Taxable municipal securities | | 20,486 | | | 729 | | | 226,761 | | | 36,444 | | | 247,247 | | | 37,173 | | | 272 | |
Tax-exempt municipal securities | | 31,239 | | | 155 | | | 9,801 | | | 330 | | | 41,040 | | | 485 | | | 80 | |
Corporate bonds | | 4,857 | | | 82 | | | 670 | | | 27 | | | 5,527 | | | 109 | | | 25 | |
Subordinated corporate bonds | | 1,886 | | | 66 | | | 8,935 | | | 1,065 | | | 10,821 | | | 1,131 | | | 6 | |
Total | | $ | 104,848 | | | $ | 1,876 | | | $ | 644,564 | | | $ | 96,639 | | | $ | 749,412 | | | $ | 98,515 | | | 498 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 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 |
Federal agency obligations | | $ | 4,977 | | | $ | 37 | | | $ | — | | | $ | — | | | $ | 4,977 | | | $ | 37 | | | 1 | |
U.S. treasury securities | | 2,878 | | | 109 | | | 40,374 | | | 2,582 | | | 43,252 | | | 2,691 | | | 6 |
Federal agency CMO | | 164,391 | | | 13,004 | | | 233,051 | | | 54,794 | | | 397,442 | | | 67,798 | | | 102 |
Federal agency MBS | | 9,923 | | | 797 | | | 9,165 | | | 2,381 | | | 19,088 | | | 3,178 | | | 11 | |
Taxable municipal securities | | 93,345 | | | 10,411 | | | 144,903 | | | 37,776 | | | 238,248 | | | 48,187 | | | 273 |
Tax-exempt municipal securities | | 66,277 | | | 870 | | | — | | | — | | | 66,277 | | | 870 | | | 112 | |
Corporate bonds | | 6,294 | | | 186 | | | — | | | — | | | 6,294 | | | 186 | | | 31 | |
Subordinated corporate bonds | | 6,206 | | | 743 | | | 4,440 | | | 560 | | | 10,646 | | | 1,303 | | | 6 | |
| | | | | | | | | | | | | | |
Total | | $ | 354,291 | | | $ | 26,157 | | | $ | 431,933 | | | $ | 98,093 | | | $ | 786,224 | | | $ | 124,250 | | | 542 | |
The contractual maturity distribution at March 31, 2023 of debt securities was as follows:
| | | | | | | | | | | | | | |
(Dollars in thousands) | | Amortized Cost | | Fair Value |
Due in one year or less | | $ | 43,577 | | | $ | 42,648 | |
Due after one, but within five years | | 137,025 | | | 133,624 | |
Due after five, but within ten years | | 304,972 | | | 267,490 | |
Due after ten years | | 437,911 | | | 381,758 | |
Total debt securities | | $ | 923,485 | | | $ | 825,520 | |
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 $162.1 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 $814.7 million and $804.2 million at March 31, 2023 and December 31, 2022, respectively.
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| ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements | |
Sales of debt securities for the three months ended March 31, 2023 and March 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | | | | | 2023 | | 2022 |
Amortized cost of debt securities sold (1) | | | | | | $ | — | | | $ | 31,653 | |
Gross realized gains on sales | | | | | | — | | | 1,062 | |
Gross realized losses on sales | | | | | | — | | | — | |
Total proceeds from sales of debt securities | | | | | | $ | — | | | $ | 32,715 | |
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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 $5.4 million at March 31, 2023 and $4.3 million at December 31, 2022. At March 31, 2023, the equity portfolio consisted of investments in broad-based equity index funds and common stock of entities in the financial services industry. The equity portfolio also included 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, 2023 and March 31, 2022 are summarized as follows:
| | | | | | | | | | | | | | | | | | |
| | | | Three months ended March 31, |
(Dollars in thousands) | | | | | | 2023 | | 2022 |
Net losses recognized during the period on equity securities | | | | | | $ | ( |