EDGAR 10-K Filing

Company CIK: 1018399
Filing Year: 2025
Filename: 1018399_10-K_2025_0001018399-25-000013.json

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ITEM 1. BUSINESS
Item 1.Business
Organization
Enterprise Bancorp, Inc. (the "Company," "Enterprise," "us," "we," or "our") is a Massachusetts corporation organized in 1996, which operates as the parent holding company of Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"), a community-focused commercial bank. Substantially all of the Company’s operations are conducted through the Bank and its subsidiaries. The Bank, a Massachusetts trust company and state chartered commercial bank that commenced banking operations in 1989, has five wholly owned subsidiaries that are included in the Company’s consolidated financial statements:
•Three Massachusetts security corporations, Enterprise Security Corporation (2005), Enterprise Security Corporation II (2007) and Enterprise Security Corporation III (2007), which hold various types of qualifying securities. The security corporations are limited to conducting securities investment activities that the Bank itself would be allowed to conduct under applicable laws.
•Enterprise Wealth Services, LLC, organized in 2000 in the State of Delaware for the purpose of offering non-deposit investment products and services, under the name of "Enterprise Wealth Services."
•EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") organized under the laws of the State of Delaware for the purpose of investing in a local NMTC project which provides federal tax incentives for investments in distressed communities.
Enterprise's headquarters are located at 222 Merrimack Street in Lowell, Massachusetts.
The community banking services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.
All material intercompany balances and transactions have been eliminated in consolidation.
The Company's common stock trades on the NASDAQ Global Market under the trading symbol "EBTC."
Merger
On December 8, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Independent Bank Corp., a Massachusetts corporation ("Independent"), and Rockland Trust Company, a Massachusetts-chartered trust company and wholly owned subsidiary of Independent ("Rockland Trust"). Pursuant to the Merger Agreement, the Company will merge with and into Independent, with Independent being the surviving corporation (the "Merger"). Upon completion of the Merger, each outstanding share of Company common stock will convert into the right to receive 0.60 shares of Independent common stock and $2.00 in cash (the "Merger Consideration"). Each outstanding option to acquire a share of Company common stock, whether or not vested, will be converted into the right to receive cash in an amount equal to the amount by which the per share cash equivalent of the Merger Consideration (calculated in accordance with the Merger Agreement) exceeds the exercise price of the option. In addition, each award of Company restricted stock, whether or not vested, that is outstanding immediately prior to the effective time of the Merger will fully vest and be canceled and converted into the right to receive the Merger Consideration. Following the Merger, Enterprise Bank will merge with Rockland Trust, with Rockland Trust being the surviving institution. Completion of the Merger is subject to customary closing conditions, including receipt of regulatory approvals and approval of the Company’s shareholders. The Merger is expected to close in the second half of 2025. The Company has scheduled a Special Shareholder Meeting for April 3, 2025 to vote on the Merger and other related proposals. No vote of Independent shareholders is required.
Market Area
The Company's primary market area is the Northern Middlesex, Northern Essex, and Northern Worcester counties of Massachusetts and the Southern Hillsborough and Southern Rockingham counties in New Hampshire. Enterprise has 27 full-service branches located in the Massachusetts communities of Acton, Andover, Billerica (2), Chelmsford (2), Dracut, Fitchburg, Lawrence, Leominster, Lexington, Lowell (2), Methuen, North Andover, Tewksbury (2), Tyngsborough and Westford and in the New Hampshire communities of Derry, Hudson, Nashua (2), Pelham, Londonderry, Salem, and Windham.
Management actively seeks to strengthen the Company's market position by capitalizing on opportunities to grow all business lines and through the continued pursuit of organic growth and strategic expansion within existing and into neighboring geographic markets.
Products and Services
The Company principally is engaged in the business of gathering deposits from the general public and investing primarily in loans and investment securities. Through the Bank and its subsidiaries, the Company offers a range of commercial, residential and consumer loan products, deposit products and cash management services, as well as wealth management and wealth services.
The integrated branch network serves all product channels with knowledgeable service providers and state-of-the-art facilities. The Bank also offers various digital banking capabilities via online and mobile platforms. Management continually examines new products and technologies in order to maintain a highly competitive mix of offerings and state-of-the-art delivery channels in order to tailor product lines to customers' needs. These products, services and delivery channels are outlined below.
The Company's business is not dependent on one, or a few customers, nor upon a particular industry, the loss of which would have a material adverse impact on the financial condition or operations of the Company.
Lending Products
General
The Company specializes in lending to business entities, non-profit organizations, professional practices, and individuals. The Company's primary lending focus is on the development of high-quality, long-term commercial relationships achieved through active business development efforts, strong community involvement, and focused marketing strategies. Commercial loans may include commercial real estate mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit. Consumer or "retail" loans may include conventional residential mortgage loans, home equity lines of credit, residential construction loans on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company manages its loan portfolio to avoid concentration by industry, relationship size, and source of repayment to lessen its credit risk exposure.
Interest rates charged on loans may be fixed or variable; variable rate loans may have fixed initial periods before periodic rate adjustments begin. Individual rates offered are dependent on the associated degree of credit risk, term, underwriting and servicing costs, loan amount, and the extent of other banking relationships maintained with the borrower, and may be subject to interest rate floors. Rates are also subject to competitive pressures, the current interest-rate environment, availability of funds, and government regulations.
Enterprise employs a seasoned commercial lending staff, with commercial lenders supporting each of the Bank's branch locations. An internal loan review function assesses the compliance of commercial loan originations with the Company's internal policies and underwriting guidelines and monitors the ongoing credit quality of the loan portfolio. The credit risk management function monitors a wide variety of individual borrower and industry factors; and the Company's internal loan credit risk rating system classifies loans depending on risk of loss characteristics. The Company also contracts with an external loan review company to review, on a pre-determined schedule, the internal credit ratings assigned to loans in the commercial loan portfolio. The review is focused on the non-criticized segment of the commercial loan portfolio, based on the type, size, credit rating, and overall risk of the loan and generally encompasses 65% or more of the commercial loan portfolio. This same loan review company is also contracted to perform limited stress testing on the commercial real estate loan portfolio on an annual basis.
The Company's internal residential origination and underwriting staff originate residential loans and are responsible for compliance with residential lending regulations, consumer protection and internal policy guidelines. The Company also contracts with an external loan review company to complete a regular quality control review in accordance with secondary market underwriting standards for residential mortgage loans. The sample reviewed is based on loan volume originated since the prior review. Additionally, the Company's internal compliance department monitors the residential loan origination activity for regulatory compliance.
A management loan review committee, consisting of senior lending officers, credit, loan workout, loan operations, risk
management and accounting personnel, is responsible for setting loan policy and procedures, as well as reviewing loans on the internal "watch asset list" and classified loan report.
An internal credit review committee, consisting of senior lending officers and credit review personnel, meets to review and approve loan requests related to borrowing relationships of certain dollar levels, as well as other borrower relationships recommended for discussion by committee members.
The Loan Committee of the Company's Board of Directors (the "Board") approves loan relationships exceeding certain prescribed dollar limits. The Board's Loan Committee reviews current portfolio statistics, problem credits, construction loan reviews, watch assets, loan delinquencies, and the allowance for credit losses, as well as current market conditions and issues relating to the construction and commercial real estate development industry and the reports from the external loan review company. The Board's Loan Committee is also responsible for approval of the loan policy and credit-related charge-offs recommended by management, subject to final approval by the full Board.
At December 31, 2024, the Bank's statutory lending limit, based on 20% of capital (capital stock plus surplus and undivided profits, but excluding other comprehensive income), to any individual borrower and related entities was approximately $99.6 million, subject to certain exceptions provided under applicable law.
Commercial Real Estate, Commercial and Industrial, and Commercial Construction Loans
Commercial real estate loans include loans secured by both owner and non-owner occupied (investor) real estate. These loans are typically secured by a variety of commercial, residential investment, and industrial property types, including one-to-four and multi-family apartment buildings, office, industrial, or mixed-use facilities, strip shopping centers, or other commercial properties, and are generally guaranteed by the principals of the borrower. Commercial real estate loans generally have repayment periods of approximately 15 to 30 years. Variable interest-rate loans have a variety of adjustment terms and underlying interest-rate indices and are generally fixed for an initial period before periodic rate adjustments begin.
Commercial and industrial loans include seasonal and formula-based revolving lines of credit, working capital loans, equipment financing and term loans. Also included in commercial and industrial loans are loans partially guaranteed by the SBA, and loans under various other government and municipal programs and agencies. Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally guaranteed by the principals of the borrower. Variable rate loans and lines in this portfolio have interest rates that are periodically adjusted, with loans generally having fixed initial periods. Revolving lines of credit are written on demand and those over $100 thousand are subject to annual credit review. Revolving lines of credit below this threshold are monitored based on payment history and other performance criteria. Commercial and industrial loans have average repayment periods of 1 to 7 years.
Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by underlying real estate collateral and are generally guaranteed by the principals of the borrowers. In many cases, these loans move into the permanent commercial real estate portfolio when the construction phase is completed. The Company limits the amount of financing provided to any single developer for the construction of properties built on a speculative basis. Funds for construction projects are disbursed as pre-specified stages of construction are completed. Regular site inspections are performed, prior to advancing additional funds, at each construction phase, either by experienced construction lenders on staff or by independent outside inspection companies. Commercial construction loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms of 1 to 3 years.
From time to time, the Company participates with other banks in the financing of certain commercial projects. Participating loans with other institutions provides banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently. When the participation qualifies as a sale under GAAP, the balances participated out to other institutions are not carried as assets on the Company's consolidated financial statements. When a participation does not qualify as a sale under GAAP, the loan is carried at gross principal outstanding and the balances participated out to other institutions are carried as secured borrowings on the Company's consolidated financial statements. Loans originated by other banks in which the Company is a participating institution are carried in the loan portfolio at the Company’s pro-rata share of ownership.
Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.
Residential Loans
Enterprise Bank originates conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower's primary residence, or as vacation homes or investment properties. Loan-to-value policy limits vary, generally from 75% for multi-family owner-occupied properties, up to 97% for single family owner-occupied properties, with mortgage insurance coverage required for loan-to-value ratios greater than 80% based on program parameters. In addition, financing is provided for the construction of owner-occupied primary and secondary residences. Residential mortgage loans may have terms of up to 30 years at either fixed or adjustable rates of interest. Fixed and adjustable-rate residential mortgage loans are generally originated using secondary market underwriting and documentation standards.
Depending on the current interest-rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell fixed and adjustable-rate residential mortgage loans that are eligible for sale in the secondary market or hold some or all of this residential loan production for the Company's portfolio. Mortgage loans are generally not pooled for sale, but instead are sold on an individual basis. The Company may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans classified as held for sale are carried as a separate line item on the balance sheet.
Home Equity Lines of Credit ("Home equity")
The Company originates home equity revolving lines of credit for one-to-two family residential properties with maximum original loan-to-value ratios generally up to 75% of the automated valuation or appraised value of the property securing the loan. Home equity lines generally have interest rates that adjust monthly based on changes in the prime lending rate, although minimum rates may be applicable. Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment schedule for standard home equity lines requires interest only payments for the first ten years of the lines. Generally, at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a 15-year amortization schedule or, for eligible borrowers meeting certain requirements, the line availability may be extended for an additional interest only period. Home equity line of credit programs are available with the ability to convert all or a portion of the home equity line of credit balance to a fixed-rate term note subject to certain requirements and limitations. Available credit on the home equity line becomes available again as principal is repaid on the converted amounts.
Consumer Loans
Consumer loans consist primarily of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities (Mass Save ®), and overdraft protection lines on checking accounts extended to individual customers. The aggregate amounts of overdrawn deposit accounts are reclassified as loan balances. At December 31, 2024, the Company no longer participated in new originations under the Mass Save ® program.
Credit Risk and Allowance for Credit Losses
Information regarding the Company's credit risk and allowance for credit losses is contained in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in the section "Financial Condition," under "Loans," in the subsections "Credit Risk," and "ACL for Loans" of this Annual Report on Form 10-K for the year ended December 31, 2024 (this "Form 10-K"). See also Note 1, "Summary of Significant Accounting Policies," under Item (i) "Credit Risk Management and ACL for Loans Methodology" to the Company's audited consolidated financial statements, contained in Item 8 of this Form 10-K.
Deposit Products
Deposits have traditionally been the principal source of the Company's funds. Enterprise offers a broad selection of competitive commercial and retail deposit products, including checking accounts, limited-transactional savings and money market accounts, commercial sweep products, and term CDs. The Company's deposit products are offered to commercial businesses, professionals, municipalities, non-profit organizations, and individuals. As a member of the FDIC, the Bank's depositors are
provided deposit protection up to the maximum FDIC insurance coverage limits.
In addition to the deposit products noted above, the Company also provides customers with the ability to automate allocation of investment sweep (commercial only), money market, and CD balances to nationwide networks of reciprocating FDIC insured banks. Deposits are placed into a nationwide network of banks in increments that are eligible for FDIC insurance. This allows the Company to offer enhanced FDIC insurance coverage on larger deposit balances by placing the "excess" funds into participating FDIC insured accounts or term CDs. In exchange, the other institutions place dollar-for-dollar matching reciprocal and insurable deposits with the Company via the networks. Essentially, the equivalent of the original deposit comes back to the Company and is available to fund operations. The original funds placed into the networks are not carried as deposits on the Company's Consolidated Balance Sheet, however the network's reciprocal dollar deposits are carried within the appropriate product category under customer deposits on the Consolidated Balance Sheet.
Management determines the interest rates offered on deposit accounts based on current and expected economic conditions, competition, liquidity needs, the volatility of existing deposits, the asset-liability position of the Company and the overall objectives of the Company regarding the growth and retention of relationships. Low-cost checking deposits are an important component of the Company's core funding strategy.
Enterprise may also utilize brokered deposits, mainly term products, from several available sources as an alternative to borrowed funds to support asset growth in excess of internally generated deposits. The Company collectively refers to brokered deposits and borrowed funds as "wholesale funding."
Cash Management Services
In addition to the lending and deposit products discussed above, commercial banking and public sector customers may take advantage of cash management services and products that provide comprehensive reporting, streamline the processing of deposits and facilitate the use of those funds for purposes such as disbursements and automated short-term investment activities.
Cash management clients can enroll in remote check deposit capture, lockbox, ACH origination, domestic and international U.S. dollar wire transfers, foreign currency wire transfers, "Positive Pay" to reduce check fraud and unauthorized ACH received items, account reconciliation, zero balance target transfers, automated investment sweeps, and commercial card and merchant services programs offered through third parties.
As with money market accounts and certificates of deposit, investment sweep products are offered with third-party FDIC enhancement. Management believes that commercial customers benefit from the flexibility of these products, while retaining conservative investment options of high quality and safety.
Product Delivery Channels
In addition to traditional product access channels, various digital banking capabilities are delivered through the Bank's online website and mobile apps allowing customers to view account statements, activity and images, as well as perform internal and external account transfers, pay bills, place stop payments, make person-to-person payments, and conduct mobile deposits. Digital wallet and mobile card controls provide smart phone users with additional debit card safety features to actively control and monitor their virtual debit card.
Online and mobile banking tools utilize multiple layers of customer authentication commensurate with the risk posed by the varying types of transactions and information available within each tool.
Wealth Management and Wealth Services
The Company provides a range of wealth advisory and management services delivered via two channels, Enterprise Wealth Management and Enterprise Wealth Services.
Wealth advisory and management services include customized investment management and trust services provided under the label "Enterprise Wealth Management" to individuals, family groups, commercial businesses, trusts, foundations, non-profit organizations, and endowments.
Enterprise Wealth Management utilizes an open-architecture approach to client investment management, focusing on strategic
asset allocation to select independent investment management firms and individual securities on behalf of our clients. The Company partners with investment research firms and uses state of the art analytic tools to strengthen and inform the asset allocation and portfolio construction processes. The investment management process is intended to enable the Company to build and maintain investment portfolios to meet each client’s financial objectives and aims to deliver superior long-term results.
Enterprise Wealth Services provides brokerage and management services through a third-party arrangement with Commonwealth Financial Network, a licensed securities brokerage firm, with products designed primarily for the individual investor. Retirement plan services are offered through third-party arrangements with leading 401(k) plan providers.
The Enterprise Wealth Management Committee of the Board is responsible for overseeing that the fiduciary and investment activities of Enterprise Wealth Management and Enterprise Wealth Services are consistent with those powers delegated by the Board and that prudent care and discretion are followed in the management of client assets. EWMC is also responsible for reviewing investment performance of investment advisors, strategic planning initiatives and results, and proposed new products or services, among other responsibilities.
Investment Activities
The Company's investment portfolio activities are an integral part of the overall asset-liability management program of the Company. The investment function provides liquidity to support loan growth, as well as to meet withdrawals and maturities of deposits, and attempts to provide maximum return consistent with liquidity constraints and general prudence, including diversification and safety of investments. In addition to the Bank, the Company holds investment securities in three Massachusetts security corporation subsidiaries, which serve to increase after tax returns in accordance with state tax policy.
The securities in which the Company may invest are limited by regulation. In addition, an internal investment policy restricts investments in debt securities to high-quality securities within prescribed categories as approved by the Board. Management utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios within prescribed guidelines set by management. The Company's internal investment policy also sets sector limits as a percentage of the total portfolio, identifies acceptable and unacceptable investment practices, and denotes approved security dealers. The effect of changes in interest rates, market values, timing of principal payments and credit risk are considered when purchasing securities.
Cash equivalents are defined as highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and present insignificant risk of changes in value due to changes in interest rates. The Company's cash and cash equivalents may be comprised of cash on hand and cash items due from banks, interest-earning deposits with banks (deposit accounts, excess reserve cash balances, money markets and money market mutual fund accounts), short team U.S. Treasury notes and overnight and term federal funds sold to money center banks. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net cash flows from deposits, borrowings, loans and investments, and the immediate liquidity needs of the Company.
The Company primarily invests in debt securities, with a small portion of the portfolio invested in equities. As of the balance sheet dates reflected in this Form 10-K, all of the debt securities within the Company's investment portfolio were classified as available-for-sale and carried at fair value, with changes in fair value reflected in other comprehensive income. The equity securities are carried at fair value, with changes in fair value recognized in net income.
Management reports investment transactions, portfolio allocation, effective duration, fair value at risk and projected cash flows to the Board on a periodic basis. Credit risk inherent in the portfolio is closely monitored by management and presented at least annually to the Board. The Board also approves the Company's internal investment policy annually and ongoing investment strategy.
The Company is required to purchase FHLB stock at par value in association with the Bank's outstanding advances from the FHLB; this stock is classified as a restricted investment and carried at cost which management believes approximates fair value.
Borrowed Funds
Total borrowing capacity includes borrowing arrangements at the FHLB and the FRB discount window. Membership in the FHLB provides borrowing capacity based on qualifying collateral balances pre-pledged to the FHLB, including certain residential loans, home equity lines, commercial loans, U.S. government and agency securities and certain municipal securities.
Borrowings from the FHLB typically are utilized to fund liquidity needs or specific lending projects under the FHLB's community development programs. The FHLB funding facility is an integral component of the Company's asset-liability management program.
The FRB discount window borrowing capacity is based on the pledge of qualifying collateral balances to the FRB. Collateral pledged to the FRB consists primarily of certain municipal and corporate securities held in the Company's investment portfolio. Additional types of collateral are available to increase borrowing capacity with the FRB if necessary.
Pre-established non-collateralized overnight borrowing arrangements with large national and regional correspondent banks provide additional overnight and short-term borrowing capacity for the Company and are classified as "other borrowings" under Borrowed Funds on the Company's balance sheets.
Subordinated Debt
The Company issued subordinated notes as a component of its capital management strategy. As of the balance sheet dates contained in this Form 10-K, the Company's outstanding subordinated debt consisted of fixed-to-floating rate subordinated notes (the "Notes") issued in July 2020, callable in whole or part beginning in 2025, due in 2030. The Notes are intended to qualify as Tier 2 capital of the Company for regulatory purposes.
Capital Resources
Capital planning by the Company and the Bank considers current needs and anticipated future growth. The primary sources of capital for the Company and the Bank include proceeds from the issuance of the Company's common stock, proceeds from the issuance of subordinated debt and retention of earnings, less dividends paid. The Company believes its current capital is adequate to support ongoing operations.
The Company is subject to the regulatory capital framework known as the "Basel III Rules," which include risk-based capital ratio requirements. Management believes, as of December 31, 2024, that the Company and the Bank met all capital adequacy requirements to which they were subject under Basel III. As of December 31, 2024, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of the FDIC and the Basel III Rules.
See also "Capital Requirements," and "Capital Requirements under Basel III," under the heading "Supervision and Regulation," contained below, for further information regarding the Company's and the Bank's regulatory capital requirements.
Patents, Trademarks, etc.
The Company holds several registered service marks and trademarks related to product names and corporate branding. The Company holds no other patents, registered trademarks, licenses (other than licenses required to be obtained from appropriate banking regulatory agencies), franchises or concessions that are material to its business.
Human Capital Resources
The Company distinguishes itself through our strong sense of teamwork, purpose, inclusion, and equity, and through caring for each other, our customers, and our communities. We routinely engage independent third parties to conduct cultural, engagement, and inclusion surveys to assess our engagement and to act, if necessary, to address areas of improvement. Based on the feedback provided by our team members, management believes its team member relations are excellent.
At December 31, 2024, the Company employed 576 full-time equivalent team members. None of the Company's employees are presently represented by a union or covered by a collective bargaining agreement.
Diversity, Equity, Inclusion & Belonging
At Enterprise Bank, we encourage and foster a culture of diversity, equity, inclusion, and belonging where everyone feels valued and respected. Our Bank-wide Diversity, Equity, Inclusion and Belonging Program Steering Committee was founded to further embrace and promote awareness of personal identity in the workplace, to identify and help resolve equity gaps and to strengthen everyone’s sense of belonging within our Enterprise family.
To help team members with similar backgrounds and experiences connect, and to bring together supportive networks, we have established several Employee Resource Groups at the Bank: the PRIDE Community of Respecting People’s Sexuality & Gender, Veterans Resource Group, Working Parents Resource Group, a Young Professionals Resource Group, and our Multicultural Alliance, a cross-functional team of ambassadors who promote diversity and share ideas to help celebrate our differences while seeking connections through intercultural conversations, awareness, and respect. At the end of 2024, an Awareness of Visible and Invisible Disabilities ERG was initiated to provide information, resources and events that encourage dialogue, awareness, support and respect for people with disabilities and their advocates.
As of December 31, 2024, 66% of our team members are women and 23% are self-identified as black, indigenous, and persons of color. Of our managerial team members, 65% are women and 13% are self-identified as black, indigenous, and persons of color.
Employee Benefits & Wellness
Enterprise strives to provide team members with a range of compensation and reward programs that are meaningful and important to them. We offer compensation opportunities that we believe are competitive with our geographic markets. New team members starting in entry level roles begin above minimum wage and we have increased starting pay each year.
Enterprise offers unique programs to give team members a greater vested interest in the Bank’s success. We offer a Spot Bonus Award Program, an Equity Ownership Participation Program, a Variable Compensation Incentive Plan, and Sales Incentive Plans to incentivize team members to perform well by rewarding them with a monetary payout when the team member and the Bank are successful.
As part of our "total rewards," we offer employees several insurance plan options, including three health insurance plans, two dental insurance plans, two vision insurance plans and 401(k) plan matches. Enterprise bankers also have access to our Employee Assistance Program, which offers help to team members and/or their household members who may be experiencing problems related to life changes and/or personal stress, parental leave, tuition reimbursement, short- and long-term disability and flexible work arrangements.
Enterprise Bank’s wellness program encourages a healthy lifestyle and supports team members’ physical, mental, financial, spiritual and emotional well-being through ongoing holistic education programs, interactive initiatives and social support.
Company Websites
The Company currently uses outside vendors to design, support, and host its primary internet website:
www.enterprisebanking.com. The information contained on or accessible from our websites does not constitute a part of this Form 10-K and is not incorporated by reference.
The Company's website provides information on the Company and its products and services. Users have the ability to securely open various deposit accounts, as well as the ability to submit mortgage loan applications and related documentation securely online and, via a link, to access their bank accounts and perform various financial transactions, and via the wealth management link to access various wealth account reports and statements, and the ability to consolidate all investment accounts (Enterprise or others) on one secure platform.
The Bank's website also provides the access point to a variety of specified banking services and information, various financial management tools, and Company investor and corporate information, which includes a corporate governance page. The Company's corporate governance page includes the Corporate Governance Guidelines, Code of Business Conduct and Ethics, and Whistleblower and Non-Retaliation policy, as well as the charters of the Board's Audit, Compensation and Human Resources, and Corporate Governance/Nominating committees.
In the Investor Relations section of the Company's website, under the SEC Filings tab, the Company makes available copies of the Company's annual reports on Form 10-K, quarterly reports on Form 10-Q ("Form 10-Q"), proxy statements and current reports on Form 8-K ("Form 8-K"). Additionally, the site includes current registration statements that the Company has been required or elected to file in connection with the issuance of its shares and other securities. The Company similarly makes available all insider stock ownership and transaction reports filed with the SEC by executive officers, directors and any 10% or greater shareholders under Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (Forms 3, 4
and 5). Access to all of these reports is made available free of charge and is essentially simultaneous with the SEC's posting of these reports on its EDGAR system through the SEC's website (www.sec.gov).
Competition
The Company faces robust competition to attract and retain customers within existing and neighboring geographic markets. The Company's market share will depend in part upon management's continued success in differentiating the Company in the marketplace and its ability to strengthen its competitive position. National and larger regional banks and financial institutions have a local presence in the Company's market area. These larger institutions have certain competitive advantages, including greater financial resources and the ability to make larger loans to a single borrower. Within our market area we also compete with government sponsored enterprises that can offer commercial real estate loans on apartments, multi-family and senior housing projects with a variety of competitive terms.
Numerous local savings banks, commercial banks, cooperative banks, and credit unions also compete in the Company's market area. Internet-based banks, non-bank electronic payment and funding channels, and other tech-based financial intermediaries have become a fast-growing and strong competitor in the financial services marketplace. The evolving Fintech industry aims to compete with traditional banking services and delivery methods and although the industry offers opportunities for strategic partnerships, it is also a source for direct competition.
The increased use and advances in technology, data analytics and storage, such as online and mobile, and non-bank electronic payment channels, electronic transaction processing, block-chain based assets including digital currency and non-fungible tokens, and cloud-computing and storage, among others are expected to have a significant impact on the future competitive landscape confronting financial service businesses.
Supervision and Regulation
General
Set forth below is a summary description of the material elements of the laws and regulations applicable to the Company and the Bank. The description is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Moreover, these statutes, regulations and policies are continually under review by the U.S. Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations, or regulatory policies applicable to the Company or its principal subsidiary, the Bank, could have a material effect on our business, financial condition or results of operations.
Regulatory Agencies
As a registered bank holding company, the Company is subject to the supervision and regulation of the Federal Reserve Board and, acting under delegated authority, the FRB pursuant to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The Massachusetts Division of Banks (the "Division") also retains supervisory jurisdiction over the Company.
As a Massachusetts state-chartered bank, the Bank is subject to the supervision and regulation of the Division and, with respect to the Bank's New Hampshire branching operations, the New Hampshire Banking Department. As a state-chartered bank that accepts deposits and is not a member of the Federal Reserve System, the Bank is also subject to the supervision and regulation of the FDIC.
Bank Holding Company Regulation
As a registered bank holding company, the Company is required to furnish to the FRB annual and quarterly reports of its financial condition and results of operations, among other information and reports that may be required.
Acquisitions by Bank Holding Companies
Under the Bank Holding Company Act, the Company must obtain the prior approval of the Federal Reserve Board or, acting under delegated authority, the FRB before (i) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the Company would directly or indirectly own or control 5% or
more of such class; (ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company. These activities would also require the prior approval of the Division.
Under the Bank Holding Company Act, and the regulations promulgated by the Federal Reserve Board thereunder, any company must obtain approval of the Federal Reserve Board or, acting under delegated authority, the FRB, prior to acquiring control of the Company or the Bank. Section 2(a)(2) of the Bank Holding Company Act applies a three-prong test for determining whether a company acquires "control": (i) ownership, control, or the power to vote 25% or more of any class of voting securities of the Company or the Bank, (ii) the ability to control in any manner the election of a majority of the directors of the Company or the Bank, or (iii) the direct or indirect exercise of a controlling influence over management or policies of the Company or the Bank. "Control" is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company.
In addition, regulations promulgated by the Federal Reserve Board related to determinations of "control" for purposes of the Bank Holding Company Act include presumptions for use in control determinations according to a tiered methodology using 5%, 10% and 15% as the presumption thresholds. These regulations apply to questions of control under the Bank Holding Company Act but do not extend to the Change in Bank Control Act of 1978, as amended (the "Change in Bank Control Act").
Control Acquisitions
The Change in Bank Control Act and the related regulations of the Federal Reserve Board generally require any person or groups of persons acting in concert to file a written notice with the Federal Reserve Board or, acting under delegated authority, the appropriate FRB, before the person or group acquires control of the Company. The Change in Bank Control Act defines "control" as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. A rebuttable presumption of control arises under the Change in Bank Control Act where a person or group controls 10% or more, but less than 25%, of a class of the voting stock of a company or insured bank which is a reporting company under the Exchange Act, such as the Company, or such ownership interest is greater than the ownership interest held by any other person or group.
In addition, the Change in Bank Control Act prohibits any entity from acquiring 25% (or 5% in the case of an acquirer that is a bank holding company) or more of a bank holding company's or bank's voting securities, or otherwise obtaining control or a controlling influence over a bank holding company or bank without the approval of the Federal Reserve Board. The Federal Reserve Board has issued a policy statement on equity investments in bank holding companies and banks, which allows the Federal Reserve Board to generally be able to conclude that an entity's investment is not "controlling" if the investment in the form of voting and nonvoting shares represents in the aggregate (i) less than one-third of the total equity of the banking organization (and less than one-third of any class of voting securities, assuming conversion of all convertible nonvoting securities held by the entity) and (ii) less than 15% of any class of voting securities of the banking organization.
Under the Change in Bank Control Act and applicable Massachusetts law, any person or group of persons acting in concert would also be required to file a written notice with the FDIC and the Division before acquiring any such direct or indirect control of the Bank.
Permissible Activities
The Bank Holding Company Act and the implementing regulations of the Federal Reserve Board also limit the investments and activities of bank holding companies. In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, and various non-bank activities that are deemed to be closely related to banking.
A bank holding company that qualifies and elects to become a "financial holding company" may engage, directly or through its non-bank subsidiaries, in any activity that is financial in nature or incidental to such financial activity or in any other activity that is complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. The Company has no current intention of seeking to become a financial holding company.
Safety and Soundness
The federal banking agencies have adopted the Interagency Guidelines for Establishing Standards for Safety and Soundness, which establish general standards relating to internal controls and information systems, internal audit systems, loan
documentation, credit underwriting, interest-rate exposure, asset growth, asset quality, earnings and compensation, and fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. These guidelines also prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder.
Bank holding companies are not permitted to engage in unsafe or unsound banking practices. The Federal Reserve Board has the power to order a bank holding company to terminate any activity or investment, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or investment or such ownership or control constitutes a serious risk to the financial safety, soundness, or stability of any subsidiary bank of the bank holding company. The Federal Reserve Board also has the authority to prohibit activities of non-banking subsidiaries of bank holding companies which represent unsafe and unsound banking practices, or which constitute violations of laws or regulations.
The Federal Reserve Board can assess civil money penalties for activities conducted on a knowing and reckless basis, if such unsafe and unsound activities caused a substantial loss to a depository institution. The FIRREA expanded the Federal Reserve Board's authority to prohibit activities of bank holding companies and their non-banking subsidiaries which represent unsafe and unsound banking practices, or which constitute violations of laws or regulations. Potential penalties can be as high as $1 million for each day the activity continues.
Capital Requirements
The federal banking agencies have adopted risk-based capital guidelines for bank holding companies and banks that are expected to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the consolidated balance sheet as assets, such as loans, and those recorded as off-balance sheet items, such as commitments, letters of credit and recourse arrangements. The risk-based guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $3 billion or more, such as the Company, or with a material amount of equity securities outstanding that are registered with the SEC.
Pursuant to federal regulations, banks and bank holding companies must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. The federal banking agencies may change, adopt or require new capital guidelines under certain situations such as for high growth or acquisitive bank holding companies, when banks and bank holding companies are subject to enforcement actions, and have also subjected such institutions to restrictions on various activities, including a bank's ability to accept or renew brokered deposits.
Under these capital guidelines, a banking organization is required to maintain certain minimum capital ratios, which are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. In general, the dollar amounts of assets and certain off-balance sheet items are "risk-adjusted" and assigned to various risk categories. In addition to such risk adjusted capital requirements, banking organizations are also required to maintain an additional minimum "leverage" capital ratio, which is calculated based on average total assets without any adjustment for risk being made to the value of the assets.
Qualifying capital is classified depending on the type of capital as follows:
"Tier 1 capital" consists of common equity, retained earnings, qualifying non-cumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets. In certain limited circumstances, qualifying Tier 1 capital may count trust preferred securities.
"Tier 2 capital" includes, among other things, hybrid capital instruments, perpetual debt, mandatory convertible debt securities, qualifying term subordinated debt, preferred stock that does not qualify as Tier 1 capital, and a limited amount of allowance for credit and lease losses.
Capital Requirements under the Basel III Rules
Federal banking regulations implementing the international regulatory capital framework, referred to as the "Basel III Rules," apply to both depository institutions and (subject to certain exceptions not applicable to the Company) their holding companies. Under the Basel III Rules, a bank holding company must satisfy certain capital levels in order to comply with the prompt corrective action framework and to avoid limitations on capital distributions and discretionary bonus payments to executives.
The Basel III Rules also establish a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. An institution will be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio.
The Basel III minimum capital ratios with the full capital conservation buffer are summarized in the table below.
Basel III Minimum for Capital Adequacy Purposes Basel III Additional Capital Conservation Buffer Basel III Ratio with Capital Conservation Buffer
Total Risk-Based Capital (total capital to risk-weighted assets)
8.00% 2.50% 10.50%
Tier 1 Risk-Based Capital (tier 1 to risk-weighted assets)
6.00% 2.50% 8.50%
Tier 1 Leverage Ratio (tier 1 to average assets)(1)
4.00% N/A 4.00%
Common Equity Tier 1 Risk-Based Capital (CET1 to risk-weighted assets)
4.50% 2.50% 7.00%
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(1)Capital conservation buffer is not applicable to Tier 1 Leverage Ratio.
In addition, the Basel III Rules include certain exemptions to address concerns about the regulatory burden on community banks. For example, banking organizations with less than $15 billion in consolidated assets as of December 31, 2009 are permitted to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock issued and included in Tier 1 capital prior to May 19, 2010 on a permanent basis, without any phase out. Community banks were also allowed to elect, on a one-time basis in their March 31, 2015 quarterly filings, to permanently opt-out of the requirement to include most AOCI components in the calculation of CET1 capital and, in effect, retain the AOCI treatment under the previous capital rules. Under the Basel III Rules, in 2015 the Company made such an election to permanently exclude AOCI from capital.
Management believes that, as of December 31, 2024, the Company met all capital adequacy requirements to which it was subject under Basel III. As of December 31, 2024, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations.
