ENTERPRISE BANCORP INC /MA/ - Quarter Report: 2022 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 001-33912

Enterprise Bancorp, Inc.

(Exact name of registrant as specified in its charter)


Massachusetts			04-3308902
(State or other jurisdiction of			(I.R.S. Employer Identification No.)
incorporation or organization)

222 Merrimack Street,	Lowell,	Massachusetts	01852
(Address of principal executive offices)			(Zip code)

(978) 459-9000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $0.01 par value per share

EBTC

NASDAQ Stock Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). x Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definition for "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐ Accelerated filer x

Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

☐ Yes x No

As of April 29, 2022, there were 12,103,946 shares of the issuer's common stock outstanding, par value $0.01 per share.

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ENTERPRISE BANCORP, INC.

INDEX


		Page Number
	Cover Page	1

	Index	2
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	3
	Consolidated Balance Sheets - March 31 , 202 2 and December 31, 202 1	3
	Consolidated Statements of Income - Three months ended March 31 , 202 2 and 202 1	4
	Consolidated Statements of Comprehensive Income - Three months ended March 31 , 202 2 and 20 21	5
	Consolidated Statements of Changes in S hareholder s' Equity - Three months ended March 31 , 202 2 and 202 1	6
	Consolidated Statements of Cash Flows - Three months ended March 3 1, 2022 and 202 1	7
	Notes to Unaudited Consolidated Interim Financial Statements	8
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4	Controls and Procedures	48

	PART II - OTHER INFORMATION

Item 1	Legal Proceedings	49
Item 1A	Risk Factors	49
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3	Defaults Upon Senior Securities	49
Item 4	Mine Safety Disclosures	49
Item 5	Other Information	49
Item 6	Exhibits	50
	Signature page	51

Table of Contents

PART I-FINANCIAL INFORMATION

Item 1 -Financial Statements

ENTERPRISE BANCORP, INC.

Consolidated Balance Sheets

(Unaudited)


(Dollars in thousands, except per share data)	March 31, 2022		December 31, 2021
Assets
Cash and cash equivalents:
Cash and due from banks	$	45,233	$	33,572
Interest-earning deposits with banks	384,454		403,004

Total cash and cash equivalents	429,687		436,576
Investments:
Debt securities at fair value (amortized cost of $959,181 and $950,523, respectively)	907,052		956,430
Equity securities at fair value	2,961		1,785
Total investment securities at fair value	910,013		958,215
Federal Home Loan Bank ("FHLB") stock	2,048		2,164

Loans:
Total loans	2,962,721		2,920,684
Allowance for credit losses	(48,424)		(47,704)
Net loans	2,914,297		2,872,980
Premises and equipment, net	45,130		44,689
Lease right-of-use asset	24,915		24,295
Accrued interest receivable	14,272		13,354
Deferred income taxes, net	32,999		19,644
Bank-owned life insurance	63,249		62,954
Prepaid income taxes	2,018		279
Prepaid expenses and other assets	10,190		7,013
Goodwill	5,656		5,656
Total assets	$	4,454,474	$	4,447,819
Liabilities and shareholders' Equity
Liabilities



Deposits	$	4,034,500	$	3,980,239
Borrowed funds	2,974		5,479
Subordinated debt	59,009		58,979
Lease liability	24,301		23,627
Accrued expenses and other liabilities	22,405		31,063

Accrued interest payable	746		1,537
Total liabilities	4,143,935		4,100,924
Commitments and Contingencies
Shareholders' Equity
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued	—		—
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 12,103,188 and 12,038,382 shares issued and outstanding, respectively	121		120
Additional paid-in capital	101,139		100,352
Retained earnings	249,579		241,761
Accumulated other comprehensive (loss) income	(40,300)		4,662
Total shareholders' equity	310,539		346,895
Total liabilities and shareholders' equity	$	4,454,474	$	4,447,819

See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.

