Companies: 10,762     total market cap: $133.169 T
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Enterprise Bancorp
EBTC
#7161
Rank
$0.49 B
Marketcap
๐Ÿ‡บ๐Ÿ‡ธ United States
Country
$39.64
Share price
0.00%
Change (1 day)
-1.78%
Change (1 year)
๐Ÿฆ Banks๐Ÿ’ณ Financial services
Categories
  1. Enterprise Bancorp
  2. Quarterly Reports (10-Q)
  3. Financial Year FY2024 Q1

Enterprise Bancorp - 10-Q quarterly report FY2024 Q1


Text size:
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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, 2024
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)
 
Massachusetts04-3308902
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
  
222 Merrimack Street,Lowell,Massachusetts01852
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEBTCNASDAQ 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 30, 2024, there were 12,374,678 shares of the issuer's common stock outstanding, par value $0.01 per share.

ENTERPRISE BANCORP, INC.
INDEX
  Page Number
 
1
   
 
2
PART I - FINANCIAL INFORMATION
4
 
Consolidated Balance Sheets - March 31, 2024 and December 31, 2023
4
 
Consolidated Statements of Income - Three months ended March 31, 2024 and 2023
5
Consolidated Statements of Comprehensive Income - Three months ended March 31, 2024 and 2023
6
 
Consolidated Statements of Changes in Shareholders' Equity - Three months ended March 31, 2024 and 2023
7
 
Consolidated Statements of Cash Flows - Three months ended March 31, 2024 and 2023
8
 
Notes to Unaudited Consolidated Interim Financial Statements
9
31
44
45
   
PART II - OTHER INFORMATION
45
45
46
46
46
46
46
 
47


2
ACRONYMS AND ABBREVIATIONS

The acronyms and abbreviations defined in the table below are provided to aid the reader when reviewing this Quarterly Report on Form 10-Q:

AcronymDescription
ACL:Allowance for credit losses
AOCI:Accumulated other comprehensive income
ASC:Accounting Standards Codification
ASU:Accounting Standards Update
BTFP:
Bank Term Funding Program
CD:Certificate of deposit
CDE:
Community Development Entities
CECL:Current expected credit loss
CMO:Collateralized mortgage obligations
FASB:
Financial Accounting Standards Board
FDIC:Federal Deposit Insurance Corporation
FHLB:
Federal Home Loan Bank of Boston
FRB:Federal Reserve Bank of Boston
GAAP:Generally Accepted Accounting Principles
MBS:Mortgage-backed securities
Net interest margin:
Tax-equivalent net interest margin
NH BFA:
New Hampshire Business Finance Authority
NMTC:
New Market Tax Credit
OREO:Other real estate owned
ROU:
Right-of-use
RPA:Risk participation agreement
TDR:Troubled debt restructuring
Treasury:
U.S. Department of the Treasury
U.S.:United States

3
PART I-FINANCIAL INFORMATION
Item 1 -Financial Statements
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)March 31,
2024		December 31, 2023
Assets  
Cash and cash equivalents:  
Cash and due from banks$41,443 $37,443 
Interest-earning deposits with banks106,391 19,149 
Total cash and cash equivalents147,834 56,592 
Investments:
Debt securities at fair value (amortized cost of $749,561 and $763,981, respectively)
643,924 661,113 
Equity securities at fair value8,102 7,058 
Total investment securities at fair value652,026 668,171 
Federal Home Loan Bank stock
2,482 2,402 
Loans held for sale400 200 
Loans:
Total loans3,654,322 3,567,631 
Allowance for credit losses (60,741)(58,995)
Net loans3,593,581 3,508,636 
Premises and equipment, net44,671 44,931 
Lease right-of-use asset24,645 24,820 
Accrued interest receivable20,501 19,233 
Deferred income taxes, net47,903 49,166 
Bank-owned life insurance65,878 65,455 
Prepaid income taxes5,771 1,589 
Prepaid expenses and other assets12,667 19,183 
Goodwill5,656 5,656 
Total assets$4,624,015 $4,466,034 
Liabilities and shareholders' Equity  
Liabilities  
Deposits$4,106,119 $3,977,521 
Borrowed funds63,246 25,768 
Subordinated debt59,577 59,498 
Lease liability24,303 24,441 
Accrued expenses and other liabilities30,945 45,011 
Accrued interest payable6,386 4,678 
Total liabilities4,290,576 4,136,917 
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; 12,376,562 and 12,272,674 shares issued and outstanding, respectively
124 123 
Additional paid-in capital108,246 107,377 
Retained earnings306,943 301,380 
Accumulated other comprehensive loss(81,874)(79,763)
Total shareholders' equity333,439 329,117 
Total liabilities and shareholders' equity$4,624,015 $4,466,034 
See the accompanying notes to the unaudited consolidated interim financial statements.
4

ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
 Three months ended March 31,
(Dollars in thousands, except per share data)20242023
Interest and dividend income:
Other interest-earning assets$1,172$2,208
Investment securities4,0345,073
Loans and loans held for sale48,81739,556
Total interest and dividend income54,02346,837
Interest expense:
Deposits17,2725,987
Borrowed funds69412
Subordinated debt867867
Total interest expense18,833 6,866 
Net interest income35,190 39,971 
Provision for credit losses622 2,736 
Net interest income after provision for credit losses34,568 37,235 
Non-interest income:
Wealth management fees1,8501,587
Deposit and interchange fees2,0692,048
Income on bank-owned life insurance, net458307
Net gains on sales of loans2214
Net gains (losses) on equity securities
465(16)
Other income631817
Total non-interest income5,495 4,757 
Non-interest expense:
Salaries and employee benefits19,17618,521
Occupancy and equipment expenses2,4592,501
Technology and telecommunications expenses2,7452,675
Advertising and public relations expenses743681
Audit, legal and other professional fees734640
Deposit insurance premiums859675
Supplies and postage expenses237255
Other operating expenses1,9552,092
Total non-interest expense28,908 28,040 
Income before income taxes11,155 13,952 
Provision for income taxes2,648 3,184 
Net income$8,507 $10,768 
Basic earnings per share$0.69 $0.89 
Diluted earnings per share$0.69 $0.88 
Basic weighted average common shares outstanding12,292,417 12,155,320 
Diluted weighted average common shares outstanding12,304,203 12,193,756 
See the accompanying notes to the unaudited consolidated interim financial statements.

5
ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three months ended March 31,
(Dollars in thousands)20242023
Net income$8,507 $10,768 
Other comprehensive (loss) income, net of tax
Net change in fair value of debt securities(2,111)20,248 
Total other comprehensive (loss) income, net of tax
(2,111)20,248 
Total comprehensive income, net
$6,396 $31,016 


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

6
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive Loss		Total
Shareholders'
Equity
(Dollars in thousands, except per share data)SharesAmount
Balance at December 31, 202312,272,674 $123 $107,377 $301,380 $(79,763)$329,117 
Net income8,507 8,507 
Other comprehensive loss, net(2,111)(2,111)
Common stock dividend declared ($0.24 per share)
(2,944)(2,944)
Common stock issued under dividend reinvestment plan14,496 — 398 398 
Common stock issued, other55 — 2 2 
Stock-based compensation, net90,963 1 660 661 
Net settlement for employee taxes on restricted stock and options(8,955)— (283)(283)
Stock options exercised, net7,329 — 92 92 
Balance at March 31, 202412,376,562 $124 $108,246 $306,943 $(81,874)$333,439 
Balance at December 31, 202212,133,516 $121 $103,793 $274,560 $(96,207)$282,267 
Net income10,768 10,768 
Other comprehensive income, net
20,248 20,248 
Common stock dividend declared ($0.23 per share)
(2,794)(2,794)
Common stock issued under dividend reinvestment plan10,395 — 370 370 
Common stock issued, other207 — 7 7 
Stock-based compensation, net70,943 1 710 711 
Net settlement for employee taxes on restricted stock and options(5,954)— (348)(348)
Stock options exercised, net13,610 — 89 89 
Balance at March 31, 202312,222,717 $122 $104,621 $282,534 $(75,959)$311,318 






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

7
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 Three months ended March 31,
(Dollars in thousands)20242023
Cash flows from operating activities:
Net income$8,507 $10,768 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses622 2,736 
Depreciation and amortization1,484 1,660 
Stock-based compensation expense503 522 
Income on bank-owned life insurance, net(458)(307)
Mortgage loans originated for sale(1,758)(1,188)
Proceeds from mortgage loans sold1,580 840 
Net gains on sales of loans(22)(14)
Net (gains) losses on equity securities
(465)16 
Changes in:
  Net decrease (increase) in other assets
3,145 (3,597)
  Net decrease in other liabilities(10,961)(5,762)
Net cash provided by operating activities2,177 5,674 
Cash flows from investing activities:
Proceeds from maturities, calls and pay-downs of debt securities14,225 16,433 
Net purchases of equity securities(579)(1,122)
Net purchases of FHLB capital stock(80)— 
Net increase in loans(86,813)(49,594)
Additions to premises and equipment, net(1,029)(944)
Net cash used in investing activities(74,276)(35,227)
Cash flows from financing activities:
Net increase (decrease) in deposits
128,598 (19,650)
Advancements from long-term borrowings
38,568 307 
Repayments of long-term borrowings
(1,090)(324)
Cash dividends paid, net of dividend reinvestment plan(2,546)(2,424)
Proceeds from issuance of common stock2 7 
Net settlement for employee taxes on restricted stock and options(283)(348)
Net proceeds from stock option exercises92 89 
Net cash provided by (used in) financing activities
163,341 (22,343)
Net increase (decrease) in cash and cash equivalents
91,242 (51,896)
Cash and cash equivalents at beginning of period56,592 267,589 
Cash and cash equivalents at end of period$147,834 $215,693 
See the 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, 2023 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, 2023 (the "2023 Annual Report on Form 10-K") as filed with the U.S. Securities and Exchange Commission (the "SEC") on March 8, 2024. The Company has not materially changed its significant accounting policies from those disclosed in its 2024 Annual Report on Form 10-K. See Item (e), "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 services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment. The Bank's subsidiaries include Enterprise Wealth Services, LLC which was organized under the laws of the State of Delaware, to offer non-deposit investment products and services as well as 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 addition, the Bank has organized the EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") under the laws of the State of Delaware in order to invest in the NMTC program administered by the U.S. Department of the Treasury's Community Development Financial Institutions Fund and allocated to Community Development Entities.

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, 2024 (this "Form 10-Q"), have been prepared in accordance with U.S. 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 2023 Annual Report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates are: the estimates of the 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 2023 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 Delaware limited liability company, in order to invest in the NMTC program administered by the U.S. Department of the Treasury's Community Development Financial Institutions Fund and allocated to CDEs.

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 over a seven-year period and are subject to recapture if certain events occur during such period. The Bank invested $3.7 million

9
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
in the NMTC 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 investment in the NMTC Investment Fund.

The Company has elected to account for the tax equity investment using the proportional amortization method. Under this accounting 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, 2024 and March 31, 2023, the related amortization expense amounted to $119 thousand and $44 thousand, respectively, and the related tax credits amounted to $153 thousand for each period.

(d) Income Taxes

Deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement and tax basis of assets and liabilities, calculated using currently enacted tax rates. Management records net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including recent financial operations and projected future taxable income.

(e) Recent Accounting Pronouncements

Accounting pronouncements not yet adopted by the Company
In October 2023, the FASB issued ASU 2023-06, "Disclosure Improvements — Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative." This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532—Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC's removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited. ASU 2023-06 is not expected to have a material impact on our consolidated financial statements.

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in this ASU are intended to improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. For public business entities, the amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-07 is not expected to have a material impact on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." This ASU requires public business entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is equal to or greater than 5 percent of the amount computed by multiplying pretax income by the applicable statutory income tax rate). ASU 2023-09 is effective for fiscal years, and interim periods within those fiscal years beginning after December 15, 2024, with early adoption permitted. ASU 2023-09 is not expected to have a material impact on our consolidated financial statements.