Regulatory Restrictions on Dividends and Stock Redemptions and Repurchases
The Company is regarded as a legal entity separate and distinct from the Bank. The principal source of the Company's revenues is dividends received from the Bank. Both Massachusetts and federal law limit the payment of dividends by the Company. Under Massachusetts law, the Company is generally prohibited from paying a dividend or making any other distribution if, after making such distribution, it would be unable to pay its debts as they become due in the usual course of business, or if its total assets would be less than the sum of its total liabilities plus the amount that would be needed if it were dissolved at the time of the distribution, to satisfy any preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is made. The Federal Reserve Board also has authority to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
The Federal Reserve Board policy statement and supervisory guidance on the payment of cash dividends by bank holding companies expresses the view that a bank holding company should pay cash dividends only to the extent that (i) the bank holding company's net income for the past year is sufficient to cover the cash dividends, (ii) the rate of earnings retention is consistent with the bank holding company's capital needs, asset quality, and overall financial condition, and (iii) the minimum regulatory capital adequacy ratios are met. The Federal Reserve Board policy statement also provides that a bank holding company should inform the Federal Reserve Board or the FRB reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the bank holding company's capital structure. Bank holding companies also are required to consult with the Federal Reserve Board or the FRB before materially increasing dividends. It is also the Federal Reserve Board's policy that bank holding companies should not maintain dividend levels that undermine their ability to serve as a source of strength to their banking subsidiaries. The Federal Reserve Board or the FRB could prohibit or limit the payment of dividends by a bank holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
Bank holding companies must consult with the Federal Reserve Board or the FRB before redeeming any equity or other capital instrument included in tier 1 or tier 2 capital prior to stated maturity, if (x) such redemption could have a material effect on the level or composition of the organization's capital base or (y) as a result of such repurchase, there is a net reduction of the outstanding amount of common stock or preferred stock outstanding at the beginning of the quarter in which the redemption or
repurchase occurs. In addition, bank holding companies are unable to repurchase shares equal to 10% or more of their net worth if they would not be "well-capitalized" (as defined by the Federal Reserve Board) after giving effect to such repurchase. Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses, must consult with the Federal Reserve Board or the FRB before redeeming or repurchasing common stock or other regulatory capital instruments.
Bank Regulation
The Bank is subject to the supervision and regulation of the Division and the FDIC, and, with respect to its New Hampshire branching operations, of the New Hampshire Banking Department. Federal and Massachusetts laws and regulations that specifically apply to the Bank's business and operations cover, among other matters, the scope of its business, the nature of its investments, the timing of the availability of deposited funds, its activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions, as discussed below.
The FDIC and the Division may exercise extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate credit loss reserves for regulatory purposes. If as a result of an examination, the Division or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the Division and the FDIC have authority to undertake a variety of enforcement measures of varying degrees of severity, including, among other things:
(i)requiring the Bank to take affirmative action to correct any conditions resulting from any violation or practice;
(ii)directing the Bank to increase capital and maintain higher specific minimum capital ratios, which may preclude the Bank from being deemed to be "well-capitalized" and restrict its ability to engage in various activities;
(iii)restricting the Bank's growth geographically, by products and services, or by mergers and acquisitions;
(iv)requiring the Bank to enter into an informal or formal enforcement action to take corrective measures and cease unsafe and unsound practices, including requesting the board of directors to adopt a binding resolution, sign a memorandum of understanding or enter into a consent order;
(v)requiring prior approval for any changes in senior management or the board of directors;
(vi)removing officers and directors and assessing civil monetary penalties; or
(vii)taking possession of, closing and liquidating the Bank or appointing the FDIC as receiver under certain circumstances.
Permissible Activities
Under the FDIA, as amended, and applicable Massachusetts law, the Bank may generally engage in any activity that is permissible under Massachusetts law and either is permissible for national banks or the FDIC has determined does not pose a significant risk to the FDIC's DIF. In addition, the Bank may also form, subject to the approvals of the Division and the FDIC, "financial subsidiaries" to engage in any activity that is financial in nature or incidental to a financial activity. In order to qualify for the authority to form a financial subsidiary, the Bank is required to satisfy certain conditions, some of which are substantially similar to those that the Company would be required to satisfy in order to elect to become a financial holding company. The Company believes that the Bank would be able to satisfy all of the conditions that would be required to form a financial subsidiary, although the Bank has no current intention of doing so.
Capital Adequacy Requirements
The FDIC monitors the capital adequacy of the Bank by using a combination of risk-based guidelines and leverage ratios. The FDIC considers the Bank's capital levels when taking action on various types of applications and when conducting supervisory activities related to the safety and soundness of the Bank and the banking system. As noted above, the Basel III Rules require banks to maintain four minimum capital standards: (i) a Tier 1 capital to adjusted total assets ratio, or "leverage capital ratio," of at least 4.0%, (ii) a Tier 1 capital to risk-weighted assets ratio, or "Tier 1 risk-based capital ratio," of at least 6.0%, (iii) a total risk-based capital (Tier 1 plus Tier 2) to risk-weighted assets ratio, or "total risk-based capital ratio," of at least 8.0%, and (iv) a CET1 capital ratio of 4.5%, which are the same minimum capital standards to which the Company is held on a consolidated basis. In addition, the FDIC's prompt corrective action standards discussed below, in effect, increase the minimum regulatory capital ratios for banking organizations in order to be considered "well-capitalized." Higher capital levels may be required if
warranted by the particular circumstances or risk profiles of individual institutions, or if required by the banking regulators due to the economic conditions impacting our market.
Management believes that, as of December 31, 2024, the Bank exceeded its minimum capital requirements and met all capital adequacy requirements to which it was subject under the Basel III Rules.
Prompt Corrective Action
The federal banking agencies define five categories in which an insured depository institution will be placed, based on the level of its capital ratios: "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." Insured depository institutions are required to meet the following capital levels in order to qualify as "well-capitalized:" (i) a Total risk-based capital ratio of 10%; (ii) a Tier 1 risk-based capital ratio of 8%; (iii) a Tier 1 leverage ratio of 5%; and (iv) a CET1 risk-based capital ratio of 6.5%. Accordingly, a financial institution may be considered "well-capitalized" under the prompt corrective action framework, but not satisfy the capital requirements of the Basel III Rules. Generally, a financial institution must be "well-capitalized" before the Federal Reserve Board or the FRB will approve an application by a bank holding company to acquire a bank or merge with a bank holding company. The FDIC applies the same requirement in approving bank merger applications.
A bank that may otherwise meets the minimum requirements to be classified as "well-capitalized," "adequately capitalized" or "undercapitalized" may be treated instead as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. Under the prompt corrective action regulations, a bank that is deemed to be "undercapitalized" or in a lesser capital category will be required to submit to its primary federal banking regulator a capital restoration plan and to comply with the plan.
The Bank's regulatory capital ratios were in excess of the levels established for "well-capitalized" institutions as of December 31, 2024. As noted above, as of December 31, 2024, management believes the Bank satisfied all capital adequacy requirements under the Basel III Rules.
Branching
State and Federal law provides that a Massachusetts banking company may be "eligible" to submit a notice to the Division and the FDIC to establish a branch within the Commonwealth. A bank is "eligible" to submit a notice to establish a branch in the Commonwealth if: (i) the bank has received a "satisfactory" or higher CRA rating at its most recent CRA examination by the Division or federal banking regulator; (ii) the bank is "adequately capitalized" as defined under the provisions of the Federal Deposit Insurance Act and the FDIC's Capital Adequacy Regulations; and (iii) the bank has not been notified that it is in troubled condition by the Division or any federal banking regulatory agency. A bank must also make an application to the Division and FDIC to relocate or close an existing branch. The Division and the FDIC consider several factors when making a decision to approve the notice, including financial condition, capital adequacy, earnings prospects, the needs of the community, and whether competition would be adversely affected.
The Dodd-Frank Act amended the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") to permit national banks and state banks to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state. The Bank may, therefore, also establish branches in any other state if that state would permit the establishment of a branch by a state bank chartered in that state. In this case, the Bank would also be required to file a notice with the Division, the FDIC and potentially the banking authority of the state into which the Bank intends to establish a branch.
Deposit Insurance
The FDIC insures the deposits of federally insured banks, such as the Bank, and thrifts, up to prescribed statutory limits of $250,000 for each depositor, through the DIF and safeguards the safety and soundness of the banking and thrift industries. The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors.
At least semi-annually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required. However, if there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, the Bank may be required to pay
higher FDIC insurance premiums. Additionally, under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.
The Bank is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. In connection with the Dodd-Frank Act's requirement that insurance assessments be based on assets, in July 2016, the FDIC redefined its deposit insurance premium assessment base to be an institution's average consolidated total assets minus average tangible equity and revised its deposit insurance assessment rate schedule. Assessments for institutions with assets of less than $10 billion, such as Enterprise Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years.
The FDIC rate schedule is intended to increase the likelihood that the DIF reserve ratio reaches the statutory minimum of 1.35% by September 30, 2028, the statutory deadline set by the Dodd-Frank Act. The assessment rate schedules will remain in effect unless and until the DIF reserve ratio meets or exceeds 2.0% in order to support growth in the DIF in progressing toward the FDIC's long-term goal of a 2.0% designated reserve ratio for the DIF. FDIC staff may in the future recommend additional assessment rate adjustments if deemed necessary.
Restrictions on Dividends and Other Capital Distributions
Both Massachusetts and federal law limit the payment of dividends by the Bank. Under FDIC regulations and applicable Massachusetts law, the dollar amount of dividends and any other capital distributions that the Bank may make depends upon its capital position and recent net income. Any dividend payment that would exceed the total of the Bank's net profits for the current year plus its retained net profits of the preceding two years would require the Massachusetts Division of Banks' approval. The Massachusetts banking statues define the term "net profits" to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes. Applicable provisions of the FDIA also prohibit a bank from paying any dividends on its capital stock if the bank is in default on the payment of any assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become "undercapitalized." If the Bank's capital becomes impaired or the FDIC or Division otherwise determines that the Bank needs more than normal supervision, the Bank may be prohibited or otherwise limited from paying dividends or making capital distributions to the Company. Consequently, any restrictions on the ability of the Bank to pay dividends to the Company may, in turn, restrict the ability of the Company to pay dividends to its shareholders.
Community Reinvestment Act
The CRA and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of their entire assessment area, including low- and moderate-income neighborhoods, consistent with the safe and sound operations of such banks. The CRA requires that the FDIC and the Division evaluate the record of each financial institution in meeting such credit needs. The CRA evaluation is also considered by the bank regulatory agencies in evaluating approvals for mergers, acquisitions, and applications to open, relocate or close a branch or facility. Failure to adequately meet the criteria within CRA guidelines could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the ability to request the Bank's CRA Performance Evaluation and other various related documents. The Bank received a rating of "High Satisfactory" by the Division and "Satisfactory" by the FDIC on its most recent CRA examination.
On October 24, 2023, the federal banking agencies adopted a final rule to modernize regulations implementing the CRA. Under the final rule, (1) the federal banking agencies will evaluate bank performance across the varied activities they conduct and communities in which they operate in order to encourage banks to expand access to credit, investment, and banking services in low- and moderate-income communities, (2) the CRA regulations are updated to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, branchless banking, and hybrid models, (3) a new metrics-based approach was adopted to evaluate bank retail lending and community development financing, using benchmarks based on peer and demographic data, and (4) CRA evaluations and data collection are tailored according to bank size and type. In addition, the final rule also exempts small and intermediate banks from new data collection and reporting requirements that apply to banks with assets of at least $2 billion, such as the Bank, and limits certain new data requirements to large banks with assets greater than $10 billion. Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
Restrictions on Transactions with Affiliates and Loans to Insiders
Transactions between the Bank and its affiliates are subject to the provisions of Section 23A and 23B of the Federal Reserve Act (the "Affiliates Act"), and the Federal Reserve Board's Regulation W, as such provisions are made applicable to state non-member banks by Section 18(i) of the Federal Deposit Insurance Act. Affiliates of a bank include, among other entities, the bank's holding company and companies that are under common control with the bank.
These provisions place limits on the amount of loans or extensions of credit and investment in affiliates; assets that may be purchased; extensions of credit to third parties collateralized by securities or obligation; and the guarantee, acceptance or letter of credit issued on behalf of an affiliate.
The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of the Bank's capital and surplus and, as to all affiliates combined, to 20% of its capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements and the types of permissible collateral may be limited. The Bank must also comply with other provisions designed to avoid the purchase or acquisition of low-quality assets from affiliates.
The Bank is also subject to Section 23B of the Federal Reserve Act which, among other things, prohibits the Bank from engaging in any transaction with an affiliate unless the transaction is on terms substantially the same, or at least as favorable to the Bank or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The Federal Reserve Board has also issued Regulation W which codifies prior regulations under the Affiliates Act and interpretive guidance with respect to affiliate transactions.
Under both Massachusetts and federal law, including Section 22(h) of the Federal Reserve Act and Regulation O promulgated by the Federal Reserve thereunder, the Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders and their related interests. These extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, (ii) must follow the credit underwriting procedures at least as stringent as those applicable to comparable transactions with third parties, and (iii) must not involve more than the normal risk of repayment or present other unfavorable features. In addition, these extensions of credit may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank's total capital and surplus. Any extension of credit to insiders above specified amounts must receive the prior approval of the Bank's board of directors. Any violation of these restrictions may result in the assessment of substantial civil monetary penalties on the Bank or any officer, director, employee, agent or other person participating in the conduct of the affairs of the Bank, the imposition of a cease-and-desist order, and other regulatory sanctions.
Concentrated Commercial Real Estate Lending Regulations
The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multi-family and non-farm nonresidential properties (excluding loans secured by owner-occupied properties) and loans for construction, land development, and other land represent 300% or more of total capital and the bank's commercial real estate loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must employ heightened risk management practices that address the following key elements: including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. As of December 31, 2024, the Bank's concentrations of commercial real estate loans fell slightly above the established levels and the Company believes its credit risk administration to be consistent with heightened risk management regulatory guidance.
The Basel III Rules also require loans categorized as "high-volatility commercial real estate," or HVCRE, to be assigned a 150% risk weighting and require additional capital support. However, the EGRRCPA prohibits federal banking regulators from imposing this higher capital standard on HVCRE exposures unless they are for higher risk loans for acquisition, development or construction, or ADC, and clarifying ADC status.
The Economic Growth, Regulatory Relief and Consumer Protection Act of 2018
On May 24, 2018, the EGRRCPA was enacted, which repeals or modifies certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks. The EGRRCPA's provisions-for which banking agencies have now issued certain corresponding guidance documents and/or proposed or final rules-include, among other things: (i) creating a new category of "qualified mortgages" presumed to satisfy ability-to-repay requirements for loans that meet certain criteria and are held in portfolio by banks with less than $10 billion in assets; (ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act's expanded data disclosures; (iv) clarifying that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC's brokered-deposit regulations; and (v) simplifying capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (Tier 1 capital to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well-capitalized status. For those regulations that have been implemented, most will have little to no impact on the Company. However, the Company may be impacted by future agency rulemaking in connection with implementation of the EGRRCPA and it is difficult to anticipate the continued impact this expansive legislation may have on the Company, its customers and the financial industry generally.
For more information on the EGRRCPA, please see the following sections "Permissible Activities," "Community Bank Leverage Ratio," and "Concentrated Commercial Real Estate Lending Regulations," above, and "Consumer Financial Protection Bureau" and "HMDA," below.
Consumer Financial Protection Bureau
The CFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that would apply to all banks and thrifts, including the Equal Credit Opportunity Act, Truth-in Lending Act, Real Estate Settlement Procedures Act, Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. Significant recent CFPB developments include:
•continued focus on fair lending, including promoting racial and economic equity for underserved, vulnerable and marginalized communities;
•focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, deposit, overdraft, non-sufficient funds, representment fees and other services fees, mortgage origination and servicing, and remittances, among others; and
•rulemaking plans concerning, among others, consumers' access to their financial information and requirements for financial institutions to collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses.
Banking institutions with total assets of $10 billion or less, such as the Bank, remain subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws and such additional regulations as may be adopted by the CFPB.
The "Ability-to-Repay/Qualified Mortgage" rules, which amended TILA's implementing regulation, Regulation Z generally requires creditors to make a reasonable, good faith determination of a consumer's ability to repay for certain consumer credit transactions secured by a dwelling and establishes certain protections from liability under this requirement for "qualified mortgages." The EGRRCPA provides that for certain insured depository institutions and insured credit unions with less than $10 billion in total consolidated assets, mortgage loans that are originated and retained in portfolio will automatically be deemed to satisfy the "ability to repay" requirement. To qualify for this treatment, the insured depository institutions and credit unions must meet conditions relating to prepayment penalties, points and fees, negative amortization, interest-only features and documentation among other conditions.
The Dodd-Frank Act implemented significant increases in the regulation of mortgage lending and servicing by banks and non-banks. In particular, the Dodd-Frank Act includes, among other things, (i) requirements that mortgage originators act in the best interests of a consumer and seek to ensure that a consumer will have the capacity to repay a loan that the consumer enters into; (ii) requirements that mortgage originators be properly qualified, registered, and licensed and comply with any regulations
designed by the CFPB to monitor their operations; (iii) mandates of comprehensive additional and enhanced residential mortgage loan related disclosures, both prior to loan origination and after; and (iv) mandates of additional appraisal practices for loans secured by residential dwellings, including potential additional appraisals at the banks' cost.
Home Mortgage Disclosure Act
On October 15, 2015, pursuant to Section 1094 of the Dodd-Frank Act, the CFPB issued amended rules in regard to the collection, reporting and disclosure of certain residential mortgage transactions under the Home Mortgage Disclosure Act (the "HMDA Rules"). The Dodd-Frank Act mandated additional loan data collection points in addition to authorizing the Bureau to require other data collection points under implementing Regulation C. The HMDA Rules adopted a uniform loan volume threshold for all financial institutions, modifies the types of transactions that are subject to collection and reporting, expands the loan data information being collected and reported, and modifies procedures for annual submission and annual public disclosures. EGRRCPA amended provisions of the HMDA Rules to exempt certain insured institutions from most of the expanded data collection requirements required of the Dodd-Frank Act. The CFPB further amended the HMDA Rules in April 2020 so that, effective January 1, 2022, institutions originating fewer than 100 dwelling secured closed-end mortgage loans or fewer than 200 dwelling secured open-end lines are exempt from the expanded data collection requirements. On February 1, 2023, the Office of the Comptroller of the Currency issued OCC Bulletin 2023-5 which clarified that, following a recent court decision vacating the 2020 HMDA Final Rule as to the loan volume reporting threshold for closed-end mortgage loans, the loan origination threshold for reporting HMDA data on closed-end mortgage loans reverted to the 25 loan threshold established by the 2015 HMDA Final Rule. The Bank does not receive this reporting relief based on the number of dwelling secured mortgage loans reported annually.
UDAP and UDAAP
Banking regulatory agencies have increasingly used a general consumer protection statute to address "unfair," "deceptive" or "abusive" acts and business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. Section 5 of the Federal Trade Commission Act, referred to as the FTC Act, is the primary federal law that prohibits unfair or deceptive acts or practices, referred to as UDAP, and unfair methods of competition in or affecting commerce. "Unjustified consumer injury" is the principal focus of the FTC Act. UDAP laws and regulations were expanded under the Dodd-Frank Act to apply to "unfair, deceptive or abusive acts or practices," referred to as UDAAP and were delegated to CFPB for rulemaking. The federal banking agencies have the authority to enforce such rules and regulations. Under the Dodd-Frank Act, CFPB looks to various factors to assess whether an act or practice unfair, including whether it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition. A key focus of CFPB is whether an act or practice hinders a consumer's decision-making.
Incentive Compensation
The Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC have issued comprehensive guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization's board of directors.
The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not "large, complex banking organizations." The findings of the supervisory initiatives will be included in reports of examination. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk management control or governance processes, pose a risk to the organization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.
In addition, publicly traded companies are required by the SEC to give shareholders a non-binding vote on executive compensation at least every three years and on so-called "golden parachute" payments in connection with approvals of mergers and acquisitions unless previously voted on by shareholders. Also, certain publicly traded companies are required to disclose
the ratio of the compensation of their CEO to the median compensation of its employees. The Company addresses these votes and disclosures in its annual meeting proxy statement.
The Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1 billion, regardless of whether the company is publicly traded or not. In May 2016, the federal banking regulators, joined by the SEC, proposed such a rule that is tailored based on the asset size of the institution. All covered financial institutions would be subject to a prohibition on paying compensation, fees, and benefits that are "unreasonable" or "disproportionate" to the value of the services performed by a person covered by the proposed rule (generally, senior executive officers and employees who are significant risk-takers). As of the date of this Form 10-K, the federal banking regulators have not yet implemented a final rule with respect to excessive compensation paid to executives of depository institutions and their holding companies. Finally, the Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.
In August 2022, the SEC adopted the final "pay-for-performance" rule mandated by the Dodd-Frank Act. Among other disclosure requirements, the rule requires companies to disclose the relationships among named executive officer compensation "actually paid," total shareholder return and certain financial performance measures that the company uses to link compensation to company performance for its five most recent fiscal years. The rule first applied to disclosures in the Company's proxy statement for the 2023 annual meeting of shareholders.
In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NASDAQ, to implement listing standards that require listed companies to adopt policies mandating the recovery or "clawback" of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. In accordance with Rule 10D-1 promulgated by the SEC under the Exchange Act and Nasdaq Listing Rule 5608, the Compensation and Human Resources Committee of the Board of Directors adopted and implemented an Incentive Award Recoupment Policy, effective as of October 2, 2023. The Incentive Award Recoupment Policy can be found within Item 15, "Exhibits, Financial Statement Schedules," of this Form 10-K.
Technology Risk Management and Consumer Privacy
State and federal banking regulators have issued various policy statements emphasizing the importance of technology risk management and supervision in evaluating the safety and soundness of depository institutions with respect to banks that contract with third-party vendors to provide data processing and core banking functions. The use of technology-related products, services, delivery channels and processes expose a bank to various risks, particularly operational, privacy, cyber and information security, strategic, reputation and compliance risk. Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.
Under Section 501 of the Gramm-Leach-Bliley Act, and its implementing regulations, the federal banking agencies have established appropriate standards for financial institutions regarding the implementation of safeguards to protect the security and confidentiality of customer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a customer. Under these rules, all financial institutions are required to implement a comprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information. In addition, Massachusetts has established Standards for the Protection of Personal Information which create minimum standards to be met in connection with the safeguarding of personal information and outline the content and timing of disclosures required following a system breach or compromise.
Beginning on May 1, 2022, a bank holding company, such as the Company, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.
On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in its Annual Reports on Form 10-K. Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination.
Under the Gramm-Leach-Bliley Act, all financial institutions must develop initial and annual privacy notices that are provided to its customers describing in general terms, the bank's information sharing practices to affiliated and non-affiliated third parties and the customer's ability to opt-out of certain information sharing practices. Limitations are placed on the extent to which a bank can disclose an account number or access code for credit card, deposit or transaction accounts to any unaffiliated third-party for use in marketing.
Bank Secrecy Act, Anti-Money Laundering Initiatives and USA PATRIOT Act
Our Company and the Bank are also subject to the Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act") and as further amended by the National Defense Authorization Act for Fiscal Year 2021 (the "National Defense Authorization Act"), which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. The Bank Secrecy Act and USA PATRIOT Act impose an affirmative obligation on the Bank to establish an anti-money laundering program designed to monitor and prohibit against certain transactions and account relationships, create due diligence standards for "know your customer;" regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers; report currency transactions that exceed certain thresholds; and to report other transactions determined to be suspicious. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious information maintained by financial institutions. The Bank Secrecy Act requires that all banking institutions develop and provide for the continued administration of a program reasonably designed to assure and monitor compliance with certain record-keeping and reporting requirements regarding both domestic and international currency transactions. These programs must, at a minimum, provide for a system of internal controls to assure ongoing compliance, provide for independent testing of such systems and compliance, designate individuals responsible for such compliance and provide appropriate personnel training.
The FinCEN issued a final rule regarding customer due diligence requirements for covered financial institutions in connection with their Bank Secrecy Act and Anti-Money Laundering policies. The rule adds a requirement to understand the nature and purpose of customer relationships and identify the "beneficial owner" (25% or more ownership interest) of legal entity customers. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution's anti-money laundering compliance when considering regulatory applications filed by the institution, including applications for bank mergers and acquisitions. The regulatory authorities have imposed "cease-and-desist" orders and civil money penalty sanctions against institutions found to be violating these obligations.
The National Defense Authorization Act amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry placing responsibility to the corporate entities to report beneficial ownership information to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the anti-money laundering laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million; (iii) increased penalties for violations of the Bank Secrecy Act; (iv) improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of FinCEN. Many of the amendments, including those with respect to beneficial ownership, require the Department of Treasury and FinCEN to promulgate rules.
On September 29, 2022, FinCEN issued a final rule establishing a beneficial ownership information reporting requirement, pursuant to the CTA. The rule requires most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners-the persons who ultimately own or control the company, to FinCEN. On December 22, 2023, FinCEN issued a final rule regarding access by authorized recipients to beneficial ownership information that will be reported to FinCEN pursuant to Sec. 6403 of the CTA, which is part of the NDAA. The regulations implement strict protocols required by the CTA to protect sensitive personally identifiable information reported to FinCEN and establish the circumstances in which specified recipients have access to beneficial ownership information, along with data protection protocols and oversight mechanisms applicable to each recipient category. The disclosure of beneficial ownership information to authorized recipients in accordance with appropriate protocols and oversight will help law enforcement and national security agencies prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity, as well as protect national security.
In July 2024, the federal banking agencies, including the Federal Reserve and OCC, proposed amendments to update
the requirements for supervised institutions to establish, implement and maintain effective, risk-based and reasonably
designed Anti-Money Laundering and countering the financing of terrorism programs. The proposed amendments would require supervised institutions to identify, evaluate and document the regulated institution's money laundering, terrorist financing and other illicit finance activity risks, as well as consider, as appropriate, FinCEN’s published national Anti-Money Laundering /CFT priorities.
Other Operations and Consumer Compliance Laws
The Bank must comply with numerous other federal anti-money laundering and consumer protection statutes and implementing regulations, including but not limited to the Truth in Savings Act, Electronic Funds Transfer Act, Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Federal Housing Act, the National Flood Insurance Act and various other federal and state privacy protection laws. Failure to comply in any material respect with any of these laws could subject the Bank to lawsuits and could also result in administrative penalties, including fines and reimbursements. The Company and the Bank are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services.
Environmental Laws Potentially Impacting the Bank
We are subject to state and federal environmental laws and regulations. The CERCLA is a federal statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the term "owner and operator" excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan, which costs often substantially exceed the value of the property.
Other Pending and Proposed Legislation
From time to time, various legislative and regulatory initiatives are introduced in Congress, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company or Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to the company or our subsidiaries could have a material effect on the Company's business, financial condition, and results of operations.
The Company maintains a Compliance Management Program designed to meet regulatory and legislative requirements. See Key Risk Areas, below under the heading "Risk Management Framework."
Risk Management Framework
In addition to the risks discussed below, numerous other factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model are addressed in Item 1A, "Risk Factors," of this Form 10-K. This Risk Management Framework discussion should be read in conjunction with Item 1A and Item 1C, "Cybersecurity," of this Form 10-K.
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.
These risks, and the decisions related thereto, include, but are not limited to: credit risk, market and interest rate risk, liquidity management, capital risk, information technology and cybersecurity risk, legal and regulatory compliance risk, corporate governance, internal control over financial reporting, reputational risk, strategic risk, compensation risk, physical security, loss and fraud prevention, policy reviews, third-party risk management and contract management, business continuity and succession planning, and short and long-term capital projects and facility planning.
The Company promotes proactive risk management by all Enterprise employees with clear ownership and accountability. Managers in each line of business have responsibility for identifying, assessing, and managing the risks in their areas. The Risk Management department is responsible for providing guidance, oversight, and input on remediation to business lines to provide reasonable assurance that risk assessments and mitigating controls and procedures are properly designed and functioning within their areas. The Risk Management department also independently monitors operational risk, including information security, third-party risk management, disaster recovery and business continuity planning. Periodically, management reports and risk assessments are provided to the Board or its committees relating to the Bank's risk profile and the adequacy of the risk management program. In addition, the Internal Audit department, which is independent of management, through reviews and testing, confirms appropriate risk management controls, processes and systems are in place and functioning effectively.
The Company also maintains a package of commercial insurance policies with national insurers, which provides for a broad range of insurance coverage for a variety of risk factors, at levels deemed appropriate by management. Insurance policies are reviewed annually, or as circumstances change, by management for necessary updates and adjustments in coverage, in addition to reviews by an independent third-party and the Audit Committee of the Board.
Key Risk Areas
Operational risk includes the threat of loss from inadequate or failed internal processes, people, systems, or external events, due to, among other things: fraud or error; the inability to deliver products or services; failure to maintain a competitive position; lack of, or insufficient information security, cybersecurity, or physical security; inadequate procedures or controls followed by third-party service providers; or violations of ethical standards. In addition to ongoing employee training, and employee and customer awareness campaigns, controls to manage operational risk include, but are not limited to, technology administration, cyber and information security, third-party risk management, and disaster recovery and business continuity planning.
The Company's technology administration includes policies and guidelines for the design, procurement, installation, management and acceptable use of hardware, software, and network devices as well as third-party hosted and cloud-based solutions. The Company's project management standards are designed to provide risk-based oversight, coordinate and communicate ideas, and to prioritize and manage project implementation in a manner consistent with corporate objectives.
Information Security, third-party risk management, cybersecurity governance and the incident response plan are reviewed in detail in Item 1C, "Cybersecurity Risk Management and Strategy," of this Form 10-K, below. The Technology & Information Security Committee of the Board oversees the technology and cybersecurity strategies and their alignment with business strategies. The Committee also oversees the effectiveness of the information security program and monitors the results of third-party testing and risk assessments and responses to breaches of customer data, among other project management, cybersecurity governance, and business continuity oversight functions.
The Company's Disaster Recovery and Business Continuity Program combined with the Company's Pandemic Plan (the "plans") provide the information and procedures required to enable a rapid recovery from an occurrence that would disable the Company's operations for an extended period, due to circumstances such as: loss of personnel; loss of data and/or loss of access to, or the physical destruction or damage of facilities, infrastructure or systems; or denial of access to our systems or information by outside parties. The plans, which are reviewed annually, establish responsibility for assessing a disruption of business, contains alternative strategies for the continuance of critical business functions during an emergency, assigns responsibility for restoring services, and sets recovery point and time objectives by which critical services will be restored. A bank-owned and maintained secondary data center location provides the Company with back-up network processing capabilities if needed. IT Disaster Recovery plans are tested regularly to validate that procedures and backup systems are operating as intended through tabletop exercises, walkthroughs, infrastructure and mainframe failover tests.
The Company maintains a Compliance Management Program designed to meet regulatory and legislative compliance requirements. The CMP provides a framework for tracking and implementing regulatory changes, monitoring the
effectiveness of policies and procedures, conducting compliance risk assessments, managing customer complaints, and educating employees in matters relating to regulatory compliance. The Audit Committee of the Board oversees the effectiveness of the CMP.
Credit risk management is reviewed in detail in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the section "Loans," under the heading "Credit Risk" of this Form 10-K. The Loan Committee of the Board oversees the effectiveness of credit risk management.
Liquidity management is reviewed in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," in the section entitled "Financial Condition" under the heading "Liquidity" of this Form 10-K.
Interest rate risk is reviewed in detail under Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-K below. The Board of Directors oversees the Company's asset-liability management, which includes managing interest rate risk and liquidity.
For information regarding capital planning, current capital framework requirements applicable to the Company and the Bank and their respective capital levels at December 31, 2024, see the section within Item 1, "Business," entitled "Capital Resources" and the sections within "Supervision and Regulation" entitled "Capital Requirements" and "Capital Requirements under Basel III" and for the Bank "Capital Adequacy Requirements" of this Form 10-K and also see Note 12, "Shareholders' Equity," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.
The Company maintains a set of internal controls over financial reporting designed to provide reasonable assurance to management that the information required to be disclosed in reports it files with or furnishes to the SEC is prepared and fairly presented based on properly recorded, processed, and summarized information. The Audit Committee of the Board oversees the effectiveness of the internal control over financial reporting. See Item 9A, "Controls and Procedures," of this Form 10-K, below, for management's reports on its evaluation of disclosure controls and internal control over financial reporting.
Any system of controls or contingency plan, however well designed and operated, is based in part on certain assumptions and has inherent limitations and may not prevent or detect all risks, and therefore can provide only reasonable, not absolute, assurances that the objectives of the system are met. An overview of these risks, among others, related to the Company, are outlined in Part I, Item 1A, "Risk Factors," in this Form 10-K, below.

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ITEM 1A. RISK FACTORS
Item 1A.Risk Factors
An investment in the Company's common stock is subject to a variety of risks and uncertainties including, without limitation, those set forth below, any of which could cause the Company's actual results to vary materially from recent results or from the other forward-looking statements that the Company may make from time to time in news releases, periodic reports and other written or oral communications. This Form 10-K is qualified in its entirety by these risk factors.
Realization of any of the risks outlined in the following sections, the Company's inability to identify, respond and correct a
breakdown in the integrity of the design or functioning of the Company’s internal controls and contingency plan, or additional risks and uncertainties that management is not aware of, or may currently deem immaterial, or unanticipated Merger related costs may impair the Company's business in a variety of ways, including, but not limited to, any one or a combination of the following consequences: higher than anticipated Merger related costs or penalties if Enterprise was to cancel the Merger, loss of assets; an interruption in the ability to conduct business and process transactions; loss of customer business; loss of key personnel; expose customers' personal information to unauthorized parties; additional regulatory scrutiny and potential enforcement actions and/or penalties against the Company or the Bank; damage the Company's reputation; expose the Company to civil litigation and possible financial liability; result in unanticipated charges against capital; increase operational costs; decrease revenue; restrict funding sources, which could adversely impact the Company's ability to meet cash needs; force the Company to liquidate investments or other assets; limit growth and branch network expansion; close locations or reduce staffing; or limit permissible activities. As a result, the Company's overall business, financial condition, results of operations, capital position, ability to pay dividends on outstanding common stock, liquidity position, and financial performance could be materially and adversely affected. If this were to happen, the value of the Company's common stock could decline significantly, and shareholders could lose some or all their investment.
The material risks and uncertainties that management believes may affect the Company are outlined below. These risks and uncertainties are not listed in any order of priority and are not necessarily the only ones facing the Company.
RISK MANAGEMENT CONTROLS
Risk Management Controls and Procedures Could Fail or Be Circumvented
Management regularly reviews and updates the Company's internal controls, corporate governance policies, Information Security Program, compensation policies, Code of Business Conduct and Ethics and security controls to prevent and detect errors and potential monetary losses, loss of confidential information and data, denial of service attacks and loss of physical assets by theft, malicious destruction or damage, fraud, or robbery from both internal and external, physical or cyber sources.
The Company is at risk of ineffective design of internal controls, any circumvention of the Company's internal controls and procedures, whether intentional or unintentional, or failure to comply with regulations related to controls and procedures, or failure to adequately execute controls and procedures, whether by employees, management, directors, or external elements, or any illegal activity conducted by a Bank customer or employee.
RISKS RELATED TO THE MERGER
Because the market price of Independent common stock will fluctuate, Enterprise shareholders cannot be sure of the trading price of the stock portion of the Merger Consideration they will receive.
