Company Quick10K Filing
Enterprise Bancorp
Closing Price ($) Shares Out (MM) Market Cap ($MM)
$0.00 12 $343
10-Q 2019-11-07 Quarter: 2019-09-30
10-Q 2019-08-07 Quarter: 2019-06-30
10-Q 2019-05-07 Quarter: 2019-03-31
10-K 2019-03-13 Annual: 2018-12-31
10-Q 2018-11-06 Quarter: 2018-09-30
10-Q 2018-08-07 Quarter: 2018-06-30
10-Q 2018-05-08 Quarter: 2018-03-31
10-K 2018-03-13 Annual: 2017-12-31
10-Q 2017-11-07 Quarter: 2017-09-30
10-Q 2017-08-07 Quarter: 2017-06-30
10-Q 2017-05-08 Quarter: 2017-03-31
10-K 2017-03-14 Annual: 2016-12-31
10-Q 2016-11-07 Quarter: 2016-09-30
10-Q 2016-08-05 Quarter: 2016-06-30
10-Q 2016-05-06 Quarter: 2016-03-31
10-K 2016-03-15 Annual: 2015-12-31
10-Q 2015-11-06 Quarter: 2015-09-30
10-Q 2015-08-07 Quarter: 2015-06-30
10-Q 2015-05-08 Quarter: 2015-03-31
10-K 2015-03-13 Annual: 2014-12-31
10-Q 2014-11-07 Quarter: 2014-09-30
10-Q 2014-08-08 Quarter: 2014-06-30
10-Q 2014-05-09 Quarter: 2014-03-31
10-K 2014-03-14 Annual: 2013-12-31
10-Q 2013-11-08 Quarter: 2013-09-30
10-Q 2013-08-09 Quarter: 2013-06-30
10-Q 2013-05-10 Quarter: 2013-03-31
10-K 2013-03-15 Annual: 2012-12-31
10-Q 2012-11-09 Quarter: 2012-09-30
10-Q 2012-08-09 Quarter: 2012-06-30
10-Q 2012-05-10 Quarter: 2012-03-31
10-K 2012-03-15 Annual: 2011-12-31
10-Q 2011-11-09 Quarter: 2011-09-30
10-Q 2011-08-09 Quarter: 2011-06-30
10-Q 2011-05-10 Quarter: 2011-03-31
10-K 2011-03-15 Annual: 2010-12-31
10-Q 2010-11-09 Quarter: 2010-09-30
10-Q 2010-08-09 Quarter: 2010-06-30
10-Q 2010-05-10 Quarter: 2010-03-31
10-K 2010-03-12 Annual: 2009-12-31
8-K 2020-01-23 Earnings, Exhibits
8-K 2019-10-17 Earnings, Exhibits
8-K 2019-10-15 Other Events, Exhibits
8-K 2019-07-18 Earnings, Exhibits
8-K 2019-07-16 Other Events, Exhibits
8-K 2019-06-18 Officers, Exhibits
8-K 2019-05-10 Shareholder Vote
8-K 2019-04-18 Earnings, Exhibits
8-K 2019-04-16 Other Events, Exhibits
8-K 2019-03-22 Officers
8-K 2019-01-24 Earnings, Exhibits
8-K 2019-01-15 Other Events, Exhibits
8-K 2018-12-11 Officers
8-K 2018-10-22 Other Events, Exhibits
8-K 2018-10-18 Earnings, Exhibits
8-K 2018-10-16 Other Events, Exhibits
8-K 2018-07-19 Earnings, Exhibits
8-K 2018-07-17 Other Events, Exhibits
8-K 2018-05-01 Shareholder Vote
8-K 2018-04-19 Earnings, Exhibits
8-K 2018-04-17 Other Events, Exhibits
8-K 2018-03-23 Officers
8-K 2018-01-25 Earnings, Exhibits
8-K 2018-01-16 Other Events, Exhibits
8-K 2018-01-05 Enter Agreement, Shareholder Rights, Amend Bylaw, Exhibits
EBTC 2019-09-30
Part I-Financial Information
Item 1 - Financial Statements
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Item 4 - Controls and Procedures
Part II - Other Information
Item 1 - Legal Proceedings
Item 1A - Risk Factors
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
Item 3 - Defaults Upon Senior Securities
Item 4 - Mine Safety Disclosures
Item 5 - Other Information
Item 6 - Exhibits
EX-31.1 ebtc093019-ex311.htm
EX-31.2 ebtc093019-ex312.htm
EX-32 ebtc093019-ex32.htm

Enterprise Bancorp Earnings 2019-09-30

EBTC 10Q Quarterly Report

Balance SheetIncome StatementCash Flow

Comparables ($MM TTM)
Ticker M Cap Assets Liab Rev G Profit Net Inc EBITDA EV G Margin EV/EBITDA ROA
GNTY 362 2,333 2,083 0 0 23 52 269 5.2 1%
WTBA 357 2,363 2,161 0 0 28 66 380 5.8 1%
BFST 349 2,154 1,876 4 0 20 46 285 0% 6.2 1%
MCB 348 2,961 2,679 0 0 28 69 -85 -1.2 1%
CZNC 348 1,610 1,370 0 0 20 33 308 9.4 1%
EBTC 343 3,168 2,887 0 0 31 62 156 2.5 1%
MCBC 338 1,978 1,773 0 0 30 49 380 7.7 1%
SMMF 328 2,299 2,063 0 0 30 72 272 3.8 1%
BLMT 323 3,030 2,828 0 0 23 71 179 2.5 1%
STXB 318 1,898 1,654 0 0 15 34 236 6.8 1%

10-Q 1 ebtc093019-10q.htm 10-Q Document

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 September 30, 2019

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 o
 
Accelerated filer x
Non-accelerated filer o
Smaller reporting company o
Emerging growth company o

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.     o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
o Yes x No

As of October 31, 2019, there were 11,816,492 shares of the issuer's common stock outstanding, par value $0.01 per share.