(f) Subsequent Events

The Company has evaluated subsequent events and transactions from March 31, 2024 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.












10
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, 2024
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,004 $— $26 $4,978 
U.S. Treasury securities
13,995 — 1,048 12,947 
Federal agency CMO
386,584 — 63,784 322,800 
Federal agency MBS
21,419 1 3,129 18,291 
Taxable municipal securities 262,098 37 35,611 226,524 
Tax-exempt municipal securities44,441 55 471 44,025 
Corporate bonds 4,062 — 104 3,958 
Subordinated corporate bonds11,958 — 1,557 10,401 
Total debt securities, at fair value$749,561 $93 $105,730 $643,924 
 December 31, 2023
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,006 $— $28 $4,978 
U.S. Treasury securities
16,993 — 1,068 15,925 
Federal agency CMO396,665 33 61,947 334,751 
Federal agency MBS21,586 31 2,805 18,812 
Taxable municipal securities 262,168 34 35,225 226,977 
Tax-exempt municipal securities45,548 156 285 45,419 
Corporate bonds 4,058 — 92 3,966 
Subordinated corporate bonds11,957 — 1,672 10,285 
Total debt securities, at fair value$763,981 $254 $103,122 $661,113 
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 $3.5 million at March 31, 2024 and $3.1 million at December 31, 2023.

At March 31, 2024, management performed its quarterly analysis of all securities with unrealized losses and determined that the losses were attributable to significant increases in market interest rates. Management concluded that no ACL for available-for-sale securities was necessary as of March 31, 2024 and anticipates they will mature or be called at par value. The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis.


11
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, 2024 and December 31, 2023:
 March 31, 2024
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$— $— $4,978 $26 $4,978 $26 1 
U.S. Treasury securities
— — 12,947 1,048 12,947 1,048 3 
Federal agency CMO22,295 347 300,505 63,437 322,800 63,784 86 
Federal agency MBS— — 16,627 3,129 16,627 3,129 10 
Taxable municipal securities 1,988 322 223,499 35,289 225,487 35,611 251 
Tax-exempt municipal securities12,652 75 19,290 396 31,942 471 72 
Corporate bonds— — 3,958 104 3,958 104 18 
Subordinated corporate bonds— — 10,401 1,557 10,401 1,557 6 
Total$36,935 $744 $592,205 $104,986 $629,140 $105,730 447 
 December 31, 2023
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$4,978 $28 $— $— $4,978 $28 1 
U.S. Treasury securities
— — 15,925 1,068 15,925 1,068 4
Federal agency CMO8,810 18 311,221 61,929 320,031 61,947 86
Federal agency MBS— — 17,114 2,805 17,114 2,805 10 
Taxable municipal securities 1,993 316 223,949 34,909 225,942 35,225 251
Tax-exempt municipal securities11,890 55 10,519 230 22,409 285 53 
Corporate bonds — — 3,966 92 3,966 92 18 
Subordinated corporate bonds— — 10,285 1,672 10,285 1,672 6 
Total$27,671 $417 $592,979 $102,705 $620,650 $103,122 429 

The contractual maturity distribution at March 31, 2024 of debt securities was as follows:
(Dollars in thousands)Amortized CostFair Value
Due in one year or less$27,315 $27,013 
Due after one, but within five years90,009 85,084 
Due after five, but within ten years245,855 211,220 
Due after ten years386,382 320,607 
 Total debt securities
$749,561 $643,924 

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 $132.8 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 $633.5 million and $650.8 million at March 31, 2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and March 31, 2023, the Company had no sales of debt securities.


 

12
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Equity Securities

At March 31, 2024 the Company held equity securities with a fair value of $8.1 million, which consisted of $3.1 million in management directed investments and $5.0 million in mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

At December 31, 2023, the Company held equity securities with a fair value of $7.1 million, which consisted of $4.4 million in management directed investments and $2.7 million in mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Net gains and losses recognized on equity securities for the three months ended March 31, 2024 and March 31, 2023 are summarized as follows:
Three months ended March 31,
(Dollars in thousands)20242023
Net gains (losses) recognized during the period on equity securities
$465 $(16)
Less: Net gains recognized on equity securities sold during the period
1 — 
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the end of the period
$464 $(16)

(3)Loans

Loan Portfolio Classifications

Major classifications of loans and their amortized cost as of the dates indicated were as follows:
(Dollars in thousands)March 31,
2024		December 31,
2023
Commercial real estate owner-occupied
$635,420 $619,302 
Commercial real estate non owner-occupied
1,524,174 1,445,435 
Commercial and industrial417,604 430,749 
Commercial construction583,711 585,113 
Total commercial loans3,160,909 3,080,599 
Residential mortgages400,093 393,142 
Home equity loans and lines 85,144 85,375 
Consumer8,176 8,515 
Total retail loans493,413 487,032 
Total loans3,654,322 3,567,631 
ACL for loans(60,741)(58,995)
Net loans$3,593,581 $3,508,636 

Net deferred loan origination fees, included in the amortized costs of loans reflected in the table above, amounted to $4.8 million at March 31, 2024 and $5.4 million at December 31, 2023.

Accrued interest receivable on loans amounted to $17.0 million and $16.1 million at March 31, 2024 and December 31, 2023, respectively, and was included in the "Accrued interest receivable" line item on the Company's Consolidated Balance Sheets.

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 $138.1 million at March 31, 2024 and $126.6 million at December 31, 2023.

Loans serviced for others

At March 31, 2024 and December 31, 2023, the Company was servicing residential mortgage loans owned by investors amounting to $7.7 million. Additionally, the Company was servicing commercial loans originated by the Company and

13
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
participated out to various other institutions amounting to $68.7 million and $69.8 million at March 31, 2024 and December 31, 2023, respectively.

Loans serving as collateral
 
Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity as of the dates indicated are summarized below:
(Dollars in thousands)March 31, 2024December 31, 2023
Commercial real estate$485,206 $495,831 
Residential mortgages377,821 369,062 
Home equity33,967 35,540 
Total loans pledged to FHLB$896,994 $900,433 

(4)ACL for Loans

There have been no material changes to the Company's ACL for loans methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure as described in the 2023 Annual Report on Form 10-K.

See Note 4, "Credit Risk Management and ACL for Loans," to the Company's audited consolidated financial statements contained in the 2023 Annual Report on Form 10-K and Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the subheading "Accounting Policies/Critical Accounting Estimates," of the Company's 2023 Annual Report on Form 10-K.

The credit risk management function of the Company evaluates a wide variety of factors as early detection of credit issues is critical to minimizing credit losses. Accordingly, management regularly monitors internal credit quality indicators such as, the risk classification of loans, past due and non-accrual loans, individually evaluated loans, loan modifications, and the level of foreclosure activity, among other items. These credit quality indicators are outlined below.
Risk ratings and adversely classified loans

The Company's loan risk rating system classifies loans depending on risk of loss characteristics. Adversely classified ratings for loans determined to be of weaker credit range from "special mention," for loans that may need additional monitoring, to the more severe adverse classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations.























14
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The following tables present the amortized cost basis of the Company's loan portfolio risk ratings within portfolio classifications, by origination date, or revolving status as of the dates indicated:
Balance at March 31, 2024
Term Loans by Origination Year
(Dollars in thousands)20242023202220212020PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate owner-occupied
Pass$9,737 $86,392 $82,614 $87,945 $51,879 $297,009 $5,233 $— $620,809 
Special mention— 31 — — — 7,183 — — 7,214 
Substandard— — 1,296 440 — 5,661 — — 7,397 
 Total commercial real estate owner-occupied
9,737 86,423 83,910 88,385 51,879 309,853 5,233 — 635,420 
Current period charge-offs— — — — — — — — — 
Commercial real estate non owner-occupied
Pass32,629 134,347 297,528 300,717 159,534 556,224 23,876 — 1,504,855 
Special mention— — 15,721 — — 648 — — 16,369 
Substandard— — — 785 — 2,165 — — 2,950 
 Total commercial real estate non owner-occupied
32,629 134,347 313,249 301,502 159,534 559,037 23,876 — 1,524,174 
Current period charge-offs— — — — — — — — — 
Commercial and industrial
Pass19,653 74,047 50,068 40,663 21,879 63,480 140,427 556 410,773 
Special mention— — — — 266 387 2,377 20 3,050 
Substandard— — 3,323 27 — 204 227 — 3,781 
 Total commercial and industrial
19,653 74,047 53,391 40,690 22,145 64,071 143,031 576 417,604 
Current period charge-offs— 10 — — — 175 — — 185 
Commercial construction
Pass21,387 222,208 162,246 112,463 11,291 19,852 26,357 — 575,804 
Substandard— — 7,907 — — — — — 7,907 
 Total commercial construction
21,387 222,208 170,153 112,463 11,291 19,852 26,357 — 583,711 
Current period charge-offs— — — — — — — — — 
Residential mortgages
Pass12,155 83,035 105,766 69,363 46,248 81,862 — — 398,429 
Special mention— — — — — 107 — — 107 
Substandard— — — 234 — 1,323 — — 1,557 
 Total residential mortgages
12,155 83,035 105,766 69,597 46,248 83,292 — — 400,093 
Current period charge-offs— — — — — — — — — 
Home equity
Pass— 462 772 531 442 2,398 79,938 468 85,011 
Special mention— — — — — 8 — — 8 
Substandard— — 23 — — 102 — — 125 
 Total home equity
— 462 795 531 442 2,508 79,938 468 85,144 
Current period charge-offs— — — — — — — — — 
Consumer
Pass750 2,724 1,547 1,268 661 885 — 341 8,176 
 Total consumer
750 2,724 1,547 1,268 661 885 — 341 8,176 
Current period charge-offs6 2 — — — 1 — — 9 
Total loans$96,311 $603,246 $728,811 $614,436 $292,200 $1,039,498 $278,435 $1,385 $3,654,322 
Total current period charge-offs$6 $12 $— $— $— $176 $— $— $194 


15
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Balance at December 31, 2023
Term Loans by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate owner-occupied
Pass$82,500 $83,366 $88,178 $52,891 $51,379 $242,518 $2,169 $— $603,001 
Special mention31 — — — 489 6,971 — — 7,491 
Substandard— 1,311 270 — — 7,229 — — 8,810 
 Total commercial real estate
82,531 84,677 88,448 52,891 51,868 256,718 2,169 — 619,302 
Current period charge-offs owner-occupied
— — — — — — — — — 
Commercial real estate non owner-occupied
Pass133,179 288,240 278,833 148,730 165,676 398,516 9,961 107 1,423,242 
Special mention— 15,782 — — — 2,977 — — 18,759 
Substandard— — 361 — 969 1,654 — 450 3,434 
 Total commercial real estate non owner-occupied
133,179 304,022 279,194 148,730 166,645 403,147 9,961 557 1,445,435 
Current period charge-offs— — — — — — — — — 
Commercial and industrial
Pass73,608 51,990 45,278 24,778 23,724 44,609 156,465 3,402 423,854 
Special mention— — — 70 215 201 2,227 223 2,936 
Substandard— — 18 — 1 209 316 3,415 3,959 
 Total commercial and industrial
73,608 51,990 45,296 24,848 23,940 45,019 159,008 7,040 430,749 
Current period charge-offs15 248 — — 67 266 — — 596 
Commercial construction
Pass192,462 164,313 143,203 22,017 16,247 10,532 27,261 — 576,035 
Special mention— 7,905 — — 1,173 — — — 9,078 
 Total commercial construction
192,462 172,218 143,203 22,017 17,420 10,532 27,261 — 585,113 
Current period charge-offs— — — — — — — — — 
Residential mortgages
Pass82,848 107,222 69,979 46,674 19,205 65,311 — — 391,239 
Special mention— — — — — 109 — — 109 
Substandard— — 236 — 1,055 503 — — 1,794 
 Total residential mortgages
82,848 107,222 70,215 46,674 20,260 65,923 — — 393,142 
Current period charge-offs— — — — — — — — — 
Home equity
Pass1,203 775 561 444 317 1,738 79,421 636 85,095 
Substandard— — — — — 72 — 208 280 
 Total home equity
1,203 775 561 444 317 1,810 79,421 844 85,375 
Current period charge-offs— — — — — — — — — 
Consumer
Pass3,705 1,652 1,371 722 623 442 — — 8,515 
 Total consumer
3,705 1,652 1,371 722 623 442 — — 8,515 
Current period charge-offs35 — — — — 1 — — 36 
Total loans $569,536 $722,556 $628,288 $296,326 $281,073 $783,591 $277,820 $8,441 $3,567,631 
Total current period charge-offs$50 $248 $— $— $67 $267 $— $— $632 
The total amortized cost basis of adversely classified loans amounted to $50.5 million, or 1.38% of total loans, at March 31, 2024, and $56.7 million, or 1.59% of total loans, at December 31, 2023.