Consolidated Statements of Income

(Unaudited)


	Three months ended March 31,
(Dollars in thousands, except per share data)		2022		2021
Interest and dividend income:
Loans and loans held for sale		$	30,695	$	33,650
Investment securities		4,588		3,394
Other interest-earning assets		181		65
Total interest and dividend income		35,464		37,109
Interest expense:
Deposits		600		1,323
Borrowed funds		13		8
Subordinated debt		818		1,042
Total interest expense		1,431		2,373
Net interest income		34,033		34,736
Provision for credit losses		530		680
Net interest income after provision for credit losses		33,503		34,056
Non-interest income:
Wealth management fees		1,729		1,612
Deposit and interchange fees		1,802		1,606
Income on bank-owned life insurance, net		295		136

Net gains on sales of debt securities		1,062		128
Net gains on sales of loans		22		128

Other income		685		689
Total non-interest income		5,595		4,299
Non-interest expense:
Salaries and employee benefits		16,792		15,721
Occupancy and equipment expenses		2,415		2,381
Technology and telecommunications expenses		2,636		2,554
Advertising and public relations expenses		667		514
Audit, legal and other professional fees		710		567
Deposit insurance premiums		556		356
Supplies and postage expenses		220		227
Loss on extinguishment of subordinated debt		—		713
Other operating expenses		1,761		1,651
Total non-interest expense		25,757		24,684
Income before income taxes		13,341		13,671
Provision for income taxes		3,054		3,319
Net income		$	10,287	$	10,352

Basic earnings per share		$	0.85	$	0.87
Diluted earnings per share		$	0.85	$	0.86

Basic weighted average common shares outstanding		12,055,991		11,959,469
Diluted weighted average common shares outstanding		12,119,836		11,994,437

See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended March 31,
(Dollars in thousands)		2022		2021
Net income		$	10,287	$	10,352
Other comprehensive loss, net of tax
Net change in fair value of debt securities		(44,962)		(8,721)
Net change in fair value of cash flow hedges		—		583
Total other comprehensive loss, net of tax		(44,962)		(8,138)
Total comprehensive (loss) income, net		$	(34,675)	$	2,214

See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Shareholders' Equity

(Unaudited)


	Common Stock			Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive (Loss)/Income		Total Shareholders' Equity
(Dollars in thousands, except per share data)	Shares	Amount
Balance at December 31, 2021	12,038,382	$	120	$	100,352	$	241,761	$	4,662	$	346,895
Net income						10,287				10,287

Other comprehensive loss, net								(44,962)		(44,962)
Common stock dividend declared ($0.205 per share)						(2,469)				(2,469)
Common stock issued under dividend reinvestment plan	8,915	—		346						346
Common stock issued, other	241	—		10						10
Stock-based compensation, net	59,949	1		659						660
Net settlement for employee taxes on restricted stock and options	(7,728)	—		(286)						(286)
Stock options exercised, net	3,429	—		58						58
Balance at March 31, 2022	12,103,188	$	121	$	101,139	$	249,579	$	(40,300)	$	310,539

Balance at December 31, 2020	11,937,795	$	119	$	97,137	$	214,977	$	22,193	$	334,426
Net income						10,352				10,352
Cumulative effect adjustment for ("CECL") adoption						(6,510)				(6,510)
Other comprehensive loss, net								(8,138)		(8,138)
Common stock dividend declared ($0.185 per share)						(2,209)				(2,209)
Common stock issued under dividend reinvestment plan	10,241	—		313						313
Common stock issued, other	251	—		7						7
Stock-based compensation, net	64,725	1		670						671
Net settlement for employee taxes on restricted stock and options	(5,157)	—		(159)						(159)
Stock options exercised, net	143	—		2						2
Balance at March 31, 2021	12,007,998	$	120	$	97,970	$	216,610	$	14,055	$	328,755