ENTERPRISE BANCORP, INC.
INDEX

 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



2


PART I-FINANCIAL INFORMATION

Item 1 -
Financial Statements
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)
 
September 30,
2019
 
December 31,
2018
Assets
 
 

 
 

Cash and cash equivalents:
 
 

 
 

Cash and due from banks
 
$
52,927

 
$
43,865

Interest-earning deposits
 
29,482

 
19,255

Total cash and cash equivalents
 
82,409

 
63,120

Investments:
 
 
 
 
Debt securities at fair value
 
482,106

 
431,473

Equity securities at fair value
 
1,433

 
1,448

Total investment securities at fair value
 
483,539

 
432,921

Federal Home Loan Bank ("FHLB") stock
 
2,024

 
5,357

Loans held for sale
 
3,297

 
701

Loans, less allowance for loan losses of $33,935 at September 30, 2019 and $33,849 at December 31, 2018
 
2,438,195

 
2,353,657

Premises and equipment, net
 
43,519

 
37,588

Lease right-of-use asset
 
19,184

 

Accrued interest receivable
 
12,356

 
11,462

Deferred income taxes, net
 
8,139

 
11,747

Bank-owned life insurance
 
30,620

 
30,138

Prepaid income taxes
 
1,729

 
732

Prepaid expenses and other assets
 
8,057

 
11,279

Goodwill
 
5,656

 
5,656

Total assets
 
$
3,138,724

 
$
2,964,358

Liabilities and Stockholders' Equity
 
 

 
 

Liabilities
 
 

 
 

Deposits:
 
 
 
 
  Customer deposits
 
$
2,784,393

 
$
2,507,999

  Brokered deposits
 

 
56,783

        Total deposits
 
2,784,393

 
2,564,782

Borrowed funds
 
4,177

 
100,492

Subordinated debt
 
14,869

 
14,860

Lease liability
 
18,250

 

Accrued expenses and other liabilities
 
25,433

 
27,948

Accrued interest payable
 
920

 
979

Total liabilities
 
2,848,042

 
2,709,061

Commitments and Contingencies
 


 


Stockholders' 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; 11,816,071 shares issued and outstanding at September 30, 2019 and 11,708,218 shares issued and outstanding at December 31, 2018
 
118

 
117

Additional paid-in capital
 
93,459

 
91,281

Retained earnings
 
184,994

 
165,183

Accumulated other comprehensive income (loss)
 
12,111

 
(1,284
)
Total stockholders' equity
 
290,682

 
255,297

Total liabilities and stockholders' equity
 
$
3,138,724

 
$
2,964,358


See the accompanying notes to the unaudited consolidated interim financial statements.

3



ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands, except per share data)
 
2019
 
2018
 
2019
 
2018
Interest and dividend income:
 
 

 
 

 
 
 
 
Loans and loans held for sale
 
$
30,938

 
$
28,109

 
$
90,973

 
$
81,786

Investment securities
 
3,278

 
2,742

 
9,785

 
7,835

Other interest-earning assets
 
632

 
497

 
1,688

 
818

Total interest and dividend income
 
34,848

 
31,348

 
102,446

 
90,439

Interest expense:
 
 

 
 

 
 
 
 
Deposits
 
5,158

 
3,697

 
15,156

 
8,770

Borrowed funds
 
36

 
6

 
315

 
332

Subordinated debt
 
233

 
233

 
692

 
692

Total interest expense
 
5,427

 
3,936

 
16,163

 
9,794

Net interest income
 
29,421

 
27,412

 
86,283

 
80,645

Provision for loan losses
 
1,025

 
750

 
1,580

 
2,650

Net interest income after provision for loan losses
 
28,396

 
26,662

 
84,703

 
77,995

Non-interest income:
 
 

 
 

 
 
 
 
Wealth management fees
 
1,407

 
1,388

 
4,077

 
4,214

Deposit and interchange fees
 
1,790

 
1,552

 
5,041

 
4,608

Income on bank-owned life insurance, net
 
158

 
167

 
482

 
505

Net gains (losses) on sales of debt securities
 

 
(34
)
 
146

 
(33
)
Net gains on sales of loans
 
139

 
47

 
244

 
179

Other income
 
655

 
604

 
2,035

 
1,775

Total non-interest income
 
4,149

 
3,724

 
12,025

 
11,248

Non-interest expense:
 
 

 
 

 
 
 
 
Salaries and employee benefits
 
14,382

 
13,026

 
41,982

 
38,479

Occupancy and equipment expenses
 
2,034

 
2,110

 
6,342

 
6,304

Technology and telecommunications expenses
 
1,863

 
1,568

 
5,290

 
4,760

Advertising and public relations expenses
 
430

 
530

 
1,927

 
2,284

Audit, legal and other professional fees
 
528

 
435

 
1,389

 
1,361

Deposit insurance premiums
 
16

 
418

 
733

 
1,264

Supplies and postage expenses
 
232

 
236

 
718

 
734

Other operating expenses
 
1,613

 
1,652

 
5,320

 
5,044

Total non-interest expense
 
21,098

 
19,975

 
63,701

 
60,230

Income before income taxes
 
11,447

 
10,411

 
33,027

 
29,013

Provision for income taxes
 
2,445

 
2,429

 
7,566

 
6,632

Net income
 
$
9,002

 
$
7,982

 
$
25,461

 
$
22,381

 
 
 
 
 
 
 
 
 
Basic earnings per share
 
$
0.76

 
$
0.68

 
$
2.16

 
$
1.92

Diluted earnings per share
 
$
0.76

 
$
0.68

 
$
2.15

 
$
1.91

 
 
 
 
 
 
 
 
 
Basic weighted average common shares outstanding
 
11,808,603

 
11,697,951

 
11,779,629

 
11,671,494

Diluted weighted average common shares outstanding
 
11,843,497

 
11,770,719

 
11,820,388

 
11,745,935

 


See the accompanying notes to the unaudited consolidated interim financial statements.

