Enterprise Bancorp(EBTC) - 2019 Q1 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (unaudited) The unaudited interim financial statements detail the company's financial position, performance, and cash flows for Q1 2019 Consolidated Balance Sheets Total assets grew to $3.07 billion, driven by increased deposits, while loans remained stable at $2.35 billion Consolidated Balance Sheet Highlights (in thousands) | Account | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Total Assets | $3,073,781 | $2,964,358 | | Total cash and cash equivalents | $135,262 | $63,120 | | Total investment securities | $460,814 | $432,921 | | Loans, net | $2,350,908 | $2,353,657 | | Total Liabilities | $2,807,720 | $2,709,061 | | Total deposits | $2,756,166 | $2,564,782 | | Borrowed funds | $488 | $100,492 | | Total Stockholders' Equity | $266,061 | $255,297 | Consolidated Statements of Income Q1 2019 net income rose 27.4% to $8.7 million, driven by higher net interest income and lower loan loss provisions Q1 2019 vs Q1 2018 Income Statement (in thousands, except per share data) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Interest Income | $28,084 | $26,015 | | Provision for loan losses | $(400) | $1,600 | | Non-interest Income | $3,836 | $3,791 | | Non-interest Expense | $20,850 | $19,447 | | Net Income | $8,696 | $6,825 | | Diluted EPS | $0.74 | $0.58 | Consolidated Statements of Comprehensive Income Comprehensive income surged to $11.8 million in Q1 2019, boosted by unrealized gains on investment securities Q1 2019 vs Q1 2018 Comprehensive Income (in thousands) | Metric | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net Income | $8,696 | $6,825 | | Other comprehensive income (loss), net | $3,134 | $(6,264) | | Comprehensive Income | $11,830 | $561 | Consolidated Statement of Changes in Stockholders' Equity Stockholders' equity grew to $266.1 million, reflecting strong net income and other comprehensive income gains - Key drivers for the change in stockholders' equity in Q1 2019 included net income of $8.7 million and other comprehensive income of $3.1 million[21] - The company paid a common stock dividend of $0.16 per share, totaling $1.875 million in Q1 2019, an increase from the $0.145 per share dividend in Q1 2018[21] Consolidated Statements of Cash Flows Cash and cash equivalents increased by $72.1 million, mainly due to a net deposit increase funding operations Q1 2019 vs Q1 2018 Cash Flow Summary (in thousands) | Cash Flow Activity | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Net cash provided by operating activities | $5,963 | $6,227 | | Net cash used in investing activities | $(23,536) | $(43,860) | | Net cash provided by financing activities | $89,715 | $39,705 | | Net increase in cash and cash equivalents | $72,142 | $2,072 | Notes to Unaudited Consolidated Interim Financial Statements These notes detail accounting policies, including the adoption of a new lease standard and preparation for CECL - The company adopted the new lease standard (ASU 2016-02) on January 1, 2019, recording a lease liability of $18.0 million and a right-of-use (ROU) asset of $19.0 million[53][54] - The company is preparing to adopt the new credit loss standard, CECL (ASU 2016-13), which will be effective for fiscal years beginning after December 15, 2019[59][63][65] - Total Troubled Debt Restructurings (TDRs) were $23.5 million as of March 31, 2019, with $19.3 million on accrual status[112] - The allowance for loan losses to total loans ratio was 1.41% at March 31, 2019, down from 1.42% at December 31, 2018[121] Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes strong Q1 2019 performance, focusing on growth drivers, financial condition, and capital adequacy Overview Q1 2019 performance was strong, with net income up 27% YoY, driven by growth and a reduced loan loss provision Q1 2019 Key Performance Highlights | Metric | Q1 2019 | YoY Change | | :--- | :--- | :--- | | Net Income | $8.7 million | +27% | | Diluted EPS | $0.74 | +28% | - Key earnings drivers were loan and deposit growth, and a negative provision for loan losses of $400 thousand compared to a $1.6 million provision in Q1 2018[222][225] - Strategic focus includes investments in people, technology, digital transformation, branch renovations, and market expansion[222][243] Financial Condition Total assets reached $3.07 billion, funded by strong deposit growth, while asset quality remained solid Asset Quality Ratios | Ratio | March 31, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Non-performing assets to total assets | 0.37% | 0.40% | | Non-performing loans to total loans | 0.46% | 0.49% | | Allowance for loan losses to total loans | 1.41% | 1.42% | | Adversely classified loans to total loans | 1.45% | 1.49% | - Total assets increased by $109.4 million (4%) since December 31, 2018[245] - Customer deposits grew by $217.7 million (9%) since year-end, primarily in money market accounts[282] - Wholesale funding decreased by $126.3 million (80%) since year-end 2018 as customer deposit growth outpaced loan growth[288][296] Results of Operations Net interest income rose 8% in Q1 2019, supported by a negative loan loss provision and loan growth Q1 2019 vs Q1 2018 Operations Summary | Metric | Q1 2019 | Q1 2018 | Change | | :--- | :--- | :--- | :--- | | Net Interest Income | $28.1M | $26.0M | +8% | | Provision for Loan Loss | $(0.4)M | $1.6M | -$2.0M | | Non-Interest Income | $3.8M | $3.8M | 0% | | Non-Interest Expense | $20.9M | $19.4M | +7% | - Tax equivalent net interest margin was 3.98% for Q1 2019, up slightly from 3.95% in Q1 2018[318] - The effective tax rate increased to 24.2% in Q1 2019 from 22.1% in Q1 2018, primarily due to lower tax benefits from discrete items[335] Liquidity and Capital Resources The company maintains a strong liquidity position and exceeds all 'well capitalized' regulatory requirements Capital Ratios as of March 31, 2019 (The Company) | Ratio | Actual | Minimum for Adequacy | | :--- | :--- | :--- | | Common equity tier 1 capital | 10.06% | 4.50% | | Tier 1 Capital | 10.06% | 6.00% | | Total Capital | 11.89% | 8.00% | | Leverage ratio | 8.57% | 4.00% | - Both the Company and the Bank were considered 'well capitalized' under regulatory standards as of March 31, 2019[301] - A quarterly dividend of $0.16 per share was declared on April 16, 2019[306] Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with no material changes from the prior year-end - The company's primary interest rate risk exposure is margin compression that may result from changes in interest rates and the balance sheet mix[347] - The company's margin generally performs slightly better in a rising rate environment and decreases in a declining rate environment or with a flattening/inverted yield curve[347] Controls and Procedures Management confirmed the effectiveness of disclosure controls and procedures with no material changes in internal controls - The principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures were effective as of March 31, 2019[350] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, these controls[352] PART II - OTHER INFORMATION Legal Proceedings The company faces no material legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings against the Company, only ordinary routine litigation incidental to business[355] Risk Factors No material changes to risk factors have occurred since the 2018 Annual Report on Form 10-K - No material changes have occurred in the Company's risk factors as reported in the 2018 Annual Report on Form 10-K[356] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased 2,741 shares of common stock in Q1 2019 related to employee stock plan activity Share Repurchases in Q1 2019 | Month | Total Shares Repurchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January | — | — | | February | — | — | | March | 2,741 | $30.19 | Other Items (Defaults, Mine Safety, Other Info) No defaults, mine safety issues, or other information were reported for the period - Items 3 (Defaults Upon Senior Securities), 4 (Mine Safety Disclosures), and 5 (Other Information) are all reported as 'Not Applicable'[359][360][361] Exhibits This section lists all exhibits filed with the report, including officer certifications and XBRL data - The exhibit index lists required filings, including officer certifications under Sarbanes-Oxley (SOX) and XBRL interactive data files[363]