See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Three months ended March 31,
(Dollars in thousands)	2022		2021
Cash flows from operating activities:
Net income	$	10,287	$	10,352
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Provision for credit losses	530		680
Depreciation and amortization	1,733		1,890
Stock-based compensation expense	478		451
Income on bank-owned life insurance, net	(295)		(136)
Net gains on sales of debt securities	(1,062)		(128)
Mortgage loans originated for sale	(819)		(12,009)
Proceeds from mortgage loans sold	841		4,963
Net gains on sales of loans	(22)		(128)
Net losses (gains) on equity securities	66		(84)



Changes in:
Net (increase) decrease in other assets	(6,123)		3,284
Net decrease in other liabilities	(8,879)		(4,352)
Net cash (used in) provided by operating activities	(3,265)		4,783
Cash flows from investing activities:
Proceeds from sales of debt securities	32,715		3,059
Purchase of debt securities	(66,833)		(55,567)
Proceeds from maturities, calls and pay-downs of debt securities	26,067		22,049
Net purchases of equity securities	(1,243)		(367)
Net sales (purchases) of FHLB capital stock	116		(105)
Net increase in loans	(42,142)		(37,336)
Additions to premises and equipment, net	(1,719)		(804)




Net cash used in investing activities	(53,039)		(69,071)
Cash flows from financing activities:
Net increase in deposits	54,261		264,898
Net (decrease) increase in borrowed funds	(2,505)		3,857
Repayment of subordinated debt	—		(15,600)
Loss on extinguishment of subordinated debt	—		713

Cash dividends paid, net of dividend reinvestment plan	(2,123)		(1,896)
Proceeds from issuance of common stock	10		7
Net settlement for employee taxes on restricted stock and options	(286)		(159)
Net proceeds from stock option exercises	58		2
Net cash provided by financing activities	49,415		251,822

Net (decrease) increase in cash and cash equivalents	(6,889)		187,534
Cash and cash equivalents at beginning of period	436,576		253,782
Cash and cash equivalents at end of period	$	429,687	$	441,316

See the accompanying notes to the unaudited consolidated interim financial statements.

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ENTERPRISE BANCORP, INC.

Notes to the Unaudited Consolidated Interim Financial Statements

(1)Summary of Significant Accounting Policies

(a) Organization of the Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2021 audited consolidated financial statements and notes thereto contained in the 2021 Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our") as filed with the Securities and Exchange Commission (the "SEC") on March 10, 2022 (the "2021 Annual Report on Form 10-K"). The Company has not materially changed its significant accounting policies from those disclosed in its 2021 Annual Report on Form 10-K. See Item (c), "Recent Accounting Pronouncements," below in this Note 1.

The accompanying unaudited consolidated interim financial statements of the Company include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries.

The Bank's subsidiaries include Enterprise Insurance Services, LLC and Enterprise Wealth Services, LLC, both organized under the laws of the State of Delaware, to engage in insurance sales activities and offer non-deposit investment products and services, respectively, and 239 Littleton Road, LLC, organized in 2021 in the State of Massachusetts for the purpose of maintaining and disposing of real estate acquired through the Bank's lending functions. In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III. The security corporations, which hold various types of qualifying securities, are limited to conducting investment activities that the Bank itself would be allowed to conduct under applicable laws. The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.

The accompanying unaudited consolidated interim financial statements, and notes thereto, in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (this "Form 10-Q"), have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the SEC instructions for Quarterly Reports on Form 10-Q. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments, consisting of normal recurring accruals and elimination of intercompany balances, for a fair presentation. Certain previous years' amounts in the unaudited consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.

(b) Uses of Estimates

In preparing the unaudited consolidated interim financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. These assumptions and estimates affect the reported values of assets and liabilities as of the balance sheet dates and income and expenses for the period then ended. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. Changes in those estimates resulting from continuing changes in the economic environment and other factors will be reflected in the consolidated financial statements and results of operations in future periods.