4






ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)

 
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Net income
 
$
9,002

 
$
7,982

 
$
25,461

 
$
22,381

Other comprehensive income (loss), net of taxes:
 
 
 
 
 
 
 
 
Gross unrealized holding gains (losses) on debt securities arising during the period
 
2,891

 
(3,363
)
 
17,385

 
(12,467
)
Income tax (expense) benefit
 
(642
)
 
752

 
(3,876
)
 
2,787

Net unrealized holding gains (losses), net of tax
 
2,249

 
(2,611
)
 
13,509

 
(9,680
)
Less: reclassification adjustment for net gains (losses) included in net income
 
 
 
 
 
 
 
 
Net realized gains (losses) on sales of debt securities during the period
 

 
(34
)
 
146

 
(33
)
Income tax (expense) benefit
 

 
7

 
(32
)
 
6

Reclassification adjustment for gains (losses) realized, net of tax
 

 
(27
)
 
114

 
(27
)
 
 
 
 
 
 
 
 
 
Total other comprehensive income (loss), net
 
2,249

 
(2,584
)
 
13,395

 
(9,653
)
Comprehensive income
 
$
11,251

 
$
5,398

 
$
38,856

 
$
12,728



See the accompanying notes to the unaudited consolidated interim financial statements.

5


ENTERPRISE BANCORP, INC.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)

 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income/(Loss)
 
Total
Stockholders'
Equity
(Dollars in thousands, except per share data)
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
 
11,708,218

 
$
117

 
$
91,281

 
$
165,183

 
$
(1,284
)
 
$
255,297

Net income
 
 
 
 
 
 
 
8,696

 
 
 
8,696

Other comprehensive income, net
 
 
 
 
 
 
 
 
 
3,134

 
3,134

Common stock dividend paid ($0.16 per share)
 
 
 
 
 
 
 
(1,875
)
 
 
 
(1,875
)
Common stock issued under dividend reinvestment plan
 
9,341

 

 
298

 
 
 
 
 
298

Common stock issued, other
 
264

 

 
8

 
 
 
 
 
8

Stock-based compensation
 
62,523

 
1

 
598

 
 
 
 
 
599

Net settlement for employee taxes on restricted stock and options
 
(2,741
)
 

 
(240
)
 
 
 
 
 
(240
)
Stock options exercised, net
 
20,509

 

 
144

 
 
 
 
 
144

Balance at March 31, 2019
 
11,798,114

 
118

 
92,089

 
172,004

 
1,850

 
266,061

Net income
 
 
 
 
 
 
 
7,763

 
 
 
7,763

Other comprehensive income, net
 
 
 
 
 
 
 
 
 
8,012

 
8,012

Common stock dividend paid ($0.16 per share)
 
 
 
 
 
 
 
(1,887
)
 
 
 
(1,887
)
Common stock issued under dividend reinvestment plan
 
10,503

 

 
294

 
 
 
 
 
294

Common stock issued, other
 
946

 

 
28

 
 
 
 
 
28

Stock-based compensation
 
(347
)
 

 
457

 
 
 
 
 
457

Net settlement for employee taxes on restricted stock and options
 
(3,828
)
 

 
(113
)
 
 
 
 
 
(113
)
Stock options exercised, net
 
620

 

 
12

 
 
 
 
 
12

Balance at June 30, 2019
 
11,806,008

 
118

 
92,767

 
177,880

 
9,862

 
280,627

Net income
 
 
 
 
 
 
 
9,002

 
 
 
9,002

Other comprehensive income, net
 
 
 
 
 
 
 
 
 
2,249

 
2,249

Common stock dividend paid ($0.16 per share)
 
 
 
 
 
 
 
(1,888
)
 
 
 
(1,888
)
Common stock issued under dividend reinvestment plan
 
10,345

 

 
293

 
 
 
 
 
293

Common stock issued, other
 
634

 

 
19

 
 
 
 
 
19

Stock-based compensation
 
(139
)
 

 
411

 
 
 
 
 
411

Net settlement for employee taxes on restricted stock and options
 
(1,654
)
 

 
(49
)
 
 
 
 
 
(49
)
Stock options exercised, net
 
877

 

 
18

 
 
 
 
 
18

Balance at September 30, 2019
 
11,816,071

 
$
118

 
$
93,459

 
$
184,994

 
$
12,111

 
$
290,682


See the accompanying notes to the unaudited consolidated interim financial statements.

6


ENTERPRISE BANCORP, INC.
Consolidated Statement of Changes in Stockholders' Equity (Continued)
(Unaudited)

 
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive Income/(Loss)
 
Total
Stockholders'
Equity
(Dollars in thousands, except per share data)
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2017
 
11,609,853

 
$
116

 
$
88,205

 
$
143,073

 
$
416

 
$
231,810

Net income
 
 
 
 
 
 
 
6,825

 
 
 
6,825

Other comprehensive loss, net
 
 
 
 
 
 
 
 
 
(6,264
)
 
(6,264
)
Common stock dividend paid ($0.145 per share)
 
 
 
 
 
 
 
(1,686
)
 
 
 
(1,686
)
Common stock issued under dividend reinvestment plan
 
12,765

 

 
397

 
 
 
 
 
397

Common stock issued, other
 
1,138

 

 
38

 
 
 
 
 
38

Stock-based compensation
 
51,488

 
1

 
590

 
 
 
 
 
591

Net settlement for employee taxes on restricted stock and options
 
(7,561
)
 

 
(286
)
 
 
 
 
 
(286
)
Stock options exercised, net
 
15,231

 

 
215

 
 
 
 
 
215

Balance at March 31, 2018
 
11,682,914

 
117

 
89,159

 
148,212

 
(5,848
)
 
231,640

Net income
 
 
 
 
 
 
 