In the Merger, each share of Enterprise common stock issued and outstanding immediately prior to the effective time, except for (i) shares held as treasury stock or (ii) owned directly by Independent (other than, in the case of (ii), shares held in trust or custodial accounts, managed accounts and the like or shares held in satisfaction of a debt previously contracted), will be converted into the right to receive (i) 0.60 of a share of Independent common stock and (ii) $2.00 in cash. This exchange ratio is fixed and will not be adjusted for changes in the market price of either Independent common stock or Enterprise common stock. Changes in the price of Independent common stock between now and the time of the Merger will affect the value that Enterprise shareholders will receive in the Merger. Neither Independent nor Enterprise is permitted to terminate the Merger Agreement as a result of any increase or decrease in the market price of Independent common stock or Enterprise common stock.
Stock price changes may result from a variety of factors, including general market and economic conditions, changes in Independent’s businesses, operations and prospects, and regulatory considerations, many of which are beyond Enterprise’s and Independent’s control. At the time of the Enterprise special meeting to vote on the Merger, Enterprise shareholders will not know the market value of the consideration that Enterprise shareholders will receive at the effective time. You should obtain current market quotations for shares of Independent common stock and for shares of Enterprise common stock.
The market price of Independent common stock after the Merger may be affected by factors different from those currently affecting the shares of Enterprise common stock or Independent common stock.
In the Merger, Enterprise shareholders will become Independent shareholders. Independent’s business differs from that of Enterprise. Accordingly, the results of operations of Independent and the market price of Independent common stock after the completion of the Merger may be affected by factors different from those currently affecting the independent results of operations of each of Independent and Enterprise.
Enterprise will be subject to business uncertainties and contractual restrictions while the Merger is pending.
Uncertainty about the effect of the Merger on employees and customers may have an adverse effect on Enterprise and, consequently, on Independent. These uncertainties may impair Enterprise’s ability to attract, retain and motivate key personnel until the Merger is consummated, and could cause customers and others that deal with Enterprise to seek to change existing business relationships with Enterprise. Retention of certain employees may be challenging during the pendency of the Merger, as certain employees may experience uncertainty about their future roles with Independent. If key employees depart because of issues relating to the uncertainty or difficulty of integration or a desire not to remain with Independent, Independent’s business following the Merger could be harmed. In addition, the Merger Agreement restricts Enterprise from taking certain actions without the consent of Independent until the Merger occurs, and generally requires Enterprise to continue its operations in the ordinary course, until completion of the Merger. These restrictions may prevent Independent and Enterprise from pursuing attractive business opportunities that may arise prior to the completion of the Merger.
Independent may fail to realize all of the anticipated benefits of the Merger, particularly if the integration of Independent’s and Enterprise’s businesses is more difficult than expected.
The success of the Merger will depend, in part, on our ability to successfully combine the businesses of Independent and Enterprise. Independent may fail to realize some or all of the anticipated benefits of the transaction if the integration process takes longer or is more costly than expected. Furthermore, any number of unanticipated adverse occurrences for either the business of Enterprise or Independent may cause us to fail to realize some or all of the expected benefits. The integration process could result in the loss of key employees, the disruption of each company’s ongoing businesses or inconsistencies in standards, controls, procedures and policies that adversely affect our ability to maintain relationships with clients, customers, depositors and employees or to achieve the anticipated benefits of the Merger. Each of these issues might adversely affect Independent, Enterprise or both during the transition period, resulting in adverse effects on Independent following the Merger. As a result, revenues may be lower than expected or costs may be higher than expected and the overall benefits of the Merger may not be as great as anticipated.
Independent may be unable to retain Independent and/or Enterprise personnel successfully after the Merger is completed.
The success of the Merger will depend in part on Independent’s ability to retain the talents and dedication of key employees currently employed by Independent and Enterprise. It is possible that these employees may decide not to remain with Independent or Enterprise, as applicable, while the Merger is pending or with Independent after the Merger is completed. If Independent and Enterprise are unable to retain key employees, including management, who are critical to the successful integration and future operations of the companies, Independent and Enterprise could face disruptions in their operations, loss of existing customers, loss of key knowledge, expertise or know-how and unanticipated additional recruitment costs. In addition, following the Merger, if key employees terminate their employment, Independent’s business activities may be adversely affected, and management’s attention may be diverted from successfully integrating Independent and Enterprise to hiring suitable replacements, all of which may cause Independent’s business to suffer. In addition, Independent and Enterprise may not be able to locate or retain suitable replacements for any key employees who leave either company.
Independent and Enterprise are expected to incur significant costs related to the Merger and integration.
Independent and Enterprise have incurred and expect to incur significant, non-recurring costs in connection with negotiating the Merger Agreement and closing the Merger. In addition, Independent will incur integration costs following the completion of the Merger as Independent integrates the Enterprise business, including facilities and systems consolidation costs and employment-related costs.
Although Independent and Enterprise each expect the elimination of duplicative costs, as well as the realization of other efficiencies related to the integration of the business, which should allow Independent and Enterprise to offset integration-related costs over time, there can be no assurances that the expected benefits and efficiencies related to the integration of the businesses will be realized to offset these transaction and integration costs in the near term or at all. Independent and Enterprise may also incur additional costs to maintain employee morale and to retain key employees. Independent and Enterprise will also incur significant legal, financial advisory, accounting, banking and consulting fees, fees relating to regulatory filings and notices, SEC filing fees, printing and mailing fees and other costs associated with the Merger. Some of these costs are payable regardless of whether the Merger is completed.
The Merger Agreement limits Enterprise’s ability to pursue alternatives to the Merger.
The Merger Agreement contains provisions that limit Enterprise’s ability to solicit, initiate, encourage or take any actions to facilitate competing third-party proposals to acquire all or substantially all of Enterprise, subject to certain exceptions relating to the exercise of fiduciary duties by the Enterprise board of directors. These provisions, which include a $22,488,000 termination fee payable under certain circumstances, might discourage a potential competing acquirer that might have an interest in acquiring all or substantially all of Enterprise from considering or proposing that acquisition even if it were prepared to pay consideration with a higher per share market price than that proposed in the Merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Enterprise than it might otherwise have proposed to pay.
Regulatory approvals may not be received, may take longer to receive than expected or may impose burdensome conditions that are not presently anticipated.
Before the Merger may be completed, certain approvals or consents must be obtained from the various bank regulatory and other authorities of the United States and the Commonwealth of Massachusetts. These governmental entities, including the Federal Reserve Board, the FDIC and the Massachusetts Division of Banks, may impose conditions on the completion of
the Merger or require changes to the terms of the Merger. While Independent and Enterprise do not currently expect that any such conditions or changes would be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the Merger or imposing additional costs on or limiting the revenues of Independent following the Merger, any of which might have a material adverse effect on Independent following the Merger. Independent is not obligated to complete the Merger if the regulatory approvals received in connection with the completion of the Merger include any conditions or restrictions that would constitute a “materially burdensome regulatory condition,” as defined in the Merger Agreement.
There can be no assurance as to whether the regulatory approvals will be received or the timing of the approvals.
Failure to complete the Merger could negatively impact the future business and financial results of Enterprise.
If the Merger is not completed for any reason, including the failure to receive the requisite Enterprise vote, the ongoing business of Enterprise may be adversely affected and Enterprise will be subject to several risks, including the following:
•Enterprise may experience negative reactions from the financial markets, including negative impacts on the market price of Enterprise common stock;
•the manner in which industry contacts, business partners and other parties perceive Enterprise may be negatively impacted, which in turn could affect Enterprise’s marketing operations or their ability to compete for new business or obtain renewals in the marketplace more broadly;
•Enterprise may experience negative reactions from employees;
•Enterprise may be required, under certain circumstances, to pay Independent a termination fee of $22,488,000 under the Merger Agreement;
•Enterprise will be required to pay certain costs relating to the Merger, whether or not the Merger is completed, such as legal, accounting, financial advisor and printing fees;
•under the Merger Agreement, Enterprise is subject to certain restrictions on the conduct of its business prior to completion of the Merger, which may adversely affect its ability to execute certain of its business strategies; and
•matters relating to the Merger may require substantial commitments of time and resources by Enterprise’s management, which could otherwise have been devoted to other opportunities that may have been beneficial to Enterprise as an independent company.
If the Merger is not completed, Enterprise cannot assure its Enterprise shareholders that the risks described above will not materialize and will not materially affect the business and financial results of Enterprise.
Enterprise shareholders will not have dissenters’ rights in the Merger.
Dissenters’ rights are statutory rights that, if applicable under law, enable Enterprise shareholders to dissent from an extraordinary transaction, such as a Merger, and to demand that the corporation pay the fair value for their shares as determined by a court in a judicial proceeding instead of receiving the consideration offered to Enterprise shareholders in connection with the extraordinary transaction. Under Section 13 of the MBCA, Enterprise shareholders do not have the right to receive the appraised value of their shares in connection with the Merger.
Shareholder litigation could prevent or delay the completion of the Merger or otherwise negatively impact the business and operations of Independent and Enterprise.
Securities class action lawsuits and derivative lawsuits are often brought against public companies that have entered into acquisition, Merger or other business combination agreements like the Merger Agreement. Even if such a lawsuit is without merit, defending against these claims can result in substantial costs and divert management time and resources. An adverse judgment could result in monetary damages, which could have a negative impact on Independent’s and Enterprise’s respective liquidity and financial condition.
One of the conditions to the closing of the Merger is that no order, injunction or decree issued by any court or government entity of competent jurisdiction or other legal restraint preventing the consummation of the Merger, the bank Merger or any of the other transactions contemplated by the Merger Agreement be in effect. Consequently, if a plaintiff is successful in obtaining an injunction prohibiting completion of the Merger, the bank Merger or any of the other transactions contemplated by the Merger Agreement, then such injunction may delay or prevent the Merger from being completed within the expected timeframe or at all, which may adversely affect Independent’s and Enterprise’s respective business, financial position and results of operations. Even if such injunction is eventually lifted and the Merger is later completed,
the resulting delays and costs incurred may continue to affect the combined company following the completion of the Merger.
Additionally, there can be no assurance that any of the defendants will be successful in the outcome of any potential lawsuits. The defense or settlement of any lawsuit or claim that remains unresolved at the time the Merger is completed may adversely affect the combined company’s business, financial condition, results of operations and cash flows.
RISKS RELATED TO ECONOMICS & FINANCIAL MARKETS
The Company's financial results are impacted by the general economic conditions of the United States and the primary market areas in which the Company operates. Any weakening in general economic conditions in the United States or the New England region, a long-term deterioration of the regional economy, the local impact of worsening national economic conditions or continued geopolitical instability could negatively impact the Company’s financial results.
The Company is Subject to Interest Rate Risk
The Company's earnings and cash flows are largely dependent upon its net interest income, meaning the difference, or spread, between interest income earned and interest expense paid. Changes in market interest rates may affect the rates on our loan, investment and deposit products at differing speeds in both time and scale, which could negatively impact the demand for bank products and net interest margin. Our net interest margin may decrease even if the Federal Reserve Bank lowers the federal funds rate interest rate. Interest rates are highly sensitive to many factors that are beyond the Company's control, including competition from both banks and non-bank financial service providers, the monetary policy of the Federal Reserve, inflation and deflation, and volatility of domestic and global financial markets due to any number of factors including, among other things, widening geopolitical tensions. The current environment of elevated interest rates could continue to increase our funding costs and negatively impact our net interest margin and our asset-liability management strategies for funding loan growth.
The Company is subject to Inflation and Deflation Risks
Unlike an industrial company, virtually all assets and liabilities of the Company are monetary in nature. As a result, interest rates, which are impacted by inflation, have a more significant impact on the Company's performance than the general level of inflation. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services impacted by inflation.
Persistent inflation could lead to tighter-than-expected monetary policy and higher interest rates, which could slow loan growth and increase cost of funds for the Company, reduce net interest margin and profitability, lower asset prices and weaken economic activity. Conversely a prolonged period of deflation may also lead to a deterioration in economic conditions in the United States and our markets causing stress on commercial customers and unemployment, which could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
Refer to Item 7A. "Quantitative and Qualitative Disclosures About Market Risk," below in this Form 10-K, for more information on the projected impact of interest rates on the Company’s balance sheet at December 31, 2024.
The Company's Investment Portfolio Could Incur Losses or Fair Value Could Deteriorate
There are inherent risks associated with the Company's investment activities. These risks include the impact from changes in interest rates, credit risk related to weakness in real estate values, municipalities, government sponsored enterprises, or other industries, the impact of changes in income tax rates on the value of tax-exempt securities, adverse changes in regional or national economic conditions, and general turbulence in domestic and foreign financial markets, among other things. These conditions could adversely impact the ultimate collectability of the Company's investments. If an investment's value is in an unrealized loss position, the Company is required to assess the security to determine if a valuation allowance for the credit exposure of the debt security is necessary, which, if necessary, is recorded as a charge to earnings.
Persistent high market interest rates have resulted in unrealized losses on the Company's fixed income bond portfolio. If market interest rates remain higher than at the time of purchase, the fair value of the fixed income bond portfolio will decrease, resulting in additional unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant. The non-credit portion of unrealized losses are recorded to AOCI, a component of
Shareholders' Equity. A significant increase in market rates may have a negative impact on the Company's book value per common share. The Company's bond portfolio is expected to mature at par and therefore the unrealized losses in the portfolio that result from higher market interest rates will decrease as the bonds become closer to maturity. However, if the Company were required to sell investment securities with an unrealized loss for any reason, including liquidity needs, the unrealized loss would become realized and reduce both net income for the reported period and regulatory capital, which as currently reported, excludes unrealized losses on investment securities.
The Potential for Bank Failures and any Related Negative Impact on Customer Confidence in the Safety and Soundness of the Banking Industry may Adversely Affect our Business
If other financial institutions experience severe financial difficulties, it could result in an adverse impact on the regional banking industry, generally, and the business environment in which the Company operates. Regional bank failures or failure of confidence in the financial industry generally, could result in significant market volatility among publicly traded bank holding companies which may cause uncertainty in the investor community, generally.
This uncertainty may negatively impact customer confidence in the safety and soundness of the banking system and, as a result, the Company's customers may choose to withdraw some or all of their deposited funds, which could have a materially adverse impact on our liquidity, cost of funding, loan growth, net interest margin, capital and results of operations. In addition, advances in technology have increased the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.
RISKS RELATED TO LIQUIDITY
Deposit Outflows May Increase Reliance on Borrowings and Brokered Deposits as Sources of Funds
The Company has historically funded its asset growth through customer deposits and to a lesser extent through wholesale borrowings (e.g., brokered deposits and borrowed funds). As a general matter, customer deposits are typically a lower cost source of funds than external wholesale funding. If the balance of the Company's customer deposits decrease or are less than the Company's asset growth, the Company may have to rely more heavily on higher-costing wholesale funding or other sources of external funding or may have to significantly increase deposit rates to maintain deposit levels in the future, all of which may lower the Company's net interest income, net interest margin and its profitability.
Sources of External Funding Could Become Restricted and Impact the Company's Liquidity
Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. The Bank’s access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization, the financial services industry, or the economy in general. Factors that could detrimentally impact access to liquidity sources include a downturn in the markets in which our loans are concentrated or adverse regulatory actions against the Bank. Market conditions or other events could also negatively affect the level or cost of funding, affecting the Bank’s ongoing ability to meet liability maturities and deposit withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences.
If, as a result of general economic conditions or other events, sources of external funding become restricted or are eliminated, the Company may not be able to raise adequate funds, may incur substantially higher funding costs, be required to sell assets, restrict operations, or restrict the payment of dividends. Furthermore, if the Company is unable to raise adequate funds through external sources, the Company may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital of the Company and have an adverse effect on our business, financial condition and results of operations.
RISKS RELATED TO LENDING
There are inherent risks associated with the Company's lending activities. These risks include, among other things, the impact of changes in the economic conditions in the market areas in which the Company operates impacting our commercial customer's businesses and changes in interest rates. In addition, the Company may be impacted by the following risks associated with its lending activities:
Commercial Lending Generally Involves a Higher Degree of Risk than Retail Residential Mortgage Lending
The Company's loan portfolio consists primarily of commercial real estate, commercial and industrial, and commercial
construction loans. These types of loans are generally viewed as having more risk of default than owner-occupied residential real estate loans and typically have larger balances. The underlying commercial real estate values, lower demand for office and retail space, increase costs to complete construction projects. Customer cash flows can be more easily influenced by adverse conditions in the related industries, the real estate market or in the economy.
Commercial real estate values may be elevated and the outlook for commercial real estate remains dependent on the broader economic environment and, specifically, how major subsectors respond to higher interest rate environment and prices for, and availability of, commodities, goods and services. Credit performance across the industry over the medium- and long-term is susceptible to economic and market forces and our non-performing loans and charge-offs may increase. Some degree of general instability in the broad commercial real estate market may occur in the coming quarters as loans are repricing at higher interest rates and in markets with higher vacancy rates under current economic conditions. Our commercial borrowers may experience greater difficulties meeting their obligations if debt service coverage declines as adjustable-rate loans reprice to higher interest rates and customer cash flows are impacted by inflationary pressures. Conversely, in periods of decreasing interest rates, likely resulting from economic slowdown or recession, borrowers may experience difficulties meeting their obligations and seek to refinance their loans for lower rates, which may adversely affect income from these lending activities. Instability and uncertainty in the commercial real estate markets and elevated level of interest rates could have a material adverse effect on our financial condition and results of operations.
The Company May Need to Increase its Allowance for Credit Losses
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, non-performing trends, and economic forecasts, all of which may undergo material changes. In addition, bank regulatory agencies periodically review the Company's allowance for credit losses and may require an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments that may differ from those of the Company's management.
Increases in the Company's Non-performing Assets Could Adversely Affect the Company's Results of Operations and Financial Condition in the Future
Non-performing assets adversely affect our net income in various ways. No interest income is recorded on non-accrual loans or other real estate owned, thereby adversely affecting income and returns on assets and equity. In addition, loan administration and workout costs increase, including significant time commitments from management and staff, resulting in additional reductions of earnings. When taking collateral in foreclosures and similar proceedings, the Company is required to carry the property or loan at its then-estimated fair value less estimated cost to sell, which, when compared to the carrying value of the loan, may result in a loss. In addition, any errors in documentation or previously unknown defects in deeds may impact the Company's ability to perfect title of the collateral in foreclosure. These non-performing loans and other real estate owned assets also increase the Company's risk profile and the capital that regulators believe is appropriate in light of such risks and have an impact on the Company's FDIC risk-based deposit insurance premium rate.
The Company's Use of Appraisals in Deciding Whether to Make a Loan Does Not Ensure the Value of the Collateral
In considering whether to make a loan secured by real property or other business assets, the sale of which may provide ultimate recovery of the outstanding balance of the loan, the Company generally requires an internal evaluation or independent appraisal of the collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations. As a result, the value of collateral securing a loan may be less than estimated at the time of assessment, and if a default occurs the Company may not recover the outstanding balance of the loan.
The Company is Subject to Environmental Risks Associated with Real Estate Held as Collateral or Occupied
While the Company’s lending, foreclosure and facilities policies and guidelines are intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties that the Company may own, acquire, manage, or occupy. Environmental laws could force the Company to clean up the properties at the Company’s expense. It may cost much more to clean a property than the property is worth, and it may be difficult or impossible to sell contaminated properties. The Company could also be liable for pollution generated by a borrower’s operations if the Company takes a role in managing those operations after a default.
Concentrations in Commercial Real Estate Loans are Subject to Heightened Risk Management and Regulatory Review
If a concentration in commercial real estate lending is present, as measured under government banking regulations, management must employ heightened risk management lending practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, portfolio risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. Management believes that it is in compliance with the enhanced risk management practices. When a concentration is determined to exist, the Company may incur additional operating expenses in order to comply with additional risk management practices and increased capital requirements.
RISKS RELATED TO INFORMATION & TECHNOLOGY RESOURCES
The use of technology related products, services, delivery channels, access points and processes expose the Company to various risks, particularly operational, privacy, cybersecurity, strategic, reputation and compliance risk. The ongoing move towards more cloud-based and third-party hosted technology solutions may subject the Bank to certain heightened cyber risks. The potential use of generative artificial intelligence to launch sophisticated cyber-attacks, and the threat that foreign state-sponsored agencies' cyber threat operations may pose heightened risk of disruptions to U.S. critical infrastructure and thereby the Bank's operations. Banks are required by regulatory agencies to prudently manage cyber, third-party, cloud-based and technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring, and controlling these risks.
Failure to Keep Pace with Technological Change Could Affect the Company's Profitability
The banking industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products, services, extended service and settlement frequencies, data management and delivery channels. Failure to successfully plan or keep pace with technological changes affecting the banking industry, or failure to adequately plan, train and educate staff and customers on the use and risks of new technologies and extended service cycles, failure to capture or manage data, or failure to comply adequately with regulatory guidance regarding information and cybersecurity could have a material adverse effect on the Company's business and, in turn, the Company's financial condition and results of operations. In addition, there may be significant time and expenses associated with upgrading and implementing new technology, technology compliance, information security and cybersecurity processes.
Information Systems Could Experience an Interruption, Failure, Breach in Security, or Cyber-Attack
The Company relies heavily on public utilities infrastructure, internal information and operating systems, and cloud-based solutions and storage to conduct its business effectively, and these systems could fail in a variety of ways. In addition, the use of network, cloud-based, or third-party hosted systems expose the Company to the increased sophistication and activity of cyber-criminals, both domestic and international. Current geopolitical tensions could result in serious and catastrophic attempts at cyber-attacks on the U.S. web-based infrastructure. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of the information resources of the Company. These incidents may be an intentional attack or an unintentional event and could involve blocking the Company from accessing its own systems or remote servers in exchange for a ransom payment, gaining unauthorized access directly to our information systems, or indirectly through our vendors and customers systems or servers, for purposes of misappropriating assets, stealing confidential corporate information or customers' Personally Identifiable Information, corrupting data, denying access or causing operational disruption. The Company's independent third-party service providers or their subcontractors may also expose the Company to cybersecurity risk. Additionally, vendors' and customers' home, business or mobile information systems and the servers they rely on, are at risk of fraudulent corporate account takeovers which the Company may not be able to detect, and may impact the Company's ability to service its customers. There is no guarantee the Company's counteractions will be successful or that the Company will have the resources or technical expertise to anticipate, detect or prevent rapidly evolving types of cyber-attacks.
The occurrence of any failures or disruptions as noted above, or the Company's inability to detect, respond, disclose and correct such occurrence or compromise in a timely manner, could subject the Company to increased operational costs to detect and rectify the situation, damage the Company's reputation and deter customers from using the Company's services, increase the Company insurance cost or the ability to obtain adequate cyber insurance coverage, subject the Company to additional regulatory scrutiny, and expose the Company to civil litigation and possible financial liability.
RISKS RELATED TO OPERATIONS
The Company Operates in a Competitive Industry and Market Area
The Company faces substantial competition in all areas of its operations from a variety of different competitors within its market area and beyond. Some of these competitors are larger and have more financial resources than the Company; some are not subject to the same degree of government regulation as the Company and thus may have a competitive advantage. If the Company encounters difficulties attracting and retaining customers, it would have a material adverse effect on the Company's growth and profitability.
The Company May Experience a Prolonged Interruption in its Ability to Conduct Business
The Company relies heavily on its personnel and facilities to conduct its business. A material loss of people or physical damage, destruction, or denial of access to our core operating facilities, for any number of reasons including localized natural disasters, global pandemics and government's reaction thereto, demonstrations/pickets at or near facilities, or the local impact of geopolitical tensions, could result in prolonged business interruptions impacting customer services and our ability to conduct transactions.
The Company Relies on External Service Providers
The Company relies on independent third-party firms, including indirect vendors utilized by such third parties, to provide critical services necessary to conducting its business. These services include but are not limited to electronic funds delivery networks, check clearing houses, electronic banking services, wealth advisory, management and custodial services, correspondent banking services, information security assessments and technology support services, and loan underwriting and review services, among others. The occurrence of any failures or interruptions of the independent firms' systems or in their delivery of services, or failure to perform in accordance with contracted service level agreements, for any number of reasons could in turn impact the Company's ability to conduct business and process transactions.
The Company Relies on Financial Counterparty Relationships
The Company routinely executes transactions with counterparties in the financial services industry, in order to maintain correspondent bank relationships, liquidity, manage certain loan participations, mortgage sales activities, interest-rate swaps, engage in securities transactions, and engage in other financial activities with counterparties that are customary to our industry. Many of these transactions expose the Company to counterparty credit, liquidity and/or reputation risk in the event of default by the counterparty, or negative publicity or public complaints, whether real or perceived, about one or more of the Company's financial counterparties, or the financial services industry in general. Although the Company seeks to manage these risks through internal controls and procedures, the Company may experience loss or interruption of business as a result of unforeseen events with these counterparties.
Wealth Management and Wealth Services Expose the Company to Financial, Operational and Legal Risk
The Company's Wealth Management and Wealth Services channels derive their revenues primarily from investment management fees based on the market value of assets under management. The Company's ability to maintain or increase investment assets under management is subject to a number of factors, including changes in client investment preferences, investment decisions by us or our third-party service provider partners, and various economic conditions, among other factors. Clients can terminate their relationships with us, reduce their aggregate assets under management, or shift their funds to other types of accounts with different rate structures for any number of reasons.
Investment performance is one of the most important factors in retaining existing clients and competing for new wealth management clients. Financial markets are affected by many factors, any of which could adversely impact the fair value of customer portfolios. Even when market conditions are generally favorable, our investment performance may be adversely affected by the investment style of our wealth management and investment advisors and the investment decisions that they make. Poor investment performance, whether real or perceived, in either relative or absolute terms, could impair our ability to attract and retain investment assets under management from existing and new clients.
The Company's Insurance Coverage May Not be Adequate to Prevent Additional Liabilities or Expenses
The Company works with an independent third-party insurance advisor to obtain insurance policies that provide coverage for a variety of business and cyber risks at coverage levels that compare favorably to bench-marked coverage for loss exposures that are faced by similarly sized financial institutions. However, there are no guarantees that the Company will be able to obtain or maintain comparable or adequate coverage levels in the future. In addition, there is no guarantee that the circumstances of an incident will meet the criteria for insurance coverage under a specific policy, and despite the insurance policies in place the Company may experience a material loss incident or event.
Lack of or Slower than Expected Growth Could Adversely Affect the Company's Profitability and its Ability to Pay Dividends
The Company relies on its deposit and lending activities to generate the cash flow to conduct operations, expand service and product offerings, expand the branch network, and pay dividends to shareholders. Contraction or slower than expected loan and/or deposit growth and/or lower than expected fee or other income generated from these and other products and services could lower our profitability and net cash flow available for funding our growth strategies and paying dividends to shareholders.
The Company May Not be Able to Retain and/or Develop Key Personnel
The Company's success depends, in large part, on its ability to retain and develop top performing banking professionals within our markets, and its ability to successfully identify and develop personnel for succession to key executive management positions and to the board of directors. The inability to do so could have a material adverse impact on the Company’s business because of the loss of their skills, knowledge of the Company's market, years of industry or business experience and the difficulty of promptly hiring qualified replacements.
RISKS RELATED TO REGULATION / POLICY
The Company is Subject to Extensive Government Regulation and Supervision
The Company and the Bank are subject to a variety of federal and state laws and regulations that are primarily intended to protect consumers in the financial marketplace, provide fair and equal availability of products and services, preserve depositors' funds and the FDIC insurance fund, and to safeguard the banking system as a whole, and not necessarily the interests of shareholders. These regulations affect the Company's lending practices, capital structure, investment practices, dividend policy, growth, and net income, among other things. Federal and state laws and regulations may not always align in principle or statue, and preemptive federal laws may be more or less restrictive than those of a state. Future legislation could increase or decrease the cost of doing business, negatively impact consumers' faith in the banking system leading them to seek out non-banking alternatives, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions.
Commercial Developers may be Impacted by International Trade and Tariff Policies
Our commercial construction borrowers may experience greater difficulties meeting their obligations if internation trade policies and tariffs on construction material negatively impact inventory levels or costs to complete projects, delaying anticipated construction/occupancy timelines and customer cash flow. Instability and uncertainty in commercial construction costs and elevated level of interest rates due to administrative policies could have a material adverse effect on our financial condition and results of operations.
Climate Change and Related Legislative and Regulatory Initiatives May Materially Affect the Company’s Business
Climate change, which is having a dramatic effect on weather patterns and causing more frequent and severe weather events, may negatively impact the regional and local economy, increasing credit and other financial risks for the Company and our customers. The physical effects of climate change may adversely impact the value of real property securing the loans in our portfolios and our customers' ability to continue to conduct operations at their business locations. Additionally, if insurance obtained by our borrowers is insufficient to cover any losses sustained to the collateral, or if insurance coverage is otherwise unavailable to our borrowers, the collateral securing our loans may be negatively impacted.
Further, the U.S. Congress, state legislatures and federal and state regulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change. The Company cannot predict what legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the Company's business.
RISKS RELATED TO ESTIMATES & ASSUMPTIONS
The Company's Financial Condition and Results of Operation Rely in Part on Management Estimates and Assumptions
In preparing the financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, estimates and assumptions to be utilized. These estimates and assumptions affect the reported values of assets and liabilities at the balance sheet date and income and expenses for the years then ended. Changes in those estimates resulting from continuing change in the economic environment and other factors will be reflected in the financial statements and results of operations in future periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates and be adversely affected should the assumptions and estimates used be incorrect or change over time. The most significant areas in which management
applies critical assumptions and estimates are: the estimates of the allowance for credit losses for loans, and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.
The Net Deferred Tax Assets May be Determined to be Unrealizable in Future Periods
In making its assessment on the future realizability of net DTAs, management considers all available relevant information, including recent financial operations, projected future taxable income, and recoverable past income tax paid. If in the future, management believes based upon historical and expected future earnings that it is more likely than not that the Company will not generate sufficient taxable income to utilize the DTA balance, then a valuation allowance would be booked against the DTA, with the write down offset to current earnings. Factors beyond management's control can affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the DTAs in the future.
REPUTATION & LEGAL RISKS
Damage to the Company's Reputation Could Affect the Company's Profitability and Shareholders' Value
The Company is dependent on its reputation within its market area as a trusted and responsible financial company for all aspects of its business with customers, employees, vendors, third-party service providers, and others with whom the Company conducts business or potential future business. Any negative publicity or public complaints, whether real or perceived, disseminated by word of mouth, by the general media, by electronic or social networking means, or by other methods, could harm the Company's reputation.
Environmental, Social and Governance Oversight May Influence Stock Price and Increase Compliance Costs
Investors have begun to consider how corporations are addressing environmental, social and governance matters, commonly known as "ESG matters" when making investment decisions. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, executive compensation, labor conditions and human rights. These shifts in investing priorities may result in adverse effects on the trading price of the Company’s common stock if investors determine, whether real or perceived, that the Company's ESG actions are not satisfactory. In addition, new government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Increased ESG related compliance costs could result in increases to our overall operational costs.
The Company is Exposed to Legal Claims and Litigation
The Company is subject to legal challenges under a variety of circumstances in the course of its normal business practices. Regardless of the scope or the merits of any claims by potential or actual litigants, the Company may have to engage in litigation that could be expensive, time-consuming, disruptive to the Company's operations, and distracting to management. Whether claims or legal action are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability, damage the Company's reputation, subject the Company to additional regulatory scrutiny and restrictions, and/or adversely affect the market perception of our products and services, as well as impact customer demand for those products and services.
RISKS RELATED TO COMMON STOCK, SHAREHOLDER’S EQUITY, CAPITAL
The Trading Volume in the Company's Common Stock is Less Than That of Larger Companies
Although the Company's common stock is listed for trading on the NASDAQ Global Market, the trading volume in the Company's common stock is substantially less than that of larger companies. Given the lower trading volume of the Company's common stock, significant purchases or sales of the Company's common stock, or the expectation of such purchases or sales, could cause significant movement in the Company's stock price.
The Company's Capital Levels Could Fall Below Regulatory Minimums
If the Company's regulatory capital levels decline, or if regulatory requirements increase, and the Company is unable to raise additional capital to offset that decline or meet the increased requirements, then its regulatory capital ratios may fall below regulatory minimum capital adequacy levels.
The Company's failure to remain "well-capitalized" for bank regulatory purposes could affect customer confidence, restrict the Company's ability to grow (both assets and branching activity), increase the Company's costs of funds and FDIC insurance expense, prohibit the Company's ability to pay dividends on common shares, and restrict its ability to make acquisitions, among other impacts. Under FDIC rules, if the Bank ceases to be a "well-capitalized" institution, its ability to
accept brokered deposits and the interest rates that it pays may be restricted. The Basel III Rules establish, among other rules, a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. An institution will be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio.
The Company's Articles of Organization and By-Laws as Well as Certain Banking and Corporate Laws Could Have an Anti-Takeover Effect
Although management believes that certain anti-takeover strategies are in the best interest of the Company and its shareholders, provisions of the Company's articles of organization, by-laws, and certain federal and state banking laws and state corporate laws, including regulatory approval requirements for any acquisition of control of the Company, could make it more difficult for a third-party to acquire the Company, even if doing so would be perceived to be beneficial to the Company's shareholders. The combination of these provisions is intended to prohibit a non-negotiated merger, or other business combination involving an acquisition of the Company, which, in turn, could adversely affect the market price of the Company's common stock.
Directors and Executive Officers Own a Significant Portion of Common Stock
The Company's directors and executive officers, as a group, beneficially own approximately 20% of the Company's outstanding common stock as of December 31, 2024. The directors and executive officers have the ability, if they vote their shares in a like manner, to significantly influence the outcome of all matters submitted to shareholders for approval, including the election of directors, and potential Merger opportunities.
The Company Relies on Dividends from the Bank for Substantially All of its Revenue
Holders of the Company’s common stock are entitled to receive dividends only when, and if declared by our Board. Although the Company has historically declared cash dividends on our common stock, we are not required to do so, and our Board may reduce or eliminate our common stock dividend in the future.
The Company is a separate and distinct legal entity from the Bank. It receives substantially all its revenue from dividends paid by the Bank. These dividends are the principal source of funds used to pay dividends on the Company’s common stock and interest and principal on the Company’s subordinated debt. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Company, and certain regulators may prohibit the Bank or the Company from paying future dividends if deemed an unsafe or unsound practice. If the Bank, due to its capital position, inadequate net income levels, or otherwise, is unable to pay dividends to the Company, then the Company will be unable to service its debt, pay obligations or pay dividends on the Company’s common stock, which could have a material adverse effect on the market price of the Company’s common stock.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B.Unresolved Staff Comments
None.

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ITEM 2. PROPERTIES
Item 2.Properties
The Company's main office and operational support offices are located in Lowell, Massachusetts. The Lowell campus consists of four closely situated buildings, three of which are owned and the fourth is under a 40-year lease, with ample on-site customer parking. The Company also owns and maintains a back-up operations/data facility in the Merrimack Valley region of Massachusetts. As of December 31, 2024, the Company had 27 full-service branch banking offices serving the Northern Middlesex, Northern Essex and Northern Worcester counties of Massachusetts, and Southern Hillsborough and Southern Rockingham counties in New Hampshire.
The Company believes that all of its facilities are well maintained and suitable for the purpose for which they are used.
As of December 31, 2024, the Company was the lessee under 16 active operating real estate leases.

