Enterprise Bancorp(US:EBTC)2021-11-07 16:00PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) The unaudited interim financial statements as of September 30, 2021, reflect the adoption of the CECL methodology Consolidated Balance Sheets Total assets grew to $4.45 billion, driven by deposit growth, while total loans decreased due to PPP loan forgiveness Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total Assets | $4,451,432 | $4,014,324 | | Total cash and cash equivalents | $644,377 | $253,782 | | Net loans | $2,800,848 | $3,029,295 | | Total investment securities | $819,222 | $583,049 | | Total Liabilities | $4,104,892 | $3,679,898 | | Total deposits | $3,970,936 | $3,551,263 | | Total Stockholders' Equity | $346,540 | $334,426 | Consolidated Statements of Income Net income decreased for Q3 2021 but increased significantly for the nine-month period due to higher net interest income Income Statement Summary (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $35,879 | $33,531 | $105,901 | $95,953 | | Provision for Credit Losses | $28 | $1,575 | $747 | $10,397 | | Non-interest Income | $3,079 | $4,324 | $12,130 | $12,532 | | Non-interest Expense | $25,769 | $22,769 | $75,609 | $69,777 | | Net Income | $9,832 | $10,326 | $31,323 | $21,599 | | Diluted EPS | $0.81 | $0.87 | $2.60 | $1.81 | Consolidated Statements of Cash Flows Net cash increased by $390.6 million, driven by a substantial rise in deposits and financing activities Cash Flow Summary for Nine Months Ended Sep 30 (in thousands) | Activity | 2021 | 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $34,820 | $26,744 | | Net cash used in investing activities | ($47,010) | ($565,559) | | Net cash provided by financing activities | $402,785 | $783,385 | | Net increase in cash and cash equivalents | $390,595 | $244,570 | Notes to Unaudited Consolidated Interim Financial Statements Key disclosures include the adoption of CECL, loan portfolio composition, credit quality, and regulatory capital adequacy - Effective January 1, 2021, the Company adopted the CECL methodology for estimating allowances for credit losses, resulting in a $6.5 million reduction to retained earnings, net of tax3764 Loan Portfolio Composition (in thousands) | Loan Type | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Commercial real estate | $1,556,240 | $1,476,236 | | Commercial and industrial | $401,718 | $435,548 | | Commercial construction | $412,332 | $371,856 | | SBA PPP | $148,240 | $443,070 | | Residential mortgages | $239,960 | $252,995 | | Total loans | $2,848,110 | $3,073,860 | - The Allowance for Credit Losses (ACL) for loans stood at $47.3 million, or 1.66% of total loans, as of September 30, 2021115 - As of September 30, 2021, the Company and its bank subsidiary met the definition of "well-capitalized" under all applicable regulatory capital requirements174 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management analyzes financial results, highlighting the impact of PPP loans and interest-rate swap terminations on performance Results of Operations Nine-month net income rose due to higher PPP-related interest income and lower credit loss provisions Key Performance Metrics | Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 | | :--- | :--- | :--- | :--- | :--- | | Net Income (in millions) | $9.8 | $10.3 | $31.3 | $21.6 | | Diluted EPS | $0.81 | $0.87 | $2.60 | $1.81 | | Net Interest Margin (tax equiv.) | 3.39% | 3.46% | 3.48% | 3.63% | - Net interest income for Q3 2021 increased by 7% YoY to $35.9 million, benefiting from $4.9 million in PPP-related income and lower deposit interest expense260 - Non-interest income for Q3 2021 included a $1.8 million loss from the termination of interest-rate swaps259277 Financial Condition Asset growth was fueled by a 14% increase in customer deposits, while PPP loan forgiveness reduced total loans - Total assets increased by 11% to $4.45 billion at September 30, 2021, from December 31, 2020302 - Total loans decreased by 7% since year-end 2020, mainly due to PPP loan forgiveness; Core loans (non-GAAP) grew by $69.1 million308 Asset Quality Ratios | Ratio | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Non-performing loans to total loans | 0.98% | 1.24% | | Non-performing assets to total assets | 0.68% | 0.95% | | ACL for loans to total loans | 1.66% | 1.45% | - Customer deposits increased by $494.7 million (14%) since December 31, 2020, attributed to PPP loan proceeds, government stimulus, and customers maintaining higher liquidity345 Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company's asset sensitivity to interest-rate risk has increased significantly due to growth in short-term liquidity Net Interest Income Sensitivity Analysis (% Change) | Rate Shock | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | +400 bps | 14.35% | 6.40% | | +200 bps | 7.66% | 3.57% | | -100 bps | (5.16)% | (4.16)% | - The increased sensitivity to rising rates is primarily due to a significant increase in net short-term liquidity, which grew to $597.7 million at September 30, 2021, from $133.4 million at December 31, 2020373374377 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The Company's principal executive officer and principal financial officer concluded that disclosure controls and procedures were effective as of September 30, 2021379 - No significant changes to internal control over financial reporting occurred during the third quarter of 2021380 PART II - OTHER INFORMATION Item 1. Legal Proceedings The Company is not party to any material legal proceedings outside of ordinary routine litigation - There are no material pending legal proceedings against the Company, only ordinary routine litigation385 Item 1A. Risk Factors No material changes to risk factors were reported, aside from potential pandemic-related economic stress - No material changes to risk factors were reported, except for the potential for heightened risk due to sustained economic stress or lagging effects from the COVID-19 pandemic386387 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No company common stock was repurchased during the third quarter of 2021 - No shares of common stock were repurchased by the Company during the third quarter of 2021388 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data