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Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
Form 10-Q
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2023
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to

Commission File Number:  001-33912
 Enterprise Bancorp, Inc.
(Exact name of registrant as specified in its charter)
 
Massachusetts04-3308902
(State or other jurisdiction of(I.R.S. Employer Identification No.)
incorporation or organization) 
  
222 Merrimack Street,Lowell,Massachusetts01852
(Address of principal executive offices)(Zip code)
 (978) 459-9000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEBTCNASDAQ Stock Market
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      x Yes o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition for "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

Large accelerated filer ☐ Accelerated filer x
Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.     ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
     ☐ Yes x No

As of October 31, 2023, there were 12,256,998 shares of the issuer's common stock outstanding, par value $0.01 per share.

Table of Contents
ENTERPRISE BANCORP, INC.
INDEX
  Page Number
 
   
 
 
 
 
 
 
   
   
 


2
Table of Contents
PART I-FINANCIAL INFORMATION
Item 1 -Financial Statements
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
(Unaudited)
(Dollars in thousands, except per share data)September 30,
2023		December 31, 2022
Assets  
Cash and cash equivalents:  
Cash and due from banks$45,345 $36,901 
Interest-earning deposits with banks180,076 230,688 
Total cash and cash equivalents225,421 267,589 
Investments:
Debt securities at fair value (amortized cost of $806,077 and $940,227, respectively)
672,894 816,102 
Equity securities at fair value6,038 4,269 
Total investment securities at fair value678,932 820,371 
Federal Home Loan Bank ("FHLB") stock2,403 2,343 
Loans:
Total loans3,404,014 3,180,518 
Allowance for credit losses (57,905)(52,640)
Net loans3,346,109 3,127,878 
Premises and equipment, net43,391 44,228 
Lease right-of-use asset24,979 24,923 
Accrued interest receivable18,572 17,117 
Deferred income taxes, net55,080 51,981 
Bank-owned life insurance65,106 64,156 
Prepaid income taxes2,548 683 
Prepaid expenses and other assets14,177 11,408 
Goodwill5,656 5,656 
Total assets$4,482,374 $4,438,333 
Liabilities and shareholders' Equity  
Liabilities  
Deposits$4,060,403 $4,035,806 
Borrowed funds4,290 3,216 
Subordinated debt59,419 59,182 
Lease liability24,589 24,415 
Accrued expenses and other liabilities31,288 31,442 
Accrued interest payable2,686 2,005 
Total liabilities4,182,675 4,156,066 
Commitments and Contingencies
Shareholders' Equity  
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued
— — 
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 12,256,964 and 12,133,516 shares issued and outstanding, respectively
123 121 
Additional paid-in capital106,451 103,793 
Retained earnings296,291 274,560 
Accumulated other comprehensive loss(103,166)(96,207)
Total shareholders' equity299,699 282,267 
Total liabilities and shareholders' equity$4,482,374 $4,438,333 
See the accompanying notes to the unaudited consolidated interim financial statements.
3

Table of Contents
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
(Unaudited)
 Three months ended September 30,Nine months ended September 30,
(Dollars in thousands, except per share data)2023202220232022
Interest and dividend income:  
Loans and loans held for sale$44,501 $35,306 $125,855$98,149
Investment securities4,316 4,728 14,35614,097
Other interest-earning assets3,468 2,068 7,5932,642
Total interest and dividend income52,285 42,102 147,804114,888
Interest expense:  
Deposits12,889 1,460 28,5682,731
Borrowed funds28 13 7039
Subordinated debt866 850 2,6002,485
Total interest expense13,783 2,323 31,238 5,255 
Net interest income38,502 39,779 116,566 109,633 
Provision for credit losses1,752 1,000 6,756 3,939 
Net interest income after provision for credit losses36,750 38,779 109,810 105,694 
Non-interest income:  
Wealth management fees1,673 1,626 4,9334,965
Deposit and interchange fees1,987 2,045 6,3305,847
Income on bank-owned life insurance, net327 303 950893
Net (losses) gains on sales of debt securities— — (2,419)1,062
Net gains on sales of loans14 8 3430
Losses on equity securities
(181)(193)(8)(688)
Other income666 736 2,2422,143
Total non-interest income4,486 4,525 12,062 14,252 
Non-interest expense:  
Salaries and employee benefits19,159 18,915 53,81553,450
Occupancy and equipment expenses2,433 2,203 7,4396,982
Technology and telecommunications expenses2,626 2,599 7,9378,154
Advertising and public relations expenses592 510 2,0771,737
Audit, legal and other professional fees735 693 2,1572,078
Deposit insurance premiums654 391 1,9441,313
Supplies and postage expenses251 219 753663
Other operating expenses1,862 2,007 5,8535,770
Total non-interest expense28,312 27,537 81,975 80,147 
Income before income taxes12,924 15,767 39,897 39,799 
Provision for income taxes3,225 3,805 9,746 9,389 
Net income$9,699 $11,962 $30,151 $30,410 
Basic earnings per share$0.79 $0.99 $2.47 $2.51 
Diluted earnings per share$0.79 $0.98 $2.46 $2.50 
Basic weighted average common shares outstanding12,247,892 12,119,348 12,210,740 12,094,613 
Diluted weighted average common shares outstanding12,264,778 12,156,695 12,233,861 12,143,468 
See the accompanying notes to the unaudited consolidated interim financial statements.

4
Table of Contents
ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
(Unaudited)
Three months ended September 30,Nine months ended September 30,
(Dollars in thousands)2023202220232022
Net income$9,699 $11,962 $30,151 $30,410 
Other comprehensive loss, net of tax
Net change in fair value of debt securities(15,573)(23,295)(6,959)(100,335)
Total other comprehensive loss, net of tax
(15,573)(23,295)(6,959)(100,335)
Total comprehensive (loss) income, net$(5,874)$(11,333)$23,192 $(69,925)


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

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Table of Contents
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity
(Unaudited)
Common StockAdditional
Paid-in
Capital		Retained
Earnings		Accumulated
Other
Comprehensive Loss		Total
Shareholders'
Equity
(Dollars in thousands, except per share data)SharesAmount
Balance at June 30, 202312,244,733 $122 $105,552 $289,409 $(87,593)$307,490 
Net income9,699 9,699 
Other comprehensive loss, net(15,573)(15,573)
Common stock dividend declared ($0.230 per share)
(2,817)(2,817)
Common stock issued under dividend reinvestment plan12,926 1 377 378 
Common stock issued, other244 — 6 6 
Stock-based compensation, net(415)— 542 542 
Net settlement for employee taxes on restricted stock and options(1,625)— (49)(49)
Stock options exercised, net1,101 — 23 23 
Balance at September 30, 202312,256,964 $123 $106,451 $296,291 $(103,166)$299,699 
Balance at June 30, 202212,115,924 $121 $102,108 $255,259 $(72,378)$285,110 
Net income11,962 11,962 
Other comprehensive loss, net(23,295)(23,295)
Common stock dividend declared ($0.205 per share)
(2,483)(2,483)
Common stock issued under dividend reinvestment plan11,297 — 354 354 
Common stock issued, other344 — 11 11 
Stock-based compensation, net61 553 553 
Net settlement for employee taxes on restricted stock and options(1,408)— (46)(46)
Stock options exercised, net1,235 — 27 27 
Balance at September 30, 202212,127,453 $121 $103,007 $264,738 $(95,673)$272,193 










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

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ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Shareholders' Equity (continued)
(Unaudited)
Common StockAdditional
Paid-in
Capital		Retained
Earnings
Accumulated
Other
Comprehensive (Loss)/Income
Total
Stockholders'
Equity
(Dollars in thousands, except per share data)SharesAmount
Balance at December 31, 202212,133,516 $121 $103,793 $274,560 $(96,207)$282,267 
Net income30,151 30,151 
Other comprehensive loss, net(6,959)(6,959)
Common stock dividends declared ($0.690 per share)
(8,420)(8,420)
Common stock issued under dividend reinvestment plan37,145 1 1,123 1,124 
Common stock issued, other975 — 30 30 
Stock-based compensation, net79,166 1 1,823 1,824 
Net settlement for employee taxes on restricted stock and options(9,229)— (444)(444)
Stock options exercised, net15,391 — 126 126 
Balance at September 30, 202312,256,964 $123 $106,451 $296,291 $(103,166)$299,699 
Balance at December 31, 202112,038,382 $120 $100,352 $241,761 $4,662 $346,895 
Net income30,410 30,410 
Other comprehensive loss, net(100,335)(100,335)
Common stock dividends declared ($0.615 per share)
(7,433)(7,433)
Common stock issued under dividend reinvestment plan30,821 — 1,053 1,053 
Common stock issued, other1,195 — 41 41 
Stock-based compensation, net60,345 1 1,785 1,786 
Net settlement for employee taxes on restricted stock and options(9,136)— (332)(332)
Stock options exercised, net5,846 — 108 108 
Balance at September 30, 202212,127,453 $121 $103,007 $264,738 $(95,673)$272,193 
See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
(Unaudited)
 Nine months ended September 30,
(Dollars in thousands)20232022
Cash flows from operating activities:
Net income$30,151 $30,410 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses6,756 3,939 
Depreciation and amortization4,700 5,292 
Stock-based compensation expense1,735 1,724 
Income on bank-owned life insurance, net(950)(893)
Net losses (gains) on sales of debt securities2,419 (1,062)
Mortgage loans originated for sale(2,047)(1,263)
Proceeds from mortgage loans sold2,081 1,293 
Net gains on sales of loans(34)(30)
Net losses on equity securities
8 688 
Changes in:
  Net increase in other assets(6,785)(16,433)
  Net decrease in other liabilities(734)(3,249)
Net cash provided by operating activities37,300 20,416 
Cash flows from investing activities:
Proceeds from sales of debt securities84,779 32,715 
Purchase of debt securities— (97,789)
Proceeds from maturities, calls and pay-downs of debt securities46,258 68,149 
Net purchases of equity securities(1,777)(2,718)
Net purchases of FHLB capital stock(60)(179)
Net increase in loans(223,586)(188,758)
Additions to premises and equipment, net(3,169)(3,415)
Net cash used in investing activities(97,555)(191,995)
Cash flows from financing activities:
Net increase in deposits24,597 157,799 
Net increase (decrease) in borrowed funds1,074 (2,545)
Cash dividends paid, net of dividend reinvestment plan(7,296)(6,380)
Proceeds from issuance of common stock30 41 
Net settlement for employee taxes on restricted stock and options(444)(332)
Net proceeds from stock option exercises126 108 
Net cash provided by financing activities18,087 148,691 
Net decrease in cash and cash equivalents(42,168)(22,888)
Cash and cash equivalents at beginning of period267,589 436,576 
Cash and cash equivalents at end of period$225,421 $413,688 
See the accompanying notes to the unaudited consolidated interim financial statements.

8
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(1)Summary of Significant Accounting Policies

(a) Organization of the Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2022 audited consolidated financial statements and notes thereto contained in the Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") for the year ended December 31, 2022 (the "2022 Annual Report on Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") on March 8, 2023. The Company has not materially changed its significant accounting policies from those disclosed in its 2022 Annual Report on Form 10-K. See Item (e), "Recent Accounting Pronouncements," below in this Note 1.

The accompanying unaudited consolidated interim financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries.

The Bank's subsidiaries include Enterprise Wealth Services, LLC which was organized under the laws of the State of Delaware, to offer non-deposit investment products and services. 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. Otherwise, the services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.

The accompanying unaudited consolidated interim financial statements, and notes thereto, in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (this "Form 10-Q"), have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the SEC instructions for Quarterly Reports on Form 10-Q. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments, consisting of normal recurring accruals and elimination of intercompany balances, for a fair presentation. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.

(b) Uses of Estimates

In preparing the unaudited consolidated interim financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. These assumptions and estimates affect the reported values of assets and liabilities as of the balance sheet dates and income and expenses for the period then ended. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. Changes in those estimates resulting from continuing changes in the economic environment and other factors will be reflected in the consolidated financial statements and results of operations in future periods.

As discussed in the Company's 2022 Annual Report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses ("ACL") for loans, available for sale securities and reserve for unfunded commitments, and the impairment review of goodwill. Refer to Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements included in the Company's 2022 Annual Report on Form 10-K for accounting policies related to these significant estimates.

(c) Unconsolidated Variable Interest Entity / Proportional Accounting

In March 2023, the Bank made an equity contribution to the NMTC Investment Fund, a newly formed Delaware limited liability company, in order to invest in the NMTC program administered by the U.S. Department of the Treasury's Community Development Financial Institutions Fund and allocated to Community Development Entities ("CDE").