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ITEM 3. LEGAL PROCEEDINGS
Item 3.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.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4.Mine Safety Disclosures
Not Applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5.Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Market for Common Stock
The Company's common stock trades on the NASDAQ Global Market under the trading symbol "EBTC."
As of February 28, 2025, there were 12,458,981 shares of the Company's common stock outstanding held by 911 shareholders of record.
Dividends
During the year ended December 31, 2024, quarterly dividends of $0.24 per share were paid to the Company's shareholders in March, June, September, and December. Total dividends paid to the Company's shareholders during the year ended December 31, 2024, equaled $0.96 per share compared to total dividends of $0.92 per share, paid to the Company's shareholders on a quarterly basis during the year ended December 31, 2023.
On January 21, 2025, the Company announced a quarterly dividend of $0.25 per share, which was paid on March 3, 2025, to shareholders of record as of February 10, 2025.
In addition, the Company maintained a DRSPP which enabled shareholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, shareholders and new investors also had the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums. Effective December 9, 2024, all share purchases under the DRSPP were suspended as a result of the pending merger with Independent.
Securities Authorized for Issuance under Equity Compensation Plans
The following table provides information as of December 31, 2024, with respect to the Company's 2009 Stock Incentive Plan, as amended, and its 2016 Stock Incentive Plan, as amended, which together constitute all the Company's existing equity compensation plans that have been previously approved by the Company's shareholders. The 2009 Plan expired in 2019 and is closed for future grants, although awards previously granted under the 2009 Plan remain outstanding and may be exercised through 2028.
Plan Category Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in second
column from left)
Equity compensation plans approved by security holders 125,813 $ 29.58 270,474
Equity compensation plans not approved by security holders - - -
TOTAL 125,813 $ 29.58 270,474
See also Note 14, "Stock-Based Compensation" to the Company's consolidated financial statements contained in Item 8 of this Form 10-K below for further information regarding the Company's Equity Compensation Plan.
Repurchases of Common Stock
During the three months ended December 31, 2024, the Company made one hundred twenty-seven repurchases of common stock.
Total Number of Shares Repurchased(1)
Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Announced
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
October - - - -
November - - - -
December 127 $39.54 - -
__________________________________
(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 on vesting restricted stock (net settlement of shares).
Performance Graph
The following graph compares the cumulative total shareholder return (which assumes the reinvestment of all dividends) on the Company's common stock with the cumulative total return reflected by a broad-based equity market index and an appropriate published industry index. This graph shows the changes over the five-year period ended on December 31, 2024, in the value of $100 invested in (i) the Company's common stock, (ii) the Standard & Poor's 500 Index, and (iii) the Standard & Poor's U.S. Small Cap Banks Index.
Period Ending
Index 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 12/31/24
Enterprise Bancorp, Inc. $ 100.00 $ 77.68 $ 139.60 $ 112.32 $ 105.89 $ 134.24
S&P 500 Index 100.00 118.40 152.39 124.79 157.59 197.02
S&P U.S. Small Cap Banks Index 100.00 90.82 126.43 111.47 112.03 132.44

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. [Reserved]
Not Applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Management's discussion and analysis should be read in conjunction with the Company's (also referred to herein as "Enterprise," "us," "we," or "our") consolidated financial statements and notes thereto, contained in Item 8, "Financial Statements and Supplementary Data," and the other financial and statistical information contained in this Annual Report on Form 10-K for the year ended December 31, 2024 (this “Form 10-K”).
Special Note Regarding Forward-Looking Statements
This Form 10-K 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:
•disruption from the proposed Merger (as defined below) of the Company with and into Independent (as defined below);
•the risk that the proposed Merger may not be completed in a timely manner or at all;
•the occurrence of any event, change, or other circumstances that could give rise to the termination of the proposed Merger with Independent, including under circumstances that would require Enterprise to pay a termination fee;
•the failure to obtain necessary shareholder or regulatory approvals for the proposed Merger with Independent;
•the ability to successfully integrate the combined business;
•the possibility that the amount of the costs, fees, expenses, and charges related to the proposed Merger with Independent may be greater than anticipated, including as a result of unexpected or unknown factors, events, or liabilities;
•the failure of the conditions to the proposed Merger with Independent to be satisfied;
•reputational risk and the reaction of the parties' customers to the proposed Merger with Independent;
•the risk of potential litigation or regulatory action related to the proposed Merger with Independent;
•potential recession in the United States and our market areas;
•the impacts related to or resulting from bank failures and any uncertainty in the banking industry as a whole, 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 prices;
•the lingering inflationary pressures, and the risk of the resurgence of elevated levels of inflation, in the U.S. 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, whether due to the current elevated interest rate environment or future reductions in 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 elevated 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;
•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 of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of cyber-attacks;
•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 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");
•uncertainty regarding United States fiscal debt and budget matters;
•severe weather, natural disasters, acts of war or terrorism, geopolitical instability or other external events;
•the impact of changes in U.S. presidential administrations or Congress, including potential changes in U.S. and international trade policies and the resulting impact on the Company and its customers;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of 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 foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-K, including those discussed in Item 1A, "Risk Factors," of this Form 10-K. The Company cautions readers that the forward-looking statements in this Form 10-K 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-K are based on information available to the Company as of the date of this Form 10-K, 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.
Overview
Executive Summary
On December 9, 2024, Enterprise and Enterprise Bank announced the signing of an Agreement and Plan of Merger (the "Merger Agreement") with Independent Bank Corp. ("Independent"), pursuant to which Enterprise will merge with and into Independent (the "Merger") and Enterprise Bank will merge into Independent's wholly owned subsidiary, Rockland Trust Company. The proposed Merger is expected to close in the second half of 2025, subject to customary closing conditions, including regulatory approvals and approval of Enterprise shareholders. No vote of Independent shareholders is required.
Key financial results at or for the twelve months ended December 31, 2024 are as follows:
•Net income amounted to $38.7 million, or $3.12 per diluted common share.
•Return on average assets and average equity were 0.82% and 11.27%, respectively.
•Net interest margin (non-GAAP) was 3.23%.
•Total loans increased 12% compared to December 31, 2023.
•Total deposits increased 5% compared to December 31, 2023.
•Wealth assets under management and administration amounted to $1.54 billion and increased 16% compared to December 31, 2023.
Net income for the year ended December 31, 2024, amounted to $38.7 million, or $3.12 per diluted common share, compared to $38.1 million, or $3.11 per diluted common share, for the year ended December 31, 2023. The increase in net income of $675 thousand, for the year ended December 31, 2024, was due primarily to a decrease in the provision for credit losses of $7.3 million and an increase in non-interest income of $5.3 million, partially offset by a decrease in net interest income of $5.2 million and an increase non-interest expense of $6.9 million.
The comparison of net income for the years ended December 31, 2024 and 2023 was also impacted by multiple non-core operating transactions including merger-related expenses of $1.1 million in 2024, which decreased net income, as well as net losses on sales of debt securities of $2.4 million and ERCs of $3.6 million (recognized as a reduction to salaries and employee benefits expense) in 2023, which caused a net increase on net income.
Total assets amounted to $4.83 billion at December 31, 2024, compared to $4.47 billion at December 31, 2023. Investment securities at fair value decreased $74.6 million, or 11%, during the year ended December 31, 2024, due primarily principal pay-downs, calls and maturities. Total loans increased $415.3 million, or 12%, versus a year ago, with growth primarily in commercial real estate and commercial construction loans.
Net charge-offs for the year ended December 31, 2024, amounted to $206 thousand, or 0.01% of average total loans, compared to $105 thousand, or 0.00% of average total loans, for the year ended December 31, 2023. The non-performing loans to total loans ratio normalized during the year and amounted to 0.67%, compared to 0.32% at December 31, 2023. The increase resulted primarily from two individually evaluated commercial construction loans which were placed on non-accrual during the year. The ACL for loans to total loans ratio was 1.59% at December 31, 2024, compared to 1.65% at December 31, 2023. The decrease in the ACL for loans to total loans ratio was due primarily to a decrease in general reserve factors in our ACL model, partially offset by an increase in reserves on individually evaluated loans.
Customer deposits amounted to $4.19 billion, an increase of $210.2 million, or 5%, due primarily to increases in money market and certificate of deposit balances of $51.5 million and $164.1 million, respectively. Lower cost checking and savings accounts comprised 49% of total deposits at December 31, 2024, compared to 52% at December 31, 2023, as customers shifted funds into higher yielding products during the year.
Shareholders’ equity increased $31.6 million, or 10%, due primarily to an increase in retained earnings of $26.9 million, which included shareholder dividends of $10.3 million, net of reinvestment.
Selected Financial Data and Ratios
The following table sets forth selected financial data and ratios for the Company at or for the years ended as indicated:
At or for the year ended December 31,
(Dollars in thousands, except per share data) 2024 2023 2022 2021 2020
Balance Sheet Data
Total cash and cash equivalents $ 83,841 $ 56,592 $ 267,589 $ 436,576 $ 253,782
Total investment securities at fair value 593,595 668,171 820,371 958,215 583,049
Total loans 3,982,898 3,567,631 3,180,518 2,920,684 3,073,860
Allowance for credit losses (63,498) (58,995) (52,640) (47,704) (44,565)
Total assets 4,827,726 4,466,034 4,438,333 4,447,819 4,014,324
Total deposits 4,187,698 3,977,521 4,035,806 3,980,239 3,551,263
Subordinated debt 59,815 59,498 59,182 58,979 73,744
Total shareholders' equity 360,748 329,117 282,267 346,895 334,426
Total liabilities and shareholders' equity 4,827,726 4,466,034 4,438,333 4,447,819 4,014,324
Wealth Management
Wealth assets under management(1)
$ 1,230,014 $ 1,077,761 $ 891,451 $ 1,041,409 $ 976,502
Wealth assets under administration(1)
$ 305,930 $ 242,338 $ 198,586 $ 257,867 $ 210,900
Shareholders' Equity Ratios
Book value per common share $ 28.98 $ 26.82 $ 23.26 $ 28.82 $ 28.01
Dividends paid per common share $ 0.96 $ 0.92 $ 0.82 $ 0.74 $ 0.70
Regulatory Capital Ratios
Total capital to risk-weighted assets
13.06 % 13.12 % 13.49 % 13.73 % 14.62 %
Tier 1 capital to risk-weighted assets(2)
10.38 % 10.34 % 10.56 % 10.62 % 10.77 %
Tier 1 capital to average assets 8.94 % 8.74 % 8.10 % 7.56 % 7.52 %
Credit Quality Data
Non-performing loans $ 26,687 $ 11,414 $ 6,122 $ 26,522 $ 38,050
Non-performing loans to total loans 0.67 % 0.32 % 0.19 % 0.91 % 1.24 %
Non-performing assets to total assets 0.55 % 0.26 % 0.14 % 0.60 % 0.95 %
ACL for loans to total loans 1.59 % 1.65 % 1.66 % 1.63 % 1.45 %
Net charge-offs
$ 206 $ 105 $ 239 $ 3,964 $ 1,548
Income Statement Data
Net interest income $ 147,864 $ 153,084 $ 151,798 $ 141,556 $ 130,134
Provision for credit losses 1,985 9,249 5,800 1,770 12,499
Total non-interest income 22,879 17,609 18,462 18,107 17,247
Total non-interest expense 117,132 110,199 108,314 102,135 93,254
Income before income taxes 51,626 51,245 56,146 55,758 41,628
Provision for income taxes 12,893 13,187 13,430 13,587 10,172
Net income $ 38,733 $ 38,058 $ 42,716 $ 42,171 $ 31,456
Income Statement Ratios
Diluted earnings per common share $ 3.12 $ 3.11 $ 3.52 $ 3.50 $ 2.64
Return on average total assets 0.82 % 0.85 % 0.96 % 0.98 % 0.82 %
Return on average shareholders' equity 11.27 % 12.48 % 14.47 % 12.49 % 9.95 %
Net interest margin (tax-equivalent)(3)
3.23 % 3.51 % 3.54 % 3.44 % 3.59 %
____________________________________________________________________________
(1)Wealth assets under management and wealth assets under administration are not carried as assets on the Company’s Consolidated Balance Sheet.
(2)Ratio also represents common equity tier 1 capital to risk-weighted assets as of the periods presented.
(3)Tax-equivalent net interest margin 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.
Results of Operations
COMPARISON OF YEARS ENDED DECEMBER 31, 2024 AND 2023
Unless otherwise indicated, the reported results are for the year ended December 31, 2024, with the "prior year" referring to the year ended December 31, 2023. Average yields are presented on a tax-equivalent basis.
Net Income
Net income for the year ended December 31, 2024, amounted to $38.7 million, an increase of $675 thousand, or 2%, compared to the year ended December 31, 2023. The components of the increase in net income compared to the prior year are discussed below.
Net Interest Income
Net interest income for the year ended December 31, 2024, amounted to $147.9 million, a decrease of $5.2 million, or 3%, compared to the year ended December 31, 2023.
The decrease in net interest income during the current period was due to the following items:
•An increase in deposit interest expense of $32.1 million;
•An increase in borrowings interest expense of $2.3 million;
•A decrease in interest and dividend income on investments of $2.9 million, and
•A decrease in income on other interest-earning assets of $3.7 million;
•Partially offset by an increase in loan interest income of $35.8 million.
Net Interest Margin
Net interest margin was 3.23% for the year ended December 31, 2024, compared to 3.51% for the year ended December 31, 2023.
Net interest margin compared to the prior year was impacted by the following factors:
•Average other interest-earning assets decreased $81.8 million, or 42%, while the yield increased 33 basis points.
•Average debt securities decreased $132.2 million, or 15%, and the tax-equivalent yield decreased 3 basis points.
•Average loan balances increased $432.6 million, or 13%, and the tax-equivalent yield increased 36 basis points.
•Average total deposits increased $136.8 million, or 3%, and the yield increased 74 basis points.
•Average borrowed funds increased $51.2 million, and the yield increased 208 basis points.
The decrease in net interest margin for the year ended December 31, 2024, compared to December 31, 2023, was due primarily to an increase in deposit interest expense, partially offset by an increase in loan interest income. The increase in deposit interest expense during the period was attributed primarily to higher market rates on deposits and growth in certificates of deposit balances, while the increase in loan interest income during the period was due primarily to loan growth and higher loan yields. The decrease in net interest margin was also impacted by a decrease in interest-earning deposits with banks and an increase in borrowed funds, both of which were used to fund the Company's 12% loan growth in 2024.
Interest rate risk is reviewed in detail under the heading Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-K, 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 for the period indicated. 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.
December 31,
2024 vs 2023
Increase (decrease) due to
(Dollars in thousands) Net
Change Volume Rate
Interest income
Other interest-earning assets(1)
$ (3,744) $ (4,358) $ 614
Investment securities (tax-equivalent) (3,134) (2,877) (257)
Loans and loans held for sale (tax-equivalent) 35,878 23,559 12,319
Total interest-earning assets (tax-equivalent) 29,000 16,324 12,676
Interest expense
Interest checking, savings, and money market 17,526 1,119 16,407
CDs 14,598 8,106 6,492
Borrowed funds 2,313 2,116 197
Subordinated debt - 18 (18)
Total interest-bearing liabilities
34,437 11,359 23,078
Change in net interest income (tax-equivalent) $ (5,437) $ 4,965 $ (10,402)
_________________________________________
(1) Income on other interest-earning assets includes interest on deposits, and fed funds sold, and dividends on FHLB stock.
The table below presents the Company's average balance sheet, net interest income and average rates for the years ended December 31, 2024, 2023 and 2022:
Average Balances, Interest and Average Yields
Year ended December 31, 2024 Year ended December 31, 2023 Year ended December 31, 2022
(Dollars in thousands) Average
Balance Interest(1)
Average
Yield(1)
Average
Balance Interest(1)
Average
Yield (1)
Average
Balance Interest(1)
Average
Yield(1)
Assets:
Other interest-earning assets(2)
$ 115,171 $ 6,199 5.38 % $ 196,931 $ 9,943 5.05 % $ 333,433 $ 6,014 1.80 %
Investment securities(3) (tax-equivalent)
737,633 16,144 2.19 % 868,137 19,278 2.22 % 955,927 19,891 2.08 %
Loans and loans held for sale(4) (tax-equivalent)
3,761,015 208,955 5.56 % 3,328,387 173,077 5.20 % 3,034,608 136,381 4.49 %
Total interest-earning assets (tax-equivalent) 4,613,819 231,298 5.01 % 4,393,455 202,298 4.60 % 4,323,968 162,286 3.75 %
Other assets 98,585 84,914 110,238
Total assets $ 4,712,404 $ 4,478,369 $ 4,434,206
Liabilities and shareholders' equity:
Non-interest checking $ 1,070,290 $ - $ 1,224,101 $ - $ 1,412,694 $ -
Interest checking, savings and money market 2,498,798 48,482 1.94 % 2,413,939 30,956 1.28 % 2,391,698 4,091 0.17 %
CDs 621,576 28,031 4.51 % 415,840 13,433 3.23 % 221,050 1,620 0.73 %
Total deposits
4,190,664 76,513
1.83 % 4,053,880 44,389 1.09 % 4,025,442 5,711 0.14 %
Borrowed funds 56,259 2,426 4.31 % 5,090 113 2.23 % 3,286 52 1.58 %
Subordinated debt(5)
59,649 3,467 5.81 % 59,333 3,467 5.84 % 59,050 3,352 5.68 %
Total funding liabilities
4,306,572 82,406 1.91 % 4,118,303 47,969 1.16 % 4,087,778 9,115 0.22 %
Other liabilities 62,258 55,163 51,274
Total liabilities 4,368,830 4,173,466 4,139,052
Shareholders' equity 343,574 304,903 295,154
Total liabilities and shareholders' equity $ 4,712,404 $ 4,478,369 $ 4,434,206
Net interest-rate spread (tax-equivalent) 3.10 % 3.44 % 3.53 %
Net interest income (tax-equivalent) 148,892 154,329 153,171
Net interest margin (tax-equivalent) 3.23 % 3.51 % 3.54 %
Less tax-equivalent adjustment 1,028 1,245 1,373
Net interest income $ 147,864 $ 153,084 $ 151,798
Net interest margin 3.20 % 3.48 % 3.51 %
_________________________________________
(1)Average yields and interest income are presented on a tax-equivalent basis, calculated using a U.S. federal corporate income tax rate of 21% in the years ended 2024, 2023 and 2022, based on tax-equivalent adjustments associated with tax-exempt loans and investments interest income.
(2)Average other interest-earning assets includes interest-earning deposits with banks, fed funds sold, and FHLB stock.
(3)Average investments are presented at average amortized cost.
(4)Average loans and loans held for sale are presented at average amortized cost and include non-accrual loans.
(5)The subordinated debt is net of average deferred debt issuance costs.
Provision for Credit Losses
The provision for credit losses for each of the years ended December 31, 2024 and December 31, 2023 are presented below:
Year ended Increase / (Decrease)
(Dollars in thousands) December 31,
2024 December 31,
Provision for credit losses on loans - collectively evaluated
$ 1,463 $ 4,184 $ (2,721)
Provision for credit losses on loans - individually evaluated
3,246 2,276 970
Provision for credit losses on loans 4,709 6,460 (1,751)
Provision for unfunded commitments (2,724) 2,789 (5,513)
Provision for credit losses $ 1,985 $ 9,249 $ (7,264)
The primary components of the provision for credit losses during the year ended December 31, 2024, compared to December 31, 2023, were as follows:
•Provision expense on loans collectively evaluated of $1.5 million, a decrease of $2.7 million, due primarily to the impact of an improved economic forecast in our ACL model, partially offset by growth in commercial real estate and commercial construction loans;
•Provision expense on loans individually evaluated of $3.2 million, an increase of $1.0 million, due primarily to the addition of two individually evaluated commercial relationships with cumulative reserves of $3.6 million at December 31, 2024, partially offset by;
•A negative provision for unfunded commitments of $2.7 million due to a decrease in off-balance sheet commitments that required a reserve and, to a lesser extent, the impact of reduced general reserve factors in our ACL model.
At December 31, 2024, the ACL for loans to total loans ratio was 1.59% compared to 1.65% at December 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 "Credit Risk," and "ACL for Loans" included in the section titled "Financial Condition," contained in this Item 7 of this Form 10-K above, for further information regarding the provision for credit losses.
Non-Interest Income
Non-interest income for the year ended December 31, 2024, amounted to $22.9 million, an increase of $5.3 million, or 30%, compared to the prior year.
The following table sets forth the components of non-interest income and the related changes for the periods indicated:
Year Ended December 31,
(Dollars in thousands) 2024 2023 Change % Change
Wealth management fees $ 7,888 $ 6,730 $ 1,158 17 %
Deposit and interchange fees 8,875 8,475 400 5 %
Income on bank-owned life insurance, net 2,001 1,264 737 58 %
Net losses on sales of debt securities
(2) (2,419) 2,417 (100) %
Net gains on sales of loans 156 34 122 359 %
Gains on equity securities
1,140 666 474 71 %
Other income 2,821 2,859 (38) (1) %
Total non-interest income $ 22,879 $ 17,609 $ 5,270 30 %
The primary components of the increase in non-interest income during the year ended December 31, 2024, were as follows:
•Net losses on sales of debt securities of $2 thousand and gains on equity securities of $1.1 million while non-interest income in the prior year included net losses on sales of debt securities of $2.4 million and gains on equity securities of
$666 thousand.
•Excluding these items, non-interest income for the year ended December 31, 2024 increased $2.4 million, or 12%, compared to the year ended December 31, 2023, due primarily to increases in wealth management fees of $1.2 million and income on bank-owned life insurance of $737 thousand. The increase in wealth management fees was due primarily to an increase in assets under management and administration during the year ended December 31, 2024 resulting from growth in new assets and market value appreciation. The increase in income on bank-owned life insurance was driven by higher credit rates from our existing insurance providers and from an exchange near the end of 2023 to a higher yielding insurance provider.
Non-Interest Expense
Non-interest expense for the year ended December 31, 2024, amounted to $117.1 million, an increase of $6.9 million, or 6%, compared to the prior year.
The following table sets forth the components of non-interest expense and the related changes for the periods indicated:
Year Ended December 31,
(Dollars in thousands) 2024 2023 Change % Change
Salaries and employee benefits $ 78,224 $ 72,283 $ 5,941 8 %
Occupancy and equipment expenses 9,667 9,722 (55) (1) %
Technology and telecommunications expenses 10,708 10,656 52 - %
Advertising and public relations expenses 2,585 2,786 (201) (7) %
Audit, legal and other professional fees 2,474 2,945 (471) (16) %
Deposit insurance premiums 3,571 2,712 859 32 %
Supplies and postage expenses 980 998 (18) (2) %
Merger-related expenses
1,137 - 1,137 100 %
Other operating expenses 7,786 8,097 (311) (4) %
Total non-interest expense $ 117,132 $ 110,199 $ 6,933 6 %
The primary components of the increase in non-interest expense during the year ended December 31, 2024, are as follows:
•Non-interest expense in the prior year was impacted by the receipt of $3.6 million in ERCs, which the Company recognized as a reduction to salaries and employee benefits expense. Excluding this item, non-interest expense for the year ended December 31, 2024, increased $3.3 million, or 3%.
•Salaries and employee benefits expenses amounted to $78.2 million for the year ended December 31, 2024, an increase of $2.3 million, or 3%, excluding ERCs, due primarily to annual merit increases.
•Deposit insurance premiums increased $859 thousand, or 32%, due primarily to loan growth.
•Merger-related expenses increased $1.1 million due to the costs incurred related to the proposed Merger with Independent.
Income Tax Expense
The effective tax rate was 25.0% and 25.7% for the years ended December 31, 2024 and 2023, respectively.
Results of Operations Comparison of Years Ended December 31, 2023 and 2022
For a comparison of the results of operations for the years ended December 31, 2023 and 2022, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, as filed with SEC on March 8, 2024 (the "2023 Form 10-K").
Financial Condition
Total assets amounted to $4.83 billion at December 31, 2024, compared to $4.47 billion at December 31, 2023, an increase of $361.7 million, or 8%. The balance sheet composition and changes compared to December 31, 2023, are discussed below.
Cash and cash equivalents
Cash and cash equivalents may be comprised of cash on hand and cash items due from other banks, interest-earning deposits with banks (deposit accounts, excess reserve cash balances, money markets, and money market mutual funds accounts), and short-term treasury securities.
Cash and cash equivalents amounted to $83.8 million at December 31, 2024, compared to $56.6 million at December 31, 2023, an increase of $27.2 million, or 48%. As of December 31, 2024, cash and cash equivalents represented 2% of total assets compared to 1% of total assets at December 31, 2023.
Investments
At December 31, 2024, the fair value of the investment portfolio amounted to $593.6 million, a decrease of $74.6 million, or 11%, since December 31, 2023. As of December 31, 2024, the investment portfolio represented 12% of total assets, compared to 15% of total assets at December 31, 2023, and was comprised primarily of debt securities, classified as available-for-sale, with a small portion of the portfolio invested in equity securities at each period. The decrease over the respective periods was attributable to sales of debt securities as well as principal pay-downs, calls and maturities.
During the year ended December 31, 2024, the Company had no purchases of debt securities. Principal pay-downs, calls and maturities amounted to $77.3 million and the Company sold debt securities with an amortized cost of $214 thousand realizing net losses on these sales of $2 thousand.
During the year ended December 31, 2023, the Company had no purchases of debt securities. Principal pay-downs, calls and maturities amounted to $88.2 million and sold debt securities with an amortized cost of $87.2 million realizing net losses on these sales of $2.4 million. Sales of debt securities during the year ended December 31, 2023 was made in order to improve the Company's balance sheet positioning and enhance future earnings.
Net unrealized losses on the debt securities portfolio amounted to $101.8 million at December 31, 2024, compared to $102.9 million at December 31, 2023. Management has concluded that the unrealized losses resulted from significant increases in market interest rates relative to the book yield on the securities held and that no allowance for credit losses was considered necessary as of December 31, 2024.
Debt Securities
The following table summarizes the fair value of debt securities at the dates indicated:
December 31,
2024 2023 2022
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
Federal agency obligations $ - - % $ 4,978 1 % $ 4,977 1 %
U.S. Treasury securities
6,232 1 % 15,925 2 % 43,251 5 %
Federal agency CMO
284,187 49 % 334,751 50 % 406,982 50 %
Federal agency MBS
17,192 3 % 18,812 3 % 21,021 3 %
Taxable municipal securities 228,221 39 % 226,977 34 % 239,277 29 %
Tax-exempt municipal securities 35,979 6 % 45,419 7 % 83,653 10 %
Corporate bonds 3,419 1 % 3,966 1 % 6,294 1 %
Subordinated corporate bonds 8,700 1 % 10,285 2 % 10,647 1 %
Total debt securities $ 583,930 100 % $ 661,113 100 % $ 816,102 100 %
Management continuously monitors and evaluates the debt securities portfolio to identify and assess risks within the portfolio, including, but not limited to, the impact of the current market interest-rate environment, prepayment risk, and credit quality.
The mix of debt securities at December 31, 2024, compared to December 31, 2023, remained relatively unchanged. At December 31, 2024, the Company's debt securities portfolio consisted of 53% in U.S. government or U.S. federal agency bonds and 45% in taxable and tax-exempt municipal bonds. The effective duration of debt securities portfolio at December 31, 2024 was approximately 5.0 years compared to 5.1 years at December 31, 2023.
The contractual maturity distribution as of December 31, 2024, of the debt securities portfolio with the weighted average tax-equivalent yield for each category is set forth below:
Under 1 Year >1 - 5 Years >5 - 10 Years Over 10 Years
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
At amortized cost:
U.S. Treasury securities $ - - % $ 6,998 1.01 % $ - - % $ - - %
Federal agency CMO 7,745 2.77 % 715 2.57 % 4,968 1.60 % 334,073 1.85 %
Federal agency MBS - - % 5,700 2.72 % 306 2.69 % 14,192 2.12 %
Taxable municipal securities 660 2.79 % 71,350 2.56 % 187,127 2.16 % 2,000 2.57 %
Tax-exempt municipal securities 4,481 3.23 % 16,979 3.36 % 13,862 3.49 % 1,137 2.96 %
Corporate bonds 900 3.51 % 2,573 3.68 % - - % - - %
Subordinated corporate bonds - - % - - % 10,000 3.73 % - - %
Total debt securities $ 13,786 2.97 % $ 104,315 2.62 % $ 216,263 2.31 % $ 351,402 1.87 %
Total debt securities at fair value $ 13,684 $ 98,143 $ 186,185 $ 285,918
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 $128.4 million, which can be redeemed by the issuer prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.
Loans
This discussion should be read in conjunction with the material presented in Item 1, "Business," under the heading "Lending Products" of this Form 10-K, above.
At December 31, 2024, total loans amounted to $3.98 billion, an increase of $415.3 million, or 12%, since December 31, 2023. As of December 31, 2024, total loans represented 83% of total assets, compared to 80% of total assets at December 31, 2023.
The following table sets forth the loan balances by certain loan categories at the dates indicated and the percentage of each category to total loans:
December 31,
2024 2023 2022
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
Commercial real estate owner occupied
$ 704,634 18 % $ 619,302 17 % $ 587,908 19 %
Commercial real estate non-owner occupied
1,563,201 39 % 1,445,435 41 % 1,333,502 42 %
Commercial and industrial 479,821 12 % 430,749 12 % 414,490 13 %
Commercial construction 679,969 17 % 585,113 16 % 424,049 13 %
Total commercial loans 3,427,625 86 % 3,080,599 86 % 2,759,949 87 %
Residential mortgages 443,096 11 % 393,142 11 % 332,632 10 %
Home equity 103,858 3 % 85,375 3 % 79,807 3 %
Consumer 8,319 - % 8,515 - % 8,130 - %
Total retail loans 555,273 14 % 487,032 14 % 420,569 13 %
Total loans 3,982,898 100 % 3,567,631 100 % 3,180,518 100 %
Allowance for credit losses (63,498) (58,995) (52,640)
Net loans $ 3,919,400 $ 3,508,636 $ 3,127,878
At or for the year ended December 31, 2024:
•Non-investor commercial loans, consisting of owner-occupied commercial real estate and commercial and industrial loans, increased $134.4 million, or 13%.
•Commercial real estate non owner-occupied loans increased $117.8 million, or 8%.
•The composition of owner and non owner-occupied commercial real estate loans has remained relatively consistent compared to December 31, 2023. Commercial real estate loans collectively make up 57% of the total loan portfolio and were comprised of approximately 31% in owner-occupied loans and 69% in non owner-occupied loans. Growth since the prior period was primarily from continued customer demand and business development efforts.
◦Non owner-occupied commercial real estate loans were comprised of approximately 28% multi-family, 16% 1-4 family, 12% retail, and 11% office. All other categories fell below 10% of total non owner-occupied commercial real estate loans.
◦Non owner-occupied commercial real estate loans secured by office buildings amounted to 4% of total loans which were located mainly in suburban areas and were modest in physical size.
◦Non owner-occupied commercial real estate loans 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.
•Commercial construction loans increased $94.9 million, or 16%, due to continued growth driven primarily by residential development projects to meet the strong demand for housing in our market area, partially offset by pay downs, payoffs, and transfers of construction loans to the permanent commercial real estate segments.
•The composition of the commercial construction segment has remained relatively consistent compared to December 31, 2023.
◦Commercial construction loans were comprised of approximately 27% multi-family, 22% residential condominiums, 12% single residential lots and 11% land approved for development. All other collateral categories each fell below 10% of total commercial construction loans.
•Total retail loans increased $68.2 million, or 14%, since December 31, 2023. The increase resulted from higher origination volume. Residential secured one-to-four family mortgage loans continue to make up the largest portion of the retail segment.
At December 31, 2024, commercial loan balances participated out to various banks amounted to $77.4 million, compared to $69.8 million at December 31, 2023. These 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 $163.7 million, or 4.1% of total loans, and $126.6 million, or 3.5% of total loans, at December 31, 2024 and 2023, respectively.
See also Note 3, "Loans," to the Company's consolidated financial statements, contained in Item 8 of this Form 10-K, below, for information on related party loans, loans serviced for others and loans pledged as collateral.
The following table sets forth the scheduled maturities of commercial real estate, commercial and industrial and commercial construction loans in the Company's portfolio at December 31, 2024. The table also sets forth the dollar amount of loans which are scheduled to mature after one year which have fixed or adjustable rates.
(Dollars in thousands) Commercial
Real Estate Owner-Occupied
Commercial
Real Estate Non Owner-Occupied
Commercial &
Industrial Commercial
Construction
Amounts due(1):
One year or less, and demand notes $ 18,469 $ 64,731 $ 194,040 $ 308,004
After one year through five years 149,895 367,187 144,348 152,345
After five years through fifteen years
379,634 804,378 126,593 118,745
Beyond fifteen years
157,655 325,886 14,840 100,875
$ 705,653 $ 1,562,182 $ 479,821 $ 679,969
Interest rate terms on amounts due after one year:
Fixed $ 80,086 $ 144,817 $ 126,048 $ 62,546
Adjustable(2)
$ 607,098 $ 1,352,634 $ 159,733 $ 309,419
____________________________________________
(1) Scheduled contractual maturities may not reflect the actual maturities of loans. The average maturity of loans may be shorter than their contractual terms principally due to prepayments and demand features.
(2) Adjustable-rate loans may have fixed initial periods before periodic rate adjustments begin.
Credit Risk
Non-performing assets are comprised of non-accrual loans (loans contractually past due, with respect to interest or principal, by 90 days, or where reasonable doubt exists as to the full and timely collection of interest or principal), and OREO. The designation of a loan or other asset as non-performing does not necessarily indicate that loan principal and interest will ultimately be uncollectible. However, management recognizes the greater risk characteristics of these assets and therefore considers the potential risk of loss on assets included in this category in evaluating the adequacy of the allowance for credit losses. The level of delinquent and non-performing assets is largely a function of economic conditions and the overall banking environment and the individual business circumstances of borrowers. Despite prudent loan underwriting, adverse changes within the Company's market area, or deterioration in local, regional, or national economic conditions, could negatively impact the Company's level of non-performing assets in the future.
See item (h) "Loans" contained in Note 1, "Summary of Significant Accounting Policies" of this Form 10-K, for additional information on the Company's loan accounting policies and Credit Risk monitoring.
The following table sets forth information regarding the Company's loan portfolio asset quality as of the dates indicated:
December 31,
(Dollars in thousands) 2024 2023 2022
Non-performing loan summary:
Commercial real estate owner-occupied $ 2,374 $ 2,683 $ 1,285
Commercial real estate non owner-occupied 3,457 2,686 2,070
Commercial and industrial 4,029 4,262 730
Commercial construction 14,639 - 294
Residential mortgages 1,931 1,526 1,532
Home equity 257 257 211
Consumer - - -
Total non-accrual loans 26,687
11,414 6,122
Total adversely classified loans $ 50,732 $ 56,650 $ 46,998
Total loans $ 3,982,898 $ 3,567,631 $ 3,180,518
Adversely classified loans to total loans 1.27 % 1.59 % 1.48 %
Loans 60-89 days past due and still accruing to total loans 0.07 % - % 0.04 %
Non-performing loans to total loans 0.67 % 0.32 % 0.19 %
Non-performing assets to total assets 0.55 % 0.26 % 0.14 %
Allowance for credit losses for loans $ 63,498 $ 58,995 $ 52,640
Allowance for credit losses for loans to non-performing loans 237.94 % 516.87 % 859.85 %
Allowance for credit losses for loans to total loans 1.59 % 1.65 % 1.66 %
Loans which are evaluated to be of weaker credit quality are classified as adverse and placed on the Company's "watch asset list" and reviewed on a more frequent basis by management. Adversely classified loans may be performing in accordance with their original terms or past due in respect to principal or interest and therefore additionally classified as non-performing loans.