16
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Past due and non-accrual loans

The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated:
Balance at March 31, 2024
(Dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or More
Total Past
Due Loans(1)
Current
 Loans(1)
Total
Loans
Commercial real estate owner-occupied$456 $48 $273 $777 $634,643 $635,420 
Commercial real estate non owner-occupied
1,648 1,815 953 4,416 1,519,758 1,524,174 
Commercial and industrial3,385 15 154 3,554 414,050 417,604 
Commercial construction4,848 995 7,906 13,749 569,962 583,711 
Residential mortgages2,135 — 1,054 3,189 396,904 400,093 
Home equity36 — 35 71 85,073 85,144 
Consumer3 — — 3 8,173 8,176 
Total loans$12,511 $2,873 $10,375 $25,759 $3,628,563 $3,654,322 
Balance at December 31, 2023
(Dollars in thousands)30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or More
Total Past
Due Loans(1)
Current
 Loans(1)
Total
Loans
Commercial real estate owner-occupied$459 $270 $212 $941 $618,361 $619,302 
Commercial real estate non owner-occupied
722 504 1,122 2,348 1,443,087 1,445,435 
Commercial and industrial660 64 — 724 430,025 430,749 
Commercial construction— — — — 585,113 585,113 
Residential mortgages1,265 — 1,277 2,542 390,600 393,142 
Home equity53 — 97 150 85,225 85,375 
Consumer25 2 — 27 8,488 8,515 
Total loans$3,184 $840 $2,708 $6,732 $3,560,899 $3,567,631 
_______________________________________
(1)The loan balances in the tables above include loans designated as non-accrual according to their payment due status.
At March 31, 2024 and December 31, 2023, all loans past due 90 days or more were carried as non-accrual, however, not all non-accrual loans were 90 days or more past due in their payments. Loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal have also been designated as non-accrual, despite their payment due status.

The following tables present the amortized cost of non-accrual loans by portfolio classification as of the dates indicated:

Balance at March 31, 2024
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate owner-occupied$2,696 $2,696 $— $— 
Commercial real estate non owner-occupied2,651 1,698 953 214 
Commercial and industrial3,880 314 3,566 2,629 
Commercial construction7,906 — 7,906 1,594 
Residential mortgages1,292 1,292 — — 
Home equity 102 102 — — 
Consumer— — — — 
Total loans$18,527 $6,102 $12,425 $4,437 


17
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Balance at December 31, 2023
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate owner-occupied$2,683 $2,683 $— $— 
Commercial real estate non owner-occupied2,686 1,717 969 229 
Commercial and industrial4,262 736 3,526 2,658 
Commercial construction— — — — 
Residential mortgages1,526 1,526 — — 
Home equity 257 257 — — 
Consumer— — — — 
Total loans$11,414 $6,919 $4,495 $2,887 

The ratio of non-accrual loans to total loans amounted to 0.51% and 0.32% at March 31, 2024 and December 31, 2023, respectively. The increase in non-accrual loans from December 31, 2023 to March 31, 2024 was due primarily to one commercial construction loan that was deemed collateral dependent and added to non-accrual.

At March 31, 2024 and December 31, 2023, additional funding commitments for non-accrual loans were immaterial.

Collateral dependent loans

The total recorded investment in collateral dependent loans amounted to $20.7 million at March 31, 2024 compared to $13.7 million at December 31, 2023. Total accruing collateral dependent loans amounted to $2.3 million while non-accrual collateral dependent loans amounted to $18.4 million as of March 31, 2024. As of December 31, 2023, total accruing collateral dependent loans amounted to $2.4 million, while non-accrual collateral dependent loans amounted to $11.3 million.

The following tables present the recorded investment in collateral dependent loans and the related specific allowance by portfolio allocation as of the dates indicated:

Balance at March 31, 2024
(Dollars in thousands)Unpaid
Contractual
Principal
Balance		Total Recorded
Investment in
Collateral Dependent Loans		Recorded
Investment
without a
Specific Reserve		Recorded
Investment
with a
Specific Reserve		Related Specific
Reserve
Commercial real estate owner-occupied$4,559 $4,053 $4,053 $— $— 
Commercial real estate non owner-occupied4,112 2,949 1,996 953 213 
Commercial and industrial5,288 4,013 526 3,487 2,551 
Commercial construction7,938 7,906 — 7,906 1,594 
Residential mortgages1,846 1,665 1,665 — — 
Home equity155 126 126 — — 
Consumer— — — — — 
Total$23,898 $20,712 $8,366 $12,346 $4,358 


18
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Balance at December 31, 2023
(Dollars in thousands)Unpaid
Contractual
Principal
Balance		Total Recorded
Investment in
Collateral Dependent Loans		Recorded
Investment
without a
Specific Reserve		Recorded
Investment
with a
Specific Reserve		Related Specific
Reserve
Commercial real estate owner-occupied$4,641 $4,165 $4,165 $— $— 
Commercial real estate non owner-occupied4,062 2,983 2,015 968 229 
Commercial and industrial6,804 4,332 950 3,382 2,526 
Commercial construction— — — — — 
Residential mortgages2,117 1,902 1,902 — — 
Home equity359 281 281 — — 
Consumer— — — — — 
Total$17,983 $13,663 $9,313 $4,350 $2,755 
 
At March 31, 2024 and December 31, 2023, additional funding commitments for collateral dependent loans were immaterial.

Loan modifications to borrowers experiencing financial difficulty

Effective on January 1, 2023, the Company adopted ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326), TDR and Vintage Disclosures," which eliminated the accounting guidance for TDRs and enhanced the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. The adoption did not have a significant impact on the financial statements.

The Company works with loan customers experiencing financial difficulty and may enter into loan modifications to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and future prospects of the borrower. An assessment of whether a borrower is experiencing financial difficulty is made on the date of the modification. Modifications made for borrowers experiencing financial difficulty may be concessions in the form of principal forgiveness, interest rate reductions, payment deferrals of principal, interest or both, or term extensions, or some combination thereof. When a debt has been previously modified, the Company considers the cumulative effect of modifications made within the prior twelve-month period before the current modification, when determining whether or not a delay in payment resulting from the current modification is insignificant.
During the three months ended March 31, 2024, there were no loan modifications made to borrowers experiencing financial difficulty.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty by type of concession granted during the period indicated:
Three months ended
March 31, 2023
(Dollars in thousands)Payment Deferrals% of Loan Class Total
Commercial real estate$281 0.01 %
Commercial and industrial38 0.01 %
Total$319 0.01 %
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the period indicated:
Three months ended
March 31, 2023
Weighted Average Payment Deferrals
Commercial real estate0.5 years
Commercial and industrial0.5 years

19
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The Company closely monitors the performance of loans that are modified for borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance status of loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty, at the period indicated.

Balance at March 31, 2024
(Dollars in thousands)Current30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or MoreTotal Past
Due
Commercial real estate$— $— $— $— $— 
Commercial and industrial— — — 143 143 
Commercial construction— — — — — 
Residential mortgages31 — — — — 
Home equity— — — — — 
Consumer— — — — — 
Total$31 $— $— $143 $143 

Balance at March 31, 2023
(Dollars in thousands)Current30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or MoreTotal Past
Due
Commercial real estate$406 $— $— $1,014 $1,014 
Commercial and industrial237 — — — — 
Commercial construction— — — — — 
Residential mortgages— — — — — 
Home equity— — — — — 
Consumer— — — — — 
Total$643 $— $— $1,014 $1,014 

During the three months ended March 31, 2024 and March 31, 2023, there were no subsequent defaults on loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty.

At March 31, 2024 and March 31, 2023, additional funding commitments to borrowers experiencing financial difficulty who were party to a loan modification were immaterial.

ACL for loans and provision for credit loss activity

The following table presents changes in the provision for credit losses on loans and unfunded commitments during the periods indicated:
Three months ended
(Dollars in thousands)March 31,
2024		March 31,
2023
Provision for credit losses on loans$1,868 $2,318 
Provision for unfunded commitments(1,246)418 
Total provision for credit losses$622 $2,736 

ACL for loans

The ACL for loans amounted to $60.7 million and $59.0 million at March 31, 2024 and December 31, 2023, respectively. The ACL for loans to total loans ratio was 1.66% and 1.65% at March 31, 2024 and December 31, 2023, respectively.


20
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The following tables present changes in the ACL for loans by portfolio classification, during the three months indicated:
(Dollars in thousands)Commercial Real Estate Owner-OccupiedCommercial Real Estate Non Owner-OccupiedCommercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at December 31, 2023$10,454 $27,620 $11,089 $6,787 $2,152 $579 $314 $58,995 
Provision for credit losses on loans25 1,201 (639)1,429 (80)(46)(22)1,868 
Recoveries— — 68 — — 2 2 72 
Less: Charge-offs— — 185 — — — 9 194 
Ending Balance at March 31, 2024$10,479 $28,821 $10,333 $8,216 $2,072 $535 $285 $60,741 

(Dollars in thousands)Commercial Real Estate Owner-OccupiedCommercial Real Estate Non Owner-OccupiedCommercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at December 31, 2022
$10,304 $26,260 $8,896 $3,961 $2,255 $633 $331 $52,640 
Provision for credit losses on loans391 770 438 492 123 76 28 2,318 
Recoveries— — 127 — — 3 3 133 
Less: Charge-offs— — 83 — — — 6 89 
Ending Balance at March 31, 2023$10,695 $27,030 $9,378 $4,453 $2,378 $712 $356 $55,002 
Reserve for unfunded commitments

The Company's reserve for unfunded commitments amounted to $5.9 million at March 31, 2024 and $7.1 million at December 31, 2023. Management believes that the Company's ACL for loans and reserve for unfunded commitments were adequate as of March 31, 2024.

Other real estate owned

The Company carried no OREO at March 31, 2024 and December 31, 2023.

At March 31, 2024 and December 31, 2023, the Company had $1.1 million and $1.2 million, respectively, in consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions.

(5)Leases

As of March 31, 2024, the Company had 16 facilities contracted under various non-cancelable operating leases, most of which provide options to the Company to extend the lease periods and include periodic rent adjustments.

Lease expense for the three months ended March 31, 2024 and March 31, 2023 amounted to $423 thousand and $404 thousand, respectively. Variable lease costs and short-term lease expenses included in lease expense during these periods were immaterial.

The weighted average remaining lease term for operating leases at March 31, 2024 and March 31, 2023 was 28.2 years and 29.2 years, respectively. The weighted average discount rate was 3.55% at March 31, 2024 and 3.51% at March 31, 2023.

21
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
At March 31, 2024, the remaining undiscounted cash flows by year of these lease liabilities were as follows:
(Dollars in thousands)Operating Leases
2024 (remaining nine months)
$1,099 
2025
1,457 
2026
1,468 
2027
1,474 
2028
1,477 
Thereafter31,723 
Total lease payments38,698 
Less: Imputed interest14,395 
Total lease liability$24,303 

(6)Deposits
 
Deposits are summarized as follows as of the periods indicated:
(Dollars in thousands)March 31, 2024December 31, 2023
Non-interest checking$1,050,608 $1,070,104 
Interest-bearing checking730,819 697,632 
Savings273,369 285,770 
Money market1,469,181 1,402,939 
CDs $250,000 or less 337,367 295,789 
CDs greater than $250,000244,775 225,287 
Deposits$4,106,119 $3,977,521 

All of the Company's deposits outstanding at both March 31, 2024 and December 31, 2023 were customer deposits, and the Company had no brokered deposits at either March 31, 2024 or December 31, 2023. Customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks due to our customers electing to participate in Company offered programs which allow for third-party enhanced FDIC deposit insurance. Under this enhanced deposit insurance program, the equivalent of the customers' original deposited funds comes back to the Company and are carried within the appropriate category under deposits. The Company's balances in these reciprocal products were $864.1 million and $835.0 million at March 31, 2024 and December 31, 2023, respectively.