As discussed in the Company's 2021 Annual Report on Form 10-K, the most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses ("ACL") for loans and available for sale securities, the reserve for unfunded commitments, and the impairment review of goodwill. Refer to Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements included in the Company's 2021 Annual Report on Form 10-K for accounting policies related to these significant estimates.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Accounting pronouncements not yet adopted by the Company

In March 2022, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging—Portfolio Layer Method. This ASU clarifies the guidance on fair value hedge accounting of interest rate risk for portfolios of financial assets. The ASU amends the guidance in ASU 2017-12 Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities, that, among other things, established the “last-of-layer” method for making the fair value hedge accounting for these portfolios more accessible. ASU 2022-01 renames that method the “portfolio layer” method and addresses feedback from stakeholders regarding its application. For entities that have adopted ASU 2017-12, ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2017-12. The Company expects that this ASU will not have a material impact to the consolidated financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures. This ASU eliminates the accounting guidance for troubled debt restructurings by creditors that have adopted the current expected credit loss ("CECL") methodology for estimating allowances for credit losses and enhances the disclosure requirements for loan restructurings made with borrowers experiencing financial difficulty. In addition, the amendments require a public business entity to disclose current-period gross charge-offs for financing receivables and net investment in leases by year of origination in the vintage disclosures. For entities that have adopted ASU 2016-13 Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments,, such as the Company, ASU 2022-02 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption is permitted if an entity has adopted ASU 2016-13. The Company is in the process of assessing the impact of this ASU on the consolidated financial statements.

Accounting pronouncements adopted by the Company

In August 2021, the FASB issued ASU 2021-06, Presentation of Financial Statements (Topic 205), Financial Services—Depository and Lending (Topic 942), and Financial Services—Investment Companies (Topic 946). This ASU incorporates recent SEC rule changes into the FASB Codification, including SEC Final Rule Releases No. 33-10786, Amendments to Financial Disclosures about Acquired and Disposed Businesses, and No. 33-10835, Update of Statistical Disclosures for Bank and Savings and Loan Registrants. The rules reduce the required reporting periods to align them with the relevant financial statement periods required by SEC rules and requires certain statistical disclosures for annual periods, and interim disclosures if a material change in the information, or trend, has occurred. The amendments in this update are effective upon addition to the FASB Codification and apply to fiscal years ending on or after December 15, 2021. However, voluntary early compliance is permitted upon the effective date, provided that the rules are applied in their entirety. The amended disclosures did not have a material impact on the consolidated financial statements.

(d) Subsequent Events

The Company has evaluated subsequent events and transactions from March 31, 2022, through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP and determined there were no material subsequent events requiring recognition or disclosure.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

(2)Investment Securities

Debt Securities

All of the Company's debt securities were classified as available-for-sale and carried at fair value as of the dates specified in the tables below. The amortized cost and fair values of debt securities at the dates specified are summarized as follows:


	March 31, 2022
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

U.S. treasury securities	$	65,840	$	—	$	2,983	$	62,857
Residential federal agency MBS(1)	442,233		137		30,877		411,493
Commercial federal agency MBS(1)	67,943		478		603		67,818
Taxable municipal securities	279,183		765		20,062		259,886
Tax-exempt municipal securities	86,718		1,395		143		87,970
Corporate bonds	7,264		122		8		7,378
Subordinated corporate bonds	10,000		—		350		9,650

Total debt securities, at fair value	$	959,181	$	2,897	$	55,026	$	907,052


	December 31, 2021
(Dollars in thousands)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value

U.S. treasury securities	$	62,850	$	—	$	684	$	62,166
Residential federal agency MBS(1)	412,902		2,406		9,113		406,195
Commercial federal agency MBS(1)	99,681		3,783		52		103,412
Taxable municipal securities	272,507		5,607		2,264		275,850
Tax-exempt municipal securities	87,024		5,648		—		92,672
Corporate bonds	8,559		441		—		9,000
Subordinated corporate bonds	7,000		135		—		7,135

Total debt securities, at fair value	$	950,523	$	18,020	$	12,113	$	956,430

__________________________________________

(1)These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as investments guaranteed by Ginnie Mae ("GNMA"), a wholly owned government entity.