The NMTC program provides federal tax incentives for investments in distressed communities and promotes economic improvements through the development of successful businesses in these communities. The NMTCs are available to investors over a seven-year period and are subject to recapture if certain events occur during such period. The Bank invested $3.7 million in the Investment Fund and anticipates receiving $4.8 million of federal tax credits over the next seven years (5% in each of the

9
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
first three years, and 6% in each of the next four years). The underlying project is structured through a qualified CDE, which in turn has made loans to a qualified active low-income business. The Bank has no unfunded commitments associated with its NMTC investment.

The Company has elected to account for the tax equity investment using the proportional amortization method. Under this accounting method, the NMTC Investment Fund is not consolidated with the Company and, instead, the initial cost of the investment is amortized in proportion to the amount of tax credits and other tax benefits received over the allotment period. The investment is carried within the line "Prepaid expenses and other assets" on the Company's Consolidated Balance Sheet and the investment amortization expense and tax credits are presented on a net basis within the line "Provision for income taxes" on the Company's Consolidated Statements of Income. During the three and nine months ended September 30, 2023, the related amortization expense amounted to $143 thousand and $334 thousand, respectively, and the related tax credits amounted to $153 thousand and $459 thousand, respectively.

(d) Income Taxes

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

(e) Recent Accounting Pronouncements

Accounting pronouncements adopted by the Company
In March 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2023-02, "Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method." ASU 2023-02 permits reporting entities to elect to account for their tax equity investments, regardless of the tax credit program from which the income tax credits are received, using the proportional amortization method if certain conditions are met. The election can be made for each individual qualifying tax credit investment. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of tax credits and other tax benefits received, with the amortization and tax credits recognized as a component of income tax expense. To qualify for the proportional amortization method, all of the following conditions must be met: (1) It is probable that the income tax credits allocated to the tax equity investor will be available; (2) The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project; (3) Substantially all of the projected benefits are from income tax credits and other income tax benefits; (4) The tax equity investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive; and (5) The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the tax equity investor's liability is limited to its capital investment. Under the proportional amortization method, the investment shall be tested for impairment when events or changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be realized. An impairment loss shall be measured as the amount by which the carrying amount of an investment exceeds its fair value. A previously recognized impairment loss shall not be reversed. ASU 2023-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company has elected to early adopt ASU 2022-01 effective on January 1, 2023, applying the new guidance to a new investment in NMTC made in the first quarter of 2023, and the adoption did not have a significant impact on the financial statements.

In March 2022, the FASB issued ASU 2022-01, "Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method." This ASU clarifies the guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities," that, among other things, established the "last-of-layer" method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the "portfolio layer" method and addresses feedback from stakeholders regarding its application. The Company adopted ASU 2022-01 effective on January 1, 2023 and the adoption did not have a significant impact on the financial statements.

In March 2022, the FASB issued ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures." This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit loss ("CECL") methodology for estimating allowances for credit losses and enhances the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross charge-offs for financing receivables

10
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
and net investment in leases by year of origination in the vintage disclosures. The Company adopted ASU 2022-02 effective on January 1, 2023, prospectively, and the adoption did not have a significant impact on the financial statements.

(f) Subsequent Events

The Company has evaluated subsequent events and transactions from September 30, 2023 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP and determined there were no material subsequent events requiring recognition or disclosure.
(2)    Investment Securities

Debt Securities

All of the Company's debt securities were classified as available-for-sale and carried at fair value as of the dates specified in the tables below. The amortized cost and fair values of debt securities at the dates specified are summarized as follows:
 September 30, 2023
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,008 $— $62 $4,946 
U.S. treasury securities45,982 — 1,704 44,278 
Federal agency collateralized mortgage obligations ("CMO")407,415 — 78,193 329,222 
Federal agency mortgage-backed securities ("MBS")21,756 — 3,855 17,901 
Taxable municipal securities 263,183 1 45,931 217,253 
Tax-exempt municipal securities46,724 1 1,394 45,331 
Corporate bonds 4,054 — 188 3,866 
Subordinated corporate bonds11,955 — 1,858 10,097 
Total debt securities, at fair value$806,077 $2 $133,185 $672,894 
 December 31, 2022
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,014 $— $37 $4,977 
U.S. treasury securities45,942 — 2,691 43,251 
Federal agency CMO474,777 3 67,798 406,982 
Federal agency MBS24,172 27 3,178 21,021 
Taxable municipal securities 287,435 29 48,187 239,277 
Tax-exempt municipal securities84,457 66 870 83,653 
Corporate bonds 6,480 — 186 6,294 
Subordinated corporate bonds11,950 — 1,303 10,647 
Total debt securities, at fair value$940,227 $125 $124,250 $816,102 
Accrued interest receivable on available-for-sale debt securities, included in the "Accrued Interest Receivable" line item on the Company's Consolidated Balance Sheets, amounted to $4.0 million at both September 30, 2023 and December 31, 2022.

At September 30, 2023, management performed its quarterly analysis of all securities with unrealized losses and determined that the losses were primarily attributable to significant increases in market interest rates experienced over the last several quarters. Management concluded that no ACL for available-for-sale securities was necessary as of September 30, 2023 and anticipates they will mature or be called at par value.




11
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The following tables summarize the duration of unrealized losses for debt securities at September 30, 2023 and December 31, 2022:
 September 30, 2023
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$4,946 $62 $— $— $4,946 $62 1 
U.S. treasury securities— — 44,278 1,704 44,278 1,704 6 
Federal agency CMO32,356 1,720 296,866 76,473 329,222 78,193 87 
Federal agency MBS1,614 60 16,287 3,795 17,901 3,855 11 
Taxable municipal securities 4,033 666 212,220 45,265 216,253 45,931 251 
Tax-exempt municipal securities32,686 746 11,913 648 44,599 1,394 95 
Corporate bonds— — 3,866 188 3,866 188 18 
Subordinated corporate bonds— — 10,097 1,858 10,097 1,858 6 
Total$75,635 $3,254 $595,527 $129,931 $671,162 $133,185 475 
 December 31, 2022
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$4,977 $37 $— $— $4,977 $37 1 
U.S. treasury securities2,878 109 40,373 2,582 43,251 2,691 6
Federal agency CMO164,391 13,004 233,051 54,794 397,442 67,798 102
Federal agency MBS9,923 797 9,165 2,381 19,088 3,178 11 
Taxable municipal securities 93,345 10,411 144,903 37,776 238,248 48,187 273
Tax-exempt municipal securities66,277 870 — — 66,277 870 112 
Corporate bonds 6,294 186 — — 6,294 186 31 
Subordinated corporate bonds6,206 743 4,440 560 10,646 1,303 6 
Total$354,291 $26,157 $431,932 $98,093 $786,223 $124,250 542 

The contractual maturity distribution at September 30, 2023 of debt securities was as follows:
(Dollars in thousands)Amortized CostFair Value
Due in one year or less$58,578 $57,689 
Due after one, but within five years79,463 74,128 
Due after five, but within ten years262,618 216,464 
Due after ten years405,418 324,613 
 Total debt securities
$806,077 $672,894 

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 $127.5 million, which can be redeemed by the issuers prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.

From time to time, the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the Federal Reserve Bank of Boston ("FRB"). The fair value of debt securities pledged as collateral for these purposes was $661.6 million and $804.2 million at September 30, 2023 and December 31, 2022, respectively.


12
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
During the three months ended September 30, 2023 and September 30, 2022, the Company had no sales of debt securities. Sales of debt securities during the nine months ended September 30, 2023, were made in order to improve the Company's balance sheet positioning and enhance future earnings. Sales of debt securities for the nine months ended September 30, 2023 and September 30, 2022 are summarized as follows:
Nine months ended September 30,
(Dollars in thousands)20232022
Amortized cost of debt securities sold (1)
$87,198 $31,653 
Gross realized gains on sales— 1,062 
Gross realized losses on sales(2,419)— 
Total proceeds from sales of debt securities$84,779 $32,715 
_________________________________________
(1)Amortized cost of investments sold is determined on a specific identification basis and includes pending trades based on trade date, if applicable.

Equity Securities

The Company held equity securities with a fair value of $6.0 million at September 30, 2023 and $4.3 million at December 31, 2022. At September 30, 2023, the equity portfolio consisted of investments in broad-based equity index funds and common stock of entities in the financial services industry. The equity portfolio also included mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Gains and losses on equity securities for the three and nine months ended September 30, 2023 and September 30, 2022 are summarized as follows:
Three months ended September 30,Nine months ended September 30,
(Dollars in thousands)2023202220232022
Net losses recognized during the period on equity securities
$(181)$(193)$(8)$(688)
Less: Net losses recognized on equity securities sold during the period— — (29)— 
Unrealized (losses) gains recognized during the reporting period on equity securities still held at the end of the period
$(181)$(193)$21 $(688)

(3)Loans

Loan Portfolio Classifications

Major classifications of loans and their amortized cost as of the dates indicated were as follows:
(Dollars in thousands)September 30,
2023		December 31,
2022
Commercial real estate$2,032,458 $1,921,410 
Commercial and industrial425,334 414,490 
Commercial construction501,179 424,049 
Total commercial loans2,958,971 2,759,949 
Residential mortgages362,514 332,632 
Home equity loans and lines 74,433 79,807 
Consumer8,096 8,130 
Total retail loans445,043 420,569 
Total loans3,404,014 3,180,518 
ACL for loans(57,905)(52,640)
Net loans$3,346,109 $3,127,878 


13
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Net deferred loan origination fees, included in the amortized costs of loans reflected in the table above, amounted to $5.5 million at September 30, 2023 and $5.2 million at December 31, 2022. Accrued interest receivable on loans amounted to $14.5 million and $13.1 million at September 30, 2023 and December 31, 2022, 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 $114.9 million at September 30, 2023 and $94.8 million at December 31, 2022. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.

Loans serviced for others

At September 30, 2023 and December 31, 2022, the Company was servicing residential mortgage loans owned by investors amounting to $8.1 million and $8.9 million, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $68.2 million and $59.1 million at September 30, 2023 and December 31, 2022, respectively.

Loans serving as collateral
 
Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity as of the dates indicated are summarized below:
(Dollars in thousands)September 30,
2023		December 31,
2022
Commercial real estate$521,370 $113,830 
Residential mortgages339,206 309,023 
Home equity34,062 39,724 
Total loans pledged to FHLB$894,638 $462,577 

(4)ACL for Loans

Although 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, 2022, during the quarter ended September 30, 2023, the Company made a minor modification to its ACL estimation process as described in Note 4 to the 2022 Annual Report on Form 10-K under the heading "loans collectively evaluated." The Company streamlined its allowance estimation process to collectively evaluate all non-impaired loans as one cohort segmented by loan type. Previously, the Company separately evaluated non-classified loans and adversely classified loans. The change did not have a material impact on the ACL for loans at September 30, 2023.

See Note 4, "ACL for Loans," to the Company's audited consolidated financial statements contained in the 2022 Annual Report on Form 10-K.