(7)Borrowed Funds and Subordinated Debt

Borrowed funds at March 31, 2024 and December 31, 2023 are summarized, as follows:
March 31, 2024December 31, 2023
(Dollars in thousands)BalanceRateBalanceRate
Within 12 months$54,800 4.85 %$20,000 4.84 %
Between 1 and 5 years
270 — %270 — %
Over 5 years8,176 0.88 %5,498 1.09 %
Total borrowed funds$63,246 4.31 %$25,768 3.99 %

The Company's borrowed funds at March 31, 2024 and December 31, 2023 were comprised of FRB advances through the BTFP and term advances related to specific lending projects funded under community development programs through the FHLB and NH BFA.

The Company also had outstanding subordinated debt (net of deferred issuance costs) of $59.6 million at March 31, 2024 and $59.5 million at December 31, 2023. The outstanding subordinated notes are due on July 15, 2030 and callable at the Company's option on or after July 15, 2025.



22
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(8)    Derivatives and Hedging Activities

For further information on the Company's derivatives and hedging activities, see Note 9, "Derivatives and Hedging," to the Company's audited consolidated financial statements contained in the 2023 Annual Report on Form 10-K. 

The tables below present a summary of the Company's derivative financial instruments, notional amounts and fair values at the periods presented:
March 31, 2024
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)(2)
Liability Notional Amount
Liability Derivatives(1)(2)
Derivatives designated as hedging instruments
Interest-rate contracts - pay fixed, receive floating$100,000 $22 $— $— 
Total derivatives designated as hedging instruments $100,000 $22 $— $— 
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,459 $751 
Interest-rate contracts - pay fixed, receive floating7,459 751 — — 
Risk participation agreements sold— — 46,814 44 
Total derivatives not subject to hedge accounting $7,459 $751 $54,273 $795 

December 31, 2023
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)(2)
Liability Notional Amount
Liability Derivatives(1)(2)
Derivatives designated as hedging instruments
Interest-rate contracts - pay fixed, receive floating$— $— $100,000 $760 
Total derivatives designated as hedging instruments$— $— $100,000 $760 
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,524 $630 
Interest-rate contracts - pay fixed, receive floating7,524 630 — — 
Risk participation agreements sold— — 46,910 65 
Total derivatives not subject to hedge accounting $7,524 $630 $54,434 $695 
_________________________________________
(1) Accrued interest balances related to the Company's interest-rate swaps are not included in the fair values above and are immaterial.
(2) The assets and liabilities related to the pay fixed, receive floating interest-rate contracts are subject to a master netting agreement and are presented net in the Company's Consolidated Balance Sheet.

The Company had no derivatives designated as cash flow hedges at either March 31, 2024 or December 31, 2023.

Derivatives designated as hedging instruments

Fair value hedges

Derivatives designated as fair value hedges are utilized to mitigate the risk of adverse interest-rate fluctuations on specifically identified assets or liabilities. The Company's fair value hedges are used to manage its exposure to changes in the fair value of hedged items caused by changes in interest rates.

The Company had three interest rate swap agreements with a combined notional value of $100.0 million at March 31, 2024 and December 31, 2023. Each interest rate swap agreement was designated as a fair value hedge and involves the net settlement of receiving floating-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.


23
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The table below presents the carrying amount of hedged items and cumulative fair value hedging basis adjustments for the periods presented:
March 31, 2024December 31, 2023
(Dollars in thousands)Balance Sheet Location of Hedged ItemCarrying Amount of Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged AssetsCarrying Amount of Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Interest-rate contracts - loansLoans$99,959 $(41)$100,755 $755 

The table below presents the gains (losses) from interest rate derivatives accounted for as fair value hedges and the related hedged items. There were no fair value hedges outstanding at March 31, 2023.

Three months ended March 31,
(Dollars in thousands)Affected Income Statement Line Item20242023
Derivatives designated as fair value hedges:
Fair value adjustments on derivativesNet interest income$782 $— 
Fair value adjustments on hedged instrumentNet interest income(797)— 
Total$(15)$— 

Derivatives not subject to hedge accounting

Interest-rate Contracts

Each back-to-back interest-rate swap consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of four interest-rate swaps outstanding at March 31, 2024 and December 31, 2023. As a result of this offsetting relationship, there were no net gains or losses recognized in income on back-to-back swaps during the three months ended March 31, 2024 or March 31, 2023.

Interest-rate swaps with counterparties are subject to master netting agreements, while interest-rate swaps with customers are not. At March 31, 2024 and December 31, 2023, all back-to-back swaps with the counterparty were in asset positions, therefore there was no netting reflected in the Company's Consolidated Balance Sheets as of the respective dates.
Risk Participation Agreements

The Company enters into RPAs for which the Company has assumed credit risk for customers' performance under interest-rate swap agreements related to the customers' commercial loan and receives fee income commensurate with the risk assumed. The RPAs and the customers' loan are secured by the same collateral.

Credit Risk

As of March 31, 2024, the Company had two active interest-rate swap institutional counterparties both of which had investment grade credit ratings. When the Company has credit risk exposure, collateral is posted by counterparties. Collateral posted by counterparties is restricted and not considered an asset of the Company, therefore, it is not carried on the Company's Consolidated Balance Sheets. If the Company posts collateral, the restricted cash is carried on the Company's Consolidated Balance Sheets.

The Company has minimum collateral posting thresholds with its derivative counterparties and, as of March 31, 2024, the Company had $773 thousand in credit risk exposure relating to interest-rate swaps with counterparties and the cash collateral posted by counterparties amounted to $590 thousand. At December 31, 2023, the Company had no credit risk exposure relating to interest-rate swaps with counterparties and cash collateral posted by the Company amounted to $570 thousand while cash collateral posted by counterparties amounted to $590 thousand.





24
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Credit-risk-related Contingent Features

There have been no material changes to the credit-risk-related contingent provisions contained within the Company's interest-rate swaps with counterparties since December 31, 2023. As of March 31, 2024, the fair value of derivatives related to these agreements was at a net asset position of $773 thousand, which excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and as of March 31, 2024, has not posted collateral related to these agreements.

Other Derivative Related Activity

Interest-rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments. The commitments to sell loans are also considered derivative instruments. At March 31, 2024 and December 31, 2023, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

(9) Regulatory Capital Requirements

As of March 31, 2024 and December 31, 2023, the Company met the definition of "well-capitalized" under the applicable regulations of the Board of Governors of the Federal Reserve System and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of the FDIC and the Basel III capital guidelines.

The Company's and the Bank's actual capital amounts and ratios are presented as of March 31, 2024 and December 31, 2023 in the tables below:
 Actual
Minimum Capital
for Capital Adequacy
Purposes(1)
Minimum Capital
to be Well
Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of March 31, 2024      
The Company (consolidated)
      
Total Capital to risk-weighted assets$518,556 13.20 %$314,278 8.00 %N/AN/A
Tier 1 Capital to risk-weighted assets409,657 10.43 %235,709 6.00 %N/AN/A
Tier 1 Capital to average assets (or Leverage Ratio)409,657 8.85 %185,190 4.00 %N/AN/A
Common Equity Tier 1 Capital to risk-weighted assets409,657 10.43 %176,782 4.50 %N/AN/A
The Bank      
Total Capital to risk-weighted assets$518,420 13.20 %$314,278 8.00 %$392,848 10.00 %
Tier 1 Capital to risk-weighted assets469,098 11.94 %235,709 6.00 %314,278 8.00 %
Tier 1 Capital to average assets (or Leverage Ratio)469,098 10.13 %185,189 4.00 %231,487 5.00 %
Common Equity Tier 1 Capital to risk-weighted assets469,098 11.94 %176,782 4.50 %255,351 6.50 %

25
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
 Actual
Minimum Capital
for Capital Adequacy
Purposes(1)
Minimum Capital
to be Well
Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2023      
The Company (consolidated)
      
Total Capital to risk-weighted assets$511,692 13.12 %$312,035 8.00 %N/AN/A
Tier 1 Capital to risk-weighted assets403,224 10.34 %234,026 6.00 %N/AN/A
Tier 1 Capital to average assets (or Leverage Ratio)403,224 8.74 %184,471 4.00 %N/AN/A
Common Equity Tier 1 Capital to risk-weighted assets403,224 10.34 %175,520 4.50 %N/AN/A
The Bank      
Total Capital to risk-weighted assets$510,645 13.09 %$312,035 8.00 %$390,044 10.00 %
Tier 1 Capital to risk-weighted assets461,675 11.84 %234,026 6.00 %312,035 8.00 %
Tier 1 Capital to average assets (or Leverage Ratio)461,675 10.01 %184,471 4.00 %230,589 5.00 %
Common Equity Tier 1 Capital to risk-weighted assets461,675 11.84 %175,520 4.50 %253,528 6.50 %
__________________________________________
(1)Before application of the capital conservation buffer of 2.50% as of March 31, 2024, and December 31, 2023. See discussion      below.
(2)For the Bank to qualify as "well-capitalized," it must maintain at least the minimum ratios listed under the regulatory prompt corrective action framework. This framework does not apply to the Company.

The Company is subject to the Basel III capital ratio requirements which include a "capital conservation buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. If a banking organization dips into its capital conservation buffer it may be restricted in its activities, including its ability to pay dividends and discretionary bonus payments to its executive officers. Both the Company's and the Bank's actual ratios, as outlined in the table above, exceeded the Basel III risk-based capital requirement with the capital conservation buffer as of March 31, 2024. At March 31, 2024, the capital conservation buffer amounted to $98.2 million for both the Company and the Bank.

(10)Comprehensive Income (Loss)

The following table presents a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):
Three months ended March 31, 2024Three months ended March 31, 2023
(Dollars in thousands)Pre-Tax
Tax Benefit
After Tax AmountPre-TaxTax Benefit (Expense)After Tax Amount
Change in fair value of debt securities$(2,769)$658 $(2,111)$26,160 $(5,912)$20,248 
Less: net security gains (losses) reclassified into non-interest income
— — — — — — 
Total other comprehensive (loss) income, net
$(2,769)$658 $(2,111)$26,160 $(5,912)$20,248 

Information on the Company's accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the periods indicated:
Three months ended March 31, 2024Three months ended March 31, 2023
(Dollars in thousands)Unrealized Losses on Debt Securities
Unrealized Losses on Debt Securities
Accumulated other comprehensive loss - beginning balance$(79,763)$(96,207)
Total other comprehensive (loss) income, net
(2,111)20,248 
Accumulated other comprehensive loss - ending balance$(81,874)$(75,959)




26
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements

(11)Stock-Based Compensation

There have been no material changes to The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan (the "2016 Plan") since December 31, 2023. As of March 31, 2024, 288,903 shares of Company common stock remained available for future grants under the 2016 Plan.

Total stock-based compensation expense was $503 thousand for the three months ended March 31, 2024, compared to $522 thousand for the three months ended March 31, 2023.

Stock Option Awards

The Company issued no stock options during the three months ended March 31, 2024 and March 31, 2023.
The Company recognized stock-based compensation expense related to stock option awards of $41 thousand for the three months ended March 31, 2024, compared to $50 thousand for the three months ended March 31, 2023.

Restricted Stock Awards
 
Restricted stock awards are granted at the market price of the Company's common stock on the date of the grant. Employee restricted stock awards generally vest over four years in equal portions beginning on or about the first anniversary date of the restricted stock award or are performance-based restricted stock awards that vest upon the Company achieving certain predefined performance objectives. Non-employee director restricted stock awards generally vest over two years in equal portions beginning on or about the first anniversary date of the restricted stock award.

