Enterprise Bancorp(US:EBTC)2023-03-07 16:00PART I This section details the Company's business operations, market presence, product offerings, and the extensive regulatory framework governing its activities Item 1. Business Enterprise Bancorp, Inc. operates as a bank holding company for Enterprise Bank, a community-focused commercial bank, offering a comprehensive suite of financial products and services - Enterprise Bancorp, Inc. operates as the parent holding company of Enterprise Bank and Trust Company, a community-focused commercial bank, with substantially all operations conducted through the Bank and its subsidiaries. The Company's common stock trades on the NASDAQ Global Market under the symbol 'EBTC'141517 - The Company's primary market area spans Northern Middlesex, Northern Essex, and Northern Worcester counties of Massachusetts, and Southern Hillsborough and Southern Rockingham counties in New Hampshire, served by 27 full-service branches18 - The Company offers a range of commercial, residential, and consumer loan products, deposit products, cash management services, and wealth management. Insurance sales activities through a third-party arrangement ended on October 5, 2022, with the sale of rights to future cash flows21235556 Item 1A. Risk Factors An investment in the Company's common stock is subject to various risks, including potential failures in risk management controls, inherent risks in lending activities, and the need for increased allowance for credit losses - The Company's loan portfolio, primarily commercial real estate, commercial and industrial, and commercial construction loans, carries a higher risk of default compared to residential mortgage or consumer loans, making it more susceptible to adverse economic conditions215 - The Company's financial results are highly sensitive to changes in market interest rates, which can affect loan and deposit pricing at differing speeds, potentially impacting net interest income and demand for bank products. Persistent inflation could lead to tighter monetary policy, higher interest rates, increased borrowing costs for customers, and reduced profitability226229 - The Company faces significant cybersecurity risks due to its reliance on information systems and cloud-based solutions, with potential for interruptions, data breaches, and operational disruptions that could harm reputation, increase costs, and lead to regulatory actions or litigation236237 - The Company's capital levels could fall below regulatory minimums, restricting growth, increasing funding costs, impacting FDIC insurance expense, and prohibiting dividend payments. The Company relies on dividends from the Bank for substantially all its revenue, and regulatory restrictions on the Bank's ability to pay dividends could materially affect the Company's ability to service debt and pay common stock dividends257258261262 Item 1B. Unresolved Staff Comments The Company has no unresolved staff comments from the SEC - There are no unresolved staff comments263 Item 2. Properties The Company's main office and operational support are located in Lowell, Massachusetts, with a back-up operations/data facility in the Merrimack Valley, and operates 27 full-service branches - The Company's main office and operational support offices are located in Lowell, Massachusetts, consisting of four closely situated buildings, three of which are owned264 - The Company owns and maintains a back-up operations/data facility in the Merrimack Valley region of Massachusetts264 - As of December 31, 2022, the Company had 27 full-service branch banking offices and was the lessee under 16 active operating real estate leases264265 Item 3. Legal Proceedings The Company is not currently involved in any material pending legal proceedings beyond ordinary routine litigation incidental to its business - There are no material pending legal proceedings to which the Company or its subsidiaries are a party, other than ordinary routine litigation incidental to the business266 - Management does not believe resolution of any present litigation will have a material adverse effect on the business, consolidated financial condition, or results of operations266 Item 4. Mine Safety Disclosures This item is not applicable to the Company - Item 4. Mine Safety Disclosures is not applicable267 PART II This section covers the Company's common stock market, financial performance, market risk disclosures, and audited financial statements Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The Company's common stock trades on the NASDAQ Global Market under 'EBTC', with 12,148,951 shares outstanding as of February 28, 2023, and a declared Q1 2023 dividend of $0.23 per share - The Company's common stock trades on the NASDAQ Global Market under the trading symbol 'EBTC'270 Common Stock and Dividends | Metric | Value | | :----------------------------------- | :-------------------- | | Shares Outstanding (Feb 28, 2023) | 12,148,951 shares | | Shareholders of Record (Feb 28, 2023) | 1,063 | | Dividends Paid Per Share (2022) | $0.82 | | Dividends Paid Per Share (2021) | $0.74 | | Q1 2023 Quarterly Dividend Announced | $0.23 per share | | Stock Options Outstanding (Dec 31, 2022) | 197,249 | | Weighted-Average Exercise Price (Dec 31, 2022) | $26.33 | | Shares Available for Future Issuance (Dec 31, 2022) | 442,051 | | Shares Repurchased (Oct 2022) | 3,413 | | Average Price Paid Per Share (Oct 2022) | $29.79 | Item 6. Selected Financial Data The information typically required by Item 6 has been omitted, as permitted by the SEC, with further financial details available in Item 7 - Information previously required by Item 6 has been intentionally omitted, as permitted by the SEC's final rules on financial disclosure requirements283 - For details on the Company's financial condition and results of operations, refer to Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations"283 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The Company's financial performance in 2022 was significantly influenced by rising market interest rates and high inflation, leading to a slight increase in net income despite non-core operating transactions - Net income for the year ended December 31, 2022, increased by 1% to $42.7 million, primarily driven by a $27.4 million increase in net interest income (excluding PPP income), partially offset by higher provision for credit losses and non-interest expense, and a $17.1 million decrease in PPP income295 Key Financial Highlights (2022 vs. 2021) | Metric | 2022 (in thousands) | 2021 (in thousands) | Change (in thousands) | % Change | | :----------------------------------- | :------------------ | :------------------ | :-------------------- | :------- | | Net Income | $42,716 | $42,171 | $545 | 1% | | Net Interest Income | $151,798 | $141,556 | $10,242 | 7% | | Net Interest Margin | 3.54% | 3.44% | 0.10% | - | | Provision for Credit Losses | $5,800 | $1,770 | $4,030 | 228% | | Total Non-Interest Income | $18,462 | $18,107 | $355 | 2% | | Total Non-Interest Expense | $108,314 | $102,135 | $6,179 | 6% | | Total Assets | $4,438,333 | $4,447,819 | $(9,486) | (0.2)% | | Total Loans | $3,180,518 | $2,920,684 | $259,834 | 9% | | Core Loans (non-GAAP) | $3,180,518 | $2,849,182 | $331,336 | 12% | | Non-Performing Loans to Total Loans | 0.19% | 0.91% | (0.72)% | - | | Customer Deposits | $4,035,806 | $3,980,239 | $55,567 | 1% | | Total Shareholders' Equity | $282,267 | $346,895 | $(64,628) | (19)% | | Book Value Per Common Share | $23.26 | $28.82 | $(5.56) | (19.3)% | | Book Value Per Common Share (excl. AOCI, non-GAAP) | $31.19 | $28.43 | $2.76 | 9.7% | | Return on Average Shareholders' Equity | 14.47% | 12.49% | 1.98% | - | | Return on Average Shareholders' Equity (excl. AOCI, non-GAAP) | 11.74% | 13.03% | (1.29)% | - | - The Company's investment portfolio fair value declined by $137.8 million (14%) in 2022, primarily due to a $130.0 million decline in debt securities from significant market interest rate increases (425 basis points in the prime lending rate). Net unrealized losses on debt securities amounted to $124.1 million at year-end 2022, compared to net unrealized gains of $5.9 million in 2021297346347348 - Total loans increased by $259.8 million (9%) in 2022, with core loans (non-GAAP) growing by $331.3 million (12%). Commercial real estate loans increased by $240.6 million (14%), and retail loans increased by $74.7 million (22%) due to retaining more residential mortgage production297354356 Item 7A. Quantitative and Qualitative Disclosures About Market Risk The Company's primary market risk is interest-rate risk, managed through its asset-liability management policy, with net interest income sensitivity analysis performed quarterly - The Company's primary market risk is interest-rate risk, with oversight and policy approval by the Board. Net interest income sensitivity analysis is performed quarterly427429 - In 2022, the Company's net interest margin favorably impacted by significant increases in market interest rates and the prime lending rate, as asset yields increased more significantly than funding costs319434 - Net interest income sensitivity decreased at December 31, 2022, compared to 2021 and 2020, primarily due to a decrease in net short-term liquidity and an increase in loans originated with slightly longer initial fixed terms436 Net Interest Income Sensitivity (24-month period) | Changes in Interest Rates | December 31, 2022 Percentage Change | December 31, 2021 Percentage Change | December 31, 2020 Percentage Change | | :------------------------ | :------------------------------------ | :------------------------------------ | :------------------------------------ | | Rates Rise 400 Basis Points | 1.20 % | 9.73 % | 6.40 % | | Rates Rise 200 Basis Points | 0.45 % | 5.37 % | 3.57 % | | Rates Unchanged | — % | — % | — % | | Rates Decline 200 Basis Points | (5.34)% | (9.54)% | (7.17)% | Item 8. Financial Statements and Supplementary Data This section presents the Company's audited consolidated financial statements, including balance sheets, statements of income, comprehensive income, changes in shareholders' equity, and cash flows, with an unqualified audit opinion - The consolidated financial statements include the Balance Sheets as of December 31, 2022 and 2021, and the Statements of Income, Comprehensive Income, Changes in Shareholders' Equity, and Cash Flows for the years ended December 31, 2022, 2021, and 2020440 - The independent registered public accounting firm issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting as of December 31, 2022756757766 - The Allowance for Credit Losses for Loans, particularly the qualitative component of the general reserve, was identified as a critical audit matter due to the high degree of subjectivity and judgment involved in management's estimates and economic forecasts761762763 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The Company reports no changes in or disagreements with its accountants on accounting and financial disclosure matters - There are no changes in and disagreements with accountants on accounting and financial disclosure773 Item 9A. Controls and Procedures The Company's management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no significant changes during the most recent fiscal quarter - The Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of December 31, 2022776 - Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, using the COSO 2013 criteria, and concluded it is effective779 - There have been no significant changes in the Company's internal control over financial reporting during the most recent fiscal quarter (three months ended December 31, 2022) that materially affected, or are reasonably likely to materially affect, internal control over financial reporting782 Item 9B. Other Information The Company has no other information to report under this item - There is no other information to report783 Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the Company - Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections is not applicable784 Part III This section incorporates by reference information regarding directors, executive compensation, security ownership, related transactions, and accounting fees from the Company's proxy statement Items 10, 11, 12, 13 and 14. Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's definitive proxy statement, expected to be filed by May 2, 2023 - Information for Items 10, 11, 12, 13, and 14 is incorporated by reference from the Company's definitive proxy statement for its annual meeting of shareholders to be held on May 2, 2023786 Part IV This section lists the exhibits and financial statement schedules included in the annual report, noting the absence of a Form 10-K Summary Item 15. Exhibits, Financial Statement Schedules This section lists the documents filed as part of the annual report, including financial statements and various exhibits - The annual report includes financial statements and a list of exhibits, with financial statement schedules omitted as the information is contained within the consolidated financial statements788790 - Exhibits cover a range of documents including Amended and Restated Articles of Organization, Bylaws, Renewal Rights Agreement, Indenture for Subordinated Note, and various employee and executive compensation plans791793795797 Item 16. Form 10-K Summary The Company has not provided a Form 10-K Summary - There is no Form 10-K Summary provided798