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. This review includes the assessment of internal credit quality indicators such as, among others, the risk classification of loans, past due and non-accrual loans, individually evaluated loans, loan modifications, and the level of foreclosure activity. These credit quality indicators are outlined below.
Risk ratings and adversely classified loans

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





14
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The following tables present the amortized cost basis of the Company's loan portfolio risk ratings within portfolio classifications, by origination date, or revolving status as of the dates indicated:
Balance at September 30, 2023
Term Loans by Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate
Pass $160,141 $378,402 $376,672 $201,198 $220,002 $656,160 $1,606 $— $1,994,181 
Special mention31 15,783 — — 494 9,936 — — 26,244 
Substandard— 1,341 638 — 992 9,062 — — 12,033 
Total commercial real estate160,172 395,526 377,310 201,198 221,488 675,158 1,606 — 2,032,458 
Current period charge-offs— — — — — — — — — 
Commercial and industrial
Pass58,446 54,826 47,487 27,705 25,404 47,475 152,220 3,298 416,861 
Special mention— — — 85 217 225 2,297 234 3,058 
Substandard— — 18 — 3 202 776 4,407 5,406 
Doubtful— 9 — — — — — — 9 
Total commercial and industrial58,446 54,835 47,505 27,790 25,624 47,902 155,293 7,939 425,334 
Current period charge-offs15 83 — — 67 218 — — 383 
Commercial construction
Pass107,928 166,863 146,074 24,820 17,797 9,011 27,514 — 500,007 
Special mention— — — — 1,172 — — — 1,172 
Total commercial construction107,928 166,863 146,074 24,820 18,969 9,011 27,514 — 501,179 
Current period charge-offs— — — — — — — — — 
Residential mortgages
Pass48,768 107,308 71,294 47,050 19,363 67,053 — — 360,836 
Special mention— — — — — 110 — — 110 
Substandard— — — — 1,055 513 — — 1,568 
Total residential mortgages48,768 107,308 71,294 47,050 20,418 67,676 — — 362,514 
Current period charge-offs— — — — — — — — — 
Home equity
Pass467 779 570 447 325 800 70,390 369 74,147 
Substandard— — — — — 77 — 209 286 
Total home equity467 779 570 447 325 877 70,390 578 74,433 
Current period charge-offs— — — — — — — — — 
Consumer
Pass2,763 1,790 1,488 790 702 563 — — 8,096 
Total consumer2,763 1,790 1,488 790 702 563 — — 8,096 
Current period charge-offs6 20 — — — — — — 26 
Total loans $378,544 $727,101 $644,241 $302,095 $287,526 $801,187 $254,803 $8,517 $3,404,014 
Total current period charge-offs$21 $103 $— $— $67 $218 $— $— $409 

15
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Balance at December 31, 2022
Term Loans by Origination Year
(Dollars in thousands)20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate
Pass$391,515 $381,771 $204,125 $218,664 $114,175 $577,354 $1,347 $200 $1,889,151 
Special mention— — — 507 2,041 16,248 — — 18,796 
Substandard— 289 — 1,160 1,404 10,610 — — 13,463 
Total commercial real estate391,515 382,060 204,125 220,331 117,620 604,212 1,347 200 1,921,410 
Commercial and industrial
Pass59,824 53,059 33,027 29,293 13,364 43,724 171,670 3,235 407,196 
Special mention— — — 11 66 278 3,132 — 3,487 
Substandard— 19 — 8 138 325 2,964 353 3,807 
Total commercial and industrial59,824 53,078 33,027 29,312 13,568 44,327 177,766 3,588 414,490 
Commercial construction
Pass151,107 169,549 35,651 31,189 7,729 3,379 19,778 1,473 419,855 
Special mention— — — 3,900 — — — — 3,900 
Substandard— 294 — — — — — — 294 
Total commercial construction151,107 169,843 35,651 35,089 7,729 3,379 19,778 1,473 424,049 
Residential mortgages
Pass112,804 73,955 49,549 20,140 18,799 54,620 — — 329,867 
Special mention— — — — — 325 — — 325 
Substandard— — — 1,060 — 1,380 — — 2,440 
Total residential mortgages112,804 73,955 49,549 21,200 18,799 56,325 — — 332,632 
Home equity
Pass328 596 456 345 — 1,220 75,324 1,054 79,323 
Substandard— 273 — — — 211 — — 484 
Total home equity328 869 456 345 — 1,431 75,324 1,054 79,807 
Consumer
Pass3,144 1,852 1,063 1,045 606 420 — — 8,130 
Total consumer3,144 1,852 1,063 1,045 606 420 — — 8,130 
Total loans $718,722 $681,657 $323,871 $307,322 $158,322 $710,094 $274,215 $6,315 $3,180,518 
The total amortized cost basis of adversely classified loans amounted to $49.9 million, or 1.47% of total loans, at September 30, 2023, and $47.0 million, or 1.48% of total loans, at December 31, 2022.

















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

The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated:
Balance at September 30, 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$1,717 $— $1,373 $3,090 $2,029,368 $2,032,458 
Commercial and industrial481 — — 481 424,853 425,334 
Commercial construction— — — — 501,179 501,179 
Residential mortgages1,691 222 1,055 2,968 359,546 362,514 
Home equity452 63 185 700 73,733 74,433 
Consumer40 — — 40 8,056 8,096 
Total loans$4,381 $285 $2,613 $7,279 $3,396,735 $3,404,014 
Balance at December 31, 2022
(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$2,818 $1,268 $1,631 $5,717 $1,915,693 $1,921,410 
Commercial and industrial786 39 217 1,042 413,448 414,490 
Commercial construction412 — 294 706 423,343 424,049 
Residential mortgages1,119 55 149 1,323 331,309 332,632 
Home equity163 — 73 236 79,571 79,807 
Consumer21 — — 21 8,109 8,130 
Total loans$5,319 $1,362 $2,364 $9,045 $3,171,473 $3,180,518 
_______________________________________
(1)The loan balances in the tables above include loans designated as non-accrual according to their payment due status.
At September 30, 2023 and December 31, 2022, all loans past due 90 days or more were carried as non-accrual, however, not all non-accrual loans were 90 days or more past due in their payments. Loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal have also been designated as non-accrual, despite their payment due status.

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

Balance at September 30, 2023
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate$5,503 $4,511 $992 $252 
Commercial and industrial4,355 759 3,596 2,690 
Commercial construction— — — — 
Residential mortgages1,536 1,536 — — 
Home equity 262 262 — — 
Consumer— — — — 
Total loans$11,656 $7,068 $4,588 $2,942 


17
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Balance at December 31, 2022
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate$3,355 $2,317 $1,038 $298 
Commercial and industrial730 348 382 382 
Commercial construction294 294 — — 
Residential mortgages1,532 1,532 — — 
Home equity 211 211 — — 
Consumer— — — — 
Total loans$6,122 $4,702 $1,420 $680 

The ratio of non-accrual loans to total loans amounted to 0.34% and 0.19% at September 30, 2023 and December 31, 2022, respectively.

At September 30, 2023 and December 31, 2022, additional funding commitments for non-accrual loans were not material.

Collateral dependent loans

The total recorded investment in collateral dependent loans amounted to $13.6 million at September 30, 2023 compared to $25.2 million at December 31, 2022. Total accruing collateral dependent loans amounted to $2.1 million while non-accrual collateral dependent loans amounted to $11.5 million as of September 30, 2023. As of December 31, 2022, total accruing collateral dependent loans amounted to $19.5 million, while non-accrual collateral dependent loans amounted to $5.7 million.

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

Balance at September 30, 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$8,688 $7,216 $6,224 $992 $252 
Commercial and industrial6,813 4,433 976 3,457 2,564 
Commercial construction— — — — — 
Residential mortgages1,888 1,678 1,678 — — 
Home equity362 286 286 — — 
Consumer— — — — — 
Total$17,751 $13,613 $9,164 $4,449 $2,816 

Balance at December 31, 2022
(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$24,530 $21,916 $20,878 $1,038 $298 
Commercial and industrial3,210 863 863 — — 
Commercial construction294 294 294 — — 
Residential mortgages2,096 1,914 1,914 — — 
Home equity386 211 211 — — 
Consumer— — — — — 
Total$30,516 $25,198 $24,160 $1,038 $298 
 

18
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
At September 30, 2023 and December 31, 2022, additional funding commitments for collateral dependent loans were immaterial.

Loan modifications to borrowers experiencing financial difficulty

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

The Company 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.

The following table presents the amortized cost basis of loan modifications made to borrowers experiencing financial difficulty by type of concession granted during the period indicated:
Three months ended
September 30, 2023
(Dollars in thousands)Payment Deferrals% of Loan Class Total
Commercial and industrial$143 0.03 %
Total$143 — %

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:
Nine months ended
September 30, 2023
(Dollars in thousands)Payment Deferrals% of Loan Class Total
Commercial real estate$272 0.01 %
Commercial and industrial177 0.04 %
Residential mortgages32 0.01 %
Total$481 0.01 %

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the period indicated:
Three months ended
September 30, 2023
Weighted Average Payment Deferrals
Commercial and industrial0.5 years

The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the period indicated:
Nine months ended
September 30, 2023
Weighted Average Payment Deferrals
Commercial real estate0.5 years
Commercial and industrial0.5 years
Residential mortgages0.5 years

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

Balance at September 30, 2023
(Dollars in thousands)Current30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or MoreTotal Past
Due
Commercial real estate$272 $— $— $— $— 
Commercial and industrial233 — — — — 
Commercial construction— — — — — 
Residential mortgages175 — — — — 
Home equity— — — — — 
Consumer— — — — — 
Total$680 $— $— $— $— 

During the nine months ended September 30, 2023, there were no subsequent defaults on loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty, and at September 30, 2023, additional funding commitments to borrowers experiencing financial difficulty who were party to a loan modification were immaterial.

Prior-period TDR disclosures

Prior to adopting the new accounting standard on loan modifications, the Company accounted for modifications of loans to borrowers experiencing financial difficulty as TDRs, when the modification resulted in a concession and specific reserves were charged to the ACL if necessary for the amount of estimated credit loss. The following discussion reflects loans that were considered TDRs prior to January 1, 2023. For further information on the Company's TDR accounting policies, see Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements contained in the 2022 Annual Report on Form 10-K. 

At September 30, 2022, additional funding commitments for TDR loans were immaterial.

The following table presents the number and balance of loans modified as TDRs, by portfolio classification, during the three months indicated:
Three months ended
September 30, 2022
(Dollars in thousands)Number of
Restructurings		Pre-modification
Outstanding Recorded
Investment		Post-modification
Outstanding Recorded
Investment
Commercial real estate1$131 $131 
Total1$131 $131 

The following table presents the number and balance of loans modified as TDRs, by portfolio classification, during the nine months indicated:
Nine months ended
September 30, 2022
(Dollars in thousands)Number of
Restructurings		Pre-modification
Outstanding Recorded
Investment		Post-modification
Outstanding Recorded
Investment
Commercial real estate5 $3,319 $2,841 
Total5 $3,319 $2,841 

There were no subsequent charge-offs associated with the TDRs noted in the table above during the nine months ended September 30, 2022.


20
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
There were no payment defaults on loans modified as TDRs within the preceding twelve months during the three months ended September 30, 2022.
Payment defaults by portfolio classification, during the nine months indicated, on loans modified as TDRs within the preceding twelve months are detailed below:
Nine months ended
September 30, 2022
(Dollars in thousands)Number of TDRs that DefaultedPost-
modification Outstanding
Recorded Investment
Commercial real estate3 $1,325 
Commercial and industrial1 45 
Total4 $1,370 

The following table sets forth the post modification balances of TDRs listed by type of modification for TDRs that occurred during the nine-month period indicated:
Nine months ended
September 30, 2022
(Dollars in thousands)Number of
Restructurings		Amount
Temporary interest only payment plan3 $151 
Deferral of interest1 1,306 
Other payment concessions1 1,384 
  Total5 $2,841 
Amount of ACL for loans associated with TDRs listed above$271 

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 three- and nine-month periods indicated:
Three months endedNine months ended
(Dollars in thousands)September 30,
2023		September 30,
2022		September 30,
2023		September 30,
2022
Provision for credit losses on loans$994 $560 $5,355 $3,580 
Provision for unfunded commitments758 440 1,401 359 
Total provision for credit losses$1,752 $1,000 $6,756 $3,939 

ACL for loans

The ACL for loans amounted to $57.9 million and $52.6 million at September 30, 2023 and December 31, 2022, respectively. The ACL for loans to total loans ratio was 1.70% and 1.66% at September 30, 2023 and December 31, 2022, respectively.

The following tables present changes in the ACL for loans by portfolio classification, during the three months indicated:
(Dollars in thousands)Commercial Real
Estate		Commercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at June 30, 2023$39,577 $9,104 $4,718 $2,453 $698 $349 $56,899 
Provision for credit losses on loans(1,064)2,068 594 (396)(160)(48)994 
Recoveries— 87 — — 3 7 97 
Less: Charge-offs— 80 — — — 5 85 
Ending Balance at September 30, 2023$38,513 $11,179 $5,312 $2,057 $541 $303 $57,905 


21
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(Dollars in thousands)Commercial Real
Estate		Commercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at June 30, 2022
$35,379 $8,938 $3,667 $1,902 $554 $263 $50,703 
Provision for credit losses on loans404 (44)95 74 11 20 560 
Recoveries— 29 — — 2 4 35 
Less: Charge-offs— 82 — — — 5 87 
Ending Balance at September 30, 2022$35,783 $8,841 $3,762 $1,976 $567 $282 $51,211 

The following tables present changes in the ACL for loans by portfolio classification, during the nine months indicated:
(Dollars in thousands)Commercial Real
Estate		Commercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at December 31, 2022$36,564 $8,896 $3,961 $2,255 $633 $331 $52,640 
Provision for credit losses for loans1,949 2,368 1,351 (198)(100)(15)5,355 
Recoveries— 298 — — 8 13 319 
Less: Charge-offs— 383 — — — 26 409 
Ending Balance at September 30, 2023$38,513 $11,179 $5,312 $2,057 $541 $303 $57,905 

(Dollars in thousands)Commercial Real
Estate		Commercial and
Industrial		Commercial ConstructionResidential
Mortgage		Home
Equity		ConsumerTotal
Beginning Balance at December 31, 2021$31,847 $9,574 $4,090 $1,405 $465 $323 $47,704 
Provision for credit losses for loans3,936 (680)(328)571 93 (12)3,580 
Recoveries— 139 — — 9 14 162 
Less: Charge-offs— 192 — — — 43 235 
Ending Balance at September 30, 2022$35,783 $8,841 $3,762 $1,976 $567 $282 $51,211 

Reserve for unfunded commitments

The Company's reserve for unfunded commitments amounted to $5.7 million at September 30, 2023 and $4.3 million at December 31, 2022. Management believes that the Company's ACL for loans and reserve for unfunded commitments were adequate as of September 30, 2023.