The table below provides a summary of restricted stock awards granted during the periods indicated:
Three months ended March 31,
Restricted Stock Awards (number of underlying shares)20242023
Four-year vesting 65,588 32,719 
Performance-based vesting 21,263 31,270 
Total restricted stock awards granted86,851 63,989 
Grant date fair value
$24.90 $32.32 

Stock-based compensation expense recognized in association with stock awards, mainly restricted stock awards, amounted to $402 thousand for the three months ended March 31, 2024, compared to $407 thousand for the three months ended March 31, 2023.

Stock in Lieu of Directors' Fees

Non-employee members of the Company's Board of Directors (the "Board") may opt to receive newly issued shares of the Company's common stock in lieu of cash compensation for attendance at meetings of the Board and committees of the Board. Stock-based compensation expense related to these directors' fees amounted to $60 thousand for the three months ended March 31, 2024, compared to $65 thousand for the three months ended March 31, 2023.

(12)Earnings per Share

The table below presents basic earnings per share and the increase in average shares outstanding, using the treasury stock method, for the diluted earnings per share calculation for the periods indicated:
 Three months ended March 31,
 20242023
Basic weighted average common shares outstanding12,292,417 12,155,320 
Dilutive shares11,786 38,436 
Diluted weighted average common shares outstanding12,304,203 12,193,756 


27
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Stock options outstanding that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares amounted to 103,238 for the three months ended March 31, 2024, compared to 34,164 for the three months ended March 31, 2023. These stock options, which were not dilutive, may potentially dilute earnings per share in the future.

Unvested participating restricted stock awards amounted to 174,527 shares and 130,039 shares as of March 31, 2024 and December 31, 2023, respectively.

(13)Fair Value Measurements

The FASB defines the fair value of an asset or liability to be the price which a seller would receive in an orderly transaction between market participants (an exit price) and also establishes a fair value hierarchy segregating fair value measurements using three levels of inputs: (Level 1) quoted market prices in active markets for identical assets or liabilities; (Level 2) significant other observable inputs, including quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs such as interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates which provide a reasonable basis for fair value determination or inputs derived principally from observed market data; and (Level 3) significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability. Unobservable inputs must reflect reasonable assumptions that market participants would use in pricing the asset or liability, which are developed based on the best information available under the circumstances.

The following tables summarize significant assets and liabilities carried at fair value and placement in the fair value hierarchy at the dates specified:
March 31, 2024
 Fair Value Measurements Using:
(Dollars in thousands)Fair Value(Level 1)(Level 2)(Level 3)
Assets measured on a recurring basis:    
Debt securities$643,924 $— $643,924 $— 
Equity securities8,102 8,102 — — 
FHLB stock2,482 — 2,482 — 
Interest-rate swaps773 — 773 — 
Assets measured on a non-recurring basis:    
Individually evaluated loans (collateral dependent)7,988 — — 7,988 
Liabilities measured on a recurring basis:
Interest-rate swaps$751 $— $751 $— 
RPAs sold44 — 44 — 
 
December 31, 2023
 Fair Value Measurements Using:
(Dollars in thousands)Fair Value(Level 1)(Level 2)(Level 3)
Assets measured on a recurring basis:    
Debt securities$661,113 $— $661,113 $— 
Equity securities7,058 7,058 — — 
FHLB stock2,402 — 2,402 — 
Interest-rate swaps630 — 630 — 
Assets measured on a non-recurring basis:    
Individually evaluated loans (collateral dependent)1,595 — — 1,595 
Liabilities measured on a recurring basis:
Interest-rate swaps$1,390$— $1,390 $— 
RPAs sold65— 65 — 
 


28
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The Company utilizes third-party pricing vendors to provide valuations on its debt securities.

The Company's equity portfolio fair value is measured based on quoted market prices for the shares; therefore, these securities are categorized as Level 1 within the fair value hierarchy.

The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB. The stock is issued, redeemed, repurchased and transferred by the FHLB only at their fixed par value. This stock is classified as a restricted investment and carried at FHLB par value which management believes approximates fair value; therefore, these securities are categorized as Level 2 measures.

The fair values of derivative assets and liabilities, which are comprised of back-to-back swaps, fair value hedges and risk participation agreements, represent a FASB Level 2 measurement and are based on settlement values adjusted for credit risks and observable market interest-rate curves. The Company utilizes third-party vendors to provide valuations on its derivative assets and liabilities. Refer also to Note 8, "Derivatives and Hedging Activities," this Form 10-Q, contained above, for additional information on the Company's interest-rate swaps.

For loans individually assessed and deemed to be collateral dependent management has estimated the value and the probable credit loss by comparing the loan's amortized cost against the expected realizable fair value of the collateral (appraised value, or internal analysis, less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date). Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent loans carried at realizable fair value are categorized as Level 3 within the fair value hierarchy. A specific reserve is assigned to the collateral dependent loan for the amount of management's estimated probable credit loss. The specific reserve assigned to individually evaluated loans that are collateral dependent amounted to $4.4 million at March 31, 2024, compared to $2.8 million at December 31, 2023.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of March 31, 2024 and December 31, 2023:
Fair Value
(Dollars in thousands)March 31, 2024December 31, 2023Valuation TechniqueUnobservable InputUnobservable Input Value or Range
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)$7,988 $1,595 Appraisal of collateral
Appraisal adjustments(1)
15% - 50%
_______________________________
(1)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the Company's Consolidated Balance Sheets, the Company is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the Company's Consolidated Balance Sheets. 

29
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Financial instruments for which the fair value is disclosed but not recognized on the Company's Consolidated Balance Sheets are summarized below. The table includes the carrying value, estimated fair value and its placement in the fair value hierarchy as follows:
 March 31, 2024
Fair Value Measurement
(Dollars in thousands)Carrying
Value		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
Loans held for sale$400 $398 $— $398 $— 
Loans, net3,593,581 3,411,430 — — 3,411,430 
Financial liabilities:  
CDs582,142 579,814 — 579,814 — 
Borrowed funds63,246 60,570 — 60,570 — 
Subordinated debt59,577 60,758 — 60,758 — 
December 31, 2023
 Fair Value Measurement
(Dollars in thousands)Carrying
Value		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
Loans held for sale$200 $201 $— $201 $— 
Loans, net3,508,636 3,353,968 — — 3,353,968 
Financial liabilities:
CDs521,076 518,928 — 518,928 — 
Borrowed funds25,768 24,081 — 24,081 — 
Subordinated debt59,498 55,572 — 55,572 — 

Excluded from the tables above are certain financial instruments with carrying values that approximated their fair value at the dates indicated, as they were short-term in nature or payable on demand. These include cash and cash equivalents, accrued interest and non-term deposit accounts. The respective carrying values of these instruments would all be classified within Level 1 in the fair value hierarchy.
Also excluded from these tables are the fair values of commitments for unused portions of lines of credit and commitments to originate loans that were short-term, at current market rates and estimated to have no significant change in fair value.

(14)Supplemental Cash Flow Information

The supplemental cash flow information for the three months ended March 31, 2024 and March 31, 2023 is as follows:
Three months ended March 31,
(Dollars in thousands)20242023
Supplemental financial data:
Cash paid for: interest$17,125 $6,931 
Cash paid for: income taxes4,805 4,455 
Cash paid for: lease liability351 340 
.

30
Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis should be read in conjunction with the Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") unaudited consolidated interim financial statements and notes thereto contained in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024 (this "Form 10-Q"), and the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2023 (the "2023 Annual Report on Form 10-K"), as filed with the U.S. Securities and Exchange Commission (the "SEC") on March 8, 2024.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements about the Company and its industry involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company's future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, and the impact of any laws or regulations applicable to the Company, are forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as "will," "should," "could," "anticipates," "believes," "expects," "intends," "may," "plans," "pursue," "views" and similar terms or expressions. We caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•potential recession in the United States and our market areas;
•the impacts related to or resulting from bank failures and any continuation of uncertainty in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes or other mitigation efforts taken by government agencies in response thereto;
•increased competition for deposits and related changes in deposit customer behavior;
•failure of risk management controls and procedures;
•the adequacy of the allowance for credit losses;
•risk specific to commercial loans and borrowers;
•changes in the business cycle and downturns in the local, regional, or national economies, including changes in consumer spending and deterioration in the local real estate market, could negatively impact credit and/or asset quality and result in credit losses and increases in the Company's allowance for credit losses;
•the effects of declines in housing prices in the United States and our market areas;
•declines in commercial real estate values and prices;
•the persistence of the current inflationary pressures, or the resurgence of elevated levels of inflation, in the United States and our market areas, and its impact on market interest rates, the economy and credit quality;
•increases in unemployment rates in the United States and our market areas;
•deterioration of capital markets, which could adversely affect the value or credit quality of the Company's assets and the availability of funding sources necessary to meet the Company's liquidity needs;
•changes in market interest rates could negatively impact the pricing of our loans and deposits and decrease our net interest income or net interest margin;
•increases in market interest rates could negatively impact bond market values and result in a lower net book value;
•our ability to successfully manage the current rising market interest-rate environment, our credit risk and the level of future non-performing assets and charge-offs;
•potential decreases or growth of assets, deposits, future non-interest expenditures and non-interest income;
•inability to maintain adequate liquidity;
•the inability to raise the necessary capital to fund our operations or to meet minimum regulatory capital levels would restrict our business and operations;

31
•material decreases in the amount of deposits we hold, or a failure to grow our deposit base as necessary to help fund our growth and operations;
•our ability to keep pace with technological change or difficulties when implementing new technologies;
•technology-related risk, including technological changes and technology service interruptions or failure could adversely impact the Company's operations and increase technology-related expenditures;
•cybersecurity risk, including cyber incidents or other failures, disruptions or security breaches and identity theft, could impact the Company's reputation, increase regulatory oversight, and impact the financial results of the Company;
•increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the Company's competitive position within its market area and reduce demand for the Company's products and services;
•our ability to retain and increase our aggregate assets under management;
•our ability to enter new markets successfully and capitalize on growth opportunities, including the receipt of required regulatory approvals;
•damage to our reputation in the markets we serve;
•risks associated with fraudulent, negligent, or other acts by our customers, employees or vendors;
•exposure to legal claims and litigation;
•our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;
•inability to attract, hire and retain qualified management personnel;
•recent and future changes in laws and regulations that apply to the Company's business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, which could cause the Company to incur additional costs and adversely affect the Company's business environment, operations and financial results;
•future regulatory compliance costs, including any increase caused by new regulations imposed by the government;
•our ability to navigate the uncertain impacts of quantitative tightening and current and future governmental monetary and fiscal policies, including the current and future policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board");
•changes in tariffs and trade barriers;
•uncertainty regarding United States fiscal debt and budget matters;
•severe weather, natural disasters, acts of war or terrorism or other external events;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of Federal Deposit Insurance Corporation (the "FDIC") insurance and other coverage;
•changes in accounting and/or auditing standards, policies and practices, as may be adopted or established by the regulatory agencies, FASB, or the Public Company Accounting Oversight Board could negatively impact the Company's financial results; and
•systemic risks associated with the soundness of other financial institutions.

The Company cautions readers that the forward-looking statements in this Form 10-Q reflect numerous assumptions that management believes to be reasonable, but which are inherently uncertain and beyond the Company's control. Forward-looking statements involve a number of risks and uncertainties that could cause the Company's actual results to differ materially from those expressed in, or implied by, the forward-looking statement. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and readers should not place undue reliance on such forward-looking information and statements. Any forward-looking statements in this Form 10-Q are based on information available to the Company as of the date of this Form 10-Q, and the Company undertakes no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.



32
Overview

Executive Summary

The Company operates with a long-term outlook, focused on organic growth supported by continually investing in our people, products, services, technology, and branches.

