Enterprise Bancorp(EBTC) - 2023 Q4 - Annual Report

Banking Operations - The Company operates 27 full-service branches across Massachusetts and New Hampshire, focusing on community banking services[19] - The Company offers a range of deposit products, including checking accounts, savings accounts, and term CDs, with competitive interest rates based on economic conditions and competition[44][46] - The Company specializes in commercial loans, including commercial real estate, industrial loans, and construction loans, with average repayment periods ranging from 1 to 30 years[33][34][35] - The Company offers home equity lines of credit with maximum original loan-to-value ratios generally up to 75%[41] - The Company provides cash management services to commercial banking and public sector customers, facilitating deposit processing and fund utilization[48] - The Company utilizes brokered deposits as an alternative to support asset growth beyond internally generated deposits[47] Financial Performance and Capital Management - As of December 31, 2023, the Bank's statutory lending limit to any individual borrower was approximately $93.5 million[32] - The Company believes its current capital is adequate to support ongoing operations, meeting all capital adequacy requirements under Basel III as of December 31, 2023[73] - The Company has issued fixed-to-floating rate subordinated notes as part of its capital management strategy, callable in 2025 and due in 2030[70] - As of December 31, 2023, the Company met all capital adequacy requirements under Basel III and was classified as "well-capitalized" by Federal Reserve Board regulations[134] - The Basel III minimum capital ratios include a total risk-based capital requirement of 10.50% and a Tier 1 risk-based capital requirement of 8.50%[132] - The Bank's regulatory capital ratios were above the levels required for "well-capitalized" institutions as of December 31, 2023[146] Market Strategy and Competition - The Company is focused on organic growth and strategic expansion within existing and neighboring markets to strengthen its market position[20] - The Company faces robust competition from national and regional banks, credit unions, and fintech companies, impacting its market share objectives[95][97] - The Company is focused on increasing its deposit market share and enhancing customer experience amid ongoing competition in pricing and terms of deposit products[99] - The Company plans to expand its market presence by strategically adding new branch locations to complement existing ones[100] - Advances in technology, including online and mobile banking, are expected to significantly impact the competitive landscape for financial services[101] - Compliance costs with government regulations and changes in tax legislation continue to affect competition and consolidation within the industry[102] Employee and Diversity Initiatives - The Company employs 570 full-time equivalent team members as of December 31, 2023, with 68% being women and 22% self-identified as Black, Indigenous, and persons of color[79][81] - The Company has established several Employee Resource Groups to promote diversity, equity, inclusion, and belonging within the workplace[80] Risk Management and Compliance - The Company promotes proactive risk management with clear ownership and accountability across all business lines[198] - Credit risk management is overseen by the Loan Committee of the Board, ensuring effective monitoring of credit risk[206] - Interest rate risk management is overseen by the Board of Directors, focusing on asset-liability management[207] - The Company maintains internal controls over financial reporting to ensure reasonable assurance of accurate disclosures in SEC filings[209] - The Audit Committee oversees the effectiveness of these internal controls[209] - The Company maintains a Compliance Management Program to meet regulatory and legislative requirements, ensuring effective tracking and implementation of regulatory changes[204] - The Company’s overall financial condition and ability to pay dividends could be adversely affected by these risks[212] Regulatory Environment - The Company is subject to supervision and regulation by the Federal Reserve Board and the Massachusetts Division of Banks[106] - The Dodd-Frank Act mandates that the Company act as a source of financial and managerial strength to its subsidiary banks[118] - The Company is subject to Massachusetts and federal laws that limit dividend payments, requiring sufficient net income and capital adequacy to distribute dividends[135] - The Federal Reserve Board mandates that bank holding companies should only pay dividends if net income covers the cash dividends and capital needs are met[136] - The Bank is unable to control the amount of FDIC insurance premiums it must pay, which are based on its average consolidated total assets minus average tangible equity[152] Investment and Wealth Management - The Company primarily invests in debt securities, with all debt securities classified as available-for-sale and carried at fair value[61] - The Company offers a range of wealth advisory and management services through Enterprise Wealth Management and Enterprise Wealth Services, focusing on customized investment management[53][54] - The Company’s investment management process aims to deliver superior long-term results by utilizing an open-architecture approach[54] - The Company’s investment portfolio activities are integral to its asset-liability management program, providing liquidity to support loan growth[58] Technology and Innovation - The Company utilizes various digital banking capabilities through its online website and mobile apps, enhancing customer access to account management[51] - Banks are expected to manage technology-related risks, including operational, privacy, cyber, and compliance risks, as part of their comprehensive risk management policies[180] - Financial institutions must implement a comprehensive written information security program to protect customer records and information under the Gramm-Leach-Bliley Act[181] Community Engagement - The Company has established the EBTC NMTC Investment Fund in February 2023 to invest in local projects providing federal tax incentives for distressed communities[23] - The Bank received a "High Satisfactory" rating from the Division and "Satisfactory" from the FDIC on its most recent Community Reinvestment Act examination[155] Regulatory Changes and Impact - The federal banking agencies adopted a final rule to modernize CRA regulations, effective January 1, 2026, with data reporting requirements starting January 1, 2027[156] - Small and intermediate banks are exempt from new data collection and reporting requirements that apply to banks with assets of at least $2 billion[156] - The EGRRCPA, enacted in 2018, eases regulations for banks with less than $10 billion in assets, impacting the Company's operations[164] - The CFPB oversees consumer financial protection laws, with a focus on fair lending and compliance obligations[166] - The Dodd-Frank Act mandates comprehensive additional disclosures for residential mortgage loans, affecting the Bank's reporting requirements[171] Executive Compensation and Governance - The SEC requires publicly traded companies to disclose the ratio of CEO compensation to median employee compensation[176] - The Dodd-Frank Act directs federal banking regulators to propose rules against excessive executive compensation for institutions with assets over $1 billion[177] - The SEC adopted a "pay-for-performance" rule requiring companies to disclose relationships between executive compensation and company performance[178] - The SEC adopted a final rule requiring listed companies to implement a clawback policy for excess incentive-based compensation earned by executives during the three fiscal years preceding an accounting restatement, effective October 2, 2023[179]