7,574

 
 
 
7,574

Other comprehensive loss, net
 
 
 
 
 
 
 
 
 
(805
)
 
(805
)
Common stock dividend paid ($0.145 per share)
 
 
 
 
 
 
 
(1,692
)
 
 
 
(1,692
)
Common stock issued under dividend reinvestment plan
 
9,885

 

 
396

 
 
 
 
 
396

Common stock issued, other
 
823

 

 
30

 
 
 
 
 
30

Stock-based compensation
 
(303
)
 

 
438

 
 
 
 
 
438

Net settlement for employee taxes on restricted stock and options
 
(1,611
)
 

 
(76
)
 
 
 
 
 
(76
)
Stock options exercised, net
 
4,496

 

 
72

 
 
 
 
 
72

Balance at June 30, 2018
 
11,696,204

 
117

 
90,019

 
154,094

 
(6,653
)
 
237,577

Net income
 
 
 
 
 
 
 
7,982

 
 
 
7,982

Other comprehensive loss, net
 
 
 
 
 
 
 
 
 
(2,584
)
 
(2,584
)
Common stock dividend paid ($0.145 per share)
 
 
 
 
 
 
 
(1,696
)
 
 
 
(1,696
)
Common stock issued under dividend reinvestment plan
 
7,601

 

 
268

 
 
 
 
 
268

Common stock issued, other
 
1,014

 

 
38

 
 
 
 
 
38

Stock-based compensation
 
(233
)
 

 
451

 
 
 
 
 
451

Net settlement for employee taxes on restricted stock and options
 
(1,910
)
 

 
(72
)
 
 
 
 
 
(72
)
Stock options exercised, net
 
1,198

 

 
21

 
 
 
 
 
21

Balance at September 30, 2018
 
11,703,874

 
$
117

 
$
90,725

 
$
160,380

 
$
(9,237
)
 
$
241,985


See the accompanying notes to the unaudited consolidated interim financial statements.

7


ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 
 
Nine months ended September 30,
(Dollars in thousands)
 
2019
 
2018
Cash flows from operating activities:
 
 
 
 
Net income
 
$
25,461

 
$
22,381

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
Provision for loan losses
 
1,580

 
2,650

Depreciation and amortization
 
4,553

 
5,158

Stock-based compensation expense
 
1,405

 
1,386

Income on bank-owned life insurance, net
 
(482
)
 
(505
)
Net (gains) losses on sales of debt securities
 
(146
)
 
33

Mortgage loans originated for sale
 
(16,049
)
 
(8,850
)
Proceeds from mortgage loans sold
 
13,697

 
8,619

Net gains on sales of loans
 
(244
)
 
(179
)
Net gains on equity securities
 
(275
)
 
(12
)
Net gains on sales of OREO
 
(34
)
 

Changes in:
 
 
 
 
Increase in other assets
 
(2,202
)
 
(4,503
)
(Decrease) increase in other liabilities
 
(694
)
 
753

Net cash provided by operating activities
 
26,570

 
26,931

Cash flows from investing activities:
 
 
 
 
Proceeds from sales of debt securities
 
13,623

 
13,359

Net proceeds from sales of FHLB capital stock
 
3,333

 
2,622

Net proceeds from the sale (purchases) of equity securities
 
290

 
(1,251
)
Proceeds from maturities, calls and pay-downs of debt securities
 
36,150

 
26,664

Purchase of debt securities
 
(83,583
)
 
(90,023
)
Net increase in loans
 
(86,373
)
 
(41,619
)
Additions to premises and equipment, net
 
(9,368
)
 
(4,178
)
Proceeds from OREO sales
 
289

 

Net cash used in investing activities
 
(125,639
)
 
(94,426
)
Cash flows from financing activities:
 
 
 
 
Net increase in deposits
 
219,611

 
170,350

Net decrease in borrowed funds
 
(96,315
)
 
(88,503
)
Cash dividends paid
 
(5,650
)
 
(5,074
)
Proceeds from issuance of common stock
 
940

 
1,167

Net settlement for employee taxes on restricted stock and options
 
(402
)
 
(434
)
Proceeds from stock option exercises
 
174

 
308

Net cash provided by financing activities
 
118,358

 
77,814

 
 
 
 
 
Net increase in cash and cash equivalents
 
19,289

 
10,319

Cash and cash equivalents at beginning of period
 
63,120

 
54,806

Cash and cash equivalents at end of period
 
$
82,409

 
$
65,125

 


See accompanying notes to the unaudited consolidated interim financial statements.

8







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, 2018 audited consolidated financial statements and notes thereto contained in the 2018 Annual Report on Form 10-K of Enterprise Bancorp, Inc. as filed with the Securities and Exchange Commission (the "SEC") on March 13, 2019 (the "2018 Annual Report on Form 10-K").  The Company has not materially changed its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K. See Item (f) "Recent Accounting Pronouncements," under the subheading "Accounting pronouncements adopted by the Company," below in this Note 1.

The accompanying unaudited consolidated interim financial statements of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our"), a Massachusetts corporation, 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, 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 securities investment activities that the Bank itself would be allowed to conduct under applicable laws.

The Company's headquarters and the Bank's main office are located at 222 Merrimack Street in Lowell, Massachusetts. At September 30, 2019, the Company had 24 full service branch banking offices serving the Greater Merrimack Valley, Nashoba Valley and North Central regions of Massachusetts and Southern New Hampshire (Southern Hillsborough and Rockingham counties). The Company also has received regulatory approval to open branches in Lexington, Massachusetts and North Andover, Massachusetts, and we anticipate that these offices will open in early 2020 and summer 2020, respectively. Through the Bank and its subsidiaries, the Company offers a range of commercial, residential and consumer loan products, deposit products and cash management services, electronic and digital banking options, and insurance services.  The Company also provides a range of wealth management, wealth services and trust services delivered via two channels, Enterprise Wealth Management and Enterprise Wealth Services. 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 Federal Deposit Insurance Corporation (the "FDIC") and the Massachusetts Division of Banks (the "Division") have regulatory authority over the Bank.  The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department.  The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board.  The Division also retains supervisory jurisdiction over the Company.