As of the dates reflected in the tables above, the majority of investments in the residential and commercial federal agency mortgage back securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. government agencies. The remaining MBS investments totaled $23.0 million and $22.9 million at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022, management performed its quarterly analysis of all securities with unrealized losses and determined that all were attributable to significant increases in market interest rates. Management concluded that no ACL for available-for-sale securities was considered necessary as of March 31, 2022.

Accrued interest receivable on available-for-sale debt securities, included in the "Accrued Interest Receivable” line item on the Company’s Consolidated Balance Sheets, amounted to $4.1 million and $3.2 million at March 31, 2022 and December 31, 2021, respectively.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize the duration of unrealized losses for debt securities at March 31, 2022 and December 31, 2021:


	March 31, 2022
	Less than 12 months				12 months or longer					Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value			Unrealized Losses		Fair Value		Unrealized Losses		# of Holdings

U.S. treasury securities	$	62,857	$	2,983	$	—		$	—	$	62,857	$	2,983	10
Residential federal agency MBS	308,437		21,907		75,993			8,970		384,430		30,877		78
Commercial federal agency MBS	17,560		603		—			—		17,560		603		5
Taxable municipal securities	214,772		19,245		6,152			817		220,924		20,062		219
Tax-exempt municipal securities	7,975		143		—			—		7,975		143		12
Corporate bonds	745		8		—			—		745		8		3
Subordinated corporate bonds	9,650		350		—		350000	—		9,650		350		5
Total	$	621,996	$	45,239	$	82,145		$	9,787	$	704,141	$	55,026	332


	December 31, 2021
	Less than 12 months				12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of Holdings

U.S. treasury securities	$	62,166	$	684	$	—	$	—	$	62,166	$	684	9
Residential federal agency MBS	272,863		6,992		51,281		2,121		324,144		9,113		44
Commercial federal agency MBS	4,897		52		—		—		4,897		52		1
Taxable municipal securities	117,388		2,023		6,727		241		124,115		2,264		118



Total	$	457,314	$	9,751	$	58,008	$	2,362	$	515,322	$	12,113	172

The contractual maturity distribution at March 31, 2022 of debt securities was as follows:


(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	13,518	$	13,580
Due after one, but within five years	164,893		163,441
Due after five, but within ten years	276,771		261,097
Due after ten years	503,999		468,934
Total debt securities	$	959,181	$	907,052

Scheduled contractual maturities shown above may not reflect the actual maturities of the investments. The actual MBS/CMO cash flows likely will be faster than presented above due to prepayments and amortization. Similarly, included in the table above are callable securities, comprised of municipal securities and corporate bonds, with a fair value of $169.3 million, which can be redeemed by the issuers prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.

From time to time, the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the Federal Reserve Bank of Boston ("FRB"). The fair value of debt securities pledged as collateral for these purposes was $895.9 million and $949.3 million at March 31, 2022 and December 31, 2021, respectively.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Sales of debt securities for the three months ended March 31, 2022 and March 31, 2021 are summarized as follows:


	Three months ended March 31,
(Dollars in thousands)		2022		2021
Amortized cost of debt securities sold (1)		$	31,653	$	2,931
Gross realized gains on sales		1,062		128
Gross realized losses on sales		—		—
Total proceeds from sales of debt securities		$	32,715	$	3,059

_________________________________________

(1)Amortized cost of investments sold is determined on a specific identification basis and includes pending trades based on trade date, if applicable.