Key Financial Highlights
Key financial results at or for the three months ended March 31, 2024 are as follows:
•Net income amounted to $8.5 million, or $0.69 per diluted common share.
•Returns on average assets and average equity were 0.75% and 10.47%, respectively.
•Net interest margin (non-GAAP) was 3.20%.
•Total loans increased 2% compared to December 31, 2023.
•Total deposits increased 3% compared to December 31, 2023.
•The Company had no brokered deposits and borrowed funds amounted to only 1.4% of total assets.
•Wealth assets under management and administration amounted to $1.37 billion and increased 4% compared to December 31, 2023.

Net income for the three months ended March 31, 2024, amounted to $8.5 million, or $0.69 per diluted common share, compared to $10.8 million, or $0.88 per diluted share, for the three months ended March 31, 2023. The decrease in net income of $2.3 million for the three months ended March 31, 2024 was attributable primarily to a decrease in net interest income of $4.8 million, partially offset by a decrease in the provision for credit losses of $2.1 million.

Total assets amounted to $4.62 billion at March 31, 2024, compared to $4.47 billion at December 31, 2023. Total loans increased $86.7 million, or 2%, compared to December 31, 2023, with growth primarily in commercial real estate loans.

Credit quality remained well-managed at March 31, 2024 with the non-performing loan to total loan ratio amounting to 0.51% compared to 0.32% at December 31, 2023. The increase in non-performing loans resulted primarily from one individually evaluated commercial construction loan which was credit downgraded and moved to non-accrual in the first quarter of 2024. The ACL for loans to total loans ratio was 1.66% at March 31, 2024 compared to 1.65% at December 31, 2023.

Deposits amounted to $4.11 billion at March 31, 2024, an increase of $128.6 million, or 3%, compared to December 31, 2023, due primarily to increases in money market and certificate of deposit balances of $66.2 million and $61.1 million, respectively.

Shareholders' equity increased $4.3 million, or 1%, during the three months ended March 31, 2024, due primarily to an increase in retained earnings of $5.6 million, partially offset by an increase in the accumulated other comprehensive loss of $2.1 million.




















33
Selected Financial Data and Ratios

The following table sets forth selected financial data and ratios for the Company at or for the three-month periods indicated:
At or for the three months ended
(Dollars in thousands, except per share data)March 31,
2024		December 31,
2023		September 30,
2023		June 30,
2023		March 31,
2023
Balance Sheet Data
Total cash and cash equivalents$147,834$56,592$225,421$258,825$215,693
Total investment securities at fair value652,026668,171678,932712,851830,895
Total loans3,654,3223,567,6313,404,0143,345,6673,230,156
Allowance for credit losses(60,741)(58,995)(57,905)(56,899)(55,002)
Total assets4,624,0154,466,0344,482,3744,502,3444,441,896
Total deposits4,106,1193,977,5214,060,4034,075,5984,016,156
Borrowed funds63,24625,7684,2903,3343,199
Subordinated debt59,57759,49859,41959,34059,261
Total shareholders' equity333,439329,117299,699307,490311,318
Total liabilities and shareholders' equity4,624,0154,466,0344,482,3744,502,3444,441,896
Wealth Management
Wealth assets under management$1,105,036$1,077,761$984,647$1,009,386$930,714
Wealth assets under administration$268,074$242,338$211,046$214,116$206,569
Shareholders' Equity Ratios
Book value per common share$26.94$26.82$24.45$25.11$25.47
Dividends paid per common share$0.24$0.23$0.23$0.23$0.23
Regulatory Capital Ratios
Total capital to risk weighted assets13.20 %13.12 %13.45 %13.37 %13.55 %
Tier 1 capital to risk weighted assets(1)
10.43 %10.34 %10.61 %10.52 %10.64 %
Tier 1 capital to average assets8.85 %8.74 %8.59 %8.62 %8.47 %
Credit Quality Data
Non-performing loans$18,527$11,414$11,656$7,647$7,532
Non-performing loans to total loans0.51 %0.32 %0.34 %0.23 %0.23 %
Non-performing assets to total assets(2)
0.40 %0.26 %0.26 %0.17 %0.17 %
ACL for loans to total loans1.66 %1.65 %1.70 %1.70 %1.70 %
Net charge-offs (recoveries)$122$15$(12)$146$(44)
Income Statement Data
Net interest income$35,190$36,518$38,502$38,093$39,971
Provision for credit losses6222,4931,7522,2682,736
Total non-interest income5,4955,5474,4862,8194,757
Total non-interest expense28,90828,22428,31225,62328,040
Income before income taxes11,15511,34812,92413,02113,952
Provision for income taxes2,6483,4413,2253,3373,184
Net income$8,507$7,907$9,699$9,684$10,768
Income Statement Ratios
Diluted earnings per common share$0.69$0.64$0.79$0.79$0.88
Return on average total assets0.75 %0.69 %0.85 %0.88 %0.99 %
Return on average shareholders' equity10.47 %10.21 %12.53 %12.63 %14.67 %
Net interest margin (tax-equivalent)(3)
3.20 %3.29 %3.46 %3.55 %3.76 %
_______________________________________________________
(1)Ratio also represents common equity tier 1 capital to risk weighted assets as of the periods presented.
(2)The Company had no OREO as of the periods presented, and therefore, non-performing loans were the only component of non-performing assets.
(3)Tax-equivalent net interest margin (non-GAAP) is net interest income adjusted for the tax-equivalent effect associated with tax-exempt loan and investment income, expressed as a percentage of average interest-earning assets.

34
Risk Management Framework

Management utilizes a comprehensive enterprise risk management framework that enables a coordinated and structured approach for identifying, assessing and managing risks across the Company and provides reasonable assurance that management has the tools, programs, people, and processes in place to support informed decision making, anticipate risks before they materialize and maintain the Company's risk profile consistent with its strategic planning, and applicable laws and regulations.

See Part I, Item 1, "Business," under the "Risk Management Framework," of the Company's 2023 Annual Report on Form 10-K, for additional information on the Company's key risk mitigation strategies, and Part I, Item 1A, "Risk Factors," and Item 1C, "Cybersecurity," sections of the Company's 2023 Annual Report on Form 10-K for numerous factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model.

Accounting Policies/Critical Accounting Estimates

As discussed in the Company's 2023 Annual Report on Form 10-K and in this Form 10-Q, the most significant areas in which management applies critical assumptions and estimates are: the ACL for loans and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.

The Company has not materially changed its significant accounting and reporting policies from those disclosed in the Company's 2023 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 1, Item (e), "Recent Accounting Pronouncements," to the Company's unaudited consolidated interim financial statements in this Form 10-Q for information regarding recent accounting pronouncements.

Results of Operations for the three months ended March 31, 2024 and March 31, 2023

Unless otherwise indicated, the reported results are for the three months ended March 31, 2024, with references to the "prior year period," being the three months ended March 31, 2023. Average yields are presented on an annualized tax-equivalent basis (non-GAAP).

Net Income
Net income for the three months ended March 31, 2024, amounted to $8.5 million, a decrease of $2.3 million, or 21%, compared to the prior year period. The components of the decrease in net income over the comparable periods are discussed below.

Net Interest Income
Net interest income for the three months ended March 31, 2024, amounted to $35.2 million, a decrease of $4.8 million, or 12%, compared to the prior year period. The decrease in net interest income during the current period was due largely to an increase in deposit interest expense of $11.3 million which was driven by an increase in the cost of funds and changes in deposit mix, partially offset by an increase in loan interest income of $9.3 million due to loan growth and higher market interest rates.

Net Interest Margin
Net interest margin was 3.20% for the three months ended March 31, 2024, compared to 3.76% for the prior year period.

Net interest margin compared to the prior year period was impacted by the following factors:
•Average other interest-earning assets decreased $112.7 million, or 57%, while the yield increased 97 basis points.
•Average investment securities decreased $173.7 million, or 19%, and the tax-equivalent yield decreased 8 basis points.
•Average loan balances increased $407.3 million, or 13%, and the tax-equivalent yield increased 44 basis points.
•Average total deposits increased $27.3 million, or 1%, and the yield increased 111 basis points.
•Average borrowed funds increased $60.4 million and the yield was 4.38%, an increase of 281 basis points from previously low levels.


35
The decrease in net interest margin over the respective periods was due primarily to an increase in funding costs, partially offset by increases in loan yields and other interest earning asset yields as well as loan growth. Yields on loans and other interest earning assets were positively impacted by the increases of 525 basis points in the federal funds rate from March 2022 through July 2023. Funding costs were impacted primarily by higher market interest rates, increased competition for deposits and changes in deposit mix as depositors sought higher yielding money market and certificate of deposit products.

Interest-rate risk is reviewed in detail in Item 3, "Quantitative and Qualitative Disclosures About Market Risk," below.

Rate / Volume Analysis
The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended March 31, 2024, compared to the three months ended March 31, 2023. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) volume (change in average portfolio balance multiplied by prior year average rate); and (ii) interest rate (change in average interest rate multiplied by prior year average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.
  Increase (decrease) due to
(Dollars in thousands)Net
Change		VolumeRate
Interest income   
Other interest-earning assets(1)
$(1,036)$(1,446)$410 
Investment securities (tax-equivalent)
(1,143)(960)(183)
Loans and loans held for sale (tax-equivalent)
9,281 5,430 3,851 
Total interest-earning assets (tax-equivalent)
7,102 3,024 4,078 
Interest expense   
Interest checking, savings and money market7,251 117 7,134 
CDs4,034 1,640 2,394 
Borrowed funds682 622 60 
Subordinated debt— 5 (5)
Total interest-bearing funding11,967 2,384 9,583 
Change in net interest income (tax-equivalent)
$(4,865)$640 $(5,505)
__________________________________________
(1)Income on other interest-earning assets includes interest on deposits with banks, federal funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the three months ended March 31, 2024 and 2023: 
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
 
 Three months ended March 31, 2024Three months ended March 31, 2023
(Dollars in thousands)Average
Balance
Interest(1)
Average
Yield(1)
Average
Balance
Interest(1)
Average
Yield(1)
Assets:      
Other interest-earning assets(2)
$86,078 $1,172 5.48 %$198,741 $2,208 4.51 %
Investment securities(3) (tax-equivalent)
763,692 4,157 2.18 %937,382 5,300 2.26 %
Loans and loans held for sale(4) (tax-equivalent)
3,608,157 48,960 5.46 %3,200,842 39,679 5.02 %
Total interest-earnings assets (tax-equivalent)
4,457,927 54,289 4.89 %4,336,965 47,187 4.40 %
Other assets91,794 86,580   
Total assets$4,549,721   $4,423,545   
Liabilities and stockholders' equity:      
Non-interest checking$1,069,145 — $1,317,534 — 
Interest checking, savings and money market2,418,947 11,356 1.89 %2,354,967 4,105 0.71 %
CDs549,097 5,916 4.33 %337,361 1,882 2.26 %
Total deposits4,037,189 17,272 1.72 %4,009,862 5,987 0.61 %
Borrowed funds63,627 694 4.38 %3,206 12 1.57 %
Subordinated debt(5)
59,530 867 5.82 %59,213 867 5.85 %
Total funding liabilities4,160,346 18,833 1.82 %4,072,281 6,866 0.68 %
Other liabilities62,500 53,665   
Total liabilities4,222,846   4,125,946   
Stockholders' equity326,875 297,599  
Total liabilities and stockholders' equity$4,549,721   $4,423,545   
Net interest-rate spread (tax-equivalent)
  3.07 %3.72 %
Net interest income (tax-equivalent)
 35,456   40,321  
Net interest margin (tax-equivalent)
 3.20 %3.76 %
Less tax-equivalent adjustment
266 350 
Net interest income$35,190 $39,971 
Net interest margin 3.17 %3.73 %
_______________________________________
(1)Average yields and interest income are presented on a tax-equivalent basis, calculated using a U.S. federal income tax rate of 21% in both 2024 and 2023, based on tax-equivalent adjustments associated with tax exempt loans and investments interest income.
(2)Average other interest-earning assets include interest-earning deposits with banks, federal funds sold and FHLB stock.
(3)Average investments securities are presented at average amortized cost.
(4)Average loans and loans held for sale are presented at amortized cost and include non-accrual loans.
(5)The subordinated debt is net of average deferred debt issuance costs.