Other real estate owned ("OREO")

The Company carried no OREO at September 30, 2023 and December 31, 2022.

At September 30, 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. The Company had no such loans at December 31, 2022.

(5)Leases

As of September 30, 2023, the Company had 16 facilities contracted under various non-cancelable operating leases, most of which provide options to the Company to extend the lease periods and include periodic rent adjustments.

Lease expense for the three and nine months ended September 30, 2023 amounted to $410 thousand and $1.2 million, respectively, compared to $397 thousand and $1.2 million for the three and nine months ended September 30, 2022, respectively. Variable lease costs and short-term lease expenses included in lease expense during these periods were immaterial.

The weighted average remaining lease term for operating leases at September 30, 2023 and September 30, 2022 was 28.6 years and 29.7 years, respectively. The weighted average discount rate was 3.55% at September 30, 2023 and 3.44% at September 30, 2022.

22
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
At September 30, 2023, the remaining undiscounted cash flows by year of these lease liabilities were as follows:
(Dollars in thousands)Operating Leases
2023 (three remaining months)
$378 
20241,450 
20251,457 
20261,468 
20271,474 
Thereafter33,199 
Total lease payments39,426 
Less: Imputed interest14,837 
Total lease liability$24,589 

(6)Deposits
 
Deposits are summarized as follows as of the periods indicated:
(Dollars in thousands)September 30, 2023December 31, 2022
Non-interest checking$1,130,732 $1,361,588 
Interest-bearing checking727,817 678,715 
Savings290,363 326,666 
Money market1,434,036 1,381,645 
CDs $250,000 or less 262,975 187,758 
CDs greater than $250,000214,480 99,434 
Deposits$4,060,403 $4,035,806 

All of the Company's deposits outstanding at both September 30, 2023 and December 31, 2022 were customer deposits, and the Company had no brokered deposits at either September 30, 2023 or December 31, 2022. 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 Federal Deposit Insurance Corporation ("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 $815.0 million and $589.7 million at September 30, 2023 and December 31, 2022, respectively.

(7)Borrowed Funds and Subordinated Debt

Borrowed funds at September 30, 2023 and December 31, 2022 are summarized, as follows:
September 30, 2023December 31, 2022
(Dollars in thousands)BalanceRateBalanceRate
Over 5 years$4,290 1.14 %$3,216 1.55 %
Total borrowed funds$4,290 1.14 %$3,216 1.55 %

The Company's borrowed funds at September 30, 2023 and December 31, 2022 were comprised of FHLB advances related to specific lending projects under the FHLB's community development and affordable housing programs as well as borrowed funds from the New Hampshire Business Finance Authority borrowing under a New Hampshire community development program.

The Company also had outstanding subordinated debt (net of deferred issuance costs) of $59.4 million at September 30, 2023 and $59.2 million at December 31, 2022. The outstanding subordinated notes are due on July 15, 2030 and callable at the Company's option on or after July 15, 2025.




23
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(8)    Derivatives and Hedging Activities

For further information on the Company's derivatives and hedging activities, see Note 9, "Derivatives and Hedging," to the Company's audited consolidated financial statements contained in the 2022 Annual Report on Form 10-K. 

The tables below present a summary of the Company's derivative financial instruments, notional amounts and fair values at the periods presented:
September 30, 2023
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)
Liability Notional Amount
Liability Derivatives(1)
Derivatives designated as hedging instruments
Interest-rate contracts - pay fixed, receive floating$100,000 $393 $— $— 
Total derivatives designated as hedging instruments $100,000 $393 $— $— 
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,589 $968 
Interest-rate contracts - pay fixed, receive floating7,589 968 — — 
Risk participation agreements sold— — 46,910 37 
Total derivatives not subject to hedge accounting $7,589 $968 $54,499 $1,005 

December 31, 2022
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)
Liability Notional Amount
Liability Derivatives(1)
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,777 $782 
Interest-rate contracts - pay fixed, receive floating7,777 782 — — 
Risk participation agreements sold— — 24,660 73 
Total derivatives not subject to hedge accounting $7,777 $782 $32,437 $855 
__________________________________________
(1)     Accrued interest balances related to the Company's interest-rate swaps are not included in the fair values above and are immaterial.

The Company had no derivatives designated as cash flow hedges at either September 30, 2023 or December 31, 2022.

Derivatives designated as hedging instruments

Fair value hedges

Derivatives designated as fair value hedges are utilized to mitigate the risk of adverse interest-rate fluctuations on specifically identified assets or liabilities. The Company's fair value hedges are used to manage its exposure to changes in the fair value of hedged items caused by changes in interest rates.
During the third quarter of 2023, the Company entered into one pay fixed, receive float, interest rate swap agreement to hedge against fixed-rate commercial real estate loan pools. This swap has a notional value of $50.0 million and a term of two years.

During the second quarter of 2023, the Company entered into two pay fixed, receive float, interest rate swap agreements to hedge against fixed-rate commercial real estate loan pools. These swaps have a combined notional value of $50.0 million and both have a term of two years.

As of September 30, 2023, the Company had three interest rate swap agreements with a combined notional value of $100.0 million. 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.




24
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Derivatives not subject to hedge accounting

Interest-rate Contracts

Each back-to-back interest-rate swap consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of four interest-rate swaps outstanding at September 30, 2023 and December 31, 2022. As a result of this offsetting relationship, there were no net gains or losses recognized in income on back-to-back swaps during the nine months ended September 30, 2023 or September 30, 2022.

Interest-rate swaps with counterparties are subject to master netting agreements, while interest-rate swaps with customers are not. At September 30, 2023 and December 31, 2022, all back-to-back swaps with the counterparty were in asset positions, therefore there was no netting reflected in the Company's Consolidated Balance Sheets as of the respective dates.
Risk Participation Agreements

The Company enters into risk participation agreements ("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

The Company had two active interest-rate swap institutional counterparties which were rated A and A+ by S&P Global Ratings, respectively, and both of which were rated A2 by Moody's Investor Services at September 30, 2023. When the Company has credit risk exposure, collateral is posted by counterparties. Collateral posted by counterparties is restricted and not considered an asset of the Company, therefore, it is not carried on the Company's Consolidated Balance Sheets. If the Company posts collateral, the restricted cash is carried on the Company's Consolidated Balance Sheets. At September 30, 2023, the Company had $1.4 million in credit risk exposure relating to interest-rate swaps with counterparties and the cash collateral posted by counterparties amounted to $1.3 million. At December 31, 2022, the Company had credit risk exposure relating to interest-rate swaps with counterparties of $708 thousand and the cash collateral posted by counterparties amounted to $20 thousand.

Credit-risk-related Contingent Features

There have been no material changes to the credit-risk-related contingent provisions contained within the Company's interest-rate swaps with counterparties since December 31, 2022. As of September 30, 2023, the fair value of derivatives related to these agreements was at a net asset position of $1.4 million, which excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and as of September 30, 2023, has not posted collateral related to these agreements.

Other Derivative Related Activity

At December 31, 2022, the Company had one participation loan for which the originating bank utilizes a back-to-back interest-rate swap structure and the Company has assumed a contingent liability commensurate with its participation percentage in the loan. During the quarter ended September 30, 2023, the back-to-back interest-rate swap agreement on this loan matured, eliminating the related contingent liability.

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 September 30, 2023 and December 31, 2022, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

(9) Regulatory Capital Requirements

As of September 30, 2023 and December 31, 2022, the Company met the definition of "well-capitalized" under the applicable regulations of the Board of Governors of the Federal Reserve System and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of the FDIC and the Basel III capital guidelines.

25
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
The Company's and the Bank's actual capital amounts and ratios are presented as of September 30, 2023 and December 31, 2022 in the tables below:
 Actual
Minimum Capital
for Capital Adequacy
Purposes(1)
Minimum Capital
to be Well
Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of September 30, 2023      
The Company      
Total Capital to risk-weighted assets ("RWA")$503,631 13.45 %$299,492 8.00 %N/AN/A
Tier 1 Capital to RWA397,209 10.61 %224,619 6.00 %N/AN/A
Tier 1 Capital to average assets ("AA") or Leverage Ratio397,209 8.59 %185,006 4.00 %N/AN/A
Common Equity Tier 1 Capital to RWA397,209 10.61 %168,464 4.50 %N/AN/A
The Bank      
Total Capital to RWA$503,395 13.45 %$299,492 8.00 %$374,365 10.00 %
Tier 1 Capital to RWA456,392 12.19 %224,619 6.00 %299,492 8.00 %
Tier 1 Capital to AA, Leverage Ratio456,392 9.87 %185,006 4.00 %231,258 5.00 %
Common Equity Tier 1 Capital to RWA456,392 12.19 %168,464 4.50 %243,337 6.50 %
 Actual
Minimum Capital
for Capital Adequacy
Purposes(1)
Minimum Capital
to be Well
Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2022      
The Company      
Total Capital to RWA$476,307 13.49 %$282,567 8.00 %N/AN/A
Tier 1 Capital to RWA372,817 10.56 %211,926 6.00 %N/AN/A
Tier 1 Capital to AA, Leverage Ratio372,817 8.10 %184,194 4.00 %N/AN/A
Common Equity Tier 1 Capital to RWA372,817 10.56 %158,944 4.50 %N/AN/A
The Bank      
Total Capital to RWA$475,668 13.47 %$282,567 8.00 %$353,209 10.00 %
Tier 1 Capital to RWA431,359 12.21 %211,926 6.00 %282,567 8.00 %
Tier 1 Capital to AA, Leverage Ratio431,359 9.37 %184,194 4.00 %230,243 5.00 %
Common Equity Tier 1 Capital to RWA431,359 12.21 %158,944 4.50 %229,586 6.50 %
__________________________________________
(1)Before application of the capital conservation buffer of 2.50% as of September 30, 2023, and December 31, 2022. See discussion      below.
(2)For the Bank to qualify as "well-capitalized," it must maintain at least the minimum ratios listed under the regulatory prompt corrective action framework. This framework does not apply to the Company.

The Company is subject to the Basel III capital ratio requirements which include a "capital conservation buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. If a banking organization dips into its capital conservation buffer it may be restricted in its activities, including its ability to pay dividends and discretionary bonus payments to its executive officers. Both the Company's and the Bank's actual ratios, as outlined in the table above, exceeded the Basel III risk-based capital requirement with the capital conservation buffer as of September 30, 2023. At September 30, 2023, the capital conservation buffer amounted to $93.6 million for both the Company and the Bank.







26
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
(10)Comprehensive Income (Loss)

The following table presents a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):
Three months ended September 30, 2023Three months ended September 30, 2022
(Dollars in thousands)Pre-TaxTax BenefitAfter Tax AmountPre-TaxTax BenefitAfter Tax Amount
Change in fair value of debt securities$(20,132)$4,559 $(15,573)$(30,133)$6,838 $(23,295)
Less: net security losses reclassified into non-interest income— — — — — — 
Net change in fair value of debt securities(20,132)4,559 (15,573)(30,133)6,838 (23,295)
Total other comprehensive loss, net$(20,132)$4,559 $(15,573)$(30,133)$6,838 $(23,295)

Nine months ended September 30, 2023Nine months ended September 30, 2022
(Dollars in thousands)Pre-Tax
Tax Benefit
After Tax AmountPre-TaxTax Benefit (Expense)After Tax Amount
Change in fair value of debt securities$(11,477)$2,633 $(8,844)$(128,511)$29,004 $(99,507)
Less: net security (losses) gains reclassified into non-interest income(2,419)534 (1,885)1,062 (234)828 
Net change in fair value of debt securities(9,058)2,099 (6,959)(129,573)29,238 (100,335)
Total other comprehensive income (loss), net$(9,058)$2,099 $(6,959)$(129,573)$29,238 $(100,335)

Information on the Company's accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the periods indicated:
Three months ended September 30, 2023Three months ended September 30, 2022
(Dollars in thousands)Unrealized Losses on Debt SecuritiesTotalUnrealized Losses on Debt SecuritiesTotal
Accumulated other comprehensive loss - beginning balance$(87,593)$(87,593)$(72,378)$(72,378)
Total other comprehensive loss, net(15,573)(15,573)(23,295)(23,295)
Accumulated other comprehensive loss - ending balance$(103,166)$(103,166)$(95,673)$(95,673)

Nine months ended September 30, 2023Nine months ended September 30, 2022
(Dollars in thousands)Unrealized Losses on Debt SecuritiesTotalUnrealized Gains (Losses) on Debt SecuritiesTotal
Accumulated other comprehensive loss - beginning balance$(96,207)$(96,207)$4,662 $4,662 
Total other comprehensive income (loss), net(6,959)(6,959)(100,335)(100,335)
Accumulated other comprehensive loss - ending balance$(103,166)$(103,166)$(95,673)$(95,673)


(11)Stock-Based Compensation

There have been no material changes to The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan (the "2016 Plan") since December 31, 2022. As of September 30, 2023, 371,020 shares of Company common stock remained available for future grants under the 2016 Plan.