Equity Securities

The Company held equity securities with a fair value of $3.0 million at March 31, 2022 and $1.8 million at December 31, 2021. At March 31, 2022, the equity portfolio consisted primarily of investments in index funds and common stock of individual entities in the financial services industry held to support operations and mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Gains and losses on equity securities for the three months ended March 31, 2022 and March 31, 2021 are summarized as follows:


	Three months ended March 31,
(Dollars in thousands)		2022		2021
Net (losses) gains recognized during the period on equity securities		$	(66)	$	84
Less: Net gains (losses) recognized on equity securities sold during the period		—		—
Unrealized (losses) gains recognized during the reporting period on equity securities still held at the end of the period (included in other income)		$	(66)	$	84


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

(3)Loans

Loan Portfolio Classifications

Major classifications of loans at the dates indicated were as follows:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Commercial real estate	$	1,779,691	$	1,680,792
Commercial and industrial	408,341		412,070
Commercial construction	375,709		410,443
SBA Paycheck Protection Program ("PPP")	32,153		71,502
Total commercial loans	2,595,894		2,574,807

Residential mortgages	280,507		256,940
Home equity loans and lines	78,557		80,467
Consumer	7,763		8,470
Total retail loans	366,827		345,877




Total loans	2,962,721		2,920,684

ACL for loans	(48,424)		(47,704)
Net loans	$	2,914,297	$	2,872,980

Net deferred loan origination fees amounted to $6.2 million at March 31, 2022 and $7.5 million at December 31, 2021.

Accrued interest receivable on loans amounted to $10.2 million at both March 31, 2022 and December 31, 2021, respectively, and was included in the "Accrued interest receivable” line item on the Company’s Consolidated Balance Sheets.

Commercial loans originated by other banks in which the Company is a participating institution are carried at the pro-rata share of ownership and amounted to $44.0 million at March 31, 2022 and $62.6 million at December 31, 2021. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.

Paycheck Protection Program

The PPP was created by the CARES Act and instituted by the Small Business Administration ("SBA"), with SBA funding of PPP loans beginning in April 2020, until the PPP funding expired on May 31, 2021. Over the funding period, the Company originated $717.2 million in short-term PPP loans. As of March 31, 2022, the Company had received $26.2 million in PPP-related SBA processing fees over the funding period. These deferred fees are accreting into interest income over the life of the applicable loans; as the majority of PPP loans have been forgiven, their remaining unearned fee have been recognized into income at that time. For the three months ended March 31, 2022, and 2021, the Company recognized $1.4 million and $4.9 million, respectively, in PPP related fee income. The majority of the remaining $1.0 million in fees are expected to be recognized as the PPP loans are forgiven, which we expect to occur over the next several quarters.

Management believes the Company's PPP loan portfolio, which had an average loan size of approximately $147 thousand as of March 31, 2022, to be of minimal credit risk. Originations were limited to existing bank customers, and management expects the majority of outstanding PPP loans will be forgiven by the SBA or repaid, with any remaining balance fully guaranteed by the SBA. Management has segmented the PPP loan portfolio as a group of loans with similar risk characteristics in its assessment for credit losses and, as of March 31, 2022, has not recorded an ACL on these loans, but will continue to monitor the PPP loan portfolio.

Loans serviced for others

At March 31, 2022 and December 31, 2021, the Company was servicing residential mortgage loans owned by investors amounting to $10.0 million and $10.4 million, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $60.2 million and $66.7 million at March 31, 2022 and December 31, 2021, respectively.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Loans serving as collateral

Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity as of the dates indicated are summarized below:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Commercial real estate	$	135,528	$	143,056
Residential mortgages	220,913		235,744
Home equity	4,741		5,055
Total loans pledged to FHLB	$	361,182	$	383,855

(4)ACL for Loans

On January 1, 2021, the Company adopted CECL under the modified retrospective approach. Upon adoption, the Company recorded a reduction to retained earnings of $6.5 million, net of $2.5 million in deferred income taxes. The ACL for loans increased by $6.6 million and the reserve for unfunded commitments (included in other liabilities) increased by $2.4 million.

There have been no material changes to the Company's ACL methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure since December 31, 2021. See Note 4, "ACL for Loans," to the Company's audited consolidated financial statements contained in the 2021 Annual Report on Form 10-K.