The increase in non-performing loans from December 31, 2023 to December 31, 2024 was attributable primarily to two individually evaluated commercial construction loans, which were placed on non-accrual in the first and third quarters of 2024.
•The commercial construction loan that was placed on non-accrual during the first quarter of 2024 was secured by a multi-family property, had an outstanding balance of $7.9 million and a specific reserve of $340 thousand at December 31, 2024. Due to the on-going construction and improvement in the valuation of the collateral property, which had an approximate percentage of completion of 82% at December 31, 2024, specific reserves were decreased by $1.3 million since it was placed on non-accrual.
•The commercial construction loan that was placed on non-accrual during the third quarter of 2024 was a participation loan originated by another local institution secured by a lab and office space building. Enterprise's participation in the outstanding balance was $6.7 million and a specific reserve of $3.3 million was assigned at December 31, 2024. At December 31, 2024, the building was vacant while the lead bank works with the borrowers to sell the facility. The Company had no other significant exposure to loans secured by lab space at December 31, 2024.
The Company had no OREO at December 31, 2024, 2023 or 2022, and therefore non-performing loans were the only component of non-performing assets at those periods.
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 since December 31, 2023. See item (j) "Credit Risk Management and ACL for Loans Methodology" contained in Note 1, "Summary of Significant Accounting Policies" of this Form 10-K, for additional information on the Company's loan accounting policies, Credit Risk monitoring, and ACL methodology.
The following table sets forth the allocation of the Company's ACL among the categories of loans, the percentage of ACL allocated by category of loans to the total ACL, and the percentage of loans in each category to total loans for the periods ending on the respective dates indicated:
December 31,
2024 2023 2022
(Dollars in thousands) ACL Allocation % of ACL Allocation % of Total Loans ACL Allocation % of ACL Allocation % of Total Loans ACL Allocation % of ACL Allocation % of Total Loans
Commercial real estate owner-occupied $ 10,813 17 % 18 % $ 10,455 18 % 17 % $ 10,304 19 % 19 %
Commercial real estate non owner-occupied 27,774 44 % 39 % 27,619 47 % 41 % 26,260 50 % 42 %
Commercial and industrial 9,940 16 % 12 % 11,089 19 % 12 % 8,896 17 % 13 %
Commercial construction 11,765 19 % 17 % 6,787 11 % 16 % 3,961 8 % 13 %
Residential mortgages 2,205 3 % 11 % 2,152 4 % 11 % 2,255 4 % 10 %
Home equity 746 1 % 3 % 579 1 % 3 % 633 1 % 3 %
Consumer 255 - % - % 314 - % - % 331 1 % - %
Total $ 63,498 100 % 100 % $ 58,995 100 % 100 % $ 52,640 100 % 100 %
The following table summarizes the activity in the ACL for loans for the periods indicated:
Years Ended December 31,
(Dollars in thousands) 2024 2023 2022 2021 2020
Beginning balance $ 58,995 $ 52,640 $ 47,704 $ 44,565 $ 33,614
Day one CECL adjustment - - - 6,560 -
Provision for credit losses on loans
4,709 6,460 5,175 543 12,499
Recoveries on charged-off loans:
Commercial real estate owner-occupied - - - 39 -
Commercial real estate non owner-occupied - - - - -
Commercial and industrial 366 497 242 139 265
Commercial construction - 1 - 105 -
Residential mortgages - - - - -
Home equity 7 12 11 71 45
Consumer 39 17 19 9 36
Total recovered $ 412 $ 527 $ 272 $ 363 $ 346
Charged-off loans:
Commercial real estate owner-occupied - - - - -
Commercial real estate non owner-occupied - - 250 1,825 -
Commercial and industrial 519 596 210 2,477 561
Commercial construction - - - - 1,300
Residential mortgages - - - - -
Home equity - - - - -
Consumer 99 36 51 25 33
Total charged-off $ 618 $ 632 $ 511 $ 4,327 $ 1,894
Net loans charged-off $ 206 $ 105 $ 239 $ 3,964 $ 1,548
Ending balance $ 63,498 $ 58,995 $ 52,640 $ 47,704 $ 44,565
Average loans outstanding $ 3,761,041 $ 3,328,729 $ 3,035,012 $ 2,969,371 $ 2,984,100
Net charge-offs to average loans 0.01 % - % 0.01 % 0.13 % 0.05 %
Recoveries to charge-offs 66.67 % 83.39 % 53.23 % 8.39 % 18.27 %
Net loans charged-off to allowance 0.32 % 0.18 % 0.45 % 8.31 % 3.47 %
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 assumptions for both the likelihood and amount of funding over the estimated life of commitments which are not unconditionally cancellable, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates.
The Company’s reserve for unfunded commitments amounted to $4.4 million as of December 31, 2024 and $7.1 million at December 31, 2023. The decrease in the reserve for unfunded commitments resulted primarily by a decrease in off-balance sheet commitments that required a reserve and, to a lesser extent, the impact of reduced general reserve factors in our ACL model during the year ended December 31, 2024.
Based on the foregoing, management believes that the Company's ACL for loans and reserve for unfunded commitments is adequate as of December 31, 2024.
Deposits
As of December 31, 2024, total deposits amounted to $4.19 billion, an increase of $210.2 million, or 5%, compared to December 31, 2023. Total deposits represented 87% of total assets at December 31, 2024 and 89% at December 31, 2023.
The increase was driven primarily by increases in money market account balances of $51.5 million, or 4%, and CD account balances of $164.1 million, or 32%, as customers sought higher yielding deposit products. Lower cost checking and savings accounts comprised 49% of total deposits at December 31, 2024, compared to 52% at December 31, 2023.
The following table sets forth the deposit balances by certain categories as of the dates indicated and the percentage of each category to total deposits:
December 31, 2024 December 31, 2023 December 31, 2022
(Dollars in thousands) Amount Percent
Amount Percent
Amount Percent
Non-interest checking $ 1,077,998 26 % $ 1,061,009 27 % $ 1,351,932 34 %
Interest-bearing checking 699,671 17 % 697,632 18 % 678,715 17 %
Savings 270,367 6 % 294,865 7 % 336,322 8 %
Money markets 1,454,443 35 % 1,402,939 35 % 1,381,645 34 %
CDs 685,219 16 % 521,076 13 % 287,192 7 %
Deposits
$ 4,187,698 100 % $ 3,977,521 100 % $ 4,035,806 100 %
The Company offers its customers the ability to enhance FDIC insurance coverage by electing to participate a portion of their deposit balance into nationwide deposit networks, with an equal and reciprocal balance deposited to the Company through the network. The Company’s total customer deposit balances reflect the reciprocal deposits received from other banks' customers participating in the programs. Essentially, the equivalent of the original customers' deposited funds comes back to the Company and are carried within the appropriate category under total customer deposits. Additional capacity to utilize these enhanced FDIC insured products exceeds the Company's total deposits balance. The Company's balances in these reciprocal products were $903.2 million, $835.0 million, and $589.7 million at December 31, 2024, 2023 and 2022, respectively. Savings accounts are not eligible for this program.
The following table shows the scheduled maturities of CDs greater than $250,000:
(Dollars in thousands) December 31, 2024 December 31, 2023
Due in three months or less $ 140,066 $ 49,545
Due in greater than three months through six months 64,510 82,034
Due in greater than six months through twelve months 79,893 86,622
Due in greater than twelve months 22,792 7,086
Total CDs greater than $250,000 $ 307,261 $ 225,287
The table below sets forth a comparison of the Company's average deposits and average rates paid for the periods indicated. The annualized average rate on total deposits reflects both interest-bearing and non-interest-bearing deposits.
Year ended December 31,
2024 2023 2022
(Dollars in thousands) Average
Balance Average
Rate Average
Balance Average
Rate Average
Balance Average
Rate
Non-interest checking $ 1,070,290 - % $ 1,224,101 - % $ 1,412,694 - %
Interest checking 720,753 0.68 % 685,347 0.38 % 696,639 0.07 %
Savings 283,842 0.31 % 310,979 0.16 % 346,805 0.05 %
Money market 1,494,203 2.86 % 1,417,613 1.96 % 1,348,254 0.25 %
Total interest-bearing non-term deposits 2,498,798 1.94 % 2,413,939 1.28 % 2,391,698 0.17 %
CDs 621,576 4.51 % 415,840 3.23 % 221,050 0.73 %
Total $ 4,190,664 1.83 % $ 4,053,880 1.09 % $ 4,025,442 0.14 %
Borrowed Funds
At December 31, 2024 and 2023, borrowed funds amounted to $153.1 million and $25.8 million, respectively, and were comprised of advances from the FRB and FHLB as well as secured borrowings from the NH BFA.
At December 31, 2024, the Company had the capacity to borrow additional funds from the FHLB and FRB of up to approximately $670.0 million and $300.0 million, respectively. Additionally, the Company had the capacity to borrow unsecured brokered funding through existing broker relationships. The Company's wholesale funding sources included primarily borrowing capacity at the FHLB, FRB and brokered deposits. At December 31, 2024, the Company had no unsecured brokered deposits.
The table below shows the comparison of the Company's average borrowed funds and average rates paid for the periods indicated:
Year ended December 31,
2024 2023 2022
(Dollars in thousands) Average
Balance Average
Cost Average
Balance Average
Cost Average
Balance Average
Cost
FHLB advances $ 4,886 2.97 % $ 3,548 2.65 % $ 3,266 1.59 %
FRB advances
45,838 4.86 % 534 3.39 % - - %
Other borrowed funds 5,535 0.95 % 1,008 0.13 % 20 - %
Total borrowed funds $ 56,259 4.31 % $ 5,090 2.23 % $ 3,286 1.58 %
In the table above, "Other borrowings" represent term NH BFA advances or advances from correspondent banks, advanced as part of our annual test of these external funding facilities.
Subordinated Debt
The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.8 million at December 31, 2024, and $59.5 million at December 31, 2023. The subordinated notes are due in 2030 and have a fixed rate of 5.25% through July 15, 2025, at which point the notes become callable and floating through maturity. The interest rate shall reset quarterly to an interest rate per annum equal to a benchmark rate that is expected to be the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 517.5 basis points, payable quarterly in arrears. The subordinated notes qualify as Tier 2 capital at the holding company of the bank for regulatory purposes.
Shareholders' Equity
Total shareholders' equity amounted to $360.7 million at December 31, 2024, compared to $329.1 million at December 31, 2023, an increase of $31.6 million, or 10%. The increase was due primarily to an increase in retained earnings of $26.9 million, consisting primarily of $38.7 million in net income less $10.3 million in dividends, net of reinvestment.
For the years ended December 31, 2024 and 2023, the Company declared cash dividends of $11.9 million and $11.2 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 54,698 shares and 50,443 shares, totaling $1.6 million and $1.5 million, respectively.
Derivatives and Hedging
Derivatives designated as hedging instruments
As of December 31, 2024 and 2023, the Company had three pay fixed, receive float, interest rate swap agreements with a cumulative notional value of $100.0 million, of which $50.0 million matures in June 2025 and $50.0 million matures in September 2025. 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. At December 31, 2024 and December 31, 2023, the fair value of these interest rate swap agreements, carried on the Company's Consolidated Balance Sheets as a liability, was $336 thousand and $760 thousand, respectively.
Derivatives not subject to hedge accounting
The notional value of back-to-back interest-rate swaps with customers and counterparties amounted to $3.2 million at December 31, 2024 and $7.5 million at 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 $321 thousand at December 31, 2024, compared to $630 thousand at December 31, 2023.
Risk Participation Agreements
The notional value of RPAs sold amounted to $46.4 million at December 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 $25 thousand at December 31, 2024 and $65 thousand at December 31, 2023.
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 policies are set and monitored by the Company's Board. The duties and responsibilities related to asset-liability management matters are also covered by the Board. The Company's asset-liability objectives are to engage in sound balance sheet management strategies, maintain liquidity, provide and enhance access to a diverse and stable source of funds, provide competitively priced and attractive products to customers and conduct funding at a low-cost relative to current market conditions. Funds gathered are used to support current commitments, to fund earning asset growth, and to take advantage of selected leverage opportunities.
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.
Management believes that the Company has adequate liquidity to meet its obligations. However, if general economic conditions 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 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 is subject to various regulatory capital requirements administered by the federal banking agencies. The Company's capital policies and capital levels are monitored internally on a quarterly basis and capital planning is reviewed at least annually by the Board.
Failure to meet minimum capital requirements can initiate or result in certain mandatory and possible additional discretionary supervisory actions by regulators, which if undertaken, could have a material adverse effect on the Company's consolidated financial condition. At December 31, 2024, the capital levels of both the Company and the Bank complied with all applicable minimum capital requirements of the Federal Reserve Board and the FDIC, respectively. Additionally, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.
The Company's total capital and tier 1 capital to risk-weighted assets amounted to 13.06% and 10.38%, respectively, at December 31, 2024, compared to 13.12% and 10.34%, respectively, at December 31, 2023. Tier 1 capital to average assets amounted to 8.94% at December 31, 2024, compared to 8.74% at December 31, 2023.
See also Note 12, "Shareholders' Equity," to the Company's consolidated financial statements, contained in Item 8 of this Form 10-K below, for additional information regarding the capital requirements applicable to the Company and the Bank and their respective capital levels at December 31, 2024. For additional information on the Company's capital planning, see the section entitled "Capital Resources" contained in Item 1, "Business," of this Form 10-K.
Contractual Obligations and Commitments
The Company is required to make future cash payments under various contractual obligations. The following table summarizes the contractual cash obligations at December 31, 2024:
Payments Due by Period
(Dollars in thousands) Total Within
1 Year
>1 - 5
Years
>5 - 15
Years
After 15
Years
Contractual cash obligations:
CDs $ 685,219 $ 650,541 $ 34,676 $ 2 $ -
FHLB borrowings 147,746 145,000 - 391 2,355
Other borrowings 5,390 - 270 2,837 2,283
Subordinated debt 60,000 - - - 60,000
Supplemental retirement plans 1,111 276 811 24 -
Operating lease obligations 37,598 1,457 5,901 14,153 16,087
Total contractual obligations $ 937,064 $ 797,274 $ 41,658 $ 17,407 $ 80,725
The Company is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in the particular classes of financial instruments.
The following table summarizes the contractual commitments at December 31, 2024:
Commitment Expiration - By Period
(Dollars in thousands) Total Within
1 Year
>1 - 5
Years
>5 - 15
Years
After 15
Years
Other Commitments:
Unadvanced loans and lines $ 1,107,168 $ 709,247 $ 268,788 $ 120,389 $ 8,744
Commitments to originate loans 35,327 35,327 - - -
Letters of credit 20,166 16,089 3,953 124 -
Commitments to originate loans for sale 1,008 1,008 - - -
Commitments to sell loans 520 520 - - -
Customer related interest-rate swaps notional amount(1)
3,212 - - - 3,212
Risk participation agreement notional amount 46,387 - - - 46,387
Total commitments $ 1,213,788 $ 762,191 $ 272,741 $ 120,513 $ 58,343
__________________________________________________________________________________
(1) Offsetting positions to these interest-rate swaps are entered into with a counterparty. Notional principal amounts are not actually exchanged.
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 services, including investment management, brokerage, annuities, trust, and 401(k) plan administration.
Wealth assets under management amounted to $1.23 billion at December 31, 2024. The increase of $152.3 million, or 14%, compared to December 31, 2023, was due primarily to an increase in market values and new asset growth.
Wealth assets under administration amounted to $305.9 million at December 31, 2024. The increase of $63.6 million, or 26%, compared to December 31, 2023, resulted primarily from an increase in market values.
Impact of Inflation and Changing Prices
The Company's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Company are monetary in nature. Management believes the impact of inflation on financial results depends upon the Company's ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services. As discussed previously, management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation.
Various information shown elsewhere in this annual report will assist in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends. In particular, additional information related to the net interest margin sensitivity analysis is contained in Item 7A of this Form 10-K below and other maturity and repricing information of the Company's interest rate-sensitive assets and liabilities is contained in this Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K under the heading "Financial Condition" in this report.
Accounting Policies/Critical Accounting Estimates
The Company's significant accounting policies are described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. The most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses for loans, and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.
ACL for Loans
The CECL methodology requires early recognition of credit losses using a lifetime credit loss measurement approach that takes into consideration reasonable and supportable forecasts. The ACL for loans is established through a provision for credit losses, recorded as a direct charge to earnings. The ACL for loans is a valuation account that is deducted from the amortized cost to present the net amount of the loan portfolio expected to be collected. Credit losses are charged against the ACL for loans when management believes that the collectability of the amortized cost of the loan's principal balance is unlikely. Recoveries on loans previously charged-off are credited to the ACL for loans, generally at the time cash is received on a charged-off account.
Arriving at an appropriate level of ACL for loans involves a high degree of management judgement. The underlying assumptions, estimates and assessments used to estimate the ACL for loans reflects the Company’s best estimate of model assumptions and forecasted conditions at that time. Changes in such estimates can significantly affect the ACL for loans and the provision for credit losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL for loans. It is possible and likely that the Company will experience credit losses that are different from the current estimates. The Company uses a systematic methodology to measure the amount of estimated credit losses. The methodology applies general reserves for larger groups of homogeneous loans segmented by loan type and specific reserves for loans individually evaluated.
In making its assessment on the adequacy of the general reserves of ACL for loans, management considers several quantitative and qualitative factors from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts, including: the expected duration of the loans segments, the trends in risk classification of individual loans; individual review of larger and higher risk problem assets; the level of delinquent, non-performing, and individually evaluated loans; the level of hardship loan modifications; foreclosure activity; net charge-offs; commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; as well as trends in the general levels of these indicators. In addition, management monitors expansion in the Company's geographic market area, the experience level of lenders and any changes in underwriting criteria, the strength of the local and national economy, including general conditions in the multi-family, commercial real estate and development and construction markets in the Company's local region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. Management also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as management deems necessary, acknowledging that it can take time for economic results to work through the loan portfolio with charge-offs often occurring years after the economic downturn.
For loans individually evaluated, the Company generally requires an internal evaluation or independent appraisal of the collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations.
Reserve for unfunded commitments
The reserve for unfunded commitments is included in the line item "Accrued expenses and other liabilities" on the Company’s Consolidated Balance Sheets. The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates.
ACL for Available-for-Sale Securities
There are inherent risks associated with the Company's investment activities that could adversely impact the fair value and the ultimate collectability of the Company's investments. The Company primarily invests in debt securities. At December 31, 2024, the Company also held immaterial amounts of equity securities and FHLB stock.
The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference between the security’s amortized cost basis and its fair value as a write-down of the investment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include among other considerations (1) the
present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, and (4) structure of the security. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses for available-for-sale securities would be recorded, with a related charge to earnings, limited by the amount of the fair value of the security less its amortized cost.
Impairment Review of Goodwill
In accordance with GAAP, the Company does not amortize goodwill and instead, at least annually, evaluates whether the carrying value of goodwill has become impaired. A determination that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a resulting charge to the Company's Consolidated Statement of Income. Goodwill is evaluated at the reporting unit level. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.
The Company has the option to perform either (i) a qualitative assessment of whether it is "more likely than not" that the reporting unit's fair value is less than its book value, or (ii) a quantitative assessment.
1.Management's qualitative assessment would take into consideration, among other items, macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and share price. Based on the qualitative assessment, if the Company were to conclude: (a) it is "more likely than not" that the fair value of a reporting unit exceeds its book value, goodwill is deemed not impaired, or (b) it is "more likely than not" that the fair value of a reporting unit is less than its book value, a quantitative goodwill analysis must be performed.
2.The Company may elect to forgo the qualitative assessment and perform the quantitative analysis even if management does not believe that is "more likely than not" that goodwill is impaired. The quantitative goodwill analysis compares the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit equals or exceeds its book value, goodwill is deemed not impaired. If the book value of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized for the difference between these amounts, not exceeding the goodwill carrying amount.
At December 31, 2024, based on the Company's quantitative analysis, goodwill was deemed not to be impaired.
Recent Accounting Pronouncements
See Note 1, "Summary of Significant Accounting Policies," Item (y) "Recent Accounting Pronouncements," to the Company's consolidated financial statements, contained in Item 8 of this Form 10-K below, for information regarding recent accounting pronouncements.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A.Quantitative and Qualitative Disclosures About Market Risk
Interest Margin Sensitivity Analysis
The Company's primary market risk is interest-rate risk. Oversight of interest-rate risk management is the responsibility of the Board. Annually, the Board reviews and approves the Company's asset-liability management policy, which provides management with guidelines for controlling interest-rate risk, as measured through net interest income sensitivity to changes in interest rates, within certain tolerance levels. The Board also establishes and monitors guidelines for the Company's liquidity, capital ratios and asset-liability management.
The Company's asset-liability management strategies and guidelines are reported to the Board on a periodic basis. These strategies and guidelines are revised based on changes in interest-rate levels, general economic conditions, competition in the marketplace, the current interest-rate risk position of the Company, anticipated growth and other factors.
One of the principal factors in maintaining planned levels of net interest income is the ability to design effective strategies to manage the impact of interest rate changes on future net interest income. Quarterly, management completes a net interest income sensitivity analysis and reports the results to the Board. This analysis includes a simulation of the Company's net interest income under various interest-rate scenarios and assumes no future growth (i.e., static balance sheet). Variations in the interest-rate environment affect numerous factors, including prepayment speeds, reinvestment rates, maturities of investments (due to call provisions), ability to attract deposits and other funding, and interest rates on various asset and liability accounts.
Results of this analysis are also impacted by changes in liquidity, such as fluctuations in the balances of short-term investments
and overnight borrowings.
The Company can be subject to net interest margin compression depending on the economic environment, the shape of the yield curve and a mismatch in timing for yield changes on interest-earning assets and interest-bearing liabilities. Generally, assuming a positive yield curve with parallel yield shifts, in the short-term (first couple of years) the Company's margin is expected to perform better when interest rates decrease and worse when interest rates increase as funding costs are assumed to adjust faster than asset yields. However, over the longer-term (greater than two to three years) the Company's margin is expected to perform better when interest rates increase and worse when interest rates decrease as asset yields are assumed to increase more than funding costs.
If the yield curve flattens from a positive sloped curve, net interest margin compression occurs as the spread between the cost of funding and the yield on interest-earning assets narrows. Under this scenario, the degree of net interest margin compression is highly dependent on the Company's ability to fund asset growth through lower cost deposits. However, if the curve is flattening, while short-term rates are rising, the adverse impact on margin may be somewhat delayed, as increases in the prime lending rate may initially result in the Company's asset yields re-pricing more quickly than funding costs.
In a declining rate environment, net interest margin compression will eventually occur when the yield on interest-earning assets decreases more than funding costs. The primary causes would be the impact of interest rate decreases (including decreases in the prime lending rate) on adjustable-rate loans and the fact that decreases in deposit rates may be limited or lag decreases in the prime lending rate.
In an inverted yield curve situation, shorter-term rates exceed longer-term rates, and the impact on margin is similar but more adverse than the flat curve scenario. However, the extent of the impact on margin is highly dependent on the Company's balance sheet mix. The flattening of an inverted yield curve would be favorable to margin as yields on shorter-term rates would no longer exceed those of longer-term rates.
The tables below summarize the simulated results at December 31, 2024 and December 31, 2023 and compare the percentage change in net interest income for each interest rate scenario to the rates unchanged scenario. The results in the tables below assume a static balance sheet and the net interest income results are for a 24-month period. Table 1 assumes all interest rates are ramped evenly over 12 months. Table 2 differs from table 1 by simulating that interest rate changes for non-maturity deposits are ramped evenly over 24 months instead of 12 months.
Table 1 - Interest Rate Changes - All rates ramped over 12 months
December 31, 2024 December 31, 2023
Scenarios Percentage Change Percentage Change
Rates rise 400 basis points (14.19) % (11.71) %
Rates rise 200 basis points (7.05) % (5.71) %
Rates unchanged - % - %
Rates decline 200 basis points 5.07 % 3.26 %
Table 2 - Interest Rate Changes - All rates ramped over 12 months,
except for non-maturity deposits which are ramped over 24 months
December 31, 2024 December 31, 2023
Scenarios Percentage Change Percentage Change
Rates rise 400 basis points (6.42) % (3.11) %
Rates rise 200 basis points (3.29) % (1.60) %
Rates unchanged - % - %
Rates decline 200 basis points 1.52 % (0.54) %
The change in results at December 31, 2024, compared to December 31, 2023, were impacted primarily by an increase in the balance of wholesale funding which reprices immediately. Over the 24-month period, the net result was lower estimated net interest income in increased interest rate scenarios and higher estimated net interest income in decreased interest rate scenarios.
Refer to the heading "Results of Operations" contained within Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of this Form 10-K for further discussion of margin.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8.Financial Statements and Supplementary Data
Index to Consolidated Financial Statements
Page
Consolidated Balance Sheets as of December 31, 2024 and 2023
Consolidated Statements of Income for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2024, 2023 and 2022
Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023, and 2022
Notes to the Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
As of December 31,
(Dollars in thousands, except per share data) 2024 2023
Assets
Cash and cash equivalents:
Cash and due from banks $ 42,689 $ 37,443
Interest-earning deposits with banks 41,152 19,149
Total cash and cash equivalents 83,841 56,592
Investments:
Debt securities at fair value (amortized cost of $685,766 and $763,981, respectively)
583,930 661,113
Equity securities at fair value 9,665 7,058
Total investment securities at fair value 593,595 668,171
Federal Home Loan Bank stock
7,093 2,402
Loans held for sale 520 200
Loans:
Total loans 3,982,898 3,567,631
Allowance for credit losses (63,498) (58,995)
Net loans 3,919,400 3,508,636
Premises and equipment, net 42,444 44,931
Lease right-of-use asset 24,126 24,820
Accrued interest receivable 20,553 19,233
Deferred income taxes, net 49,096 49,166
Bank-owned life insurance 67,421 65,455
Prepaid income taxes 2,583 1,589
Prepaid expenses and other assets 11,398 19,183
Goodwill 5,656 5,656
Total assets $ 4,827,726 $ 4,466,034
Liabilities and Shareholders' Equity
Liabilities
Deposits $ 4,187,698 $ 3,977,521
Borrowed funds 153,136 25,768
Subordinated debt 59,815 59,498
Lease liability 23,849 24,441
Accrued expenses and other liabilities 33,425 45,011
Accrued interest payable 9,055 4,678
Total liabilities 4,466,978 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; 12,447,308 and 12,272,674 shares issued and outstanding, respectively
124 123
Additional paid-in capital 111,295 107,377
Retained earnings 328,243 301,380
Accumulated other comprehensive loss
(78,914) (79,763)
Total shareholders' equity 360,748 329,117
Total liabilities and shareholders' equity $ 4,827,726 $ 4,466,034
See accompanying notes to consolidated financial statements.
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31,
(Dollars in thousands, except per share data) 2024 2023 2022
Interest and dividend income:
Other interest-earning assets $ 6,199 $ 9,943 $ 6,014
Investment securities 15,693 18,575 18,965
Loans and loans held for sale 208,378 172,535 135,934
Total interest and dividend income 230,270 201,053 160,913
Interest expense:
Deposits 76,513 44,389 5,711
Borrowed funds 2,426 113 52
Subordinated debt 3,467 3,467 3,352
Total interest expense 82,406 47,969 9,115
Net interest income 147,864 153,084 151,798
Provision for credit losses 1,985 9,249 5,800
Net interest income after provision for credit losses 145,879 143,835 145,998
Non-interest income:
Wealth management fees 7,888 6,730 6,533
Deposit and interchange fees 8,875 8,475 8,196
Income on bank-owned life insurance, net 2,001 1,264 1,202
Net losses on sales of debt securities
(2) (2,419) (1,973)
Net gains on sales of loans 156 34 30
Net gain on sale of insurance commissions - - 2,034
Gains (losses) on equity securities
1,140 666 (514)
Other income 2,821 2,859 2,954
Total non-interest income 22,879 17,609 18,462
Non-interest expense:
Salaries and employee benefits 78,224 72,283 72,120
Occupancy and equipment expenses 9,667 9,722 9,299
Technology and telecommunications expenses 10,708 10,656 10,735
Advertising and public relations expenses 2,585 2,786 2,758
Audit, legal and other professional fees 2,474 2,945 2,949
Deposit insurance premiums 3,571 2,712 1,783
Supplies and postage expenses 980 998 912
Merger-related expenses 1,137 - -
Other operating expenses 7,786 8,097 7,758
Total non-interest expense 117,132 110,199 108,314
Income before income taxes 51,626 51,245 56,146
Provision for income taxes 12,893 13,187 13,430
Net income $ 38,733 $ 38,058 $ 42,716
Basic earnings per share $ 3.13 $ 3.11 $ 3.53
Diluted earnings per share $ 3.12 $ 3.11 $ 3.52
Basic weighted average common shares outstanding 12,386,669 12,223,626 12,103,033
Diluted weighted average common shares outstanding 12,398,062 12,244,036 12,149,777
See accompanying notes to consolidated financial statements.
ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
Years Ended December 31,
(Dollars in thousands) 2024 2023 2022
Net income $ 38,733 $ 38,058 $ 42,716
Other comprehensive income (loss), net of taxes:
Net change in fair value of debt securities 849 16,444 (100,869)
Total other comprehensive income (loss), net
849 16,444 (100,869)
Total comprehensive income (loss), net
$ 39,582 $ 54,502 $ (58,153)
See accompanying notes to consolidated financial statements.
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity
Years Ended December 31, 2024, 2023 and 2022
Common Stock Additional
Paid-in
Capital Retained Earnings Accumulated Other
Comprehensive
Income/(Loss) Total
Shareholders’ Equity
(Dollars in thousands, except per share data)
Shares Amount
Balance at December 31, 2021 12,038,382 $ 120 $ 100,352 $ 241,761 $ 4,662 $ 346,895
Net income 42,716 42,716
Other comprehensive loss, net
(100,869) (100,869)
Common stock dividend declared ($0.82 per share)
(9,917) (9,917)
Common stock issued under dividend reinvestment plan 40,640 - 1,396 1,396
Common stock issued, other 1,378 - 47 47
Stock-based compensation, net 59,338 1 2,313 2,314
Net settlement for employee taxes on restricted stock and options (11,713) - (433) (433)
Stock option exercised, net 5,491 - 118 118
Balance at December 31, 2022 12,133,516 $ 121 $ 103,793 $ 274,560 $ (96,207) $ 282,267
Net income 38,058 38,058
Other comprehensive income, net
16,444 16,444
Common stock dividend declared ($0.92 per share)
(11,238) (11,238)
Common stock issued under dividend reinvestment plan 50,443 1 1,503 1,504
Common stock issued, other 1,474 - 44 44
Stock-based compensation, net 79,074 1 2,304 2,305
Net settlement for employee taxes on restricted stock and options (9,229) - (447) (447)
Stock options exercised, net 17,396 - 180 180
Balance at December 31, 2023 12,272,674 $ 123 $ 107,377 $ 301,380 $ (79,763) $ 329,117
Net income 38,733 38,733
Other comprehensive income, net
849 849
Common stock dividend declared ($0.96 per share)
(11,870) (11,870)
Common stock issued under dividend reinvestment plan 54,698 - 1,593 1,593
Common stock issued, other 1,241 - 37 37
Stock-based compensation, net 112,886 1 2,334 2,335
Net settlement for employee taxes on restricted stock and options (12,643) - (409) (409)
Stock options exercised, net 18,452 - 363 363
Balance at December 31, 2024 12,447,308 $ 124 $ 111,295 $ 328,243 $ (78,914) $ 360,748
See accompanying notes to consolidated financial statements.
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
Years Ended December 31,
(Dollars in thousands) 2024 2023 2022
Cash flows from operating activities:
Net income $ 38,733 $ 38,058 $ 42,716
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses 1,985 9,249 5,800
Depreciation and amortization 5,610 6,188 7,036
Stock-based compensation expense 2,307 2,269 2,316
Income on bank-owned life insurance, net (2,001) (1,264) (1,202)
Net losses on sales of debt securities
2 2,419 1,973
Net (gains) losses on equity securities
(1,140) (666) 514
Mortgage loans originated for sale (11,978) (2,247) (1,263)
Proceeds from mortgage loans sold 11,814 2,081 1,293
Net gains on sales of loans (156) (34) (30)
Changes in:
Net decrease (increase) in other assets
5,151 (12,818) (11,322)
Net (decrease) increase in other liabilities
(3,796) 13,922 169
Net cash provided by operating activities 46,531 57,157 48,000
Cash flows from investing activities:
Proceeds from sales of debt securities 212 84,779 69,620
Purchase of debt securities - - (145,868)
Proceeds from maturities, calls and pay-downs of debt securities 77,345 88,176 82,834
Net purchases of equity securities (1,467) (2,123) (2,998)
Net purchases of FHLB capital stock (4,691) (59) (179)
Net increase in loans
(415,473) (387,218) (260,073)
Additions to premises and equipment, net (2,467) (6,019) (4,838)
Net cash used in investing activities (346,541) (222,464) (261,502)
Cash flows from financing activities:
Net increase (decrease) in deposits
210,177 (58,285) 55,567
Net increase in short-term borrowings
145,000 - -
Advancements from long-term borrowings
38,800 22,957 302
Repayments of long-term borrowings
(56,432) (405) (2,565)
Cash dividends paid, net of dividend reinvestment plan (10,277) (9,734) (8,521)
Proceeds from issuance of common stock 37 44 47
Net settlement for employee taxes on restricted stock and options (409) (447) (433)
Net proceeds from stock option exercises 363 180 118
Net cash provided by (used in) financing activities
327,259 (45,690) 44,515
Net increase (decrease) in cash and cash equivalents
27,249 (210,997) (168,987)
Cash and cash equivalents at beginning of year 56,592 267,589 436,576
Cash and cash equivalents at end of year $ 83,841 $ 56,592 $ 267,589
See accompanying notes to consolidated financial statements.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(1)Summary of Significant Accounting Policies
(a) Organization of the Company and Basis of Presentation
The accompanying consolidated financial statements of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our"), a Massachusetts corporation, include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all the Company's operations are conducted through the Bank and its subsidiaries.
The Bank's subsidiaries include Enterprise Wealth Services, LLC, organized under the laws of the State of Delaware, to offer non-deposit investment products and services. In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III. The security corporations, which hold various types of qualifying securities, are limited to conducting investment activities that the Bank itself would be allowed to conduct under applicable laws.
In February 2023, the Bank organized the EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") under the laws of the State of Delaware for the purpose of investing in a local NMTC project which provides federal tax incentives for investments in distressed communities. The NMTC are discussed in Note 15, " Income Taxes."
The Company's headquarters and the Bank's main office are located at 222 Merrimack Street in Lowell, Massachusetts. At December 31, 2024, the Company had 27 full-service branch banking offices serving the Northern Middlesex, Northern Essex and Northern Worcester counties of Massachusetts and Southern Hillsborough and Southern Rockingham counties in New Hampshire.
The FDIC and the Massachusetts Division of Banks (the "Division") have regulatory authority over the Bank. The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department. The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board. The Division also retains supervisory jurisdiction over the Company.