Total stock-based compensation expense was $584 thousand and $1.7 million for the three and nine months ended September 30, 2023, respectively, compared to $609 thousand and $1.7 million for the three and nine months ended September 30, 2022, respectively.


27
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Stock Option Awards

The Company issued no stock options during the nine months ended September 30, 2023. The table below provides a summary of the options granted, including the weighted average fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the prior period:
Nine months ended
 September 30, 2022
Options granted17,060
Term in years10
Weighted average assumptions used in the fair value model:
Expected volatility44 %
Expected dividend yield3.05 %
Expected life in years6.5
Risk-free interest-rate2.20 %
Weighted average market price on date of grants$38.57
Per share weighted average fair value$14.40
Fair value as a percentage of market value at grant date37 %
Options granted during the first nine months of 2022 generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards.

The Company utilizes the Black-Scholes option valuation model to determine the per share grant date fair value of stock option grants.

The Company recognized stock-based compensation expense related to stock option awards of $40 thousand and $136 thousand for the three and nine months ended September 30, 2023, respectively, compared to $53 thousand and $153 thousand for the three and nine months ended September 30, 2022, respectively.

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

The table below provides a summary of restricted stock awards granted during the periods indicated:
Nine months ended September 30,
Restricted Stock Awards (number of underlying shares)20232022
Two-year vesting9,915 8,823 
Four-year vesting 32,719 22,116 
Performance-based vesting 31,270 22,254 
Total restricted stock awards granted73,904 53,193 
Weighted average grant date fair value$32.04 $38.57 

Stock-based compensation expense recognized in association with stock awards, mainly restricted stock awards, amounted to $502 thousand and $1.4 million for the three and nine months ended September 30, 2023, respectively, compared to $500 thousand and $1.4 million for the three and nine months ended September 30, 2022, respectively.


28
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Stock in Lieu of Directors' Fees

Non-employee members of the Company's Board of Directors (the "Board") may opt to receive newly issued shares of the Company's common stock in lieu of cash compensation for attendance at meetings of the Board and committees of the Board. Stock-based compensation expense related to these directors' fees amounted to $42 thousand and $165 thousand for the three and nine months ended September 30, 2023, respectively, compared to $56 thousand and $190 thousand for the three and nine months ended September 30, 2022, respectively.

(12)Earnings per Share

The table below presents basic earnings per share and the increase in average shares outstanding, using the treasury stock method, for the diluted earnings per share calculation for the periods indicated:
 Three months ended September 30,Nine months ended September 30,
 2023202220232022
Basic weighted average common shares outstanding12,247,892 12,119,348 12,210,740 12,094,613 
Dilutive shares16,886 37,347 23,121 48,855 
Diluted weighted average common shares outstanding12,264,778 12,156,695 12,233,861 12,143,468 

Stock options outstanding that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares amounted to 105,166 and 48,525 for the three and nine months ended September 30, 2023, respectively, compared to 49,321 and 34,473 for the three and nine months ended September 30, 2022, respectively. These stock options, which were not dilutive, may potentially dilute earnings per share in the future.

Unvested participating restricted stock awards amounted to 130,301 shares and 106,658 shares as of September 30, 2023 and December 31, 2022, respectively.

(13)Fair Value Measurements

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


29
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim 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:
September 30, 2023
 Fair Value Measurements Using:
(Dollars in thousands)Fair Value(Level 1)(Level 2)(Level 3)
Assets measured on a recurring basis:    
Debt securities$672,894 $— $672,894 $— 
Equity securities6,038 6,038 — — 
FHLB stock2,403 — 2,403 — 
Interest-rate swaps1,361 — 1,361 — 
Assets measured on a non-recurring basis:    
Individually evaluated loans (collateral dependent)1,633 — — 1,633 
Liabilities measured on a recurring basis:
Interest-rate swaps$968 $— $968 $— 
RPAs sold37 — 37 — 
 
December 31, 2022
 Fair Value Measurements Using:
(Dollars in thousands)Fair Value(Level 1)(Level 2)(Level 3)
Assets measured on a recurring basis:    
Debt securities$816,102 $— $816,102 $— 
Equity securities4,269 4,269 — — 
FHLB stock2,343 — 2,343 — 
Interest-rate swaps782 — 782 — 
Assets measured on a non-recurring basis:    
Individually evaluated loans (collateral dependent)740 — — 740 
Liabilities measured on a recurring basis:
Interest-rate swaps$782$— $782 $— 
RPAs sold73— 73 — 
 
The Company utilizes third-party pricing vendors to provide valuations on its debt securities.

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

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

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

For loans individually assessed and deemed to be collateral dependent management has estimated the value and the probable credit loss by comparing the loan's amortized cost against the expected realizable fair value of the collateral (appraised value, or internal analysis, less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date). Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable,

30
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
and therefore, collateral dependent loans carried at realizable fair value are categorized as Level 3 within the fair value hierarchy. A specific reserve is assigned to the collateral dependent loan for the amount of management's estimated probable credit loss. The specific reserve assigned to individually evaluated loans that are collateral dependent amounted to $2.8 million at September 30, 2023, compared to $298 thousand at December 31, 2022.

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 September 30, 2023 and December 31, 2022:
Fair Value
(Dollars in thousands)September 30, 2023December 31, 2022Valuation TechniqueUnobservable InputUnobservable Input Value or Range
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)$1,633 $740 Appraisal of collateral
Appraisal adjustments(1)
15% - 50%
_______________________________
(1)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Estimated Fair Values of Assets and Liabilities

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

Financial instruments for which the fair value is disclosed but not recognized on the Company's Consolidated Balance Sheets are summarized below. The table includes the carrying value, estimated fair value and its placement in the fair value hierarchy as follows:
 September 30, 2023
Fair Value Measurement
(Dollars in thousands)Carrying
Value		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
Loans, net$3,346,109 $3,154,436 $— $— $3,154,436 
Financial liabilities:  
CDs477,455 473,371 — 473,371 — 
Borrowed funds4,290 2,670 — 2,670 — 
Subordinated debt59,419 55,063 — 55,063 — 
December 31, 2022
 Fair Value Measurement
(Dollars in thousands)Carrying
Value		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
Loans, net$3,127,878 $2,952,778 $— $— $2,952,778 
Financial liabilities:
CDs287,192 281,800 — 281,800 — 
Borrowed funds3,216 2,006 — 2,006 — 
Subordinated debt59,182 55,407 — 55,407 — 

Excluded from the tables above are certain financial instruments with carrying values that approximated their fair value at the dates indicated, as they were short-term in nature or payable on demand. These include cash and cash equivalents, accrued interest and non-term deposit accounts. The respective carrying values of these instruments would all be classified within Level 1 in the fair value hierarchy.

31
ENTERPRISE BANCORP, INC.
Notes to the Unaudited Consolidated Interim Financial Statements
Also excluded from these tables are the fair values of commitments for unused portions of lines of credit and commitments to originate loans that were short-term, at current market rates and estimated to have no significant change in fair value.

(14)Supplemental Cash Flow Information

The supplemental cash flow information for the nine months ended September 30, 2023 and September 30, 2022 is as follows:
Nine months ended September 30,
(Dollars in thousands)20232022
Supplemental financial data:
Cash paid for: interest$30,557 $5,960 
Cash paid for: income taxes12,277 13,101 
Cash paid for: lease liability1,034 1,021 
Supplemental schedule of non-cash activity:
Net purchases of investment securities not yet settled— 3,700 
.

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

Management's discussion and analysis should be read in conjunction with the Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") unaudited consolidated interim financial statements and notes thereto contained in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (this "Form 10-Q"), and the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2022 (the "2022 Annual Report on Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") on March 8, 2023.

Special Note Regarding Forward-Looking Statements

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

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•potential recession in the United States and our market areas;
•the impacts related to or resulting from recent bank failures and any continuation of the recent uncertainty in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes or other mitigation efforts taken by government agencies in response thereto;
•increased competition for deposits and related changes in deposit customer behavior;
•failure of risk management controls and procedures;
•the adequacy of the allowance for credit losses;
•risk specific to commercial loans and borrowers;
•changes in the business cycle and downturns in the local, regional, or national economies, including changes in consumer spending and deterioration in the local real estate market, could negatively impact credit and/or asset quality and result in credit losses and increases in the Company's allowance for credit losses;
•the effects of declines in housing prices in the United States and our market areas;
•declines in commercial real estate prices;
•the persistence of the current inflationary environment in the United States and our market areas, and its impact on market interest rates, the economy and credit quality;
•increases in unemployment rates in the United States and our market areas;
•deterioration of capital markets, which could adversely affect the value or credit quality of the Company's assets and the availability of funding sources necessary to meet the Company's liquidity needs;
•changes in market interest rates could negatively impact the pricing of our loans and deposits and decrease our net interest income or net interest margin;
•increases in market interest rates could negatively impact bond market values and result in a lower net book value;
•our ability to successfully manage the current rising market interest-rate environment, our credit risk and the level of future non-performing assets and charge-offs;
•potential decreases or growth of assets, deposits, future non-interest expenditures and non-interest income;
•inability to maintain adequate liquidity;
•the inability to raise the necessary capital to fund our operations or to meet minimum regulatory capital levels would restrict our business and operations;

33
Table of Contents
•material decreases in the amount of deposits we hold, or a failure to grow our deposit base as necessary to help fund our growth and operations;
•our ability to keep pace with technological change or difficulties when implementing new technologies;
•technology-related risk, including technological changes and technology service interruptions or failure could adversely impact the Company's operations and increase technology-related expenditures;
•cybersecurity risk, including cyber incidents or other failures, disruptions or security breaches and identity theft, could impact the Company's reputation, increase regulatory oversight, and impact the financial results of the Company;
•increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the Company's competitive position within its market area and reduce demand for the Company's products and services;
•our ability to retain and increase our aggregate assets under management;
•our ability to enter new markets successfully and capitalize on growth opportunities, including the receipt of required regulatory approvals;
•damage to our reputation in the markets we serve;
•risks associated with fraudulent, negligent, or other acts by our customers, employees or vendors;
•exposure to legal claims and litigation;
•our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;
•inability to attract, hire and retain qualified management personnel;
•recent and future changes in laws and regulations that apply to the Company's business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, which could cause the Company to incur additional costs and adversely affect the Company's business environment, operations and financial results;
•future regulatory compliance costs, including any increase caused by new regulations imposed by the government;
•changes in tariffs and trade barriers;
•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 or other external events;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of Federal Deposit Insurance Corporation (the "FDIC") insurance and other coverage;
•changes in accounting and/or auditing standards, policies and practices, as may be adopted or established by the regulatory agencies, FASB, or the Public Company Accounting Oversight Board could negatively impact the Company's financial results; and
•systemic risks associated with the soundness of other financial institutions.

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



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Table of Contents
Overview

Executive Summary

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

Key Financial Highlights
Key financial results at or for the three months ended September 30, 2023 are as follows:
•Net income amounted to $9.7 million, or $0.79 per diluted common share.
•The return on average assets and average equity were 0.85% and 12.53%, respectively.
•Tax-equivalent net interest margin ("net interest margin") (non-GAAP) was 3.46%.
•Total loans increased 2% compared to June 30, 2023, and 9% compared to September 30, 2022.
•Total deposits decreased 0.4% compared to June 30, 2023, and 2% compared to September 30, 2022.
•The Company had no brokered deposits and only $4.3 million in borrowed funds.

Supplemental Information
All balances and ratios presented in this section are at September 30, 2023 unless otherwise indicated.

Liquidity & Funding Capacity
•Overnight and short-term investments (total interest-earning deposits with banks) amounted to $180.1 million.
•FHLB and Federal Reserve Bank of Boston secured borrowing capacity amounted to $1.2 billion.
•The Company has several brokered deposit relationships (unsecured borrowings) which management estimated could provide an additional $800.0 million in funding capacity.

