Enterprise Bancorp(EBTC) - 2020 Q4 - Annual Report

PART I Item 1. Business Enterprise Bancorp, Inc. is a bank holding company offering commercial, residential, and wealth management services in its regional market - Enterprise Bancorp, Inc. was organized in 1996 as the parent holding company of Enterprise Bank and Trust Company, which commenced banking operations in 1989[14] - The Bank has five wholly-owned subsidiaries: Enterprise Insurance Services, LLC, Enterprise Wealth Services, LLC, and three Massachusetts security corporations (Enterprise Security Corporation, Enterprise Security Corporation II, and Enterprise Security Corporation III)[14] - The Company's services are managed as one strategic unit, representing its only reportable operating segment[15] Organization Enterprise Bancorp, Inc. operates as a bank holding company with five wholly-owned subsidiaries, managed as a single strategic unit - Enterprise Bancorp, Inc. was organized in 1996 as the parent holding company of Enterprise Bank and Trust Company, which commenced banking operations in 1989[14] - The Bank has five wholly-owned subsidiaries: Enterprise Insurance Services, LLC, Enterprise Wealth Services, LLC, and three Massachusetts security corporations (Enterprise Security Corporation, Enterprise Security Corporation II, and Enterprise Security Corporation III)[14] - The Company's services are managed as one strategic unit, representing its only reportable operating segment[15] Market Area The Company primarily serves Northern Massachusetts and Southern New Hampshire through its 26 existing and planned 27th branch - The Company's primary market area includes Northern Middlesex, Northern Essex, and Northern Worcester counties of Massachusetts, and Southern Hillsborough and Southern Rockingham counties in New Hampshire[18] - Enterprise operates 26 full-service branches across these regions, with a 27th branch in Londonderry, New Hampshire, expected to open in late 2021 or early 2022[18] - Management actively pursues organic growth and strategic expansion within existing and neighboring geographic markets[19] Products and Services The Company's core business involves gathering deposits and investing in commercial loans and securities, offering diverse financial services - The Company's core business involves gathering deposits and investing primarily in commercial loans and investment securities, using cash flows for operations, product expansion, branch network growth, and stockholder dividends[21] - Services include commercial, residential, and consumer loan products, deposit products, cash management, online/mobile/voice banking, commercial insurance, and wealth management[21] Lending Products The Company specializes in commercial lending, managing its loan portfolio to mitigate credit risk through diversification - The Company specializes in lending to business entities, non-profit organizations, professional practices, and individuals, with a primary focus on high-quality commercial relationships[24] - Loan portfolio management aims to avoid concentration by industry, relationship size, and repayment source to mitigate credit risk[24] - Interest rates on loans can be fixed or variable, determined by credit risk, term, costs, borrower relationships, competitive pressures, and government regulations[25] Deposit Products Deposits are the Company's principal funding source, offering various accounts with enhanced FDIC insurance and competitive rates - Deposits are the Company's principal funding source, offering checking, savings, money market accounts, commercial sweep products, and CDs (1-36 months)[51] - The Company provides enhanced FDIC insurance coverage on larger deposit balances through nationwide networks of reciprocating FDIC-insured banks[52] - Interest rates on deposits are set based on economic conditions, competition, liquidity needs, and asset-liability position, with low-cost checking deposits being a core funding strategy[53] Cash Management Services Commercial and public sector clients access diverse cash management services, including fraud reduction and automated investment sweeps - Commercial banking and public sector customers can access cash management services including remote check deposit, lockbox, ACH origination, wire transfers, Positive Pay for fraud reduction, account reconciliation, zero balance target transfers, automated investment sweeps, and commercial card/merchant services[55] - Investment sweep services include third-party FDIC enhanced money markets or non-deposit mutual funds, with balances swept into mutual funds not representing Company obligations or FDIC insured[55][57] Product Delivery Channels The Company offers electronic banking via its website, mobile apps, and voice banking with Alexa, all secured by multi-layer authentication - Electronic banking capabilities are offered via the Bank's website and mobile apps for account viewing, transfers, bill payments, person-to-person payments, and check deposits[58] - Voice banking service with Alexa allows retail customers to access account balances and transaction history, and perform internal transfers[58] - Online, mobile, and voice banking tools use multiple layers of customer authentication to manage transaction and information risk[59] Wealth Management and Wealth Services The Company provides wealth advisory and management through Enterprise Wealth Management and Enterprise Wealth Services, overseen by a Board Committee - The Company provides wealth advisory and management services through Enterprise Wealth Management (customized investment management and trust services) and Enterprise Wealth Services (brokerage and management services via a third-party arrangement)[60][63] - Enterprise Wealth Management uses an open-architecture approach, partnering with research firms to select high-performing mutual funds and independent investment management firms[61] - The Enterprise Wealth Management Committee of the Board oversees fiduciary and investment activities, client asset management, and reviews investment performance and strategic initiatives[64] Insurance Services Enterprise Insurance Services, LLC offers a full array of commercial insurance products through a third-party arrangement - Enterprise Insurance Services, LLC engages in insurance sales through a third-party arrangement with HUB International New England, LLC, offering a full array of insurance products for businesses in the Company's market area[65] Investment Activities The investment portfolio is crucial for asset-liability management, providing liquidity and aiming for maximum return with safety - The Company's investment portfolio is crucial for asset-liability management, providing liquidity for loan growth, deposit withdrawals, and maturities, while aiming for maximum return consistent with safety and diversification[68] - Investments are limited by regulation and internal policy to high-quality debt securities, with an outside registered investment adviser managing corporate and municipal bond portfolios[69] - As of December 31, 2020, debt securities were classified as available-for-sale (fair value changes in OCI), and equity securities at fair value (changes in net income)[71] Other Sources of Funds Beyond deposits, asset growth is funded by cash flows, borrowed funds from various sources, and subordinated debt - Beyond deposits, asset growth can be funded by cash flows from loan/investment portfolios, borrowed funds (FHLB, FRB Discount Window, PPPLF, correspondent banks), and subordinated debt[76] Borrowed Funds The Company utilizes various borrowing capacities, including FHLB, FRB Discount Window, and PPPLF, for liquidity and funding - Total borrowing capacity includes arrangements with the FHLB, FRB Discount Window, Paycheck Protection Program Liquidity Fund (PPPLF), and correspondent banks[76] - FHLB membership provides borrowing capacity based on pre-pledged collateral, primarily used for short-term liquidity or community development projects[77][79] - In April 2020, the Company gained access to the PPPLF, providing non-recourse funding secured by PPP loans, with advances matching the amount and term of pledged PPP loans[81] Subordinated Debt The Company issued fixed-to-floating rate subordinated notes in 2015 and 2020, qualifying as Tier 2 capital for regulatory purposes - The Company issued fixed-to-floating rate subordinated notes in January 2015 and July 2020, both due in 2030 with call features, intended to qualify as Tier 2 capital for regulatory purposes[83] Capital Resources Capital planning supports growth through retained earnings and stock option exercises, with the Company meeting all Basel III requirements - Capital planning considers current and future growth, with ongoing sources including retained earnings, employee stock option exercises, and dividend reinvestment plan proceeds[86] - As of December 31, 2020, the Company and the Bank met all Basel III capital adequacy requirements and qualified as "well-capitalized" under applicable regulations[87] [Patents, Trademarks, etc.](index=12&type=section&