The accompanying audited consolidated financial statements and notes thereto have been prepared in accordance with U.S. GAAP and the instructions for SEC Form 10-K through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying audited consolidated financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation. All significant intercompany balances and transactions have been eliminated in the accompanying consolidated financial statements. Certain previous years' amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation.
The Company has evaluated subsequent events and transactions from December 31, 2024, through the filing date of this Annual Report on Form 10-K with the SEC for potential recognition or disclosure as required by GAAP and determined that there were no material subsequent events requiring recognition or disclosure.
(b) Segment Reporting
The Company operates as one strategic unit and therefore has only one reportable operating segment. Substantially all of the Company’s operations are conducted through its wholly owned banking subsidiary, which offers a full range of commercial, residential and consumer loan products, deposit products and cash management services, as well as wealth management and wealth services. The Company's business is not dependent on one, or a few customers, nor upon a particular industry, the loss of which would have a material adverse impact on the financial condition or operations of the Company. The identification of the single reportable business segment was determined based on the nature of the financial services provided, similar customer base and management’s evaluation of the consolidated financial information.
The Company's financial performance is monitored by the Chief Executive Officer and Chief Financial Officer, which together have been designated as the Chief Operating Decision Maker.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The CODM analyzes key metrics including consolidated net income and its major components to strategize and allocate resources. Revenue and expenses reviewed by the CODM are consistent with the consolidated statements of income, and the measure of segment assets reviewed by the CODM is consistent with the consolidated balance sheets.
The Company has reviewed the requirements of ASU 2023-07 and has determined that no additional segment disclosures are required, specifically as a result of the following:
•the Company does not use disaggregated segment level for decision-making or resource allocation purposes,
•no significant segment-specific expenses or performance metrics are used internally for decision-making or resource allocation purposes, and
•the level of financial consolidation presented in our consolidated financial statements aligns with the CODM’s internal reporting and decision-making process
(c) Merger
On December 8, 2024, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Independent Bank Corp., a Massachusetts corporation ("Independent"), and Rockland Trust Company, a Massachusetts-chartered trust company and wholly owned subsidiary of Independent ("Rockland Trust"). Pursuant to the Merger Agreement, the Company will merge with and into Independent, with Independent being the surviving corporation (the "Merger"). Upon completion of the Merger, each outstanding share of Company common stock will convert into the right to receive 0.60 shares of Independent common stock and $2.00 in cash (the "Merger Consideration"). Each outstanding option to acquire a share of Company common stock, whether or not vested, will be converted into the right to receive cash in an amount equal to the amount by which the per share cash equivalent of the Merger Consideration (calculated in accordance with the Merger Agreement) exceeds the exercise price of the option. In addition, each award of Company restricted stock, whether or not vested, that is outstanding immediately prior to the effective time of the Merger will fully vest and be canceled and converted into the right to receive the Merger Consideration. Following the Merger, Enterprise Bank will merge with Rockland Trust, with Rockland Trust being the surviving institution. Completion of the Merger is subject to customary closing conditions, including receipt of regulatory approvals and approval of the Company’s shareholders. The Merger is expected to close in the second half of 2025. The Company has scheduled a Special Shareholder Meeting for April 3, 2025 to vote on the Merger and other related proposals. No vote of Independent shareholders is required.
(d) Uses of Estimates
In preparing the consolidated 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 years 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. The most significant areas in which management applies critical assumptions and estimates are the estimates of the allowance for credit losses for loans and available for sale securities, the reserve for unfunded commitments, and the impairment review of goodwill, which are each discussed below.
(e) Cash and Cash Equivalents
Cash equivalents are defined as highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and present insignificant risk of changes in value due to changes in interest rates. The Company's cash and cash equivalents may be comprised of cash on hand and cash items due from banks, interest-earning deposits with banks (deposit accounts, excess reserve cash balances, money markets, and money market mutual fund accounts) and overnight and term federal funds sold to money center banks. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net cash flows from deposits, borrowings, loans and investments, and the immediate liquidity needs of the Company.
(f) Restricted Cash and Investments
Certain of the Company's derivative agreements contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount. When the Company has pledged cash as collateral in relation to certain derivatives, the cash is carried as
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
restricted cash within "Interest-earning deposits with banks." See Note 9, "Derivatives and Hedging Activities," to the Company's consolidated financial statements of this Form 10-K below for more information about the Company's collateral related to its derivatives.
As a member of the FHLB, the Company is required to purchase certain levels of FHLB capital stock at par value in association with outstanding advances from the FHLB. From time-to-time, the FHLB may initiate the repurchase, at par value, of "excess" levels of its capital stock held by member banks. This stock is classified as a restricted investment and is carried at cost, which management believes approximates fair value. FHLB stock represents the only restricted investment held by the Company.
Management regularly reviews its holdings of FHLB stock for impairment, and as of December 31, 2024, the Company has determined that no allowance for credit losses on FHLB stock was necessary.
(g) Investment Securities
Investments in debt securities that are intended to be held for indefinite periods of time, but which may not be held to maturity or on a long-term basis are considered to be "available-for-sale" and are carried at fair value.
Included as available-for-sale are debt securities that are purchased in connection with the Company's asset-liability risk management strategy and that may be sold in response to changes in interest rates, prepayment risk and other related factors. In instances where the Company has the positive intent to hold debt securities to maturity, these securities will be classified as held-to-maturity and carried at amortized cost. As of the balance sheet dates, all the Company's debt securities were classified as available-for-sale and carried at fair value.
Net unrealized appreciation and depreciation on debt securities available-for-sale, net of applicable income taxes, are recorded in the Company's Consolidated Statement of Comprehensive Income as a component of "Accumulated other comprehensive (loss) income." The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall. Due to the fixed rate nature of this portfolio, as market rates fall, the value of the portfolio rises, and as market rates rise, the value of the portfolio declines. The unrealized gains or losses on debt securities will also decline as the securities approach maturity.
The Company's equity securities are carried at fair value with changes in fair value recognized in the Company's Consolidated Income Statement as a component of "Other income." The net gains and losses on equity securities that will be recognized as a component of "Non-interest income" in the future will depend on the amount of dollars invested in equities, the magnitude of changes in equity markets and the amount of gains or losses realized through equity sales.
Investment securities' discounts are accreted and premiums are amortized over the period of estimated principal repayment using methods that approximate the interest method. Gains or losses on the sale of investment securities are recognized on the trade date on a specific identification basis.
ACL for Available-for-Sale Securities Methodology
In accordance with ASC "Financial Instruments-Credit Losses (Topic 326), the Company's expected credit losses on available-for-sale debt securities are presented as an allowance rather than as a write-down. The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference between the security’s amortized cost basis and its fair value as a write-down of the investment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include among other considerations (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, and (4) structure of the security. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses for available-for-sale securities would be recorded, with a related charge to earnings, limited by the difference of the amortized cost of the security to its fair value. Subsequent measurements of the ACL for available-for-sale securities may result in a reversal of the allowance for credit losses, not to exceed the amount initially recognized. In addition, the Company has elected to exclude accrued interest from the measurement of the allowance for credit losses for available-for-sale debt securities and to continue to write-off uncollectible accrued interest receivable by reversing interest income.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
At December 31, 2024, management performed its quarterly analysis of all securities with unrealized losses and determined that all were attributable to increases in market interest rates. Management concluded that no ACL for available-for-sale securities was considered necessary as of December 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.
(h) Loans Held for Sale
Depending on the current interest-rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable-rate residential mortgage loans which are eligible for sale in the secondary market or hold some or all of this residential loan production for the Company's portfolio. Mortgage loans are generally not pooled for sale, but instead are sold on an individual basis. Enterprise may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans held for sale are carried at the lower of aggregate amortized cost or fair value on a separate line on the balance sheet. Fair value is based on comparable market prices for loans with similar rates and terms. When loans are sold, a gain or loss is recognized to the extent that the sales proceeds plus unamortized fees and costs exceed, or are less than, the carrying value of the loans. Gains and losses are determined using the specific identification method.
(i) Loans
Loans made by the Company to businesses, non-profits and professional practices include commercial real estate mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit. Loans made to individuals include conventional residential mortgage loans, home equity lines, residential construction loans on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. Most loans granted by the Company are collateralized by real estate, equipment, or receivables and/or are guaranteed by the principals of the borrower.
Loans are reported at the principal amount outstanding, net of deferred origination fees and costs. The aggregate amounts of overdrawn deposit accounts are reclassified as loan balances. Loan origination fees received, offset by direct loan origination costs, are deferred and amortized using the straight-line method over three years to five years for lines of credit and demand notes or over the life of the related loans using the level-yield method for all other types of loans. When loans are paid off, the unamortized fees and costs are recognized as an adjustment to interest income.
Certain of the Company's directors, officers, principal shareholders, and their associates are credit customers of the Company in the ordinary course of business. In addition, certain directors are also directors, trustees, officers or shareholders of corporations and non-profit entities or members of partnerships that are customers of the Bank and that enter into loan and other transactions with the Bank in the ordinary course of business. All loans and commitments included in such transactions are on such terms, including interest rates, repayment terms and collateral, as those prevailing at the time for comparable transactions with persons who are not affiliated with the Bank and do not involve more than a normal risk of collectability or present other features unfavorable to the Bank.
From time to time, the Company participates with other banks in the financing of certain commercial projects. In order to qualify for sale accounting under GAAP, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks. Each participation is governed by individual participation agreements executed by the lead bank and the participants at loan origination. When a participation qualifies as a sale under GAAP, the balances participated out to other institutions are not carried as assets on the Company's consolidated financial statements. When a participation does not qualify as a sale under GAAP, the loan is carried at gross principal outstanding and the balances participated out to other institutions are carried as secured borrowings on the Company's consolidated financial statements. The Company performs an independent credit analysis of each commitment and a review of the participating institution prior to participation in the loan, and an annual review thereafter of each participating institution. Loans originated by other banks in which the Company is the participating institution are carried in the loan portfolio at the Company's pro rata share of ownership. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company seeks to lessen its credit risk exposure by managing its loan portfolio to avoid concentration by industry, relationship size and source of repayment, and through sound underwriting practices and the credit risk management function; however, management recognizes that credit losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.
(j) Credit Risk Management and ACL for Loans Methodology
Inherent in the lending process is the risk of loss due to customer non-payment, or "credit risk." The Company's commercial lending focus may entail significant additional credit risks compared to long-term financing on existing, owner-occupied residential real estate. The credit risk management function focuses on a wide variety of factors and early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Company's Credit Department, an external loan review service, reviews by members of senior management as well as reviews by the Board's Loan Committee and the Board. These reviews include the assessment of internal credit quality indicators such as, among others, the risk classification of loans, past due and non-accrual loans, loans individually evaluated or with hardship modifications, and the level of foreclosure activity.
Credit Risk Management
The Company's loan risk rating system classifies loans depending on risk of loss characteristics. The classifications range from "substantially risk free" for the highest quality loans and loans that are secured by cash collateral, through a satisfactory range of "minimal," "moderate," "better than average," and "average" risk, all of which are considered "pass" rated credits. The adverse classifications range from "special mention," for loans that may need additional monitoring, to the more severe classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations. Loans classified as "substandard" include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as "doubtful" have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, based on existing facts, conditions, and values, highly questionable and improbable. Loans classified as "loss" are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible. These "loss" loans would require a specific loss reserve or charge-off. Loans which are evaluated to be of weaker credit quality are classified as adverse and placed on the "watch asset list" and reviewed on a more frequent basis by management. Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as individually evaluated or restructured, or some combination thereof.
Loans on which the accrual of interest has been discontinued are designated as non-accrual loans and the classified portions are credit downgraded to one of the adversely classified categories noted above. Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days or when, in the judgment of management, the collectability of both principal and interest is reasonably assured. Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company.
Loans individually evaluated consist primarily of loans for which management considers it probable that not all amounts due (principals and interest) will be collected in accordance with the original contractual terms and, to a lesser extent, if applicable, loans that management deems as individually significant or with unique risk characteristics or for some other reason based on management’s judgement. Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms.
The Company continues to work 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Individually evaluated adversely classified loans will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition. Consistent with the criteria for returning non-accrual loans to accrual status, the borrower must demonstrate the ability to continue to service the loan in accordance with the original or modified terms and, in the judgment of management, the collectability of the remaining balances, both principal and interest, are reasonably assured.
A specific allowance is assigned to the loan for the amount of estimated credit loss. Individually evaluated loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.
ACL for Loans Methodology
In accordance with ASC "Financial Instruments-Credit Losses (Topic 326)," the CECL methodology requires early recognition of credit losses using a lifetime credit loss measurement approach that also requires the consideration of reasonable and supportable forecasts in the estimate. The CECL methodology is applicable to the loan portfolio, measured at amortized cost. It also applies to off-balance sheet credit exposures such as unadvanced loan & line balances, commitments to originate loans, standby letters of credit, and other similar instruments, which are not unconditionally cancellable. Additionally, the Company has elected to continue to present the accrued interest receivable balance on loans separate from amortized costs, exclude accrued interest from the measurement of the allowance for credit losses for loans and to continue to write-off uncollectible accrued interest receivable by reversing interest income.
The ACL for loans is established through a provision for credit losses, recorded as a direct charge to earnings. The ACL for loans is a valuation account that is deducted from the amortized cost to present the net amount of the loan portfolio expected to be collected. Credit losses are charged against the ACL for loans when management believes that the collectability of the amortized cost of a loan's principal balance is unlikely. Recoveries on loans previously charged-off are credited to the ACL for loans, generally at the time cash is received on a charged-off account.
Arriving at an appropriate level of ACL for loans involves a high degree of management judgement. The underlying assumptions, estimates and assessments used to estimate the ACL for loans reflects the Company’s best estimate of model assumptions and forecasted conditions at that time. Changes in such estimates can significantly affect the ACL for loans and the provision for credit losses. 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. It is possible and likely that the Company will experience credit losses that are different from the current estimates and future additions to the ACL for loans may be necessary.
On a quarterly basis, the Company makes an assessment to estimate the ACL for loans necessary to cover expected lifetime credit losses. The adequacy of the ACL for loans is reviewed and evaluated on a regular basis by an internal management committee, a sub-committee of the Company's Board of Directors (the "Board") and the full Board.
In making its assessment on the adequacy of the ACL for loans, management considers several quantitative and qualitative factors from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.
The Company uses a systematic methodology to measure the amount of estimated loan losses. The methodology uses a two-tiered approach that applies general reserves for larger groups of homogeneous loans, segmented by loan type and specific reserves for loans individually evaluated.
Loans collectively evaluated
Management segments loans of similar risk characteristics using the Open Pool method by first calculating each segment's loss rate as net charge-offs over the expected average life of each segment, divided by the average loan balance over that same period. The historic loss factor is an average of the loss rate over a 5-year look-back period, which approximates the average age of charged-off loans. These historic loss factors are then adjusted up or down based on management's assessment of quantitative and qualitative factors. These key factors including quantitative facts about the loan portfolio such as: commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; trends in risk classification of individual loans and higher risk problem assets; the level of delinquent, non-performing, and individually evaluated loans; the level of hardship loan modifications; foreclosure activity; net charge-offs; as well as trends in the general levels of these indicators. In addition, management monitors qualitative factors such as: expansion in the Company's geographic market area; the experience level of lenders and any changes in underwriting criteria; Market conditions, including general conditions in the multi-family, commercial real estate and construction and development markets in the Company's local region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
relevant economic factors. Management uses a two-year reasonable and supportable forecast, and for periods beyond the forecast period, reverts immediately to historical loss rates. Management weighs the current effect of each of these areas on each particular loan segment in determining the allowance allocation factors. Management must exercise significant judgment when evaluating the effect of these quantitative and qualitative factors on the amount of the ACL for loans as data may not be reasonably available or directly applicable to determine the precise impact of a factor on the collectability over the remaining average life. The methodology contemplates a range of acceptable levels for these factors due to the subjective nature of the factors and the qualitative considerations related to the credit risk in the portfolio.
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 since December 31, 2023.
Management recognizes that additional issues may also impact the estimate of expected credit losses to some degree. From time to time management will re-evaluate the qualitative factors, regulatory guidance, and industry data in use in order to consider the impact of other issues which, based on changing circumstances, may become more significant in the future.
Loans individually evaluated
For loans that are individually evaluated, as discussed above, management estimates the credit loss by comparing the loan's carrying value against either (i) the present value of the expected future cash flows discounted at the loan's effective interest-rate; (ii) the loan's observable market price; or (iii) the expected realizable fair value of the collateral, in the case of collateral dependent loans. A specific allowance is assigned to the loan for the amount of estimated credit loss. Individually evaluated loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.
Reserve for unfunded commitments
The reserve for unfunded commitments is included in the line item "Accrued expenses and other liabilities" on the Company’s Consolidated Balance Sheets. Management applies the CECL methodology to off-balance sheet commitments in a manner consistent with on-balance sheet loan loss rates. Additionally, the estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments. Management periodically reviews and updates its assumptions for estimated funding rates.
(k) Other Real Estate Owned
Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at the estimated fair value of the property acquired, less estimated costs to sell, establishing a new cost basis and carried on the Consolidated Balance Sheet in the line item "Prepaid expenses and other assets." The estimated fair value is based on market appraisals and the Company's internal analysis. Any loan balance more than the estimated realizable fair value on the date of transfer is charged to the allowance for credit losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.
(l) Premises and Equipment
Land is carried at cost. All other premises and equipment costs are stated at cost less accumulated depreciation and amortization. Depreciation or amortization is computed on a straight-line basis over the lesser of the estimated useful lives of the asset or the respective lease term (including renewal options reasonably certain to be exercised) for leasehold improvements generally as follows:
Bank premises, land improvements and leasehold improvements
10 to 39 years
Computer software and equipment 3 to 5 years
Furniture, fixtures and equipment
3 to 10 years
(m) Leases
The Company leases office space, space for ATM locations and certain branch locations under noncancellable operating leases,
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
several of which have renewal options to extend lease terms. Upon commencement of a new lease, the Company will recognize a ROU asset and corresponding lease liability on the Consolidated Balance Sheet for all leases with terms longer than 12 months. The lease liability represents the present value of the future lease payments while the ROU asset represents the lease liability plus any lease prepayments and initial direct costs.
The Company’s operating lease agreements contain both lease and non-lease components (such as common area maintenance), which are generally accounted for separately. To calculate the lease liability, the Company uses its incremental borrowing rate as the discount rate to determine the net present value of the lease liability. In determining the term of a lease, the Company included option renewal periods that it considered reasonably certain to be exercised.
The Company recognizes lease expense on a straight-line basis in the "Occupancy and equipment expenses" line item within the non-interest expense section of the Consolidated Statement of Income.
(n) Bank Owned Life Insurance
The Company owns BOLI on certain current and former senior and executive officers, utilizing the tax-exempt earnings on BOLI to offset the cost of the Company's benefit plans. The cash surrender value of these policies is included as an asset on the Consolidated Balance Sheet, and any increases in cash surrender value are recorded as income on bank owned life insurance on the Consolidated Statement of Income.
(o) Impairment of Long-Lived Assets Other than Goodwill
The Company reviews long-lived assets, including premises, equipment, and lease right of use assets for impairment on an ongoing basis or whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. If impairment is determined to exist, any related impairment loss is recognized through a charge to earnings. Impairment losses on assets disposed of, if any, are based on the estimated proceeds to be received, less cost of disposal.
(p) Goodwill
Goodwill is carried on the Company's consolidated financial statements and is related to the Company's acquisition of two branch offices in July 2000.
In accordance with GAAP, the Company does not amortize goodwill and instead, at least annually, evaluates whether the carrying value of goodwill has become impaired. A determination that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a resulting charge to the Company's Consolidated Statement of Income. Goodwill is evaluated at the reporting unit level. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.
The Company has the option to perform either (i) a qualitative assessment of whether it is "more likely than not" that the reporting unit's fair value is less than its book value, or (ii) a quantitative assessment.
1.Management's qualitative assessment would take into consideration, among other items, macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and share price. Based on the qualitative assessment, if the Company were to conclude: a) it is "more likely than not" that the fair value of a reporting unit exceeds its book value, goodwill is deemed not impaired, or b) it is "more likely than not" that the fair value of a reporting unit is less than its book value, a quantitative goodwill analysis must be performed.
2.The Company may elect to forgo the qualitative assessment and perform the quantitative analysis even if management believes that is "more likely than not" that goodwill is not impaired. The quantitative goodwill analysis compares the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit equals or exceeds its book value, goodwill is deemed not impaired. If the book value of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized for the difference between these amounts, not exceeding the goodwill carrying amount.
At December 31, 2024, based on the Company's quantitative analysis, goodwill was deemed not impaired.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(q) Wealth Assets Under Management and Administration
Wealth assets under management consist of assets managed through Enterprise Wealth Management and Enterprise Wealth Services. Wealth assets under administration consist of 401(k) plans, trust, and custodial accounts. Wealth assets under management and administration are not included in the Consolidated Balance Sheets because they are not assets of the Company.
(r) Derivatives and Hedging
The Company records all derivatives on the balance sheet at fair value. Asset derivatives are included in the line item "Prepaid expenses and other assets," and liability derivatives are included in the "Accrued expenses and other liabilities" line item on the Consolidated Balance Sheets.
The accounting for changes in the fair value of derivatives depends on the intended use of the derivative. On the date the derivative instrument is entered into, the Company designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items.
Fair value hedges are considered a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk. For derivatives designated and qualifying as fair value hedges, changes in the fair value are recognized in earnings.
Cash flow hedges are considered a hedge of the exposure to the variability in expected future cash flows, or other types of forecasted transactions. For derivatives designated and qualifying as cash flow hedges, changes in the fair value of derivative instruments that are highly effective are recorded in other comprehensive income (loss), net of tax and subsequently reclassified into earnings in the same period during which the hedged transaction affects earnings. Any hedge ineffectiveness is recognized directly in earnings.
For derivative instruments not designated as hedging instruments, such as back-to-back interest rate swaps and risk participation agreements, changes in fair value are recognized in earnings.
See Note 9, "Derivatives and Hedging Activities," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information on the Company's derivative and hedging activities.
(s) Revenue Recognition
Interest and dividend income (primarily loan interest income from customers) are our primary sources of revenue and are outside of the scope of ASC 606, "Revenue from Contracts with Customers," and are accounted for under other ASC topics. The core principles of this standard require an entity to recognize revenue on the transfer of goods and services to customers as performance obligations are satisfied.
The primary areas of income for the Company within the scope of ASC 606 are wealth management fees and deposit and interchange fees which are components of non-interest income on the Company's Consolidated Statements of Income and are discussed below.
Wealth management fees consist of income generated through our wealth management services. Wealth management income is generated primarily by managing customers' financial assets. Revenue is recognized as our performance obligation is completed each month. Revenue earned through our wealth services platform is generated through a third-party arrangement to refer, manage and service customers. For new sales and referrals along with transactional type charges, the performance obligation is based on a point in time and the payment is received and revenue is recognized in the same month as the revenue generating activity. For managing and servicing customers, revenue is recognized when our performance obligation is completed each month.
Deposit and interchange fees are comprised of deposit account related charges and income generated from electronic payment interchanges. Deposit account charges consist of certain transactional analysis fees net of earning balance credits, monthly account service fees, and transactional fees such as overdraft fees. Analysis and monthly account services fees are recognized
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
over the period the service is performed. For transactional fees, the performance obligation and the revenue are recognized at a point of time and payment is typically received as the service is rendered. Interchange income is generated primarily from retail debit card transactions processed through the card payment network. The performance obligation and the revenue are recognized when the service is performed.
The following non-interest income components are not subject to ASC 606: income on BOLI, net gains/losses on investment securities, and net gains on sales of loans, and are covered under other ASC topics. The remaining revenue items in non-interest income are not material.
(t) Stock-Based Compensation
The Company currently has one active stock incentive plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended (the "2016 Plan"). The 2016 Plan permits the Board to grant, under various terms, both incentive and non-qualified stock options (for the purchase of newly issued shares of common stock), restricted stock, restricted stock units and stock appreciation rights to officers and other employees, and to non-employee directors and consultants. The 2016 Plan also allows for newly issued shares of common stock to be issued without restrictions to officers and other employees, and non-employee directors and consultants.
As of December 31, 2024, 270,474 common shares remained available for future grants under the 2016 Plan. Awards previously granted under an earlier, now expired plan remain outstanding and may be exercised through 2028.
Under terms of the 2016 Plan, options exercised and restricted stock awards vested may be net settled to cover payment for option costs and employee tax obligations, resulting in shares of common stock being reacquired by the Company and returned to the pool of shares reserved for issuance under the incentive plans. In accordance with Massachusetts law, shares reacquired by the Company will be treated as authorized but unissued shares.
The non-employee members of the Company's Board may opt to receive newly issued shares of the Company's common stock in lieu of cash compensation for attendance at Board and Board Committee meetings. These shares are issued annually each January for Board meetings held in the previous year. Directors must make an irrevocable election to receive shares of common stock in lieu of cash fees prior to December 31st of the preceding year. Directors are granted shares of common stock in lieu of cash fees based on an average quarterly close price of the Company's common stock on the NASDAQ Global Market during the year.
From time to time, the Company issues shares to community members for consulting on regional advisory councils and grants shares of fully vested stock as employee anniversary awards. These shares vest immediately and the cost, which is based on the market price on the date of the grant and deemed to be immaterial, is expensed in the period in which the services are rendered.
The Company's consolidated financial statements include stock-based compensation expense for the portion of stock option awards and stock awards for which the requisite service has been rendered during the period or the estimate of achieving certain predefined performance objectives. The compensation expense has been recorded based on the estimated grant-date fair value of the stock option awards with no adjustment for estimated forfeitures, or in the case of stock awards, the market value of the common stock on the date of grant. Expense adjustments are made for actual forfeitures as they occur.
The Company will recognize the remaining estimated compensation expense for the portion of outstanding awards and compensation expense for any future awards, net of actual forfeitures, as the requisite service is rendered (i.e., on a straight-line basis over the remaining vesting period of each award) or as performance objectives are met. Stock awards that do not require future service ("vested awards") will be expensed immediately. Stock-based compensation also includes director stock compensation for stock awards and stock in lieu of cash fees, both included in other operating expenses.
See Note 14, "Stock-Based Compensation," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information on the Company's stock incentive plans and terms of outstanding awards and the Company's stock-based compensation.
(u) Income Taxes
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states, within the directives of the respective enacted tax legislation. The Company uses the asset and liability method of accounting for income taxes.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Under this method, deferred tax assets and liabilities are recognized for the future tax expense or benefit attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes in the period that includes the enactment date, which may be earlier than the effective date.
The Company's policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law. The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company's judgment changes regarding an uncertain tax position.
The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, due primarily to the impact of state tax expense, tax-exempt interest from certain investment securities, loans and BOLI and the tax impact from equity compensation activity.
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.
As of December 31, 2024, the Company had one investment in a local NMTC project which provides federal tax incentives for investments in distressed communities. The investment is accounted for using the proportional amortization method and will be amortized over seven years, which represents the period that the tax credits and other tax benefits will be utilized.
(v) Earnings per Share
Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding (including participating securities) during the year. The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.
(w) Reporting Comprehensive Income
Comprehensive income is defined as all changes to shareholders' equity except investments by and distributions to shareholders. Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income. The Company's other comprehensive income components are the changes in fair value of debt securities and cash flow hedges, both net of income taxes. Pursuant to GAAP, the Company initially excludes the unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when circumstances warrant.
When debt securities are sold, the reclassification of realized gains and losses on available-for-sale securities are included on the Consolidated Statements of Income under the "Non-interest income" subheading on the line item "Net gains (losses) on sales of available-for-sale debt securities" and the related income tax expense is included in the line item "Provision for income taxes."
For cash flow hedges of interest rate risk, the change in fair value will be reclassified in the same period during which the hedged transaction affects earnings, to either interest expense as interest is incurred on the Company's hedge liability, or to interest income as interest is earned on the Company's hedge asset. The reclassification of gain or loss on the derivatives are included on the Consolidated Statements of Income under "Interest income" or "Interest expense" line item and the related income tax expense is included in the line item "Provision for income taxes," both of which are also detailed, along with other information, in Note 11, "Comprehensive Income (Loss)," of this Form 10-K.
(x) Dividends
Neither the Company nor the Bank may declare or pay dividends on its stock if the effect thereof would cause shareholders'
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
equity to be reduced below applicable regulatory capital requirements or if such declaration and payment would otherwise violate regulatory requirements.
As the principal asset of the Company, the Bank currently provides the only source of cash for the payment of dividends by the Company. Under Massachusetts law, trust companies such as the Bank may pay dividends only out of "net profits" and only to the extent that such payments will not impair the Bank's capital stock. Any dividend payment that would exceed the total of the Bank's net profits for the current year plus its retained net profits of the preceding two years would require the Massachusetts Division of Banks' approval. Applicable provisions of the FDIC Improvement Act also prohibit a bank from paying any dividends on its capital stock if the bank is in default on the payment of any assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become "undercapitalized." Any restrictions, regulatory or otherwise, on the ability of the Bank to pay dividends to the Company may restrict the ability of the Company to pay dividends to the holders of its common stock.
The statutory term "net profits" essentially equates with the accounting term "net income" and is defined under the Massachusetts banking statutes to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes.
In addition, the Company maintains a dividend reinvestment and direct stock purchase plan which enables shareholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, shareholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums. Effective December 9, 2024, all share purchases under the DRSPP were suspended as
a result of the pending merger with Independent.
(y) Recent Accounting Pronouncements
Accounting pronouncements adopted by the Company
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 did not have a material impact on our consolidated financial statements.
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 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.
In in November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures." This ASU requires disclosure, in the notes to financial statements, of specified information about certain costs and expenses for both interim and annual reporting periods. This standard is effective for annual periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Early adoption is permitted. The Company is currently evaluating the impact of this standard and does not expect the adoption to have a material impact on the Company’s financial statements.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(2)Investment Securities
As of December 31, 2024, and 2023, the investment portfolio was comprised primarily of debt securities, with a small portion of the investment portfolio invested in equity 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:
(Dollars in thousands) Amortized
Cost Unrealized
Gains Unrealized
Losses Fair Value
Federal agency obligations $ - $ - $ - $ -
U.S. Treasury securities 6,998 - 766 6,232
Federal agency CMO 347,500 - 63,313 284,187
Federal agency MBS 20,199 - 3,007 17,192
Taxable municipal securities 261,137 10 32,926 228,221
Tax-exempt municipal securities 36,459 3 483 35,979
Corporate bonds 3,473 - 54 3,419
Subordinated corporate bonds 10,000 - 1,300 8,700
Total debt securities, at fair value $ 685,766 $ 13 $ 101,849 $ 583,930
(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 CMO 396,665 33 61,947 334,751
Federal agency MBS 21,586 31 2,805 18,812
Taxable municipal securities 262,168 34 35,225 226,977
Tax-exempt municipal securities 45,548 156 285 45,419
Corporate bonds 4,058 - 92 3,966
Subordinated corporate bonds 11,957 - 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 $2.7 million and $3.1 million at December 31, 2024 and 2023, respectively.
At December 31, 2024, management performed its quarterly analysis of all securities with unrealized losses and concluded that the unrealized losses resulted from significant increases in market interest rates relative to the book yield on the securities held. Management concluded that no ACL for available-for-sale securities was necessary as of December 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following tables summarize the duration of unrealized losses for debt securities at December 31, 2024 and 2023:
Less than 12 months 12 months or longer Total
(Dollars in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses # of Holdings
Federal agency obligations $ - $ - $ - $ - $ - $ - -
U.S. Treasury securities - - 6,232 766 6,232 766 1
Federal agency CMO 19,341 548 264,846 62,765 284,187 63,313 85
Federal agency MBS 1,623 22 15,569 2,985 17,192 3,007 11
Taxable municipal securities 1,881 124 224,469 32,802 226,350 32,926 248
Tax-exempt municipal securities 16,212 92 16,465 391 32,677 483 64
Corporate bonds 338 4 3,081 50 3,419 54 15
Subordinated corporate bonds - - 8,700 1,300 8,700 1,300 5
Total temporarily impaired debt securities $ 39,395 $ 790 $ 539,362 $ 101,059 $ 578,757 $ 101,849 429
Less than 12 months 12 months or longer Total
(Dollars in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses # of Holdings
Federal agency obligations $ 4,978 $ 28 $ - $ - $ 4,978 $ 28 1
U.S. Treasury securities - - 15,925 1,068 15,925 1,068 4
Federal agency CMO 8,810 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 securities 11,890 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 temporarily impaired debt securities $ 27,671 $ 417 $ 592,979 $ 102,705 $ 620,650 $ 103,122 429
The contractual maturity distribution at December 31, 2024 of debt securities was as follows:
(Dollars in thousands) Amortized Cost Fair Value
Due in one year or less $ 13,786 $ 13,684
Due after one, but within five years 104,315 98,143
Due after five, but within ten years 216,263 186,185
Due after ten years 351,402 285,918
Total debt securities $ 685,766 $ 583,930
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 $128.4 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 $575.2 million and $650.8 million at December 31, 2024 and 2023, respectively.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Sales of debt securities, for the years ended December 31, 2024, 2023 and 2022 are summarized as follows:
(Dollars in thousands) 2024 2023 2022
Amortized cost of debt securities sold(1)
$ 214 $ 87,198 $ 71,593
Gross realized gains on sales - - 1,061
Gross realized losses on sales (2) (2,419) (3,034)
Total proceeds from sales of debt securities $ 212 $ 84,779 $ 69,620
__________________________________________
(1) Amortized cost of investments sold is determined on a specific identification basis and includes pending trades based on trade date, if applicable.
Tax-exempt interest earned on the municipal securities portfolio amounted to $1.7 million for the year ended December 31, 2024, compared to $2.6 million and $3.4 million for the years ended December 31, 2023 and 2022, respectively.
The average balance of tax-exempt investments was $42.1 million and $64.1 million for the years ended December 31, 2024 and 2023, respectively.
Equity Securities
At December 31, 2024, the Company held equity securities with a fair value of $9.7 million, which consisted of $6.3 million in management directed investments and $3.4 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.
Gains and losses on equity securities for the years ended December 31, 2024 and 2023 are summarized as follows:
(Dollars in thousands) 2024 2023 2022
Net gains (losses) recognized during the period on equity securities
$ 1,140 $ 666 $ (514)
Less: Net gains (losses) realized on equity securities sold during the period
77 (5) (17)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the end of the period
$ 1,063 $ 671 $ (497)
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(3) Loans
Loan Portfolio Classifications
Major classifications of loans at amortized cost at the periods indicated were as follows:
(Dollars in thousands) December 31, 2024 December 31, 2023
Commercial real estate owner-occupied $ 704,634 $ 619,302
Commercial real estate non owner-occupied 1,563,201 1,445,435
Commercial and industrial
479,821 430,749
Commercial construction 679,969 585,113
Total commercial loans 3,427,625 3,080,599
Residential mortgages 443,096 393,142
Home equity 103,858 85,375
Consumer 8,319 8,515
Total retail loans 555,273 487,032
Total loans 3,982,898 3,567,631
Allowance for credit losses (63,498) (58,995)
Net loans $ 3,919,400 $ 3,508,636
Net deferred loan origination fees, included in the amortized costs of loans reflected in the table above, amounted to $4.1 million at December 31, 2024 and $5.4 million at December 31, 2023.