37
Provision for Credit Losses
The provision for credit losses for the three months ended March 31, 2024, amounted to $622 thousand, a decrease of $2.1 million, compared to the three months ended March 31, 2023.
•The provision expense for the first quarter of 2024 resulted primarily from growth in the Company's loan portfolio and a $1.6 million increase in reserves on individually evaluated loans due primarily to the addition of one commercial construction loan which was credit downgraded, partially offset by a reduced risk of recession within the economic forecast of our ACL model and a decrease in off-balance sheet commitments.
•The ACL to loans ratio was 1.66% at March 31, 2024 compared to 1.70% at March 31, 2023.

The provision for credit losses is a significant factor in the Company's operating results. For further discussion regarding the provision for credit losses and management's assessment of the adequacy of the ACL for loans, see "Asset Quality" and "ACL for Loans" under "Financial Condition" in this Item 2, below.

Non-Interest Income
Non-interest income for the three months ended March 31, 2024, amounted to $5.5 million, an increase of $738 thousand, or 16%, compared to the three months ended March 31, 2023.
•The increase in non-interest income was due primarily to increases in gains on equity securities of $481 thousand, wealth management fees of $263 thousand and income on bank-owned life insurance of $151 thousand.

Non-Interest Expense
Non-interest expense for the three months ended March 31, 2024, amounted to $28.9 million, an increase of $868 thousand, or 3%, compared to the three months ended March 31, 2023.
•The increase in non-interest expense was due primarily to increases in salaries and benefits expense of $655 thousand and deposit insurance premiums of $184 thousand.

Income Taxes
The effective tax rate for the three months ended March 31, 2024, was 23.7%, compared to 22.8% for the three months ended March 31, 2023.

Financial Condition
 
Total assets amounted to $4.62 billion at March 31, 2024, compared to $4.47 billion at December 31, 2023, representing an increase of $158.0 million, or 4%. The balance sheet composition and changes since December 31, 2023, are discussed below.

Cash and cash equivalents

Cash and cash equivalents at March 31, 2024 increased $91.2 million since December 31, 2023. The increase was due primarily to increases in deposits and proceeds from borrowed funds, partially offset by loan growth. At March 31, 2024, cash and cash equivalents amounted to 3% of total assets compared to 1% at December 31, 2023.

Investments

At March 31, 2024, the fair value of the Company's investment securities portfolio amounted to $652.0 million, a decrease of $16.1 million, or 2%, since December 31, 2023. The investment securities portfolio at fair value represented 14% and 15% of total assets at March 31, 2024 and December 31, 2023, respectively. The decrease was attributable primarily to principal pay downs, calls and maturities during the three months ended March 31, 2024. As of March 31, 2024 and December 31, 2023, the Company's investment securities portfolio was comprised primarily of debt securities, classified as available-for-sale, with a small portion of the portfolio invested in equity securities.

During the three months ended March 31, 2024, the Company had no purchases or sales of debt securities and had principal pay-downs, calls and maturities totaling $14.2 million.

Net unrealized losses on the Company's debt securities portfolio amounted to $105.6 million at March 31, 2024, compared to $102.9 million at December 31, 2023. The Company attributes the change in net unrealized losses compared to December 31, 2023 to changes in market interest rates during the period.

38
The mix of investment securities remained relatively unchanged at March 31, 2024 compared to December 31, 2023. The effective duration of the debt securities portfolio at March 31, 2024 was approximately 5.0 years compared to 5.1 years at December 31, 2023.

Loans

As of March 31, 2024, total loans amounted to $3.65 billion, an increase of $86.7 million, or 2%, compared to December 31, 2023. At both March 31, 2024 and December 31, 2023, total commercial loans amounted to 86% of total loans. Although the commercial loan mix has remained unchanged from December 31, 2023 to March 31, 2024, there was a slight increase in commercial real estate loans relative to total loans, while commercial and industrial declined.

The following table sets forth the loan balances by loan portfolio segment at the dates indicated and the percentage of each segment to total loans:
 March 31, 2024December 31, 2023March 31, 2023
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Commercial real estate owner-occupied
$635,420 17 %$619,302 17 %$592,479 18 %
Commercial real estate non owner-occupied
1,524,174 42 %1,445,435 41 %1,337,065 42 %
Commercial and industrial417,604 11 %430,749 12 %423,864 13 %
Commercial construction583,711 16 %585,113 16 %456,735 14 %
Total commercial loans3,160,909 86 %3,080,599 86 %2,810,143 87 %
Residential mortgages400,093 11 %393,142 11 %335,834 10 %
Home equity 85,144 3 %85,375 3 %75,809 3 %
Consumer8,176 — %8,515 — %8,370 — %
Total retail loans493,413 14 %487,032 14 %420,013 13 %
Total loans3,654,322 100 %3,567,631 100 %3,230,156 100 %
Allowance for credit losses(60,741) (58,995) (55,002) 
Net loans$3,593,581  $3,508,636  $3,175,154  

As of or for the three months ended March 31, 2024:
•Commercial real estate owner-occupied loans increased $16.1 million, or 3%, compared to December 31, 2023.
•Commercial real estate non owner-occupied loans increased $78.7 million, or 5%, compared to December 31, 2023, primarily from the transfer of $52.7 million in construction loans to permanent commercial real estate loans and from continued customer demand and business development efforts.
•The composition of owner and non-owner occupied loans within the commercial real estate segment has remained relatively consistent compared to December 31, 2023. Commercial real estate loans collectively make up 59% of the total loan portfolio and were comprised of approximately 29% in owner occupied loans and 71% in non-owner occupied loans.
◦The collateral composition of the commercial real estate non-owner occupied segment has remained relatively consistent compared to December 31, 2023.
◦Non-owner occupied commercial real estate loans were comprised of approximately 45% residential (multi-family and 1-4 family), 12% retail, 11% office and 10% in industrial warehouse. All other collateral categories fell below 10% of total non-owner occupied commercial real estate loans.
◦Non-owner occupied commercial real estate secured by retail amounted to 5% of total loans and consisted primarily of local strip-mall plazas and not large shopping centers or mall complexes.
◦Non-owner occupied commercial real estate secured by office buildings amounted to 5% of total loans and were located mainly in suburban areas and were modest in physical size.
•Commercial and industrial loans decreased $13.1 million, or 3%, compared to December 31, 2023.
•Commercial construction loans decreased $1.4 million since December 31, 2023 due to continued growth driven primarily by residential development projects to meet the strong demand in our market area, partially offset by the transfer of construction loans to the permanent commercial real estate segment as noted above.

39
◦The collateral composition of the commercial construction segment has remained relatively consistent compared to December 31, 2023.
◦Commercial construction loans were comprised of approximately 24% multi-family, 19% residential condominiums, 14% land approved for development, 12% single residential lots and 10% commercial buildings. All other collateral categories fell below 10% of total commercial construction loans.

At March 31, 2024, commercial loan balances participated out to various banks amounted to $68.7 million, compared to $69.8 million at December 31, 2023. These commercial loan balances participated out to other institutions are not carried as assets on the Company's financial statements. 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 $138.1 million and $126.6 million at March 31, 2024 and December 31, 2023, respectively. See Note 3, "Loans," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q, above, for information on loans serviced for others and loans pledged as collateral.

Asset Quality

The following table sets forth information regarding the Company's loan portfolio asset quality at the dates indicated:
(Dollars in thousands)March 31, 2024December 31, 2023March 31,
2023
Total adversely classified loans
$50,465$56,650$46,390
Performing adversely classified loans32,03845,26638,890
Non-performing adversely classified summary:
Commercial real estate owner-occupied$2,696$2,683$2,126
Commercial real estate non owner-occupied2,6512,6862,800
Commercial and industrial3,8804,262673
Commercial construction7,906——
Residential mortgages1,2921,5261,565
Home equity102257368
Total non-performing adversely classified loans
$18,527$11,414$7,532
Total loans$3,654,322$3,567,631$3,230,156
Loans 60-89 days past due and still accruing to total loans0.06 %— %0.03 %
Non-performing loans to total loans0.51 %0.32 %0.23 %
Non-performing assets to total assets0.40 %0.26 %0.17 %
Allowance for credit losses for loans $60,741$58,995$55,002
Allowance for credit losses for loans to non-performing loans327.85 %516.87 %730.24 %
Allowance for credit losses for loans to total loans1.66 %1.65 %1.70 %

Non-accrual loans that were not adversely classified amounted to $100 thousand, $30 thousand and $32 thousand at March 31, 2024, December 31, 2023 and March 31, 2023, respectively.

The increase in non-accrual loans from December 31, 2023 to March 31, 2024 was attributable primarily to one commercial construction loan that was credit downgraded and added to non-accrual. At March 31, 2024 the loan was individually evaluated and had a specific reserve of $1.6 million.

The Company had no OREO at March 31, 2024, December 31, 2023 or March 31, 2023, and therefore non-performing loans were the only component of non-performing assets.

ACL for Loans

There have been no material changes to the Company's ACL for loans methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure as described in the 2023 Annual Report on Form 10-K.


40
The estimate of credit loss incorporates management judgements and assumptions including the estimated life of the loans, adjustments for current conditions and reasonable and supportable economic forecasts. Management periodically reviews and updates its assumptions based on changing circumstances.

See Note 4, "ACL for Loans," to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, above, for further information regarding credit quality and the ACL under the CECL methodology.

While management uses available information and judgment to estimate credit losses on loans, future additions to the ACL may be necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL for loans. Such agencies may require the Company to recognize additions to the ACL for loans based on judgments different from those of management.

ACL for loans activity

The following table presents changes in the provision for credit losses on loans and unfunded commitments during the three month periods indicated:
Three months ended March 31,
(Dollars in thousands)20242023
Provision for credit losses on loans$1,868 $2,318 
Provision for unfunded commitments(1,246)418 
Total provision for credit losses$622 $2,736 

The following table summarizes the activity in the ACL for loans for the periods indicated: 
 Three months ended March 31,
(Dollars in thousands)20242023
Balance at beginning of year$58,995$52,640
Provision for credit losses for loans1,8682,318
  Recoveries of charged-off loans:
  
Commercial real estate owner-occupied
——
Commercial real estate non owner-occupied
——
Commercial and industrial
68127
Commercial construction
——
Residential mortgages
——
Home equity
23
Consumer
23
Total recovered
72133
  Charged-off loans:
Commercial real estate owner-occupied
——
Commercial real estate non owner-occupied
——
Commercial and industrial
18583
Commercial construction
——
Residential mortgages
——
Home equity
——
Consumer
96
Total charged-off
19489
Net loans charged-off (recovered)
122(44)
Ending balance$60,741$55,002
Annualized net loans charged-off (recovered) to average loans outstanding
0.01 %(0.01)%



41
See Note 4, "ACL for Loans," to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, above, for further information regarding the ACL for loans and credit quality.
Reserve for unfunded commitments

The reserve for unfunded commitments is classified within "Other liabilities" on the Company's Consolidated Balance Sheets. The estimate of credit loss incorporates the same loss factors as on-balance sheet loans with added assumptions for both the likelihood and amount of funding over the estimated life of the non-cancellable commitments.

The Company's reserve for unfunded commitments amounted to $5.9 million as of March 31, 2024 and $7.1 million at December 31, 2023. The provision for unfunded commitments for the three months ended March 31, 2024 amounted to a benefit of $1.2 million compared to a provision of $418 thousand for the three months ended March 31, 2023. The decreases in the reserve and provision for unfunded commitments resulted primarily from a decrease in the Company's off-balance sheet commercial construction commitments during the three months ended March 31, 2024.

Based on the foregoing, management believes that the Company's ACL for loans and reserve for unfunded commitments is adequate as of March 31, 2024.

Deposits

As of March 31, 2024, total deposits amounted to $4.11 billion, an increase of $128.6 million, or 3%, since December 31, 2023. The increase was driven primarily by increases in money market and savings account balances of $53.8 million, or 3%, and CD account balances of $61.1 million, or 12%, as customers sought higher yielding deposit products.