The accompanying unaudited consolidated interim financial statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions for SEC Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation.  All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated interim financial statements. Certain previous years' amounts in the audited 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.

The Company has evaluated subsequent events and transactions from September 30, 2019 through the date this Quarterly Report on Form 10-Q (this "Form 10-Q") was filed with the SEC for potential recognition or disclosure as required by GAAP and determined that there were no material subsequent events requiring recognition or disclosure.



9

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

(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 2018 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for loan losses, impairment review of investment securities, 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 2018 Annual Report on Form 10-K for accounting policies related to these significant estimates.

(c) Restricted Cash and Investments

Certain of the Company's derivative agreements contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount. When the Company has pledged cash as collateral for this purpose, the cash is carried as restricted cash within "Interest-earning deposits." See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements below for more information about the Company's collateral related to its derivatives.

The Bank is also required by the Federal Reserve Bank of Boston ("FRB") to maintain in reserves certain amounts of vault cash and/or deposits with the FRB. The average daily cash balance on hand for FRB reserve requirements included in "Cash and Due from Banks" was approximately $7.5 million, based on the two-week computation period encompassing September 30, 2019.

As a member of the FHLB, the Company is required to purchase certain levels of FHLB capital stock at par value in association with outstanding advances from the FHLB.  From time to time, the FHLB may initiate the repurchase, at par value, of "excess" levels of its capital stock held by member banks. This stock is classified as a restricted investment and is carried at cost, which management believes approximates fair value.  FHLB stock represents the only restricted investment held by the Company.
 
Management regularly reviews its holdings of FHLB stock for other-than-temporary impairment ("OTTI"). Based on management's periodic review, the Company has not recorded any OTTI charges on this investment to date. If it was determined that a write-down of FHLB stock was required, impairment would be recognized through a charge to earnings.

See Note 2, "Investment Securities," to the Company's unaudited consolidated interim financial statements below for additional information on management's OTTI review.

(d) Revenue Recognition-Accounting Standard Codification ("ASC") Topic 606

While the majority of the Company's revenue is generated from contracts with customers, our primary sources of revenue, interest and dividend income (primarily loan interest income), are outside of the scope of ASC 606, "Revenue from Contracts with Customers-Topic 606," and are accounted for under other ASC topics. The core principles of this standard require an entity to recognize revenue to depict the transfer of goods and services to customers as performance obligations are satisfied.

The primary areas of income within the scope of ASC 606, wealth management fees and deposit and interchange fees, which are components of non-interest income on the Company's consolidated statements of income, are discussed below.

Wealth management fees consist of income generated through Enterprise Wealth Management and Enterprise Wealth Services. Enterprise Wealth Management income is primarily generated by managing customers' financial assets. Revenue is recognized as our performance obligation is completed each month. Enterprise Wealth Services revenue is generated through a third-party arrangement to refer, manage and service customers. For new sales and referrals along with transactional type charges, the performance obligation is based on a point in time and the payment is received and revenue is recognized in the


10

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

same month as the revenue-generating activity. For managing and servicing customers, revenue is recognized when our performance obligation is completed each month.

Deposit and interchange fees are comprised of deposit account related charges and income generated from electronic payment interchanges. Deposit account charges consist of certain transactional analysis fees net of earning balance credits, monthly account service fees, and transactional fees such as overdraft fees. Analysis and monthly account services fees are recognized over the period the service is performed. For transactional fees, the performance obligation and the revenue are recognized at a point of time and payment is typically received as the service is rendered. Interchange income is generated primarily from retail debit card transactions processed through the card payment network. The performance obligation and the revenue are recognized when the service is performed.

The following non-interest income components are not subject to ASC 606: income on bank-owned life insurance ("BOLI"), net gains/losses on sales of investment securities, and net gains on sales of loans, and are covered under other ASC topics. The remaining revenue items in non-interest income are not material.

See also Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements in the Company's 2018 Annual Report on Form 10-K for additional accounting policies on revenue recognition related to income generated on investments, gains and losses on debt security sales, net gains on loans held for sale, and loans.

(e) Income Taxes
 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in the states of Massachusetts and New Hampshire within the directives of the respective enacted tax legislation. The Company uses the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax expense or benefit attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities are reflected at currently-enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes in the period that includes the enactment date.

The Company's policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law.  The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company's judgment changes regarding an uncertain tax position.
 
The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, due primarily to the impact of state tax expense, tax-exempt interest from certain investment securities, loans and BOLI and tax impact from equity compensation activity.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at September 30, 2019.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2015 through 2018 tax years.



11

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

(f) Recent Accounting Pronouncements

The tables below summarize recent accounting pronouncements issued by the Financial Accounting Standards Board ("FASB") that were either recently adopted by the Company or have not yet been adopted. For pronouncements not yet adopted, the effective date listed below is in line with the required adoption date for public business entities, such as the Company, though certain accounting pronouncements may permit early adoption. For more detailed information regarding these pronouncements, refer to the FASB's Accounting Standards Updates ("ASU").