Risk ratings and adversely classified loans

The Company's loan risk rating system classifies loans depending on risk of loss characteristics. The classifications range from

"substantially risk free" for the highest quality loans and loans that are secured by cash collateral, through a satisfactory range

of "minimal," "moderate," "better than average," and "average" risk, all of which are considered "pass" rated credits. Adversely

classified ratings for loans determined to be of weaker credit range from "special mention," for loans that may need additional

monitoring, to the more severe adverse classifications of "substandard," "doubtful," and "loss" based on criteria established

under banking regulations. Loans which are evaluated to be of weaker credit quality are placed on the "watch credit list" and

reviewed on a more frequent basis, with risk ratings adjusted as warranted by management.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

The following tables presents the amortized cost basis of the Company's loan portfolio risk ratings within portfolio classifications, by origination date, or revolving status as of the dates indicated:


	Balance at March 31, 2022
	Term Loans by Origination Year
(Dollars in thousands)	2022		2021		2020		2019		2018		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate
Pass	$	142,457	$	404,466	$	198,947	$	239,092	$	118,389	$	634,119	$	2,234	$	—	$	1,739,704
Special mention	—		—		—		780		795		7,902		—		—		9,477
Substandard	—		—		—		2,120		2,737		25,493		—		—		30,350
Doubtful	—		—		—		—		160		—		—		—		160

Total commercial real estate	142,457		404,466		198,947		241,992		122,081		667,514		2,234		—		1,779,691

Commercial and industrial
Pass	10,703		59,959		38,375		33,828		15,942		54,510		183,235		276		396,828
Special mention	—		—		—		2,158		889		1,123		3,274		—		7,444
Substandard	—		—		—		14		126		921		3,003		5		4,069


Total commercial and industrial	10,703		59,959		38,375		36,000		16,957		56,554		189,512		281		408,341

Commercial construction
Pass	33,530		167,624		79,790		43,519		23,594		4,081		22,407		137		374,682

Substandard	—		—		—		—		—		1,027		—		—		1,027


Total commercial construction	33,530		167,624		79,790		43,519		23,594		5,108		22,407		137		375,709

SBA PPP(1)	—		27,567		4,586		—		—		—		—		—		32,153


Residential mortgages
Pass	38,936		75,769		54,152		23,289		21,018		65,066		—		—		278,230
Special mention	—		—		—		—		—		584		—		—		584
Substandard	—		—		—		—		—		1,693		—		—		1,693

Total residential mortgages	38,936		75,769		54,152		23,289		21,018		67,343		—		—		280,507

Home equity
Pass	213		899		475		493		—		2,055		73,304		881		78,320

Substandard	—		—		—		—		—		237		—		—		237

Total home equity	213		899		475		493		—		2,292		73,304		881		78,557

Consumer
Pass	725		2,294		1,371		1,484		889		825		—		175		7,763



Total consumer	725		2,294		1,371		1,484		889		825		—		175		7,763
Total loans	$	226,564	$	738,578	$	377,696	$	346,777	$	184,539	$	799,636	$	287,457	$	1,474	$	2,962,721


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements


	Balance at December 31, 2021
	Term Loans by Origination Year
(Dollars in thousands)	2021		2020		2019		2018		2017		Prior		Revolving Loans		Revolving Loans Converted to Term		Total
Commercial real estate
Pass	$	402,838	$	220,942	$	239,248	$	120,286	$	173,652	$	479,298	$	3,019	$	—	$	1,639,283
Special mention	—		—		989		802		—		7,626		—		—		9,417
Substandard	—		—		2,628		3,111		12,842		13,336		—		—		31,917
Doubtful	—		—		—		175		—		—		—		—		175

Total commercial real estate	402,838		220,942		242,865		124,374		186,494		500,260		3,019		—		1,680,792

Commercial and industrial
Pass	64,555		40,333		36,177		19,754		14,983		44,835		174,320		1,243		396,200
Special mention	—		644		2,173		958		59		1,431		4,053		18		9,336
Substandard	—		—		15		100		25		3,845		2,440		109		6,534