Accrued interest receivable on loans amounted to $17.8 million and $16.1 million at December 31, 2024 and 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 $163.7 million at December 31, 2024 and $126.6 million at December 31, 2023. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.
Related Party Loans
As of December 31, 2024 and 2023, the outstanding loan balances to directors, officers, principal shareholders, and their associates were $35.4 million and $31.4 million, respectively. All loans to these related parties were current and accruing as of those dates. Unadvanced portions of lines of credit available to these individuals were $34.8 million and $35.7 million as of December 31, 2024 and 2023, respectively. During 2024, new loans and net increases in loan balances or lines of credit under existing commitments of $10.5 million were made and principal pay-downs of $7.4 million were received. During 2023, new loans and net increases in loan balances or lines of credit under existing commitments of $1.5 million were made and principal pay-downs of $19.7 million were received.
Loans serviced for others
At December 31, 2024 and 2023, the Company was servicing residential mortgage loans owned by investors amounting to $6.7 million and $7.7 million, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $77.4 million and $69.8 million at December 31, 2024 and 2023, respectively.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Loans serving as collateral
Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity for the periods indicated are summarized below:
(Dollars in thousands) December 31, 2024 December 31, 2023
Commercial real estate $ 423,494 $ 495,831
Residential mortgages 409,423 369,062
Home equity 33,418 35,540
Total loans pledged to FHLB $ 866,335 $ 900,433
Tax-Exempt Interest
Tax-exempt interest earned on qualified commercial loans was $2.2 million for the year ended December 31, 2024, $2.0 million for the year ended December 31, 2023 and $1.7 million for the year ended December 31, 2022. Average tax-exempt loan balances were $47.9 million and $47.0 million for the years ended December 31, 2024 and 2023, respectively.
(4) Credit Risk Management and ACL for Loans
See item (j) "Credit Risk Management and ACL for Loans Methodology" contained in Note 1, "Summary of Significant Accounting Policies" of this Form 10-K, for additional information on the Company's loan accounting policies, Credit Risk monitoring, and ACL methodology.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated 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:
At or for the year ended December 31, 2024
Term Loans by Origination Year
(Dollars in thousands) 2024 2023 2022 2021 2020 Prior Revolving Loans Revolving Loans Converted to Term Total
Commercial real estate owner-occupied
Pass $ 49,097 $ 126,723 $ 101,658 $ 83,937 $ 49,526 $ 277,331 $ 7,312 $ - $ 695,584
Special mention - 130 - - - 6,546 - - 6,676
Substandard - - 1,228 423 - 723 - - 2,374
Total commercial real estate owner-occupied 49,097 126,853 102,886 84,360 49,526 284,600 7,312 - 704,634
Current period charge-offs - - - - - - - - -
Commercial real estate non owner-occupied
Pass 154,004 141,723 292,192 287,506 147,374 520,370 827 300 1,544,296
Special mention - - 15,448 - - - - - 15,448
Substandard - - 218 340 445 2,454 - - 3,457
Total commercial real estate non owner-occupied 154,004 141,723 307,858 287,846 147,819 522,824 827 300 1,563,201
Current period charge-offs - - - - - - - - -
Commercial and industrial
Pass 81,891 60,997 39,791 32,536 20,325 50,476 182,184 5,924 474,124
Special mention - - - - 203 258 270 - 731
Substandard - 17 3,248 691 - 504 303 203 4,966
Total commercial and industrial 81,891 61,014 43,039 33,227 20,528 51,238 182,757 6,127 479,821
Current period charge-offs 12 44 - 196 - 267 - - 519
Commercial construction
Pass 138,845 229,116 127,493 106,452 9,517 21,582 32,325 - 665,330
Substandard - - 14,639 - - - - - 14,639
Total commercial construction 138,845 229,116 142,132 106,452 9,517 21,582 32,325 - 679,969
Current period charge-offs - - - - - - - - -
Residential mortgages
Pass 79,540 79,929 101,910 64,219 44,149 71,188 - - 440,935
Substandard - - - 1,042 - 1,119 - - 2,161
Total residential mortgages 79,540 79,929 101,910 65,261 44,149 72,307 - - 443,096
Current period charge-offs - - - - - - - - -
Home equity
Pass 623 454 783 528 433 2,033 97,217 1,507 103,578
Substandard - - - - - 83 - 197 280
Total home equity 623 454 783 528 433 2,116 97,217 1,704 103,858
Current period charge-offs - - - - - - - - -
Consumer
Pass 3,211 2,014 1,209 982 461 442 - - 8,319
Total consumer 3,211 2,014 1,209 982 461 442 - - 8,319
Current period charge-offs 94 3 1 - - 1 - - 99
Total loans $ 507,211 $ 641,103 $ 699,817 $ 578,656 $ 272,433 $ 955,109 $ 320,438 $ 8,131 $ 3,982,898
Total current period charge-offs $ 106 $ 47 $ 1 $ 196 $ - $ 268 $ - $ - $ 618
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
At or for the year ended December 31, 2023
Term Loans by Origination Year
(Dollars in thousands) 2023 2022 2021 2020 2019 Prior Revolving Loans Revolving Loans Converted to Term Total
Commercial real estate owner-occupied
Pass $ 82,500 $ 83,366 $ 88,178 $ 52,891 $ 51,379 $ 242,518 $ 2,169 $ - $ 603,001
Special mention 31 - - - 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 - - - - - - - - -
Commercial real estate non owner-occupied
Pass 133,179 288,240 278,833 148,730 165,676 398,516 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
Pass 73,608 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-offs 15 248 - - 67 266 - - 596
Commercial construction
Pass 192,462 164,313 143,203 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
Pass 82,848 107,222 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
Pass 1,203 775 561 444 317 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
Pass 3,705 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-offs 35 - - - - 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
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The total amortized cost basis of adversely classified loans amounted to $50.7 million, or 1.27% of total loans, at December 31, 2024, and $56.7 million, or 1.59% of total loans, at December 31, 2023.
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 December 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 $ 1,333 $ - $ 522 $ 1,855 $ 702,779 $ 704,634
Commercial real estate non owner-occupied 1,856 366 2,665 4,887 1,558,314 1,563,201
Commercial and industrial 1,319 69 3,702 5,090 474,731 479,821
Commercial construction 1,688 2,484 7,905 12,077 667,892 679,969
Residential mortgages 690 940 - 1,630 441,466 443,096
Home equity 467 133 - 600 103,258 103,858
Consumer 34 3 - 37 8,282 8,319
Total loans $ 7,387 $ 3,995 $ 14,794 $ 26,176 $ 3,956,722 $ 3,982,898
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 industrial 660 64 - 724 430,025 430,749
Commercial construction - - - - 585,113 585,113
Residential mortgages 1,265 - 1,277 2,542 390,600 393,142
Home equity 53 - 97 150 85,225 85,375
Consumer 25 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 table above include loans designated as non-accrual despite their payment due status. Loans designated as non-accrual are presented below.
At December 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following tables present the amortized cost of loans designated as non-accrual, despite their payment status, by portfolio classification as of the dates indicated:
Balance at December 31, 2024
(Dollars in thousands) Total Non-accrual Loans Non-accrual Loans without a Specific Reserve Non-accrual Loans with a Specific Reserve Related Specific
Reserve
Commercial real estate owner-occupied $ 2,374 $ 2,374 $ - $ -
Commercial real estate non owner-occupied 3,457 2,532 925 185
Commercial and industrial 4,029 714 3,315 2,398
Commercial construction 14,639 - 14,639 3,649
Residential mortgages 1,931 1,931 - -
Home equity 257 257 - -
Consumer - - - -
Total loans $ 26,687 $ 7,808 $ 18,879 $ 6,232
Balance at December 31, 2023
(Dollars in thousands) Total Non-accrual Loans Non-accrual Loans without a Specific Reserve Non-accrual Loans with a Specific Reserve Related Specific
Reserve
Commercial real estate owner-occupied $ 2,683 $ 2,683 $ - $ -
Commercial real estate non owner-occupied 2,686 1,717 969 229
Commercial and industrial 4,262 736 3,526 2,658
Commercial construction - - - -
Residential mortgages 1,526 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 0.67% and 0.32% at December 31, 2024 and December 31, 2023, respectively. At December 31, 2024 and December 31, 2023, additional funding commitments for non-accrual loans were not material.
The reduction in interest income for the years ended December 31, associated with non-accruing loans is summarized as follows:
(Dollars in thousands) 2024 2023 2022
Income that would have been recognized if non-accrual loans had been on accrual $ 2,097 $ 1,285 $ 1,083
Less income recognized 628 191 1,050
Reduction in interest income $ 1,469 $ 1,094 $ 33
Collateral dependent loans
The total recorded investment in collateral dependent loans amounted to $26.9 million at December 31, 2024, compared to $13.7 million at December 31, 2023. Total accruing collateral dependent loans amounted to $438 thousand, while non-accrual collateral dependent loans amounted to $26.5 million as of December 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Loans that have been individually evaluated and repayment is expected substantially from the operations or ultimate sale of the underlying collateral are deemed to be collateral dependent loans. Collateral dependent loans are adversely classified loans. These loans may be accruing or on non-accrual status. Collateral dependent loans are carried at the lower of the recorded investment in the loan or the estimated fair value. Underlying collateral will vary by type of loan, as discussed below.
Commercial real estate loans include loans secured by both owner and non-owner occupied (investor) real estate. These loans are typically secured by a variety of commercial, residential investment, and industrial property types, including one-to-four and multi-family apartment buildings, office, industrial, or mixed-use facilities, strip shopping centers, or other commercial properties.
Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables.
Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by underlying real estate collateral.
Residential mortgage loans and home equity lines may be secured by one-to-four family residential properties serving as the borrower's primary residence, or as vacation homes or investment properties.
Consumer loans consist primarily of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities, and overdraft protection lines on checking accounts.
Management does not set any minimum delay of payments as a factor in reviewing for individual evaluation. Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms.
The following tables present the recorded investment in collateral dependent individually evaluated loans and the related specific allowance by portfolio allocation as of the dates indicated:
Balance at December 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 $ 2,921 $ 2,374 $ 2,374 $ - $ -
Commercial real estate non owner-occupied 4,368 3,457 2,532 925 185
Commercial and industrial 5,507 4,184 921 3,263 2,346
Commercial construction 14,824 14,639 - 14,639 3,649
Residential mortgages 2,347 2,161 2,161 - -
Home equity 145 108 108 - -
Consumer - - - - -
Total $ 30,112 $ 26,923 $ 8,096 $ 18,827 $ 6,180
ENTERPRISE BANCORP, INC.
Notes to the Consolidated 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-occupied 4,062 2,983 2,015 968 229
Commercial and industrial 6,804 4,332 950 3,382 2,526
Commercial construction - - - - -
Residential mortgages 2,117 1,902 1,902 - -
Home equity 359 281 281 - -
Consumer - - - - -
Total $ 17,983 $ 13,663 $ 9,313 $ 4,350 $ 2,755
The Company's obligation to fulfill the additional funding commitments on individually evaluated loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion. At December 31, 2024 and December 31, 2023, additional funding commitments for individually evaluated collateral dependent loans were not material.
Loan modifications 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:
Year ended
December 31, 2024 December 31, 2023
(Dollars in thousands) Payment Deferrals Term Extensions Total % of Loan Class Total Payment Deferrals Term Extensions Total % of Loan Class Total
Commercial real estate owner-occupied $ - $ - $ - - % $ 270 $ - $ 270 0.01 %
Commercial and industrial 1,640 - 1,640 0.34 % 177 - 177 0.04 %
Commercial construction 7,906 - 7,906 1.16 % - - - - %
Residential mortgages - - - - % 31 - 31 0.01 %
Home equity loans and lines - 23 23 0.02 % - - - - %
Total $ 9,546 $ 23 $ 9,569 0.24 % $ 478 $ - $ 478 0.01 %
The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the periods indicated:
Year ended
December 31, 2024 December 31, 2023
Weighted Average Payment Deferrals Weighted-Average Term Extensions Weighted Average Payment Deferrals Weighted-Average Term Extensions
Commercial real estate owner-occupied 0.0 years 0.0 years 0.5 years 0.0 years
Commercial and industrial 0.5 years 0.0 years 0.5 years 0.0 years
Commercial construction 0.5 years 0.0 years 0.0 years 0.0 years
Residential mortgages 0.0 years 0.0 years 0.5 years 0.0 years
Home equity loans and lines 0.0 years 10.0 years 0.0 years 0.0 years
ENTERPRISE BANCORP, INC.
Notes to the Consolidated 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 December 31, 2024
(Dollars in thousands) Current 30-59 Days
Past Due 60-89 Days
Past Due Past Due 90 Days or More Total Past
Due
Commercial real estate owner-occupied $ - $ - $ - $ - $ -
Commercial real estate non owner-occupied - - - - -
Commercial and industrial 1,640 - - - -
Commercial construction - - - 7,906 7,906
Residential mortgages - - - - -
Home equity 23 - - - -
Consumer - - - - -
Total $ 1,663 $ - $ - $ 7,906 $ 7,906
During the year ended December 31, 2024, the Company had one loan amounting to $7.9 million that was modified within the preceding twelve months for a borrower experiencing financial difficulty which subsequently defaulted.
At December 31, 2024, 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:
(Dollars in thousands) December 31,
2024 December 31,
2023 December 31,
Provision for credit losses on loans - collectively evaluated $ 1,463 $ 4,184 $ 5,949
Provision for credit losses on loans - individually evaluated 3,246 2,276 (774)
Provision for credit losses on loans 4,709 6,460 5,175
Provision for unfunded commitments (2,724) 2,789 625
Provision for credit losses $ 1,985 $ 9,249 $ 5,800
The ACL for loans amounted to $63.5 million and $59.0 million at December 31, 2024 and December 31, 2023, respectively. The ACL for loans to total loans ratio was 1.59% and 1.65% at December 31, 2024 and December 31, 2023, respectively.
Changes in the allowance for credit losses for the years ended December 31, 2024, 2023 and 2022 are summarized as follows:
(Dollars in thousands) 2024 2023 2022
Balance at beginning of year $ 58,995 $ 52,640 $ 47,704
Provision 4,709 6,460 5,175
Recoveries 412 527 272
Less: Charge-offs 618 632 511
Balance at end of year $ 63,498 $ 58,995 $ 52,640
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following tables present changes in the ACL for loans by portfolio classification, during the periods presented below:
(Dollars in thousands) Commercial Real Estate Owner-Occupied Commercial Real Estate Non Owner-Occupied Commercial and Industrial Commercial Construction Residential Mortgage Home Equity Consumer Total
Beginning Balance at December 31, 2023 $ 10,455 $ 27,619 $ 11,089 $ 6,787 $ 2,152 $ 579 $ 314 $ 58,995
Provision for credit losses for loans 358 155 (996) 4,978 53 160 1 4,709
Recoveries - - 366 - - 7 39 412
Less: Charge-offs - - 519 - - - 99 618
Ending Balance at December 31, 2024 $ 10,813 $ 27,774 $ 9,940 $ 11,765 $ 2,205 $ 746 $ 255 $ 63,498
(Dollars in thousands) Commercial Real Estate Owner-Occupied Commercial Real Estate Non Owner-Occupied Commercial and Industrial Commercial Construction Residential Mortgage Home Equity Consumer Total
Beginning Balance at December 31, 2022 $ 10,304 $ 26,260 $ 8,896 $ 3,961 $ 2,255 $ 633 $ 331 $ 52,640
Provision for credit losses for loans 151 1,359 2,292 2,825 (103) (66) 2 6,460
Recoveries - - 497 1 - 12 17 527
Less: Charge-offs - - 596 - - - 36 632
Ending Balance at December 31, 2023 $ 10,455 $ 27,619 $ 11,089 $ 6,787 $ 2,152 $ 579 $ 314 $ 58,995
Reserve for unfunded commitments
The Company’s reserve for unfunded commitments amounted to $4.4 million as of December 31, 2024 and $7.1 million at December 31, 2023.
Other real estate owned
The Company carried no OREO at December 31, 2024, 2023 or 2022. During the years ended December 31, 2024, 2023 and 2022, there were no additions to or sales of OREO. For the years ended December 31, 2024, 2023 and 2022, there were no write-downs of OREO.
At December 31, 2024, the Company had no 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.
At December 31, 2023, the Company had $1.1 million 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) Premises and Equipment
Premises and equipment at December 31, 2024 and 2023 are summarized as follows:
(Dollars in thousands) 2024 2023
Land and land improvements $ 9,090 $ 9,090
Bank premises and leasehold improvements 59,063 57,899
Computer software and equipment 18,943 18,636
Furniture, fixtures, and equipment 27,343 26,362
Total premises and equipment, before accumulated depreciation 114,439 111,987
Less accumulated depreciation (71,995) (67,056)
Total premises and equipment, net of accumulated depreciation $ 42,444 $ 44,931
Total depreciation expense related to premises and equipment amounted to $5.0 million for the year ended December 31, 2024 and $5.3 million for both of the years ended December 31, 2023 and 2022.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(6) Leases
For the Company, material leases consist of operating leases on our facilities, mainly branch leases; leases 12 months or less and immaterial equipment leases have been excluded.
As of December 31, 2024, the Company had 16 active operating real estate leases. The Company's leased facilities are 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. While the Company typically exercises its option to extend lease terms, the lease contains provisions that allow the Company, upon notification, to terminate the lease at the end of the lease term, or any option period. Several real estate leases also provide the Company the right of first refusal should the property be offered for sale.
Lease expenses for the year ended December 31, 2024 amounted to $1.7 million, compared to $1.6 million for both of the years ended December 31, 2023 and 2022. 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 December 31, 2024 and 2023 was 27.6 years and 28.4 years, respectively. The weighted average discount rate was 3.55% at both December 31, 2024 and 2023.
At December 31, 2024, the remaining undiscounted cash flows by year of these lease liabilities were as follows:
(Dollars in thousands) Operating Leases
2025 $ 1,457
2026 1,468
2027 1,474
2028 1,477
2029 1,481
Thereafter 30,241
Total lease payments $ 37,598
Less: Imputed interest 13,749
Total lease liability $ 23,849
(7)Deposits
Deposits at December 31, are summarized as follows:
(Dollars in thousands) 2024 2023
Non-interest checking $ 1,077,998 $ 1,061,009
Interest-bearing checking 699,671 697,632
Savings 270,367 294,865
Money market 1,454,443 1,402,939
CDs $250,000 or less 377,958 295,789
CDs greater than $250,000 307,261 225,287
Deposits $ 4,187,698 $ 3,977,521
At both December 31, 2024 and 2023, the Company had no brokered deposits. 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 $903.2 million and $835.0 million at December 31, 2024 and December 31, 2023, respectively.
The aggregate amounts of overdrawn deposits that have been reclassified as loan balances were $899 thousand and $498 thousand at December 31, 2024 and 2023, respectively.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following table presents the scheduled maturities of CDs as of December 31, of the years indicated:
(Dollars in thousands) 2024 2023
Due in less than twelve months $ 650,541 $ 494,320
Due in over one year through two years 31,003 23,737
Due in over two years through three years 2,162 2,431
Due in over three years through four years 400 371
Due in over four years through five years 1,111 179
Due in over five years 2 38
Total CDs
$ 685,219 $ 521,076
(8)Borrowed Funds and Subordinated Debt
Borrowed funds and subordinated debt outstanding at December 31, for the years indicated are summarized as follows:
2024 2023 2022
(Dollars in thousands) Amount Average
Rate Amount Average
Rate Amount Average
Rate
FHLB advances $ 147,746 4.47 % $ 2,830 1.71 % $ 2,913 1.71 %
FRB advances
- - % 20,000 4.84 % - - %
Other borrowings 5,390 3.30 % 2,938 0.40 % 303 - %
Total borrowed funds $ 153,136 4.43 % $ 25,768 3.99 % $ 3,216 1.55 %
Subordinated debt $ 59,815 5.84 % $ 59,498 5.84 % $ 59,182 5.66 %
The Company's borrowed funds at December 31, 2024, 2023 and 2022 were comprised of overnight or short-term advances from the FRB through the BTFP, term advances related to specific lending projects under the FHLB's community development and affordable housing programs as well as borrowed funds from the NH BFA borrowing under a New Hampshire community development program. NH BFA advances are categorized as "Other borrowings" in the tables below.
At December 31, 2024, 2023 and 2022, the contractual maturity distribution of borrowed funds with the weighted average cost for each category is set forth below:
2024 2023 2022
(Dollars in thousands) Balance Rate Balance Rate Balance Rate
Overnight $ 145,000 4.52 % $ - - % $ - - %
Within 12 months - - % 20,000 4.84 % - - %
Between 1 and 5 years
270 - % 270 - % - - %
Over 5 years 7,866 2.78 % 5,498 1.09 % 3,216 1.55 %
Maximum FHLB and other borrowings outstanding at any month-end period during 2024 was $153.1 million, $25.8 million for 2023 and $4.2 million for 2022.
The following table summarizes the average balance and average cost of borrowed funds for the years indicated:
Year ended December 31,
2024 2023 2022
(Dollars in thousands) Average
Balance Average
Cost Average
Balance Average
Cost Average
Balance Average
Cost
FHLB advances $ 4,886 2.97 % $ 3,548 2.65 % $ 3,266 1.59 %
FRB advances
45,838 4.86 % 534 3.39 % - - %
Other borrowings 5,535 0.95 % 1,008 0.13 % 20 - %
Total borrowed funds $ 56,259 4.31 % $ 5,090 2.23 % $ 3,286 1.58 %
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
As a member of the FHLB, the Bank has the potential capacity to borrow an amount up to the value of its discounted qualified collateral. Borrowings from the FHLB are secured by certain securities from the Company's investment portfolio not otherwise pledged and certain residential and commercial real estate loans. At December 31, 2024, based on qualifying collateral minus outstanding advances, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $670.0 million. In addition, based on qualifying corporate and municipal bond collateral, the Bank had the capacity to borrow funds from the FRB up to approximately $300.0 million at December 31, 2024. The Bank also has pre-approved borrowing arrangements with large correspondent banks to provide overnight and short-term borrowing capacity.
The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.8 million, and $59.5 million at December 31, 2024, and December 31, 2023, respectively. The debt consists of fixed-to-floating rate notes due in 2030 and callable at the Company's option on or after July 15, 2025. The subordinated notes are intended to qualify as Tier 2 capital for regulatory purposes.
The subordinated notes pay interest at a fixed rate of 5.25% per annum through July 15, 2025, after which floating quarterly rates apply. Original debt issuance costs were $1.2 million and have been netted against the subordinated debt on the consolidated balance sheet in accordance with accounting guidance. These costs are being amortized to interest expense over the life of the subordinated notes.
(9)Derivatives and Hedging Activities
The tables below present a summary of the Company's derivative financial instruments, notional amounts and fair values for the periods presented:
As of December 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 positions:
Interest-rate swaps - loans
$ - $ - $ 100,000 $ 336
Total cash flow hedge interest-rate swaps $ - $ - $ 100,000 $ 336
Derivatives not subject to hedge accounting
Customer related positions:
Loan level derivatives - pay floating, receive fixed
$ - $ - $ 3,212 $ 321
Loan level derivatives - pay fixed, receive floating
3,212 321 - -
Risk participation agreements sold - - 46,387 25
Total derivatives not subject to hedge accounting $ 3,212 $ 321 $ 49,599 $ 346
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
As of 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 positions:
Interest-rate swaps - loans
$ - $ - $ 100,000 $ 760
Total cash flow hedge interest-rate swaps $ - $ - $ 100,000 $ 760
Derivatives not subject to hedge accounting
Customer related positions:
Loan level derivatives - pay floating, receive fixed
$ - $ - $ 7,524 $ 630
Loan level derivatives - pay fixed, receive floating
7,524 630 - -
Risk participation agreements sold - - 46,910 65
Total back-to-back interest-rate swaps $ 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 Consolidated Balance Sheet.
Derivatives designated as hedging instruments
Interest-rate positions
The Company may utilize various interest rate derivatives as hedging instruments against interest rate risk associated with the Company’s loan portfolio. 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. At December 31, 2024 and December 31, 2023, the Company had three pay fixed, receive float, interest rate swap agreements with a combined notional value of $100.0 million.
The table below presents the carrying amount of hedged items and cumulative fair value hedging basis adjustments for the periods presented:
As of December 31, 2024 December 31, 2023
(Dollars in thousands) Balance Sheet Location of Hedged Item
Carrying Amount of Hedged Assets
Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Carrying Amount of Hedged Assets Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Interest-rate swaps - loans
Loans
$ 100,305 $ 305 $ 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 during the periods indicated:
Year ended
(Dollars in thousands) Affected Income Statement Line Item December 31, 2024 December 31, 2023
Derivatives designated as fair value hedges:
Fair value adjustments on derivatives Net interest income
$ 424 $ (760)
Fair value adjustments on hedged instrument
Net interest income
(451) 755
Total
$ (27) $ (5)
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Derivatives not subject to hedge accounting
Customer related positions
The Company has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swap with qualified commercial banking customers and simultaneously enters into equal and opposite interest-rate swap with a swap counterparty. The customer interest-rate swap agreement allows commercial banking customers to convert a floating-rate loan payment to a fixed-rate payment.
Each Back-to-Back swap consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of two interest-rate swaps outstanding at December 31, 2024 and four outstanding at 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 years ended December 31, 2024, 2023, or 2022.
Interest-rate swaps with the counterparty are subject to master netting agreements, while interest-rate swaps with customers are not. At December 31, 2024 and December 31, 2023, all the 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.
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-related Contingent Features
By using derivative financial instruments, the Company exposes itself to counterparty credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. The credit risk in derivative instruments is mitigated by entering into transactions with highly rated counterparties that management believes to be creditworthy. As of December 31, 2024, the Company had two active interest-rate swap institutional counterparties both of which had investment grade credit ratings.
The Company's interest-rate swaps with counterparties contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness.
As of December 31, 2024 and December 31, 2023, the Company had credit risk exposure relating to interest-rate swaps with counterparties of $321 thousand and $492 thousand, respectively, and cash posted by counterparties amounted to $120 thousand and $590 thousand at December 31, 2024 and December 31, 2023, respectively.
The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and as of December 31, 2024 and December 31, 2023, cash collateral posted by the Company amounted to $480 thousand and $570 thousand, respectively.
As of December 31, 2024, the fair value of derivatives related to these agreements was at a net liability position of $11 thousand, which excludes any adjustment for nonperformance risk.
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 December 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(10)Commitments, Contingencies and Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk
The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, letters of credit, and unadvanced portions of loans and lines of credit.
The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in the particular classes of financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Financial instruments with off-balance sheet credit risk at December 31, 2024 and 2023 are as follows:
(Dollars in thousands) 2024 2023
Commitments to originate loans $ 35,327 $ 41,326
Commitments to originate residential mortgages loans for sale 1,008 -
Commitments to sell residential mortgage loans 520 200
Letters of credit 20,166 15,610
Unadvanced portions of commercial real estate loans 60,947 87,943
Unadvanced portions of commercial loans and lines 651,658 633,702
Unadvanced portions of construction loans (commercial & residential) 227,545 540,269
Unadvanced portions of home equity lines 163,515 156,216
Unadvanced portions of consumer loans 3,503 3,679
Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower.
The Company originates residential mortgage loans intended for sale under agreements to sell such loans on an individual loan basis and may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales.
Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.
Unadvanced portions of loans and lines of credit represent credit extended to customers but not yet drawn upon and are secured or guaranteed under preexisting loan agreements and credit evaluations having taken into consideration the full commitment amount.
See also Note 9, "Derivatives and Hedging Activities," and Note 1, "Summary of Significant Accounting Policies," under Item (r), "Derivatives," to the Company's consolidated financial statements of this Form 10-K, contained above, for information on the Company's interest-rate lock commitments, interest-rate swaps, and participation in loans originated by third-party banks with potential contingent liabilities.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
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 and 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 consolidated financial condition or results of operations of the Company.
(11)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):
Year ended December 31, 2024 Year ended December 31, 2023
(Dollars in thousands) Pre-Tax Tax Expense
After Tax Amount Pre-Tax Tax (Expense) Benefit
After Tax Amount
Change in fair value of debt securities $ 1,030 $ (183) $ 847 $ 18,838 $ (4,279) $ 14,559
Less: net security losses reclassified into non-interest income
(2) - (2) (2,419) 534 (1,885)
Net change in fair value of debt securities 1,032 (183) 849 21,257 (4,813) 16,444
Total other comprehensive income (loss), net
$ 1,032 $ (183) $ 849 $ 21,257 $ (4,813) $ 16,444
Information on the Company's accumulated other comprehensive loss, net of tax, is comprised of the following components as of the periods indicated:
Year ended December 31, 2024 Year ended December 31, 2023
(Dollars in thousands) Unrealized Gains (Losses) on Debt Securities Unrealized Gains (Losses) on Debt Securities
Accumulated other comprehensive loss - beginning balance
$ (79,763) $ (96,207)
Total other comprehensive income, net
849 16,444
Accumulated other comprehensive loss - ending balance
$ (78,914) $ (79,763)
(12)Shareholders' Equity
Shares Authorized and Share Issuance
The Company's authorized capital is divided into common stock and preferred stock. The Company is authorized to issue 40,000,000 shares of common stock, with a par value of $0.01 per share, and as of December 31, 2024, shares issued and outstanding amounted to 12,447,308. Holders of common stock are entitled to one vote per share and are entitled to receive dividends if, as and when declared by the Board. Dividend and liquidation rights of the common stock may be subject to the rights of any outstanding preferred stock. The Company is also authorized to issue 1,000,000 shares of preferred stock, with a par value of $0.01 per share. No preferred stock has been issued as of the date of this Form 10-K.
The Company previously had a shareholders' rights plan pursuant to which each share of Company common stock included a right to purchase under certain circumstances a fraction of a share of the Company's Series A Junior Participating Preferred Stock, par value $0.01 per share. In December 2024, the Company amended its shareholders' rights plan to provide for the expiration of such rights on December 7, 2024, effectively terminating the plan.
The Company's stock incentive plans permit the Board to grant, under various terms, stock options (for the purchase of newly issued shares of common stock), common stock, restricted stock awards, restricted stock units and stock appreciation rights to officers and other employees, non-employee directors and consultants. See Note 14, "Stock-Based Compensation," to the Company's consolidated financial statements of this Form 10-K, contained below, for additional information regarding the Company's stock incentive plans.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Capital
Capital planning by the Company and the Bank considers current needs and anticipated future growth. Ongoing sources of capital include the retention of earnings, less dividends paid, proceeds from the exercise of employee stock options and proceeds from purchases of shares pursuant to the DRSPP. Additional sources of capital for the Company and the Bank have been proceeds from the issuance of common stock and proceeds from the issuance of subordinated debt. The Company believes its current capital is adequate to support ongoing operations.
Management believes, as of December 31, 2024, that the Company and the Bank met all capital adequacy requirements to which they were subject. As of December 31, 2024 and December 31, 2023, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.
The Company's and the Bank's actual capital amounts and ratios are presented as of December 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) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2024
The Company
Total Capital to risk-weighted assets $ 546,283 13.06 % $ 334,522 8.00 % N/A N/A
Tier 1 Capital to risk-weighted assets 434,006 10.38 % 250,892 6.00 % N/A N/A
Tier 1 Capital to average assets (or Leverage Ratio) 434,006 8.94 % 194,242 4.00 % N/A N/A
Common Equity Tier 1 Capital to risk-weighted assets 434,006 10.38 % 188,169 4.50 % N/A N/A
The Bank
Total Capital to risk-weighted assets $ 544,937 13.03 % $ 334,522 8.00 % $ 418,153 10.00 %
Tier 1 Capital to risk-weighted assets 492,475 11.78 % 250,892 6.00 % 334,522 8.00 %
Tier 1 Capital to average assets (or Leverage Ratio) 492,475 10.14 % 194,242 4.00 % 242,802 5.00 %
Common Equity Tier 1 Capital to risk-weighted assets 492,475 11.78 % 188,169 4.50 % 271,799 6.50 %
Actual Minimum Capital
for Capital
Adequacy
Purposes(1)
Minimum Capital
to be
Well-Capitalized(2)
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2023
The Company
Total Capital to risk-weighted assets $ 511,692 13.12 % $ 312,035 8.00 % N/A N/A
Tier 1 Capital to risk-weighted assets 403,224 10.34 % 234,026 6.00 % N/A N/A
Tier 1 Capital to average assets (or Leverage Ratio) 403,224 8.74 % 184,471 4.00 % N/A N/A
Common Equity Tier 1 Capital to risk-weighted assets 403,224 10.34 % 175,520 4.50 % N/A N/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 assets 461,675 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 assets 461,675 11.84 % 175,520 4.50 % 253,528 6.50 %
__________________________________________
(1) Before application of the capital conservation buffer of 2.50%. 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
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 December 31, 2024.
The Basel III minimum capital ratio requirements as applicable to the Company and the Bank with the capital conservation buffer are summarized in the table below:
Basel III Minimum for Capital Adequacy Purposes Basel III Additional Capital Conservation Buffer Basel III "Adequate" Ratio with Capital Conservation Buffer
Total Capital to RWA 8.00% 2.50% 10.50%
Tier 1 Capital to RWA 6.00% 2.50% 8.50%
Tier 1 Capital to AA, or Leverage Ratio 4.00% N/A 4.00%
Common equity tier 1 capital to RWA 4.50% 2.50% 7.00%
Failure to meet minimum capital requirements can initiate or result in certain mandatory and possibly additional discretionary supervisory actions by regulators that, if undertaken, could have a material adverse effect on the Company's consolidated financial statements. Under applicable capital adequacy requirements and the regulatory framework for prompt corrective action applicable to the Bank, the Company must meet specific capital guidelines that involve quantitative measures of the Company's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.
See also "Supervision and Regulation," contained in Item 1, "Business," of this Form 10-K for further information on the Company's Basel III and capital requirements.
Dividends
For the year ended December 31, 2024, the Company declared $11.9 million in cash dividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of 54,698 shares of the Company's common stock totaling $1.6 million. For the year ended December 31, 2023, the Company declared $11.2 million in cash dividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase 50,443 shares of the Company's common stock totaling $1.5 million. For the year ended December 31, 2022, the Company declared $9.9 million in cash dividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase 40,640 shares of the Company's common stock totaling $1.4 million. See "Shares Authorized and Share Issuance" above in this Note 12 of this Form 10-K for more information on the DRSPP, including the direct stock purchase component of the plan.
(13)Employee Benefit Plans
Defined Contribution Plans
The Company has a 401(k) defined contribution employee benefit plan. The 401(k) plan allows eligible employees to contribute a percentage of their earnings to the plan. A portion of an employee's contribution, as determined by the Compensation and Human Resources Committee of the Board of Directors, is matched by the Company. During the years ended December 31, 2024, 2023 and 2022 the Company's percentage match was 70% up to the first 6% contributed by the employee.
All eligible employees, at least 18 years of age and completing 1 hour of service, may participate in the 401(k) plan. Vesting for the Company's 401(k) retirement plan matching contribution is based on years of service with participants becoming 25% vested on the anniversary of their hire date and each subsequent year until they are 100% vested following four years of service. Unvested amounts not distributed to an employee following termination of employment are used to offset plan expenses and the Company's matching contributions.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company's expense for the 401(k) plan match was $2.2 million, $2.1 million and $1.9 million for the years ended December 31, 2024, 2023 and 2022, respectively.