Accounting pronouncements adopted by the Company
 
 
 
Standard/Adoption Date
Description
Effect on Financial Statements or Other Significant Matters
ASU 2016-02, Leases
(ASC Topic 842)

January 1, 2019 
This ASU supersedes previous leasing guidance in Topic 840, and lessees are now required to recognize lease (right-of-use or "ROU") assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months.
See Note 5, "Leases," to the Company's unaudited consolidated interim financial statements, contained below, for further information on the impact of the standard's adoption on the Company.
ASU 2017-02, Derivatives and Hedging
(ASC Topic 815): Targeted Improvements to Accounting for Hedging Activities

January 1, 2019
The objective of the ASU is to better align hedge accounting with an organization's risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. The amendments expand the strategies that qualify for hedge accounting, change how many hedging relationships are presented in the financial statements and simplify the application of hedge accounting in certain situations, reducing the operational complexities associated with certain existing strategies. New or modified disclosures are required, primarily for fair value and cash flow hedges.
The Company currently does not hold any instruments that meet hedge accounting requirements and therefore the adoption of this ASU in January 2019 did not have an impact on the Company's unaudited consolidated interim financial statements, results of operations or disclosures for the periods covered by the Form 10-Q, however, the Company may utilize hedging strategies in the future.
ASU No. 2018-07, Compensation-Stock-Based Compensation
(ASU Topic 718): Improvements to Nonemployee Shared-Based Payment Accounting

January 1, 2019
The amendments in the ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees except for share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract. Additionally, Topic 718 has been updated for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).
The adoption of this standard in January 2019 did not have a material impact on the Company's unaudited consolidated interim financial statements, results of operations or disclosures for the periods covered by the Form 10-Q. See Note 9, "Stockholders' Equity."























12

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

Accounting pronouncements not yet adopted by the Company
 
 
 
Standard/Anticipated Adoption Date
Description
Effect on Financial Statements or Other Significant Matters
ASU No. 2016-13, Financial Instruments - Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments

January 1, 2020
The amendments in this ASU require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss and generally recognition of the full amount of credit losses was delayed until the loss was probable of occurring. The amendments in this ASU eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity's current estimate of all expected credit losses (commonly known as "CECL"). The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the report amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The income statement reflects 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. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP. However, the amendments in this ASU require that credit losses be presented as an allowance rather than as a write-down. Unlike current GAAP, the ASU provides for reversals of credit losses in future period net income in situations where the estimate of loss declines.

An entity will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).
As of September 30, 2019, the Company continues to work through the implementation plan, including reviewing and validating the methodology and assumptions to be utilized, and is on target for adoption of the new credit standard on January 1, 2020. Implementation will be recorded through a cumulative effect adjustment to retained earnings(1). The Company is still assessing the impact of the adoption of ASU No. 2016-13 on its operations, financial results, disclosures, and controls.

 (1) In December 2018, banking regulators issued a final rule, effective April 1, 2019, that addresses the regulatory capital treatment of credit loss allowances under the CECL methodology and allows banking organizations an option to phase in the day-one regulatory capital effects of CECL adoption over three years.  For regulatory capital purposes the Company will phase in the adoption adjustment over the allowable three-year phase in period. 

 

ASU No. 2017-04, Intangibles-Goodwill and Other
(ASU Topic 350)- Simplifying the Test for Goodwill Impairment

January 1, 2020
The main provision in this ASU eliminated Step 2 of the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An impairment charge would be recognized for the amount the carrying value exceeds the reporting unit's fair value as long as the amount recognized does not exceed the amount of goodwill allocated to the reporting unit.
Goodwill carried on the Company's consolidated financial statements was $5.7 million at both September 30, 2019 and December 31, 2018. This asset is related to the Company’s acquisition of two branch offices in July 2000. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2018-13, Fair Value Measurement
(ASU Topic 820)-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement

January 1, 2020
The amendments in this ASU modify the disclosure requirements primarily related to level 3 fair value measurements of the fair value hierarchy.
The Company does not expect the adoption of ASU No. 2018-13 to have a material impact on the Company's consolidated financial statements and results of operations because this ASU primarily relates to disclosure requirements.
 
 
 
 
 
 


13

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

Accounting pronouncements not yet adopted by the Company (continued)
 
 
 
Standard/Anticipated Adoption Date
Description
Effect on Financial Statements or Other Significant Matters
ASU No.2018-15, Intangibles-Goodwill and Other- Internal-Use Software
(ASU Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract

January 1, 2020
The major provision in the amendments in this ASU require an entity to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract in accordance with current GAAP for internal-use software and expense these costs over the term of the hosting arrangement. Additionally, these capitalized implementation costs are required to be reviewed for impairment in accordance with current GAAP for internal-use software. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.
The Company does not expect the adoption of ASU No. 2018-15 to have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General
(ASU Subtopic 715-20) - Disclosure Framework- Changes to the Disclosure Requirements for Defined Benefit Plans

January 1, 2021
The amendments in this ASU modify the disclosure requirements on defined benefit plans including requiring disclosures about significant gains and losses related to changes in the benefit obligation.
The adoption of ASU No. 2018-14 will not have a material impact on the Company's consolidated financial statements and results of operations because this ASU primarily relates to disclosure requirements and the balances of the benefit plans impacted by this ASU are immaterial to the Company.

(2) Investment Securities
 
As of September 30, 2019 and December 31, 2018, the investment portfolio was primarily comprised of debt securities, with a small portion of the portfolio invested in equity securities.

See also item (c), "Restricted Cash and Investments," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's unaudited consolidated interim financial statements, contained above, for further information regarding the Company's FHLB stock. See Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for investment securities.



14

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

Debt Securities

The amortized cost and fair values of debt securities at the dates specified are summarized as follows:
 
 
September 30, 2019
(Dollars in thousands)
 
Amortized
cost
 
Unrealized
gains
 
Unrealized
losses
 
Fair Value
Federal agency obligations(1)
 
$
999

 
$
5

 
$

 
$
1,004

Residential federal agency MBS(1)
 
178,494

 
2,792

 
134

 
181,152

Commercial federal agency MBS(1)
 
111,796

 
4,257

 

 
116,053

Municipal securities
 
160,825

 
8,153

 

 
168,978

Corporate bonds
 
13,985


479


1


14,463

Certificate of deposits(2) ("CDs")
 
454

 
2

 

 
456

Total debt securities, at fair value
 
$
466,553

 
$
15,688

 
$
135

 
$
482,106

 
 
 
December 31, 2018
(Dollars in thousands)
 
Amortized
cost
 
Unrealized
gains
 
Unrealized
losses
 
Fair Value
Federal agency obligations(1)
 
$
7,994

 
$

 
$
19

 
$
7,975

Residential federal agency MBS(1)
 
174,701

 
633

 
2,608

 
172,726

Commercial federal agency MBS(1)
 
93,800

 
609

 
430

 
93,979

Municipal securities
 
141,747

 
1,122

 
826

 
142,043

Corporate bonds
 
13,967

 
24

 
185

 
13,806

Certificates of deposits(2)
 
950

 

 
6

 
944

Total debt securities, at fair value
 
$
433,159

 
$
2,388

 
$
4,074

 
$
431,473

__________________________________________
(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. 
(2)
CDs represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.