The following table sets forth the deposit balances by certain categories at the dates indicated and the percentage of each category to total deposits:
 March 31, 2024December 31, 2023March 31, 2023
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Checking$1,781,427 44 %$1,767,736 45 %$1,888,447 47 %
Money markets and savings1,742,550 42 %1,688,709 42 %1,752,648 44 %
CDs582,142 14 %521,076 13 %375,061 9 %
Deposits$4,106,119 100 %$3,977,521 100 %$4,016,156 100 %

Total customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Company offered programs which allow for third-party enhanced FDIC insurance. Under this enhanced deposit insurance program, the equivalent of the customers' original deposited funds are reciprocated back through the network to the Company and are carried within the appropriate category under deposits. The Company's balances in these reciprocal enhanced insurance products were $864.1 million and $835.0 million, at March 31, 2024 and December 31, 2023, respectively. The increase in balance reflects primarily an increase in customer demand for enhanced insurance products.

As of March 31, 2024, uninsured deposits amounted to 34% of total deposits. Additional capacity to utilize enhanced FDIC insured products noted in the preceding paragraph exceeds the Company's total deposits balance at March 31, 2024.

Borrowed Funds

The Company had borrowed funds outstanding of $63.2 million at March 31, 2024, compared to $25.8 million at December 31, 2023. Borrowings were primarily comprised of $54.8 million in advances from the FRB's BTFP. The remaining balance consisted of term advances related to specific lending projects funded under community development programs through the FHLB and NH BFA.

See also "Liquidity," below, for additional information on borrowing capacity.

Subordinated Debt

The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.6 million at March 31, 2024, compared to $59.5 million at December 31, 2023.

42
See also Note 7, "Borrowed Funds and Subordinated Debt," to the Company's unaudited consolidated interim financial statements contained in Item 1 in this Form 10-Q, above, for further information regarding the Company's subordinated debt.

Shareholders' Equity

Total shareholders' equity amounted to $333.4 million at March 31, 2024, compared to $329.1 million at December 31, 2023, an increase of $4.3 million, or 1%. The increase was due primarily to an increase in retained earnings of $5.6 million, partially offset by an increase in the accumulated other comprehensive loss of $2.1 million.

For the three months ended March 31, 2024 and March 31, 2023, the Company declared cash dividends of $2.9 million and $2.8 million, respectively, and shareholders utilized the dividend reinvestment portion of the Company's dividend reinvestment and direct stock purchase plan to purchase aggregate shares of the Company's common stock amounting to 14,496 shares and 10,395 shares, totaling $398 thousand and $370 thousand, respectively.

On April 16, 2024, the Company announced a quarterly dividend of $0.24 per share to be paid on June 3, 2024 to shareholders of record as of the close of business on May 13, 2024.

Derivatives and Hedging

Derivatives designated as hedging instruments

As of March 31, 2024, the Company had three pay fixed, receive float, interest rate swap agreements all with a 2-year term. Under these interest rate swap agreements, the Company pays a weighted average fixed interest rate of 4.68% and receives the Secured Overnight Financing Rate. The notional value of interest rate swap agreements designated as fair value hedges amounted to $100.0 million at March 31, 2024 and December 31, 2023. The fair value of these interest rate swap agreements, carried on the Company's Consolidated Balance Sheets as an asset was $22 thousand at March 31, 2024, compared to a liability of $760 thousand at December 31, 2023.

Derivatives not subject to hedge accounting

The notional value of back-to-back interest-rate swaps with customers and counterparties amounted to $7.5 million at both March 31, 2024 and December 31, 2023. The fair value of assets and corresponding liabilities associated with these swaps and carried on the Company's Consolidated Balance Sheets was $751 thousand at March 31, 2024 compared to $630 thousand at December 31, 2023.

Risk Participation Agreements

The notional value of RPAs sold amounted to $46.8 million at March 31, 2024 and $46.9 million at December 31, 2023. The fair value of RPAs, carried on the Company's Consolidated Balance Sheets as a liability, was $44 thousand at March 31, 2024 and $65 thousand at December 31, 2023.

For further information on the Company's derivatives and hedging activities see Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements contained in Item 1 above in this Form 10-Q.

Liquidity

Liquidity is the ability to meet cash needs arising from, among other things, fluctuations in loans, investments, deposits and borrowings. Liquidity management is the coordination of activities so that cash needs are anticipated and met readily and efficiently. The Company's liquidity is maintained by projecting cash needs, balancing maturing assets with maturing liabilities, monitoring various liquidity ratios, monitoring deposit flows, maintaining cash flow within the investment portfolio, and maintaining wholesale funding resources.

At March 31, 2024, the Bank had the capacity to borrow additional funds from the FHLB and FRB of up to approximately $860.0 million and $305.0 million, respectively.

Management believes that the Company has adequate liquidity to meet its obligations. However, if general economic conditions, potential recession in the United States and our market areas, continuation of recent uncertainty in the banking industry, changes in market interest rates, the persistence of the current inflationary environment in the United States and our

43
market areas, increased competition for deposits and related changes in deposit customer behavior, or other events, cause these sources of external funding to become restricted or are eliminated, the Company may not be able to raise adequate funds or may incur substantially higher funding costs or operating restrictions in order to raise the necessary funds to support the Company's operations and growth.

Capital Resources

The principal cash requirement of the Company is the payment of interest on subordinated debt and the payment of dividends on our common stock. The Company's Board of Directors may approve cash dividends on a quarterly basis after careful analysis and consideration of various factors, including our capital position, economic conditions, growth rates, earnings performance and projections as well as strategic initiatives and related regulatory capital requirements.

The Company's primary source of cash is dividends paid by the Bank, which are limited to the Bank's net income for the current year plus its retained net income for the prior two years.

The Company's total capital and tier 1 capital to risk weighted assets amounted to 13.20% and 10.43%, respectively, at March 31, 2024, compared to 13.12% and 10.34%, respectively, at December 31, 2023. Tier 1 capital to average assets amounted to 8.85% at March 31, 2024, compared to 8.74% at December 31, 2023.

The increase in capital ratios compared to December 31, 2023 was driven primarily by the increase in retained earnings noted above which outweighed the increases in risk-weighted assets and average assets compared to the respective period. The increase in risk-weighted assets was partially offset by a reduction in unfunded commitments during the quarter.

For further information about the Company's capital, see Note 9 "Regulatory Capital Requirements," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q, above.

Wealth Management

Wealth assets under management and wealth assets under administration are not carried as assets on the Company's Consolidated Balance Sheets. The Company provides a wide range of wealth management and wealth services, including investment management, brokerage, annuities, trust, and 401(k) administration.
 
Wealth assets under management and wealth assets under administration amounted to $1.11 billion and $268.1 million, respectively, at March 31, 2024, representing increases of $27.3 million, or 3%, and $25.7 million, or 11%, respectively, compared to December 31, 2023. The increase in assets under administration resulted from an increase in market values as well as net asset growth.

Item 3 -Quantitative and Qualitative Disclosures About Market Risk

Interest Margin Sensitivity Analysis

Refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2023 Annual Report on Form 10-K for further information on the Company's net interest income and net interest margin sensitivity under different interest rate and yield curve scenarios as well as different asset and liability mix scenarios.

The table below summarizes the results at March 31, 2024 and December 31, 2023 and compares the percent change in net interest income to the rates unchanged scenario, assuming a static balance sheet for a 24-month period with interest rates ramped over 24 months for non-maturity deposits and 12 months for all other interest-earning assets and interest-bearing liabilities.

•In the 200 and 400 basis point increasing interest rate scenarios, the percent decrease in net interest income was higher compared to the results at December 31, 2023 primarily due to a shift in deposit composition from non-interest-bearing account balances into interest-bearing account balances that have a higher level of interest rate sensitivity.
•In the 200 basis point decreasing interest rate scenario, net interest income was projected to increase in the first 24 months compared to a decrease at December 31, 2023 primarily due to a shift in deposit composition from non-interest-bearing account balances into interest-bearing account balances that have a higher level of interest rate sensitivity, which allowed for a higher level of rate declines in the 200 basis point declining rate scenario, and improved net interest income sensitivity results.

44

(Dollars in thousands, except for percentage data)March 31,
2024		December 31,
2023
Changes in interest ratesPercentage ChangePercentage Change
Rates rise 400 basis points
(4.21)%(3.11)%
Rates rise 200 basis points
(2.33)%1.60 %
Rates unchanged
— %— %
Rates decline 200 basis points
0.24 %0.54 %

The results in the table above are subject to various assumptions as reported in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2023 Annual Report on Form 10-K. Refer to heading "Results of Operations" contained within Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q for further discussion of margin.

Item 4 -Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
The Company maintains a set of disclosure controls and procedures and internal controls designed to ensure that the information required to be disclosed in reports that it files or furnishes to the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.
 
The Company carried out an evaluation as of the end of the period covered by this Form 10-Q under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of March 31, 2024.
 
Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (i.e., the three months ended March 31, 2024) that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION
 
Item 1 -Legal Proceedings

There are no material pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject, other than ordinary routine litigation incidental to the business of the Company. Management does not believe resolution of any present litigation will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company.

Item 1A -Risk Factors

Management believes that there have been no material changes in the Company's risk factors as reported in the 2023 Annual Report on Form 10-K. However, if the United States or the markets in which we operate encounter sustained economic stress or recession, many of the risk factors identified in the Company's 2023 Annual Report on Form 10-K could become heightened and such effects could have a material adverse impact on the Company in a number of ways related to key risk areas including Economic & Financial Markets, Liquidity, Credit and Collateral, Capital and Operations, among others.







45
Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table represents information with respect to repurchases of common stock made by the Company during the three months ended March 31, 2024:
 
Total number of shares repurchased(1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs AnnouncedMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January3,575$29.96 ——
February—— ——
March5,380$25.25 ——
________________________________
(1)Amounts include shares repurchased that were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes upon vesting of restricted stock (net settlement of shares).

Item 3 -Defaults upon Senior Securities
 
Not Applicable.
Item 4 -Mine Safety Disclosures

Not Applicable.
 
Item 5 -Other Information

During the three months ended March 31, 2024, none of the directors or officers of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.

Item 6 -Exhibits
 
EXHIBIT INDEX
_____________
Exhibit No.    Description

3.1.1    Amended and Restated Articles of Organization of the Company, as amended as of June 4, 2013 incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed June 10, 2013 (File No. 001-33912).

3.1.2    Articles of Amendment to the Restated Articles of Organization of the Company, as amended as of May 16, 2017 incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 18, 2017 (File No. 001-33912).

3.1.3    Articles of Amendment to the Amended and Restated Articles of Organization of the Company, as amended as of January 5, 2018, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed January 11, 2018 (File No. 001-33912).

3.2    Second Amended and Restated Bylaws of the Company, as amended as of January 19, 2021, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 22, 2021 (File No. 001-33912).

10.1    Enterprise Bank 2024 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 22, 2024 (File No. 001-33912).

10.2    Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan 2024 Addendum, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed March 22, 2024 (File No. 001-33912).

31.1*    Certification of Principal Executive Officer under Securities Exchange Act Rule 13a-14(a).
46
Table of Contents
31.2*    Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a).

32*    Certification of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. § 1350 Furnished Pursuant to Securities Exchange Act Rule 13a-14(b).

101*    The following materials from Enterprise Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 were formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2024 and December 31, 2023; (ii) Consolidated Statements of Income for the three months ended March 31, 2024 and 2023; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2024 and 2023; (iv) Consolidated Statements of Changes in Equity for the three months ended March 31, 2024 and 2023; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2024 and 2023; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

104*     The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2024 has been formatted in Inline XBRL and contained in Exhibit 101.
____________________
*Filed herewith

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 ENTERPRISE BANCORP, INC.
  
DATE:May 7, 2024By:/s/ Joseph R. Lussier
  Joseph R. Lussier
  Executive Vice President, Treasurer
  and Chief Financial Officer
  

47

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