Deposit Information
•Uninsured deposits amounted to 35% of total deposits.
•Deposit balances that utilize third party enhanced Federal Deposit Insurance Corporation ("FDIC") insured products amounted to $815.0 million, or 20% of total deposits.
•Additional capacity to utilize these enhanced FDIC insured products exceeds the Company's total deposits balance.























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Selected Financial Data and Ratios

The following table sets forth selected financial data and ratios for the Company at or for the three-month periods indicated:
At or for the three months ended
(Dollars in thousands, except per share data)September 30,
2023		June 30,
2023		March 31,
2023		December 31,
2022		September 30,
2022
Balance Sheet Data
Total cash and cash equivalents$225,421$258,825$215,693$267,589$413,688
Total investment securities at fair value678,932712,851830,895820,371831,030
Total loans3,404,0143,345,6673,230,1563,180,5183,109,369
Allowance for credit losses(57,905)(56,899)(55,002)(52,640)(51,211)
Total assets4,482,3744,502,3444,441,8964,438,3334,529,820
Total deposits4,060,4034,075,5984,016,1564,035,8064,138,038
Subordinated debt59,41959,34059,26159,18259,102
Total shareholders' equity299,699307,490311,318282,267272,193
Total liabilities and shareholders' equity4,482,3744,502,3444,441,8964,438,3334,529,820
Wealth Management
Wealth assets under management$984,647$1,009,386$930,714$891,451$835,661
Wealth assets under administration$211,046$214,116$206,569$198,586$185,977
Shareholders' Equity Ratios
Book value per common share$24.45$25.11$25.47$23.26$22.44
Dividends paid per common share$0.230$0.230$0.230$0.205$0.205
Regulatory Capital Ratios
Total capital to risk weighted assets13.45 %13.37 %13.55 %13.49 %13.49 %
Tier 1 capital to risk weighted assets(1)
10.61 %10.52 %10.64 %10.56 %10.52 %
Tier 1 capital to average assets8.59 %8.62 %8.47 %8.10 %7.89 %
Credit Quality Data
Non-performing loans$11,656$7,647$7,532$6,122$5,717
Non-performing loans to total loans0.34 %0.23 %0.23 %0.19 %0.18 %
Non-performing assets to total assets(2)
0.26 %0.17 %0.17 %0.14 %0.13 %
ACL for loans to total loans1.70 %1.70 %1.70 %1.66 %1.65 %
Net charge-offs (recoveries)$(12)$146$(44)$166$52
Income Statement Data
Net interest income$38,502$38,093$39,971$42,165$39,779
Provision for credit losses1,7522,2682,7361,8611,000
Total non-interest income4,4862,8194,7574,2104,525
Total non-interest expense28,31225,62328,04028,16727,537
Income before income taxes12,92413,02113,95216,34715,767
Provision for income taxes3,2253,3373,1844,0413,805
Net income$9,699$9,684$10,768$12,306$11,962
Income Statement Ratios
Diluted earnings per common share$0.79$0.79$0.88$1.01$0.98
Return on average total assets0.85 %0.88 %0.99 %1.08 %1.05 %
Return on average shareholders' equity12.53 %12.63 %14.67 %18.08 %16.47 %
Net interest margin (tax-equivalent)(3)
3.46 %3.55 %3.76 %3.81 %3.61 %
_______________________________________________________
(1)Ratio also represents common equity tier 1 capital to risk weighted assets as of the periods presented.
(2)The Company had no OREO as of the periods presented, and therefore, non-performing loans were the only component of non-performing assets.
(3)Tax-equivalent net interest margin 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.

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Risk Management Framework

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

See Part I, Item 1, "Business," under the "Risk Management Framework," of the Company's 2022 Annual Report on Form 10-K, for additional information on the Company's key risk mitigation strategies, and Part I, Item 1A, "Risk Factors," section of the Company's 2022 Annual Report on Form 10-K for numerous factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model.

Accounting Policies/Critical Accounting Estimates

As discussed in the Company's 2022 Annual Report on Form 10-K and in this Form 10-Q, the most significant areas in which management applies critical assumptions and estimates are: the ACL for loans and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.

The Company has not materially changed its significant accounting and reporting policies from those disclosed in its 2022 Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

Results of Operations for the three months ended September 30, 2023 and September 30, 2022
 
Unless otherwise indicated, the reported results are for the three months ended September 30, 2023 with the "prior year period" and "comparable period" being the three months ended September 30, 2022. Average yields are presented on an annualized tax-equivalent basis.

Net Income
Net income for the three months ended September 30, 2023, amounted to $9.7 million, a decrease of $2.3 million, or 19%, compared to the three months ended September 30, 2022. The components of the decrease in net income over the comparable period are discussed below.

Net Interest Income
Net interest income for the three months ended September 30, 2023, amounted to $38.5 million, a decrease of $1.3 million, or 3%, compared to the three months ended September 30, 2022. The decrease was due largely to an increase in deposit interest expense of $11.4 million which resulted from continued market interest rates increases and a change in deposit mix, partially offset by increases in loan interest income of $9.2 million and other interest-earning asset income of $1.4 million.

Net Interest Margin
Net interest margin was 3.46% for the three months ended September 30, 2023, compared to 3.61% for the three months ended September 30, 2022.

Net interest margin has been impacted by significant increases in market interest rates as the Federal Reserve Bank increased the federal funds rate by 525 basis points from March 2022 through September 2023.

Net interest margin compared to the prior year quarter was impacted by the following factors:
•Average interest-earning deposits with banks decreased $114.8 million, or 31%, while the yield increased 308 basis points.
•Average debt securities at book value decreased $136.8 million, or 14%, while the tax-equivalent yield increased 10 basis points.

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•Average loan balances increased $286.9 million, or 9%, and the tax-equivalent yield increased 69 basis points.
•Average total deposits decreased $8.6 million, while the yield increased 110 basis points.

The decrease in margin over the comparable periods was due primarily to an increase in the cost of deposits that exceeded the increase in loan yields. The cost of deposits increased from higher market interest rates and from a change in mix as deposits migrated from lower cost checking accounts into higher cost money market and certificate of deposit accounts. In addition, the Company experienced strong loan growth compared to the prior year period, mostly funded from interest-earning deposits with banks, sales of debt securities and debt security pay-downs and maturities.

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

Rate / Volume Analysis
The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended September 30, 2023, compared to the three months ended September 30, 2022. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); and (2) interest-rate (change in average interest-rate multiplied by prior period average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.

  Increase (decrease) due to
(Dollars in thousands)Net
Change		VolumeRate
Interest income   
Loans and loans held for sale (tax-equivalent)$9,222 $3,432 $5,790 
Investment securities (tax-equivalent)(515)(736)221 
Other interest-earning assets(1)
1,400 (792)2,192 
Total interest-earning assets (tax-equivalent)10,107 1,904 8,203 
Interest expense   
Interest checking, savings and money market8,140 16 8,124 
Certificates of deposit3,288 680 2,608 
Borrowed funds16 11 5 
Subordinated debt16 4 12 
Total interest-bearing funding11,460 711 10,749 
Change in net interest income (tax-equivalent)$(1,353)$1,193 $(2,546)
__________________________________________
(1)Income on other interest-earning assets includes interest on deposits and fed funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the three months ended September 30, 2023 and 2022:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

 Three months ended September 30, 2023Three months ended September 30, 2022
(Dollars in thousands)Average
Balance
Interest(1)
Average
Yield(1)
Average
Balance
Interest(1)
Average
Yield(1)
Assets:      
Loans and loans held for sale(2) (tax-equivalent)
$3,372,754 $44,644 5.25 %$3,085,896 $35,422 4.56 %
Investment securities(3) (tax-equivalent)
820,156 4,444 2.17 %954,385 4,959 2.08 %
Other interest-earning assets(4)
260,475 3,468 5.28 %375,213 2,068 2.19 %
Total interest-earnings assets (tax-equivalent)
4,453,385 52,556 4.69 %4,415,494 42,449 3.82 %
Other assets82,190 101,095   
Total assets$4,535,575   $4,516,589   
Liabilities and stockholders' equity:      
Interest checking, savings and money market$2,481,814 9,185 1.47 %$2,444,705 1,045 0.17 %
CDs430,376 3,704 3.41 %221,827 415 0.74 %
Borrowed funds4,938 28 2.30 %2,940 13 1.77 %
Subordinated debt(5)
59,372 866 5.84 %59,052 850 5.76 %
Total interest-bearing funding2,976,500 13,783 1.84 %2,728,524 2,323 0.34 %
Non-interest checking1,195,658 — 1,449,909 — — %
Total deposits, borrowed funds and subordinated debt4,172,158 13,783 1.31 %4,178,433 2,323 0.22 %
Other liabilities56,414 50,034  
Total liabilities4,228,572  4,228,467  
Stockholders' equity307,003 288,122  
Total liabilities and stockholders' equity$4,535,575  $4,516,589  
Net interest-rate spread (tax-equivalent)
  2.85 %  3.48 %
Net interest income (tax-equivalent)
 38,773  40,126 
Net interest margin (tax-equivalent)
  3.46 %  3.61 %
Less tax-equivalent adjustment
271 347 
Net interest income$38,502 $39,779 
Net interest margin3.43 %3.58 %
________________________________________
(1)Average yields and interest income are presented on a tax-equivalent basis, calculated using a U.S. federal income tax rate of 21% in both 2023 and 2022, based on tax-equivalent adjustments associated with tax exempt loans and investments interest income.
(2)Average loans and loans held for sale are presented at amortized cost and include non-accrual loans.
(3)Average investments are presented at average amortized cost.
(4)Average other interest-earning assets include interest-earning deposits with banks, federal funds sold and FHLB stock.
(5)The subordinated debt is net of average deferred debt issuance costs.








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Provision for Credit Losses
The provision for credit losses for the three months ended September 30, 2023, amounted to $1.8 million, compared to $1.0 million for the three months ended September 30, 2022.
•The provision expense for the third quarter of 2023 resulted primarily from an increase in reserves for individually evaluated loans and, to a lesser extent, growth in the Company's loan portfolio and off-balance sheet commitments, partially offset by a decrease in the forecasted probability of a recession within our ACL model relative to the prior quarter.
•The ACL to loans outstanding was 1.70% at September 30, 2023 compared to 1.65% at September 30, 2022.

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 ,see "Asset Quality" and "ACL for Loans" under "Financial Condition" in this Item 2, below.

Non-Interest Income
Non-interest income for the three months ended September 30, 2023, amounted to $4.5 million, a decrease of $39 thousand, or 1%, compared to the three months ended September 30, 2022. There were no individually significant changes in non-interest income during the period when compared to the prior year period.

Non-Interest Expense
Non-interest expense for the three months ended September 30, 2023, amounted to $28.3 million, an increase of $775 thousand, or 3%, compared to the three months ended September 30, 2022. The increase was due primarily to increases in salary and employee benefits of $244 thousand, occupancy expenses of $230 thousand and deposit insurance premiums of $263 thousand.
Income Taxes
The effective tax rate for the three months ended September 30, 2023, was 25.0%, compared to 24.1% for the three months ended September 30, 2022. The increase resulted primarily from an increase in state taxes including a transfer of funds from the Bank's investment subsidiary corporations.

Results of Operations for the nine months ended September 30, 2023 and September 30, 2022

Unless otherwise indicated, the reported results are for the nine months ended September 30, 2023 with the "prior year period," being the nine months ended September 30, 2022. Average yields are presented on an annualized tax-equivalent basis.

Net Income
Net income for the nine months ended September 30, 2023, amounted to $30.2 million, a decrease of $259 thousand, or 1%, compared to the nine months ended September 30, 2022. The components of the decrease in net income over the comparable periods are discussed below.

Net Interest Income
Net interest income for the nine months ended September 30, 2023, amounted to $116.6 million, an increase of $6.9 million, or 6%, compared to the nine months ended September 30, 2022. The increase in net interest income during the current period was due largely to increases in loan interest income of $27.7 million and other interest-earning asset income of $5.0 million, partially offset by an increase in deposit interest expense of $25.8 million.

Net Interest Margin
Net interest margin was 3.59% for the nine months ended September 30, 2023, compared to 3.45% for the nine months ended September 30, 2022.

Net interest margin has been impacted by significant increases in market interest rates as the Federal Reserve Bank increased the federal funds rate by 525 basis points from March 2022 through September 2023.

Net interest margin compared to the prior year was impacted by the following factors:
•Average interest-earning deposits with banks decreased $119.2 million, or 37%, while the yield increased 383 basis points.