Included in the residential and commercial federal agency mortgage-backed securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. agencies with fair values totaling $272.6 million and $242.8 million at September 30, 2019 and December 31, 2018, respectively. Included in municipal securities were tax exempt municipal securities with fair values totaling $100.1 million and $107.3 million at September 30, 2019 and December 31, 2018, respectively.

As of the dates reflected in the tables above, all of the Company's debt securities were classified as available-for-sale and carried at fair value.

Net unrealized appreciation and depreciation on debt securities available-for-sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss). The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall.  Due to the fixed rate nature of this portfolio, as market rates fall, the value of the portfolio rises, and as market rates rise, the value of the portfolio declines.  The unrealized gains or losses on debt securities will also decline as the securities approach maturity. Unrealized losses on debt securities that are deemed OTTI are generally charged to earnings, as described further in Note 1, "Summary of Significant Accounting Policies," under Item (e), "Investments," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K. Gains or losses will be recognized in the income statement if the securities are sold.



15

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

The following tables summarize debt securities with unrealized losses, due to the fair values having declined below the amortized costs of the individual investments, by the duration of their continuous unrealized loss positions at September 30, 2019 and December 31, 2018
 
 
September 30, 2019
 
 
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
Residential federal agency MBS
 
$
23,095

 
$
63

 
$
5,088

 
$
71

 
$
28,183

 
$
134

 
9

Corporate bonds
 

 

 
1,071

 
1

 
1,071

 
1

 
6

Total temporarily impaired debt securities
 
$
23,095

 
$
63

 
$
6,159

 
$
72

 
$
29,254

 
$
135

 
15


 
 
December 31, 2018
 
 
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
 
$
997

 
$
1

 
$
6,978

 
$
18

 
$
7,975

 
$
19

 
3

Residential federal agency MBS
 
26,147

 
597

 
81,158

 
2,011

 
107,305

 
2,608

 
25

Commercial federal agency MBS
 
3,258

 
11

 
18,717

 
419

 
21,975

 
430

 
9

Municipal securities
 
15,036

 
108

 
41,265

 
718

 
56,301

 
826

 
83

Corporate bonds
 
5,277

 
36

 
5,653

 
149

 
10,930

 
185

 
63

CDs
 

 

 
944

 
6

 
944

 
6

 
4

Total temporarily impaired debt securities
 
$
50,715

 
$
753

 
$
154,715

 
$
3,321

 
$
205,430

 
$
4,074

 
187


During the nine months ended September 30, 2019 and 2018, the Company did not record any fair value impairment charges OTTI on its investments in debt securities. At September 30, 2019, management did not consider any debt securities to have OTTI. Management regularly reviews the portfolio for debt securities with unrealized losses that are other-than-temporarily impaired. There have been no material changes to the Company's process for assessing investments for OTTI as reported in the Company's 2018 Annual Report on Form 10-K. For more information about the Company's assessment for OTTI, see Note 2, "Investment Securities," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K.

The contractual maturity distribution at September 30, 2019 of total debt securities was as follows:
(Dollars in thousands)
 
Amortized Cost
 
Fair Value
Due in one year or less
 
$
5,265

 
$
5,287

Due after one, but within five years
 
70,738

 
72,816

Due after five, but within ten years
 
173,589

 
182,111

Due after ten years
 
216,961

 
221,892

 Total debt securities
 
$
466,553

 
$
482,106


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 $87.6 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 FRB.  The fair value of debt securities pledged as collateral for these purposes was $475.3 million at September 30, 2019.



16

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

Sales of debt securities for the three and nine months ended September 30, 2019 and September 30, 2018 are summarized as follows:
 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Amortized cost of debt securities sold (1)
 
$

 
$
687

 
$
11,621

 
$
1,355

Gross realized gains on sales
 

 

 
149

 
3

Gross realized losses on sales
 

 
(34
)
 
(3
)
 
(36
)
Total proceeds from sales of debt securities
 
$

 
$
653

 
$
11,767

 
$
1,322

_________________________________________
(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 $1.4 million at September 30, 2019 and December 31, 2018. These investments are accounted for under ASC Topic 321, "Investments-Equity Securities," and are recorded on the Company's consolidated balance sheet at fair value with changes in fair value recognized in the Company's consolidated income statement as a component of "Other Income." The net fair value changes of equity securities recognized as a component of "Other Income" is dependent on the amount of dollars invested in equities and the magnitude of changes in equity market values. At September 30, 2019, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a portion of the portfolio invested in common stock of individual entities in the financial services industry.

Gains and losses on equity securities at September 30, 2019 and September 30, 2018 are summarized as follows:

 
 
Three months ended September 30,
 
Nine months ended September 30,
(Dollars in thousands)
 
2019
 
2018
 
2019
 
2018
Net gains recognized during the period on equity securities
 
$
12

 
$
14

 
$
275

 
$
12

Less: Net gains realized on equity securities sold during the period
 
36

 

 
36

 

Unrealized (losses) gains recognized during the reporting period on equity securities still held in the portfolio
 
$
(24
)
 
$
14

 
$
239

 
$
12


(3)
Loans

The Company manages its loan portfolio to avoid concentration by industry, relationship size and source of repayment to lessen its credit risk exposure. For additional information on the Company's lending products, see the heading "Lending Products" under Item 1, "Business," contained in the Company's 2018 Annual Report on Form 10-K.