Additionally, the Company maintains the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan. The plan is unfunded and is maintained for the purpose of providing deferred compensation to a certain group of management employees. Total expenses for the deferred compensation plan were $149 thousand and $315 thousand for the years ended December 31, 2024 and 2023, respectively.
Supplemental Employee Retirement Plan
The Company has salary continuation agreements with two of its current executive officers and one former executive officer. These salary continuation agreements provide for predetermined fixed-cash supplemental retirement benefits to be provided for a period of 20 years after each individual reaches a defined "benefit age." The individuals covered under the SERP have reached the defined benefit age and are receiving payments under the SERP. Additionally, the Company has not recognized service costs in the current or prior year as each officer had previously attained their individually defined benefit age and was fully vested under the SERP.
This non-qualified plan represents a direct liability of the Company, and as such, the Company has no specific assets set aside to settle the benefit obligation. The aggregate amount accrued, or the "accumulated benefit obligation," is equal to the present value of the benefits to be provided to the employee or any beneficiary. Because the Company's benefit obligations provide for predetermined fixed-cash payments, the Company does not have any unrecognized costs to be included as a component of accumulated other comprehensive income.
The amounts charged to expense for the SERP are included in the table below. The Company anticipates accruing an additional $49 thousand to the SERP for the year ending December 31, 2025.
The following table provides a reconciliation of the changes in the supplemental retirement benefit obligation and the net periodic benefit cost for the years ended December 31:
(Dollars in thousands) 2024 2023 2022
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $ 1,192 $ 1,420 $ 1,708
Net periodic benefit cost:
Interest cost 61 69 74
Actuarial gain
(7) (21) (86)
Net periodic benefit costs $ 54 $ 48 $ (12)
Benefits paid (276) (276) (276)
Benefit obligation at end of year $ 970 $ 1,192 $ 1,420
Funded status:
Accrued liability as of December 31 $ (970) $ (1,192) $ (1,420)
Discount rate used for benefit obligation(1)
5.50 % 5.25 % 4.75 %
__________________________________________
(1)Management utilizes the Moody's 20-year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates. The impact of the discount rate change is reflected as the actuarial gain or loss.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
SERP benefits expected to be paid in each of the next five years and in the aggregate five years thereafter:
(Dollars in thousands) Payments
2025 $ 276
2026 276
2027 276
2028 165
2029 95
2030-2034 24
Supplemental Life Insurance
The Company has provided supplemental life insurance benefits to certain executive and senior officers through split-dollar life insurance and a death benefit only plan. See Item (l), "Bank Owned Life Insurance," in Note 1, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements of this Form 10-K, contained above, for further information regarding BOLI.
The split-dollar arrangements provide a death benefit to the officer's designated beneficiaries that extend to post-retirement periods and the Company has recognized a liability for post-retirement cost of insurance related to these plans. The employee benefit related to the death benefit only plans terminates when the employee is no longer employed by the Company.
These non-qualified plans represent a direct liability of the Company, and, as such, the Company has no specific assets set aside to settle the benefit obligation. The funded status of the split dollar plan represents the "accumulated post-retirement benefit obligation," which is the present value of the post-retirement cost of insurance associated with this arrangement."
The following table provides a reconciliation of the changes in the post-retirement supplemental life insurance plan obligation and the net periodic benefit cost for the years ended December 31:
(Dollars in thousands) 2024 2023 2022
Reconciliation of benefit obligation:
Benefit obligation at beginning of year $ 2,277 $ 2,358 $ 2,620
Net periodic benefit cost:
Service cost (32) (29) (26)
Interest cost 124 115 105
Actuarial gain
(25) (167) (341)
Total net period cost $ 67 $ (81) $ (262)
Benefit obligation at end of year $ 2,344 $ 2,277 $ 2,358
Funded status:
Accrued liability as of December 31 $ (2,344) $ (2,277) $ (2,358)
Discount rate used for benefit obligation(1)
5.50 % 5.25 % 4.75 %
__________________________________________
(1) Management utilizes the Moody's 20-year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates. The impact of the discount rate change is reflected as the actuarial gain or loss.
The amounts charged to expense for supplemental life insurance are included in the table above. The Company anticipates a credit of approximately $34 thousand to the plan for the year ending December 31, 2025.
(14)Stock-Based Compensation
The Company currently has one active stock incentive plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company's stock-based compensation expense related to these plans includes stock options and stock awards to officers and other employees included in salary and benefits expense, and stock awards and stock compensation in lieu of cash fees to non-employee directors both included in other operating expenses.
Total stock-based compensation expense was $2.3 million for each of the years ended December 31, 2024, 2023 and 2022. The total tax benefit recognized related to the stock-based compensation expense was $649 thousand, $637 thousand, and $651 thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
The Company recorded a tax expense associated with employee exercises and vesting of stock compensation amounting to $60 thousand for the year ended December 31, 2024 compared to a tax benefit of $108 thousand and $147 thousand for the years ended December 31, 2023, and 2022, respectively.
Stock Option Awards
Stock options granted generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards. Under the terms of the plans, stock options may not be granted at less than 100% of the fair market value of the shares on the date of grant and may not have a term of more than 10 years.
The Company utilizes the Black-Scholes option valuation model in order to determine the per share grant date fair value of stock option grants.
The Company issued no stock options during the year ended December 31, 2024 and December 31, 2023.
The expected volatility is the anticipated variability in the Company's share price over the expected life of the stock option and is based on the Company's historical volatility.
The expected dividend yield is the Company's projected dividends based on historical annualized dividend yield to coincide with volatility divided by its share price at the date of grant.
The expected life represents the period of time that the stock option is expected to be outstanding. The Company utilized the simplified method, under which the expected term equals the vesting term plus the contractual term divided by two.
The risk-free interest rate is based on the U.S. Department of the Treasury rate in effect at the time of grant for a period equivalent to the expected life of the stock option.
Stock option transactions during the year ended December 31, 2024 are summarized as follows:
(Dollars in thousands, except per share data) Options Weighted Average Exercise
Price Per Share Weighted Average Remaining Life in Years Aggregate
Intrinsic
Value
Outstanding December 31, 2023 162,539 $ 28.07 4.2 $ 824
Granted - -
Exercised 36,094 22.65
Forfeited/Expired 632 35.81
Outstanding December 31, 2024 125,813 $ 29.58 3.9 $ 1,253
Vested and Exercisable at December 31, 2024 112,802 $ 28.89 3.6 $ 1,201
The intrinsic value of stock options vested and exercisable represents the total pretax value that would have been received by the stock option holders had all in-the-money vested stock option holders exercised their options on December 31, 2024. At December 31, 2024, 112,802 of the vested and exercisable stock options were in-the money.
Cash received from stock option exercises amounted to $363 thousand, $180 thousand, and $118 thousand during the years ended December 31, 2024, 2023 and 2022, respectively. The total intrinsic value of stock options exercised amounted to $337 thousand, $563 thousand and $93 thousand during the years ended December 31, 2024, 2023 and 2022, respectively. Cash paid
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
by the Company for the net settlement of stock options to cover employee tax obligations amounted to $62 thousand, $153 thousand and $8 thousand during the years ended December 31, 2024, 2023 and 2022, respectively.
Stock option activity during the year ended December 31, 2024 for unvested options are summarized as follows:
Unvested Options Options Weighted Average Grant Date Fair Value
Unvested December 31, 2023 36,378 $ 11.94
Granted - -
Vested 22,735 11.21
Forfeited 632 35.81
Unvested December 31, 2024 13,011 $ 13.15
The total fair value of stock options vested (based on grant date fair value) during the years ended December 31, 2024, 2023 and 2022 was $255 thousand, $204 thousand, and $186 thousand, respectively.
Compensation expense recognized in association with the stock option awards amounted to $130 thousand, $175 thousand and $206 thousand for the years ended December 31, 2024, 2023 and 2022, respectively. The total tax benefit recognized related to the stock option expense was $36 thousand, $49 thousand and $58 thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
As of December 31, 2024, there was $64 thousand of unrecognized stock-based compensation expense related to non-vested stock options. That cost is expected to be recognized over the remaining weighted average vesting period of 1.1 years.
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 years indicated:
Restricted Stock Awards (number of underlying shares) 2024 2023 2022
Two-year vesting 17,122 9,915 8,823
Four-year vesting 78,582 32,719 22,147
Performance-based vesting 26,338 31,270 22,254
Total restricted stock awards 122,042 73,904 53,224
Weighted average grant date fair value $ 24.68 $ 32.04 $ 38.57
The restricted stock awards allow for the non-forfeitable receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding.
Upon vesting, restricted stock awards may be net settled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the Company. During the years ended December 31, 2024, 2023 and 2022 the Company paid $347 thousand, $294 thousand and $425 thousand, respectively, to net settle the vesting of restricted stock awards to cover employee tax obligations.
Any shares that are returned to the Company prior to vesting or as payment for employee tax obligations upon vesting shall remain available for issuance under such plan, while the plan is still effective.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following table sets forth a summary of the activity for the Company's restricted stock awards:
Restricted
Stock Weighted Average Grant Price Per Share
Unvested December 31, 2023 130,039 $ 33.75
Granted 122,042 24.68
Vested/released 58,542 33.67
Forfeited 16,968 28.21
Unvested December 31, 2024 176,571 $ 28.04
Stock-based compensation expense recognized in association with the restricted stock awards amounted to $2.0 million for the year ended December 31, 2024 and $1.9 million for both of the years ended December 31, 2023 and 2022. The total tax benefit recognized related to restricted stock award compensation expense was $559 thousand, $527 thousand and $522 thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
As of December 31, 2024, there remained $3.1 million of unrecognized compensation expense related to the restricted stock awards. That cost is expected to be recognized over the remaining weighted average vesting period of 2.3 years.
The total fair value of restricted stock awards vested (based on grant date fair value) during the years ended December 31, 2024, 2023 and 2022 was $2.0 million, $1.6 million and $1.8 million, respectively.
Stock in Lieu of Directors' Fees
In addition to the restricted stock awards discussed above, non-employee members of the Company's Board may opt to receive newly issued shares of the Company's common in stock in lieu of cash compensation for attendance at Board and Board Committee meetings. These shares are valued based on the Company's average quarterly close price and are issued in January of the following year.
Stock in lieu of directors' fees expense was $190 thousand for the year ended December 31, 2024, which represented 6,515 shares issued in January of 2025, $218 thousand for the year ended December 31, 2023, which represented 7,224 shares issued in January of 2024, and $254 thousand for the year ended December 31, 2022, which represented 7,265 shares issued in January of 2023. The total tax benefit recognized related to the stock in lieu of directors' fees for meeting attendance was $54 thousand, $61 thousand and $71 thousand for the years ended December 31, 2024, 2023 and 2022, respectively.
(15) Income Taxes
The components of income tax expense for the years ended December 31, were calculated using the asset and liability method as follows:
(Dollars in thousands) 2024 2023 2022
Current expense:
Federal $ 9,185 $ 10,424 $ 11,996
State 3,821 4,763 4,606
Total current expense 13,006 15,187 16,602
Deferred benefit:
Federal 71 (1,425) (2,027)
State (184) (575) (1,145)
Total deferred benefit (113) (2,000) (3,172)
Total income tax expense $ 12,893 $ 13,187 $ 13,430
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate of 21% for 2024, 2023 and 2022 to income before taxes as follows:
(Dollars in thousands) 2024 2023 2022
Computed income tax expense at statutory rate $ 10,842 $ 10,761 $ 11,791
State income taxes, net of federal tax benefit 2,873 3,309 2,734
Tax-exempt income, net of disallowance (680) (758) (804)
Bank-owned life insurance income, net (420) (265) (252)
Tax expense (benefit) from stock compensation
60 (108) (147)
New market tax credit
(135) (135) -
Other 353 383 108
Total income tax expense $ 12,893 $ 13,187 $ 13,430
Effective income tax rate 25.0 % 25.7 % 23.9 %
At December 31, the tax effects of each type of income and expense item that give rise to deferred taxes are as follows:
(Dollars in thousands) 2024 2023
Deferred tax asset:
Allowance for credit losses
$ 18,826 $ 18,278
Depreciation 3,678 3,524
Net unrealized losses on equity securities - 51
Net unrealized losses on debt securities 22,922 23,105
Supplemental employee retirement plans 269 330
Deferred compensation and benefits 3,926 3,976
Non-accrual interest 1,800 1,608
Stock-based compensation expense 823 878
Lease liability 6,614 6,757
Other 101 6
Total 58,959 58,513
Deferred tax liability:
Goodwill 1,568 1,564
Net unrealized gains on equity securities 219 -
Deferred origination costs 1,238 848
Lease ROU asset 6,690 6,862
Other 148 73
Total 9,863 9,347
Net deferred tax asset $ 49,096 $ 49,166
Management believes based upon positive historical and expected future earnings that it is more likely than not the Company will generate sufficient taxable income to realize the deferred tax asset existing at December 31, 2024. However, factors beyond management's control, such as the general state of the economy, can affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the deferred tax assets in the future.
The Company paid total estimated income taxes during the years ended December 31, 2024, 2023 and 2022 of $13.5 million, $15.6 million and $17.0 million, respectively.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company had no unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at December 31, 2024, or December 31, 2023. The Company is generally subject to examinations by taxing authorities for the prior three tax years.
The Company invests in qualified affordable housing projects as a limited partner. As of December 31, 2024, and December 31, 2023, the Company recognized no Federal Low Income Housing tax credits. As of December 31, 2024 the Company had no remaining tax credits related to these Federal Low Income Housing Tax Credit program to be realized. For the year ended December 31, 2022, the Company recognized $36 thousand in Federal Low Income Housing tax credits.
In March 2023, the Bank made an equity contribution to its wholly owned subsidiary, the NMTC Investment Fund, in order to invest in a local NMTC project. The Bank invested $3.7 million in the Investment Fund and anticipates receiving $4.8 million of federal tax credits over seven years. The investment is accounted for using the proportional amortization method and will be amortized over seven years, which represents the period that the tax credits and other tax benefits will be utilized. 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 year ended December 31, 2024, the related amortization expense amounted to $478 thousand and the related tax credits amounted to $613 thousand.
(16)Earnings per Share
The table below presents the increase in average shares outstanding, using the treasury stock method, for the diluted earnings per share calculation for the years indicated:
2024 2023 2022
Basic weighted average common shares outstanding 12,386,669 12,223,626 12,103,033
Dilutive shares 11,393 20,410 46,744
Diluted weighted average common shares outstanding 12,398,062 12,244,036 12,149,777
There were 74,538, 61,425 and 34,291 stock options outstanding at December 31, 2024, 2023 and 2022, respectively, that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for the years ended December 31, 2024, 2023 and 2022. These stock options, which were not dilutive at that date, may potentially dilute earnings per share in the future.
The Company may issue stock options and restricted stock awards to officers and other employees and restricted stock awards and stock compensation in lieu of cash fees to non-employee directors. The restricted stock awards allow for the non-forfeitable receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding. The unvested restricted stock awards are the Company's only participating securities and are included in shares outstanding. Unvested participating restricted awards amounted to 176,571 shares and 130,039 shares as of December 31, 2024 and December 31, 2023, respectively.
(17) 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The following tables summarize significant assets and liabilities carried at fair value and placement in the fair value hierarchy at the dates specified:
December 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 $ 583,930 $ - $ 583,930 $ -
Equity securities 9,665 9,665 - -
FHLB stock 7,093 - 7,093 -
Interest-rate swaps 321 - 321 -
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)
$ 12,647 $ - $ - $ 12,647
Liabilities measured on a recurring basis:
Interest-rate swaps $ 657 $ - $ 657 $ -
RPA sold 25 - 25 -
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 securities 7,058 7,058 - -
FHLB stock 2,402 - 2,402 -
Interest-rate swaps 630 - 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 $ -
RPA sold 65 65
The Company did not transfer any assets between the fair value measurement levels during the years ended December 31, 2024 or December 31, 2023.
All of the Company's debt securities are considered "available-for-sale" and are carried at fair value. The debt security category above may include federal agency obligations, U.S. Treasury securities, commercial and residential federal agency MBS, municipal securities, corporate bonds, and CDs, as held at those dates. The Company utilizes third-party pricing vendors to provide valuations on its debt securities. Fair values provided by the vendors were generally determined based upon pricing matrices utilizing observable market data inputs for similar or benchmark securities in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association's standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Therefore, management regards the inputs and methods used by third-party pricing vendors to be "Level 2 inputs and methods" as defined in the "fair value hierarchy." The Company periodically obtains a second price from an impartial third-party on debt securities to assess the reasonableness of prices provided by the primary independent pricing vendor.
The Company's equity securities 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.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
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 and risk participation agreements, represent a Level 2 measurement and are based on settlement values adjusted for credit risks and observable market interest-rate curves. The settlement values are determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative, reflecting the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest-rate curves. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.
The fair value of individually evaluated collateral dependent loan balances in the table above represent those collateral dependent commercial loans where management has estimated the probable credit loss by comparing the loan's carrying value 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 are categorized as Level 3 within the fair value hierarchy. A specific allowance is assigned to the collateral dependent loan for the amount of management's estimated probable credit loss. The specific allowances assigned to the collateral dependent individually evaluated loans amounted to $6.2 million at December 31, 2024, compared to $2.8 million at December 31, 2023.
Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third-party. The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements. In accordance with the FASB, the estimated fair values of these commitments are carried on the Consolidated Balance Sheet as a liability and amortized to income over the life of the letters of credit, which are typically one year. The estimated fair value of these commitments carried on the Consolidated Balance Sheets at December 31, 2024 and December 31, 2023 were deemed immaterial.
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. The Company generally does not pool mortgage loans for sale, but instead sells the loans on an individual basis. To reduce the net interest rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest-rate lock commitment is quoted on the origination of the loan. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices. These commitments are accounted for in accordance with FASB guidance. The fair values of the Company's derivative instruments are deemed to be FASB Level 2 measurements. At December 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.
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 December 31, 2024 and December 31, 2023:
Fair Value
(Dollars in thousands) December 31, 2024 December 31, 2023 Valuation Technique Unobservable Input Unobservable Input Value or Range
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)
$ 12,647 $ 1,595 Appraisal of collateral Appraisal adjustments(1)
15% - 75%
__________________________________________
(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 Consolidated Balance Sheet, 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 Consolidated Balance Sheet.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The carrying values, estimated fair values and placement in the fair value hierarchy of the Company's financial instruments for which fair value is only disclosed but not recognized on the Consolidated Balance Sheets at the dates indicated are summarized as follows:
December 31, 2024
Fair Value Measurement
(Dollars in thousands) Carrying
Amount Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs
Financial assets:
Loans held for sale $ 520 $ 516 $ - $ 516 $ -
Loans, net 3,919,400 3,788,194 - - 3,788,194
Financial liabilities:
CDs 685,219 684,897 - 684,897 -
Borrowed funds 153,136 151,800 - 151,800 -
Subordinated debt 59,815 62,417 - 62,417 -
December 31, 2023
Fair Value Measurement
(Dollars in thousands) Carrying
Amount Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs
Financial assets:
Loans held for sale $ 200 $ 201 $ - $ 201 $ -
Loans, net 3,508,636 3,353,968 - - 3,353,968
Financial liabilities:
CDs 521,076 518,928 - 518,928 -
Borrowed funds 25,768 24,081 - 24,081 -
Subordinated debt 59,498 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 of their 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.
(18)Supplemental Cash Flow Information
The supplemental cash flow information for the years indicated is as follows:
(Dollars in thousands) 2024 2023 2022
Supplemental financial data:
Cash paid for: interest $ 78,029 $ 45,296 $ 8,647
Cash paid for: estimated income taxes
13,517 15,610 16,983
Cash paid for: lease liability 1,450 1,412 1,380
Supplemental schedule of non-cash activity:
ROU lease assets: operating leases(1)
32 611 31
_________________________________________
(1)Represents net new ROU lease assets added in the periods indicated.
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(19)Condensed Parent Company Only Financial Statements
Balance Sheets
December 31,
(Dollars in thousands, except per share data) 2024 2023
Assets
Cash $ 2,357 $ 2,089
Investment in subsidiaries 419,658 387,978
Total assets $ 422,015 $ 390,067
Liabilities and Shareholders' Equity
Liabilities
Subordinated debt $ 59,815 $ 59,498
Accrued interest payable 1,444 1,444
Other liabilities 8 8
Total liabilities 61,267 60,950
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; 12,447,308 and 12,272,674 shares issued, respectively
124 123
Additional paid-in capital 111,295 107,377
Retained earnings 328,243 301,380
Accumulated other comprehensive loss
(78,914) (79,763)
Total shareholders' equity 360,748 329,117
Total liabilities and shareholders' equity $ 422,015 $ 390,067
Statements of Income
For the years ended December 31,
(Dollars in thousands) 2024 2023 2022
Equity in undistributed net income of subsidiaries $ 30,801 $ 30,315 $ 36,701
Dividends distributed by subsidiaries 10,600 10,200 8,900
Total income 41,401 40,515 45,601
Interest expense 3,467 3,467 3,352
Other operating expenses 268 347 270
Total operating expenses 3,735 3,814 3,622
Income before income taxes 37,666 36,701 41,979
Benefit from income taxes (1,067) (1,357) (737)
Net income $ 38,733 $ 38,058 $ 42,716
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Statements of Cash Flows
For the years ended December 31,
(Dollars in thousands) 2024 2023 2022
Cash flows from operating activities:
Net income $ 38,733 $ 38,058 $ 42,716
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of subsidiaries (30,801) (30,315) (36,701)
Payment from subsidiary bank for stock compensation expense 2,335 2,305 2,315
Changes in:
Net (increase) decrease in other assets
(30) (253) 205
Net increase in other liabilities
317 322 202
Net cash provided by operating activities 10,554 10,117 8,737
Cash flows from investing activities:
Investment in subsidiary - - -
Net cash used in investing activities - - -
Cash flows from financing activities:
Cash dividends paid, net of dividend reinvestment plan (10,277) (9,734) (8,521)
Proceeds from issuance of common stock 37 44 47
Net settlement for employee tax withholding on restricted stock and options (409) (447) (433)
Net proceeds from exercise of stock options 363 180 118
Net cash used in financing activities
(10,286) (9,957) (8,789)
Net increase (decrease) in cash and cash equivalents
268 160 (52)
Cash at beginning of year 2,089 1,929 1,981
Cash at end of year $ 2,357 $ 2,089 $ 1,929
The Parent Company's Statements of Comprehensive Income and Statements of Changes in Shareholders' Equity are identical to the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Changes in Shareholders' Equity and therefore are not presented here.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Enterprise Bancorp, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Enterprise Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, changes in shareholders’ equity and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2024 and 2023, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2024, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 7, 2025, expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for Credit Losses for Loans
As described in Notes 1 and 4 of the consolidated financial statements, the Company’s allowance for credit losses for loans totaled $63.5 million as of December 31, 2024. The general reserve for larger groups of homogeneous loans collectively evaluated is evaluated on a pool basis where similar risk characteristics exist. Those loans that do not share similar risk characteristics are evaluated on an individual basis. The general reserve is comprised of a quantitative reserve based on the Company’s historical loss experience, a qualitative reserve based on management’s evaluation of several judgmental qualitative or environmental factors, and economic forecasts over the estimated life of the loan pools. The qualitative or environmental factors used by the Company include considerations such as commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; trends in risk classification of individual loans and higher risk problem assets; the level of delinquent loans and non-performing loans; individually evaluated loans and hardship loan modifications; the level of foreclosure activity; net charge-offs; and trends in the general levels of these indicators. In addition, the Company monitors expansion in the geographic market area; the experience level of lenders and any changes in underwriting criteria; and general conditions and development markets in the Company's local region as well as changes in the current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. The Company generally uses a two-year reasonable and supportable forecast, and for periods beyond the forecast period, reverts to
historical loss rates. The evaluation and measurement of the qualitative or environmental and economic forecasts requires management to apply a high degree of judgment and involves assumptions that are sensitive to change, for which future adjustments to the allowance may be necessary.
We identified the qualitative component of the general reserve for loans collectively evaluated in the allowance for credit losses for loans as a critical audit matter because auditing the underlying qualitative or environmental factors and economic forecasts used in establishing the general reserve involved a high degree of auditor judgment given the high degree of subjectivity exercised by management.
Our audit procedures related to management’s evaluation and establishment of the qualitative component of the general reserve for loans collectively evaluated in the allowance for credit losses for loans included the following, among others:
•We obtained an understanding of the relevant controls related to the qualitative or environmental factors and economic forecasts applied to the general reserve for loans collectively evaluated in the allowance for credit losses for loans and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative or environmental factors and economic forecasts and the data used in determining the qualitative or environmental factors and economic forecasts.
•We tested management’s process and significant judgments in the evaluation and establishment of the qualitative or environmental factors and economic forecasts used in the general reserve for loans collectively evaluated in the allowance for credit losses for loans, which included:
◦Validating the source of information used by management by comparing to the relevant internal or external information from which it was derived, as well as testing the completeness and accuracy of the source data used by management.
◦Evaluating the reasonableness of management’s judgments related to the qualitative or environmental factors and the correlation to potential losses by evaluating the adjustments in terms of magnitude and directional consistency based on the data utilized in the determination of the qualitative or environmental factors.
◦Evaluating the reasonableness of management’s indicators of current and forecasted economic factors, which include changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates, among others, by comparing these forecasts to external and internal information sources.
/s/ RSM US LLP
We have served as the Company's auditor since 2015.
Boston, Massachusetts
March 7, 2025
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and the Board of Directors of Enterprise Bancorp, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Enterprise Bancorp, Inc.’s (the Company) internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2024, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2024 and 2023, the related consolidated statements of income, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2024, and the related notes to the consolidated financial statements and our report dated March 7, 2025, expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Boston, Massachusetts
March 7, 2025

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A.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-K, 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 December 31, 2024.
Management's Report on Internal Control Over Financial Reporting
The Company's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company's internal control system was designed to provide reasonable assurance to the Company's management and Board regarding the preparation and fair presentation of published financial statements. All internal control systems, however, no matter how well designed, have inherent limitations and may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
The Company's management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2024. In making this assessment, it used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Control-Integrated Framework." Based on management's assessment, the Company believes that, as of December 31, 2024, the Company's internal control over financial reporting is effective based on these criteria.
The Company's independent registered public accounting firm has issued a report on the effectiveness of the Company's internal control over financial reporting, which appears on page 119 of this Form 10-K.
Changes in Internal Control Over Financial Reporting
There have been no significant changes in the Company's internal control over financial reporting that have occurred during the Company's most recent fiscal quarter (i.e., the three months ended December 31, 2024) that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B.Other Information
During the three months ended December 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.

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

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ITEM 11. EXECUTIVE COMPENSATION

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15.Exhibits, Financial Statement Schedules
(a)The following documents are filed as part of this annual report:
(1) Financial Statements
See Index to Consolidated Financial Statements contained in Item 8 of this Form 10-K above.
(2) Financial Statement Schedules
None (information included in consolidated financial statements)
(3) Exhibits
Exhibit No. and Description
2.1 Agreement and Plan of Merger by and among Independent Bank Corp., Rockland Trust Company, Enterprise Bancorp, Inc. and Enterprise Bank and Trust Company, dated December 8, 2024 (incorporated by reference to Exhibit 2.1 of Independent Bank Corp.'s Current Report Form 8-K filed December 9, 2024 (File No. 001-09047).
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 Restated Articles of Organization of the Company, as amended 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).
4.1Renewal Rights Agreement dated as of December 11, 2007 by and between the Company and Computershare Trust Company, N.A., as Rights Agent, including Terms of Series A Junior Participating Preferred Stock, Summary of Rights to Purchase Shares of Series A Junior Participating Preferred Stock, and Form of Rights Certificate attached as Exhibits A, B and C thereto, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on December 13, 2007 (File No. 333-79135).
4.2 Amendment No. 1 to Renewal Rights Agreement dated as of January 5, 2018, incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated January 11, 2018 (File No. 001-33912).
4.3 Amendment No. 2 to Renewal Rights Agreement dated as of December 6, 2024, incorporated by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K filed on December 9, 2024 (File No. 001-33912).
4.4 Description of the Company's Common Stock Registered under Section 12 of the Exchange Act of 1934, incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (File No. 001-33912).
4.5 Description of the Company's Preferred Share Purchase Rights Registered under Section 12 of the Exchange Act of 1934, incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-33912).
4.6 Indenture, dated as of July 7, 2020, by and between Enterprise Bancorp, Inc. and UMB Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on July 7, 2020 (File No.001-33912).
4.7 Form of Fixed to Floating Rate Subordinated Note due July 15, 2030 (included as Exhibit A-2 to the Indenture incorporated by reference to Exhibit 4.6 hereto).
10.1 Enterprise Bancorp, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed on August 17, 2006 (Reg. No. 333-136700).
10.2.1 Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.39.1 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).
10.2.2 Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.39.2 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).
10.3.1 First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.1.1 to the Company’s Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).
10.3.2 First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company's Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).
10.4.1 Change in Control/Noncompetition Agreement dated as of December 18, 2008 by and among the Company, the Bank and Stephen J. Irish, incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-33912).
10.4.2 Change in Control/Noncompetition Agreement dated as of May 19, 2014 by and among the Company, the Bank and Joseph R. Lussier, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 20, 2019 (File No. 001-33912).
10.5.1 Employment Agreement dated July 9, 2015 by and among the Company, the Bank and George L. Duncan, incorporated by reference to Exhibit 10.1.1 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).
10.5.2 Employment Agreement dated July 9, 2015 by and among the Company, the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).
10.5.3 Employment Agreement dated July 9, 2015 by and among the Company, the Bank and John P. Clancy, Jr., incorporated by reference to Exhibit 10.1.3 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).
10.5.4 Employment Agreement, dated June 5, 2024, by and among the Company, the Bank and Steven R. Larochelle, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on June 7, 2024 (File No. 001-33912).
10.5.5 Amendment No. 1 to Employment Agreement, dated December 8, 2024, by and among the Company, the Bank and Steven R. Larochelle, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 12, 2024 (File No. 001-33912).
10.6.1 Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.40.1 to the Company's Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).
10.6.2 Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.40.2 to the Company's Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).
10.7.1 Enterprise Bank and Trust Company Supplemental Life Insurance Plan adopted April 5, 2006, incorporated by reference to Exhibit 10.52 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 333-79135).
10.8.1 Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended on May 1, 2012, June 16, 2015 and October 16, 2018, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 22, 2018 (File No. 001-33912).
10.8.2 Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended on October 16, 2018, incorporated by reference to the Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 22, 2018 (File No. 001-33912).
10.8.3 Amendment No. 1 to the Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, dated January 19, 2021, incorporated by reference to the Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 6, 2021 (File No. 001-33912).
10.9.1 Specimen Nonqualified Stock Option Agreement dated as of March 19, 2013 under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 25, 2013 (File No. 001-33912).
10.9.2 Specimen Restricted Stock Agreement under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 24, 2014 (File No. 001-33912).
10.10.1 Specimen 2019 Nonqualified Stock Option Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.1 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).
10.10.2 Specimen 2019 Restricted Stock Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.2 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).
10.10.3 Specimen 2019 Director Restricted Stock Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.3 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).
10.10.4 Specimen Nonqualified Stock Option Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 20, 2020 (File No. 001-33912).
10.11.1.1 Enterprise Bank and Trust Company 2020 Variable Compensation Inventive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 20, 2020 (File No. 001-33912).
10.11.1.2 Amendment to the Enterprise Bank and Trust Company 2020 Variable Compensation Incentive Plan, incorporated by reference to the Company's Current Report on Form 8-K filed on November 16, 2020 (File No. 001-33912).
10.11.2 Enterprise Bank and Trust Company 2021 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2021 (File No. 001-33912).
10.11.3 Enterprise Bank and Trust Company 2022 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 18, 2022 (File No. 001-33912).
10.11.4 Enterprise Bank and Trust Company 2023 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2023 (File No. 001-33912).
10.11.5 Enterprise Bank and Trust Company 2024 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 22, 2024 (File No. 001-33912).
10.12 Enterprise Bancorp, Inc. Annual Executive Incentive Plan, incorporated by reference to Appendix A of the Company's Definitive Proxy Statement on Schedule 14A dated April 3, 2017, and filed on April 3, 2017 (File No. 001-33912).
10.13 Enterprise Bancorp, Inc. Dividend Reinvestment and Direct Stock Purchase Plan, incorporated by reference to the section of the Company's Registration Statement on Form S-3 filed on August 13, 2020 (Reg. No. 333-219879), appearing under the heading "The Plan."
10.14.1 Form of Subordinated Note Purchase Agreement dated January 30, 2015, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 3, 2015 (File No. 001-33912).
10.14.2 Form of Subordinated Note Purchase Agreement dated July 7, 2020, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2020 (File No. 001-33912).
10.15.1 Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).
10.15.2 First Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 22, 2019 (File No.001-33912).
10.15.3 Second Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on March 20, 2020 (File No.001-33912).
10.15.4 Third Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 23, 2021 (File no. 001-33912).
10.15.5 Fourth Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 18, 2022 (File no. 001-33912).
10.15.6 Fifth Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2023 (File no. 001-33912).
10.15.7 Amendment to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 15, 2023 (File no. 001-33912).
10.15.8 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 on March 22, 2024 (File No. 001-33912).
10.15.9 Amendment No. 1 to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan 2024 Addendum, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on September 18, 2024 (File No. 001-33912).
10.16 Transition Services Agreement, dated June 5, 2024, by and among the Company, the Bank and John P. Clancy, Jr., incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on June 7, 2024 (File No. 001-33912).
10.17 Retention Bonus Agreement, dated December 17, 2024, by and between Enterprise Bank and Trust Company and Joseph R. Lussier, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 20, 2024 (File No. 011-33912).
19.1* Enterprise Bancorp, Inc. Insider Trading Policy.
21.0*Subsidiaries of the Registrant.
23.0* Consent of RSM US LLP.
31.1*Certification of principal executive officer under Securities and Exchange Act Rule 13a-14(a).
31.2*Certification of principal financial officer under Securities and Exchange Act Rule 13a-14(a).
32.0*Certification of principal executive officer and principal financial officer under 18 U.S.C § 1350 furnished pursuant to Securities and Exchange Act Rule 13a-14(b).
97.0Enterprise Bancorp, Inc. Incentive Award Recoupment Policy, incorporated by reference to Exhibit 97.0 to the Company’s Annual Report on Form 10-K filed on March 8, 2024 (File No. 001-33912).
101* Interactive data files pursuant to Rule 405 of Regulation S-T: The following materials from Enterprise Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2024 were formatted in XBRL (eXtensible Business Reporting Language):
(i) Consolidated Balance Sheets as of December 31, 2024 and December 31, 2023,
(ii) Consolidated Statements of Income for the years ended December 31, 2024,2023 and 2022,
(iii) Consolidated Statements of Comprehensive Income for the years ended December 31, 2024, 2023 and 2022,
(iv) Consolidated Statements of Changes in Equity for the years ended December 31, 2024,2023 and 2022,
(v) Consolidated Statements of Cash Flows for the years ended December 31, 2024, 2023 and 2022, and
(vi) Notes to Consolidated Financial Statements.
104*The cover page from the Company's Quarterly Report on Form 10-K for the year ended December 31, 2024 has been formatted in Inline XBRL and contained in Exhibit 101.
* Filed herewith
(b)Exhibits required by Item 601 of Regulation S-K
The exhibits listed above either have been previously filed and are incorporated herein by reference to the applicable prior filing or are filed herewith.
(c)Additional Financial Statement Schedules
None.