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•Average debt securities at book value decreased $68.3 million, or 7%, while the tax-equivalent yield increased 18 basis points.
•Average loan balances increased $275.0 million, or 9%, and the tax-equivalent yield increased 76 basis points.
•Average total deposits increased $49.3 million, or 1%, and the yield increased 85 basis points.

The increase in net interest margin over the comparable period was due primarily to an increase in loan yield and volume and an increase in the yield earned on interest-earning deposits with banks. The increase in yield on loans was slightly exceeded by an increase in the cost of deposits. The cost of deposits has increased from higher interest rates and from a change in mix as deposits have migrated from lower cost checking accounts into higher cost money market and certificate of deposit accounts. The strong loan growth in the current year was mostly funded from interest-earning deposits with banks and to a lesser extent from sales, pay-downs and maturities of debt securities and deposit growth.

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

Rate / Volume Analysis
The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) volume (change in average portfolio balance multiplied by prior year average rate); and (ii) interest rate (change in average interest rate multiplied by prior year average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.
  Increase (decrease) due to
(Dollars in thousands)Net
Change		VolumeRate
Interest income   
Loans and loans held for sale (tax-equivalent)
$27,766 $9,250 $18,516 
Investment securities (tax-equivalent)
141 (1,081)1,222 
Other interest-earning assets(1)
4,951 (1,293)6,244 
Total interest-earning assets (tax-equivalent)
32,858 6,876 25,982 
Interest expense   
Interest checking, savings and money market18,289 21 18,268 
CDs7,547 1,269 6,278 
Borrowed funds31 12 19 
Subordinated debt115 11 104 
Total interest-bearing funding25,982 1,313 24,669 
Change in net interest income (tax-equivalent)
$6,876 $5,563 $1,313 
__________________________________________
(1)Income on other interest-earning assets includes interest on deposits with banks, federal funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the nine months ended September 30, 2023 and 2022: 
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS
 
 Nine months ended September 30, 2023Nine months ended September 30, 2022
(Dollars in thousands)Average
Balance
Interest(1)
Average
Yield(1)
Average
Balance
Interest(1)
Average
Yield(1)
Assets:      
Loans and loans held for sale(2) (tax-equivalent)
$3,281,357 $126,253 5.14 %$3,006,403 $98,486 4.38 %
Investment securities(3) (tax-equivalent)
891,405 14,933 2.23 %956,921 14,792 2.06 %
Other interest-earning assets(4)
205,276 7,593 4.95 %324,292 2,642 1.09 %
Total interest-earnings assets (tax-equivalent)
4,378,038 148,779 4.54 %4,287,616 115,920 3.61 %
Other assets87,210 123,364   
Total assets$4,465,248   $4,410,980   
Liabilities and stockholders' equity:      
Interest checking, savings and money market$2,396,395 20,170 1.13 %$2,371,033 1,880 0.11 %
CDs387,382 8,398 2.90 %207,835 851 0.55 %
Borrowed funds4,253 70 2.22 %3,383 39 1.55 %
Subordinated debt(5)
59,293 2,600 5.85 %59,022 2,485 5.61 %
Total interest-bearing funding2,847,323 31,238 1.47 %2,641,273 5,255 0.27 %
Non-interest checking1,260,397 — — %1,416,050 — — %
Total deposits, borrowed funds and subordinated debt4,107,720 31,238 1.02 %4,057,323 5,255 0.17 %
Other liabilities53,407 50,045   
Total liabilities4,161,127   4,107,368   
Stockholders' equity304,121 303,612  
Total liabilities and stockholders' equity$4,465,248   $4,410,980   
Net interest-rate spread (tax-equivalent)
  3.07 %3.34 %
Net interest income (tax-equivalent)
 117,541   110,665  
Net interest margin (tax-equivalent)
 3.59 %3.45 %
Less tax-equivalent adjustment
975 1,032 
Net interest income$116,566 $109,633 
Net interest margin 3.56 %3.42 %
_______________________________________
(1)Average yields and interest income are presented on a tax-equivalent basis, calculated using a U.S. federal income tax rate of 21% in both 2023 and 2022, based on tax-equivalent adjustments associated with tax exempt loans and investments interest income.
(2)Average loans and loans held for sale are presented at amortized cost and include non-accrual loans.
(3)Average investments are presented at average amortized cost.
(4)Average other interest-earning assets include interest-earning deposits with banks, federal funds sold and FHLB stock.
(5)The subordinated debt is net of average deferred debt issuance costs.









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Provision for Credit Losses
The provision for credit losses for the nine months ended September 30, 2023, amounted to $6.8 million, an increase of $2.8 million, compared to the nine months ended September 30, 2022.
•The provision expense for 2023 resulted primarily from an increase in reserves for individually evaluated loans and, to a lesser extent, growth in the Company's loan portfolio and off-balance sheet commitments, partially offset by a decrease in the forecasted probability of a recession within our ACL model relative to the prior year.
•The ACL to loans outstanding was 1.70% at September 30, 2023 compared to 1.65% at September 30, 2022.

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

Non-Interest Income
Non-interest income for the nine months ended September 30, 2023, amounted to $12.1 million, a decrease of $2.2 million, or 15%, compared to the nine months ended September 30, 2022.
•The decrease resulted primarily from a decrease in gains on sales of debt securities of $3.5 million, partially offset by a decrease in losses on equity securities of $680 thousand.
•Excluding the items above, non-interest income increased $610 thousand, or 4%, due primarily to increases in deposit and interchange fees of $483 thousand.

Non-Interest Expense
Non-interest expense for the nine months ended September 30, 2023, amounted to $82.0 million, an increase of $1.8 million, or 2%, compared to the nine months ended September 30, 2022.
•Non-interest expense for the nine months ended September 30, 2023 included $3.6 million in Employee Retention Credits ("ERC"), which were recorded as a reduction to salary and benefits expense. Excluding the ERC, non-interest expense increased $5.5 million, or 7%, due primarily to an increase in salaries and benefits, excluding ERC, of $4.0 million, or 7%.
•Non-interest expense was also impacted by increases in occupancy and equipment expenses of $457 thousand and deposit insurance premiums of $631 thousand.

Income Taxes
The effective tax rate for the nine months ended September 30, 2023, was 24.4%, compared to 23.6% for the nine months ended September 30, 2022. The increase in the effective tax rate for the current year compared to the prior year resulted primarily from an increase in state taxes including a transfers of funds from the Bank's investment subsidiary corporations.

Financial Condition
 
Total assets amounted to $4.48 billion at September 30, 2023, compared to $4.44 billion at December 31, 2022, representing an increase of $44.0 million, or 1%. The balance sheet composition and changes since December 31, 2022, are discussed below.

Cash and cash equivalents

Cash and cash equivalents at September 30, 2023 decreased $42.2 million since December 31, 2022. The decrease was due primarily to the funding of loan growth, partially offset by the proceeds from sales, pay-downs and maturities of debt securities and deposit growth. At September 30, 2023, cash and cash equivalents amounted to 5% of total assets compared to 6% at December 31, 2022.

Investments

At September 30, 2023, the fair value of the investment securities portfolio amounted to $678.9 million, a decrease of $141.4 million, or 17%, since December 31, 2022. The investment securities portfolio at fair value represented 15% and 18% of total assets at September 30, 2023 and December 31, 2022, respectively. The decrease was attributable principally to sales of debt securities and, to a lesser extent, principal pay downs, calls and maturities. The Company's sale of debt securities during the nine months ended September 30, 2023 were made in order to improve the Company's balance sheet positioning and enhance future earnings. As of September 30, 2023 and December 31, 2022, the Company's investment securities portfolio was

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comprised primarily of debt securities, classified as available-for-sale, with a small portion of the portfolio invested in equity securities.

During the nine months ended September 30, 2023, the Company purchased no debt securities, had principal pay-downs, calls and maturities totaling $46.3 million, and sold debt securities with an amortized cost of approximately $87.2 million realizing net losses on sales of $2.4 million.

Net unrealized losses on the debt securities portfolio amounted to $133.2 million at September 30, 2023, compared to $124.1 million at December 31, 2022. The Company attributes the change in net unrealized losses compared to December 31, 2022 to changes in market interest rates during the period.

The mix of investment securities remained relatively unchanged at September 30, 2023 compared to December 31, 2022. The effective duration of the debt securities portfolio at September 30, 2023 was approximately 5.1 years compared to 5.0 years at December 31, 2022.

Loans

As of September 30, 2023, total loans increased $223.5 million, or 7%, compared to December 31, 2022. Although the commercial to retail loan mix has remained unchanged from December 31, 2022 to September 30, 2023, there have been some minor changes within the commercial loan segments including a slight increase in commercial construction loans and slight decreases in commercial real estate and commercial and industrial loans, relative to total loans. At both September 30, 2023 and December 31, 2022, total commercial loans amounted to 87% of total loans.

The following table sets forth the loan balances by loan portfolio segment at the dates indicated and the percentage of each segment to total loans:
 September 30, 2023December 31, 2022September 30, 2022
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Commercial real estate$2,032,458 60 %$1,921,410 61 %$1,886,365 61 %
Commercial and industrial425,334 12 %414,490 13 %413,347 13 %
Commercial construction501,179 15 %424,049 13 %396,027 13 %
SBA paycheck protection program
— — %— — %2,725 — %
Total commercial loans2,958,971 87 %2,759,949 87 %2,698,464 87 %
Residential mortgages362,514 11 %332,632 10 %321,663 10 %
Home equity 74,433 2 %79,807 3 %80,882 3 %
Consumer8,096 — %8,130 — %8,360 — %
Total retail loans445,043 13 %420,569 13 %410,905 13 %
Total loans3,404,014 100 %3,180,518 100 %3,109,369 100 %
Allowance for credit losses(57,905) (52,640) (51,211) 
Net loans$3,346,109  $3,127,878  $3,058,158  

Despite higher market rates, loan growth has remained solid. The commercial real estate and commercial construction segments have had the most growth driven primarily by customer demand, business development efforts and the continued shortage of housing in our market areas.

As of September 30, 2023, and compared to December 31, 2022,

•Commercial real estate loans increased $111.0 million, or 6%.
•Commercial and industrial loans increased by $10.8 million, or 3%.
•Commercial construction loans increased by $77.1 million, or 18%.
•Total retail loans increased by $24.5 million, or 6%.

At September 30, 2023, commercial loan balances participated out to various banks amounted to $68.2 million, compared to $59.1 million at December 31, 2022. These commercial loan balances participated out to other institutions are not carried as

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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 $114.9 million and $94.8 million at September 30, 2023 and December 31, 2022, respectively. See Note 3, "Loans," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q, above, for information on loans serviced for others and loans pledged as collateral.

Asset Quality

The following table sets forth information regarding the Company's loan portfolio asset quality at the dates indicated:
(Dollars in thousands)September 30, 2023December 31, 2022September 30,
2022
Adversely classified loans
$49,886$46,996$48,706
Performing adversely classified loans
$38,261$40,876$42,992
Non-accrual loan summary:
Commercial real estate$5,503$3,355$3,255
Commercial and industrial4,355730675
Commercial construction—294—
Residential mortgages1,5361,5321,567
Home equity262211220
Consumer———
Total non-performing loans11,6566,1225,717
Total loans$3,404,014$3,180,518$3,109,369
Delinquent loans 60-89 days past due and still accruing$—$1,307$72
Loans 60-89 days past due and still accruing to total loans— %0.04 %— %
Non-performing loans to total loans0.34 %0.19 %0.18 %
Non-performing assets to total assets0.26 %0.14 %0.13 %
Allowance for credit losses for loans $57,905$52,640$51,211
Allowance for credit losses for loans to non-performing loans496.78 %859.85 %895.77 %
Allowance for credit losses for loans to total loans1.70 %1.66 %1.65 %

The increase in non-accrual loans from December 31, 2022 to September 30, 2023 was attributable primarily to one commercial loan relationship with a net book value of $4.8 million. The relationship consists of a $1.4 million commercial real estate loan and a $3.4 million commercial and industrial loan. At September 30, 2023, the relationship was individually evaluated and had a specific reserve of $2.6 million.

The Company had no OREO at September 30, 2023, December 31, 2022 or September 30, 2022, and therefore non-performing loans were the only component of non-performing assets.

ACL for Loans

Although 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, 2022, during the quarter ended September 30, 2023, the Company made a minor modification to its ACL estimation process as described in Note 4 to the 2022 Annual Report on Form 10-K under the heading "loans collectively evaluated." The Company streamlined its allowance estimation process to collectively evaluate all non-impaired loans as one cohort segmented by loan type. Previously, the Company separately evaluated non-classified loans and adversely classified loans. The change did not have a material impact on the ACL for loans at September 30, 2023.