17

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

Loan Portfolio Classifications

Major classifications of loans at the dates indicated were as follows:
(Dollars in thousands)
 
September 30,
2019
 
December 31,
2018
Commercial real estate
 
$
1,317,999

 
$
1,303,879

Commercial and industrial
 
511,695

 
514,253

Commercial construction
 
295,448

 
234,430

Total commercial loans
 
2,125,142

 
2,052,562

Residential mortgages
 
241,157

 
231,501

Home equity loans and lines
 
98,763

 
96,116

Consumer
 
10,037

 
10,241

Total retail loans
 
349,957

 
337,858

 
 
 
 
 
Gross loans
 
2,475,099

 
2,390,420

Deferred loan origination fees, net
 
(2,969
)
 
(2,914
)
Total loans
 
2,472,130

 
2,387,506

Allowance for loan losses
 
(33,935
)
 
(33,849
)
Net loans
 
$
2,438,195

 
$
2,353,657

 
Commercial loans originated by other banks in which the Company is a participating institution are carried at the pro-rata share of ownership and amounted to $68.0 million at September 30, 2019 and $63.5 million at December 31, 2018.
 
Loans serviced for others
 
At September 30, 2019 and December 31, 2018, the Company was servicing residential mortgage loans owned by investors amounting to $16.4 million and $17.2 million, respectively.  Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $77.3 million and $72.1 million at September 30, 2019 and December 31, 2018, respectively.
 
Loans serving as collateral
 
Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity for the dates indicated are summarized below:
(Dollars in thousands)
 
September 30,
2019
 
December 31,
2018
Commercial real estate
 
$
269,379

 
$
311,024

Residential mortgages
 
228,109

 
220,815

Home equity lines of credit
 
8,078

 
8,382

Total loans pledged to FHLB
 
$
505,566

 
$
540,221


See also Note 4, "Allowance for Loan Losses," to the Company's unaudited consolidated interim financial statements, contained below, for information on the Company's credit risk management, non-accrual, impaired and troubled debt restructured loans and the allowance for loan losses. See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements, contained below, for information regarding interest-rate swap agreements related to certain commercial loans, and see Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for loans.



18

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

(4) Allowance for Loan Losses
 
Allowance for probable loan losses methodology

On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated probable credit losses.  The Company uses a systematic methodology to measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses.  The methodology makes use of specific reserves for loans individually evaluated and deemed impaired, and general reserves for larger pools of homogeneous loans, which are collectively evaluated relying on a combination of qualitative and quantitative factors that may affect credit quality of the pool.

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K,

The balances of loans as of September 30, 2019 by portfolio classification and evaluation method are summarized as follows: 
(Dollars in thousands)
 
Loans individually
evaluated for
impairment
 
Loans collectively
evaluated for
impairment
 
Gross Loans
Commercial real estate
 
$
17,737

 
$
1,300,262

 
$
1,317,999

Commercial and industrial
 
10,019

 
501,676

 
511,695

Commercial construction
 
1,732

 
293,716

 
295,448

Residential mortgages
 
1,239

 
239,918

 
241,157

Home equity loans and lines
 
423

 
98,340

 
98,763

Consumer
 
25

 
10,012

 
10,037

Total gross loans
 
$
31,175

 
$
2,443,924

 
$
2,475,099


The balances of loans as of December 31, 2018 by portfolio classification and evaluation method are summarized as follows:
(Dollars in thousands)
 
Loans individually
evaluated for
impairment
 
Loans collectively
evaluated for
impairment
 
Gross Loans
Commercial real estate
 
$
16,318

 
$
1,287,561

 
$
1,303,879

Commercial and industrial
 
12,053

 
502,200

 
514,253

Commercial construction
 
1,736

 
232,694

 
234,430

Residential mortgages
 
893

 
230,608

 
231,501

Home equity loans and lines
 
514

 
95,602

 
96,116

Consumer
 
16

 
10,225

 
10,241

Total gross loans
 
$
31,530

 
$
2,358,890

 
$
2,390,420


See "Financial Condition" in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the headings "Credit Risk" and "Allowance for Loan Losses" in this Form 10-Q for additional information about changes in the Company's credit quality indicators since December 31, 2018.

Credit quality indicators

Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors internal credit quality indicators such as, among others, the risk classification of adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity. These credit quality indicators are discussed below.

Adversely classified loans

The Company's loan risk rating system classifies loans depending on risk of loss characteristics. The classifications range


19

ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 

from "substantially risk free" for the highest quality loans and loans that are secured by cash collateral, through a satisfactory range of "minimal," "moderate," "better than average," and "average" risk, to the regulatory problem-asset classifications of "criticized," for loans that may need additional monitoring, and the more severe adverse classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations. Loans which are evaluated to be of weaker credit quality are placed on the "watch credit list" and reviewed on a more frequent basis by management.
 
Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof. 
 
The following tables present the Company's credit risk profile for each portfolio classification by internally assigned adverse risk rating category as of the periods indicated:
 
 
September 30, 2019
 
 
Adversely Classified
 
Not Adversely
 
 
(Dollars in thousands)
 
Substandard
 
Doubtful
 
Loss
 
Classified
 
Gross Loans
Commercial real estate
 
$
16,924

 
$

 
$

 
$
1,301,075

 
$
1,317,999

Commercial and industrial
 
13,905

 

 

 
497,790

 
511,695

Commercial construction
 
2,245

 

 

 
293,203

 
295,448

Residential mortgages
 
1,835

 

 

 
239,322

 
241,157

Home equity loans and lines
 
468

 

 

 
98,295

 
98,763

Consumer
 
41

 
4

 

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