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

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

ACL for loans activity

The following table presents changes in the provision for credit losses on loans and unfunded commitments during the nine-month periods indicated:
Nine months ended
(Dollars in thousands)September 30,
2023		September 30,
2022
Provision for credit losses on loans$5,355 $3,580 
Provision for unfunded commitments1,401 359 
Total provision for credit losses$6,756 $3,939 

The following table summarizes the activity in the ACL for loans for the periods indicated: 
 Nine months ended September 30,
(Dollars in thousands)20232022
Balance at beginning of year$52,640$47,704
Provision for credit losses for loans5,3553,580
  Recoveries on charged-off loans:  
Commercial real estate
——
Commercial and industrial
298139
Commercial construction
——
Residential mortgages
——
Home equity
89
Consumer
1314
Total recovered
319162
  Charged-off loans
Commercial real estate
——
Commercial and industrial
383192
Commercial construction
——
Residential mortgages
——
Home equity
——
Consumer
2643
Total charged-off
409235
Net loans charged-off9073
Ending balance$57,905$51,211
Annualized net loans charged-off to average loans outstanding
— %— %

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

The reserve for unfunded commitments is classified within "Other liabilities" on the Company's Consolidated Balance Sheets. The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the non-cancellable commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates.

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The Company's reserve for unfunded commitments amounted to $5.7 million as of September 30, 2023 and $4.3 million at December 31, 2022. The provision for unfunded commitments for the three months ended September 30, 2023 amounted to $758 thousand compared to $440 thousand for the three months ended September 30, 2022. The provision for unfunded commitments for the nine months ended September 30, 2023 amounted to $1.4 million compared to $359 thousand for the nine months ended September 30, 2022. The increase in the provision for unfunded commitments resulted primarily from growth in the Company's off-balance sheet commercial construction commitments.

Based on the foregoing, management believes that the Company's ACL for loans and reserve for unfunded commitments is adequate as of September 30, 2023.

Deposits

As of September 30, 2023, total deposits increased $24.6 million, or 1%, since December 31, 2022. Checking account balances decreased $181.8 million, or 9%, money market and savings account balances increased $16.1 million, or 1%, and certificates of deposit ("CDs") account balances increased $190.3 million, or 66%, as customers sought higher yielding deposit products in the rising market rate environment.

The following table sets forth the deposit balances by certain categories at the dates indicated and the percentage of each category to total deposits:
 September 30, 2023December 31, 2022September 30, 2022
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Checking$1,858,549 46 %$2,040,303 51 %$2,160,578 52 %
Money markets and savings1,724,399 42 %1,708,311 42 %1,747,421 42 %
CDs477,455 12 %287,192 7 %230,039 6 %
Deposits$4,060,403 100 %$4,035,806 100 %$4,138,038 100 %

Total customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Company offered programs which allow for third-party enhanced FDIC insurance. Under this enhanced deposit insurance program, the equivalent of the customers' original deposited funds are reciprocated back through the network to the Company and are carried within the appropriate category under deposits. The Company's balances in these reciprocal enhanced insurance products were $815.0 million and $589.7 million, at September 30, 2023 and December 31, 2022, respectively. The increase in balance reflects primarily an increase in customer demand for enhanced insurance products following the March 2023 bank failures.

As of September 30, 2023, uninsured deposits amounted to 35% of total deposits. Additional capacity to utilize these enhanced FDIC insured products exceeds the Company's total deposits balance at September 30, 2023. Additional capacity to utilize these third-party enhanced FDIC insured products exceeds the Company's total deposits balance.

Borrowed Funds
 
The Company had borrowed funds outstanding of $4.3 million at both September 30, 2023 and December 31, 2022, which were comprised of FHLB advances related to specific lending projects under the FHLB's community development and affordable housing programs as well as a small portion of borrowed funds from a New Hampshire Business Finance Authority borrowing under a New Hampshire community development program linked to a commercial loan.

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

Subordinated Debt

The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.4 million at September 30, 2023, compared to $59.2 million at December 31, 2022.

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




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Shareholders' Equity

Total shareholders' equity amounted to $299.7 million at September 30, 2023, compared to $282.3 million at December 31, 2022, an increase of $17.4 million, or 6%. The increase was due primarily to an increase in retained earnings, partially offset by an increase in the accumulated other comprehensive loss, which resulted from a decrease in the fair value of debt securities.

For the nine months ended September 30, 2023 and September 30, 2022, the Company declared cash dividends of $8.4 million and $7.4 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 37,145 shares and 30,821 shares, totaling $1.1 million for each respective period.

On October 17, 2023, the Company announced a quarterly dividend of $0.23 per share to be paid on December 1, 2023 to shareholders of record as of November 10, 2023.

Derivatives and Hedging

Derivatives designated as hedging instruments

In September of 2023, the Company entered into a pay fixed, receive float, interest rate swap agreement with a notional value of $50.0 million and a term of two years. Under this interest rate swap agreement, the Company pays a fixed interest rate of 4.93% and receives the Secured Overnight Financing Rate.

In June of 2023, the Company entered into two pay fixed, receive float, interest rate swap agreements with a combined notional value of $50.0 million and both have a term of two years. Under these interest rate swap agreements, the Company pays a weighted average fixed interest rate of 4.43% and receives the Secured Overnight Financing Rate.

The notional value of interest rate swap agreements designated as fair value hedges amounted to $100.0 million at September 30, 2023. The fair value of these interest rate swap agreements, carried on the Company's Consolidated Balance Sheets as assets, was $393 thousand at September 30, 2023.

Derivatives not subject to hedge accounting

The notional value of back-to-back interest-rate swaps with customers and counterparties amounted to $7.6 million at September 30, 2023 and $7.8 million at December 31, 2022. The fair value of assets and corresponding liabilities associated with these swaps and carried on the Company's Consolidated Balance Sheets was $968 thousand at September 30, 2023 compared to $782 thousand at December 31, 2022.

Risk Participation Agreements

The notional value of RPAs sold amounted to $46.9 million at September 30, 2023 and $24.7 million at December 31, 2022. The fair value of RPAs, carried on the Company's Consolidated Balance Sheets as a liability, was $37 thousand at September 30, 2023 and $73 thousand at December 31, 2022.

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

Liquidity

Liquidity is the ability to meet cash needs arising from, among other things, fluctuations in loans, investments, deposits and borrowings. Liquidity management is the coordination of activities so that cash needs are anticipated and met readily and efficiently. The Company's liquidity is maintained by projecting cash needs, balancing maturing assets with maturing liabilities, monitoring various liquidity ratios, monitoring deposit flows, maintaining cash flow within the investment portfolio, and maintaining wholesale funding resources.
At September 30, 2023, the Bank had the capacity to borrow additional funds from the FHLB and FRB of up to approximately $815.0 million and $335.0 million, respectively.

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

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

Capital Resources

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

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

The Company's total capital and tier 1 capital to risk weighted assets amounted to 13.45% and 10.61%, respectively, at September 30, 2023, compared to 13.49% and 10.56%, respectively, at December 31, 2022.

Tier 1 capital to average assets amounted to 8.59% at September 30, 2023, compared to 8.10% at December 31, 2022. The increase was driven primarily by the increase in retained earnings noted above and a decrease in average assets.

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

Wealth Management

Wealth assets under management and wealth assets under administration are not carried as assets on the Company's consolidated balance sheets. The Company provides a wide range of wealth management and wealth services, including investment management, brokerage, annuities, trust, and 401(k) administration.
 
Wealth assets under management and wealth assets under administration amounted to $984.6 million and $211.0 million, respectively, at September 30, 2023, representing increases of $93.2 million, or 10%, and $12.5 million, or 6%, respectively, compared to December 31, 2022. The increase in assets under management resulted from an increase in market values as well as assets attracted through new and expanded client relationships.

Item 3 -Quantitative and Qualitative Disclosures About Market Risk

Interest Margin Sensitivity Analysis

Refer to Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2022 Annual Report on Form 10-K for further information on the Company's net interest income and net interest margin sensitivity under different interest rate and yield curve scenarios as well as different asset and liability mix scenarios.

The table below summarizes the results from and compares the percent change in net interest income to the rates unchanged scenario, assuming a static balance sheet, for a 24-month period at September 30, 2023 and December 31, 2022.

•In the 200 and 400 basis point increasing interest rate scenarios, net interest income was projected to decrease in the first 24 months compared to an increase at December 31, 2022 primarily due to a shift in deposit composition from non-interest-bearing account balances into interest-bearing account balances that have a higher level of interest rate sensitivity.
•In the 200 basis point decreasing interest rate scenario, the percent decrease in net interest income was lower compared to the results at December 31, 2022. At September 30, 2023, deposit yields increased above the lower levels experienced at December 31, 2022 when deposit yields were closer to zero. As deposit yields increase, it allows for a higher level of rate declines in the 200 basis point declining rate scenario, which improved net interest income sensitivity results.


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(Dollars in thousands, except for percentage data)September 30,
2023		December 31,
2022
Changes in interest ratesPercentage ChangePercentage Change
Rates rise 400 basis points
(0.73)%1.20 %
Rates rise 200 basis points
(0.62)%0.45 %
Rates unchanged
— %— %
Rates decline 200 basis points
(1.57)%(5.34)%

The results in the table above are subject to various assumptions as reported in Part II, Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" of the Company's 2022 Annual Report on Form 10-K. Refer to heading "Results of Operations" contained within Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q for further discussion of margin.

Item 4 -Controls and Procedures

Evaluation of Disclosure Controls and Procedures
 
The Company maintains a set of disclosure controls and procedures and internal controls designed to ensure that the information required to be disclosed in reports that it files or furnishes to the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.
 
The Company carried out an evaluation as of the end of the period covered by this Form 10-Q under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of September 30, 2023.
 
Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (i.e., the three months ended September 30, 2023) that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II - OTHER INFORMATION
 
Item 1 -Legal Proceedings

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

Item 1A -Risk Factors

Except as provided in the risk factor below, management believes that there have been no material changes in the Company's risk factors as reported in the 2022 Annual Report on Form 10-K. However, if the United States or the markets in which we operate encounter sustained economic stress or recession, many of the risk factors identified in the Company’s 2022 Annual Report on Form 10-K could become heightened and such effects could have a material adverse impact on the Company in a number of ways related to key risk areas including Economic & Financial Markets, Liquidity, Credit and Collateral, Capital and Operations, among others.

Recent bank failures, the resulting media coverage, and the related negative impact on customer confidence in the safety and soundness of the banking industry may adversely affect our business, earnings and financial condition.

When 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. The failures of a number of banks in

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2023 have resulted in significant market volatility among publicly traded bank holding companies which has caused uncertainty in the investor community and bank customers, generally. This uncertainty may negatively impact customer confidence in the safety and soundness of regional banks and, as a result, the Company's customers may choose to withdraw some or all of their deposited funds, and seek higher yielding alternatives, which could have a materially adverse impact on our liquidity, cost of funding, loan funding capacity, net interest margin, capital and results of operations. In addition, this uncertainty and concern has been, and may be in the future, compounded by advances in technology that increase 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.

Management continues to monitor the ongoing events concerning the March 2023 bank failures, potential bank failures and volatility within the financial services industry generally, together with any responsive measures that may be taken by the banking regulators in an attempt to mitigate or manage potential turmoil in the financial services industry.

Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds
 
The following table represents information with respect to repurchases of common stock made by the Company during the three months ended September 30, 2023:
 
Total number of shares repurchased(1)
Average Price Paid Per ShareTotal Number of Shares Purchased as Part of Publicly Announced Plans or Programs AnnouncedMaximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July1,625$30.30 ——
August—— ——
September—— ——
________________________________
(1)Amounts include shares repurchased that were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes upon vesting of restricted stock (net settlement of shares).

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

Not Applicable.
 
Item 5 -Other Information

During the three months ended September 30, 2023, 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 6 -Exhibits
 
EXHIBIT INDEX
_____________
Exhibit No.    Description

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

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

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

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

31.1*    Certification of Principal Executive Officer under Securities Exchange Act Rule 13a-14(a).

31.2*    Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a).

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

101*    The following materials from Enterprise Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 were formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022; (ii) Consolidated Statements of Income for the three and nine months ended September 30, 2023 and 2022; (iii) Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2023 and 2022; (iv) Consolidated Statements of Changes in Equity for the three and nine months ended September 30, 2023 and 2022; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

104*     The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2023 has been formatted in Inline XBRL and contained in Exhibit 101.
____________________
*Filed herewith

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SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 ENTERPRISE BANCORP, INC.
  
DATE:November 7, 2023By:/s/ Joseph R. Lussier
  Joseph R. Lussier
  Executive Vice President, Treasurer
  and Chief Financial Officer
  

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