Total commercial and industrial	64,555		40,977		38,365		20,812		15,067		50,111		180,813		1,370		412,070

Commercial construction
Pass	175,069		106,165		54,907		24,343		4,561		19,489		24,864		—		409,398

Substandard	—		—		—		—		—		—		—		1,045		1,045


Total commercial construction	175,069		106,165		54,907		24,343		4,561		19,489		24,864		1,045		410,443

SBA PPP(1)	66,232		5,270		—		—		—		—		—		—		71,502


Residential mortgages
Pass	79,130		56,948		27,343		22,743		12,886		55,571		—		—		254,621
Special mention	—		—		—		—		—		590		—		—		590
Substandard	—		—		—		—		—		1,729		—		—		1,729

Total residential mortgages	79,130		56,948		27,343		22,743		12,886		57,890		—		—		256,940

Home equity
Pass	486		478		498		—		—		1,727		76,619		414		80,222

Substandard	—		—		—		—		—		245		—		—		245

Total home equity	486		478		498		—		—		1,972		76,619		414		80,467

Consumer
Pass	2,843		1,498		1,619		1,005		617		390		—		473		8,445


Doubtful	25		—		—		—		—		—		—		—		25
Total consumer	2,868		1,498		1,619		1,005		617		390		—		473		8,470
Total loans	$	791,178	$	432,278	$	365,597	$	193,277	$	219,625	$	630,112	$	285,315	$	3,302	$	2,920,684

__________________________________________

(1)All PPP loans were pass-rated at March 31, 2022 and December 31, 2021, as these loans are 100% guaranteed by the SBA.

The total amortized cost basis of adversely classified loans amounted to $55.0 million, or 1.86% of total loans, at March 31, 2022, and $61.0 million, or 2.09% of total loans, at December 31, 2021.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Past due and non-accrual loans

The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated:


	Balance at March 31, 2022
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or More		Total Past Due Loans(1)		Current Loans(1)		Total Loans
Commercial real estate	$	2,012	$	—	$	619	$	2,631	$	1,777,060	$	1,779,691
Commercial and industrial	120		5		53		178		408,163		408,341
Commercial construction	4,746		—		—		4,746		370,963		375,709
SBA PPP	436		—		—		436		31,717		32,153
Residential mortgages	2,503		—		—		2,503		278,004		280,507
Home equity	111		—		—		111		78,446		78,557
Consumer	7		—		—		7		7,756		7,763
Total loans	$	9,935	$	5	$	672	$	10,612	$	2,952,109	$	2,962,721


	Balance at December 31, 2021
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or More		Total Past Due Loans(1)		Current Loans(1)		Total Loans
Commercial real estate	$	1,917	$	—	$	1,719	$	3,636	$	1,677,156	$	1,680,792
Commercial and industrial	564		678		194		1,436		410,634		412,070
Commercial construction	—		—		—		—		410,443		410,443
SBA PPP	162		19		—		181		71,321		71,502
Residential mortgages	182		—		432		614		256,326		256,940
Home equity	45		—		—		45		80,422		80,467
Consumer	7		27		—		34		8,436		8,470
Total loans	$	2,877	$	724	$	2,345	$	5,946	$	2,914,738	$	2,920,684

_______________________________________

(1)The loan balances in the table above include loans designated as non-accrual despite their payment due status.

The following tables present the amortized cost of non-accrual loans by portfolio classification as of the dates indicated:


	Balance at March 31, 2022
(Dollars in thousands)	Total Non-accrual Loans		Non-accrual Loans without a Specific Reserve		Non-accrual Loans with a Specific Reserve		Related Specific Reserve
Commercial real estate	$	21,854	$	20,528	$	1,326	$	372
Commercial and industrial	1,293		1,124		169		148
Commercial construction	1,028		1,028		—		—
SBA PPP	—		—		—		—
Residential mortgages	763		763		—		—
Home equity	237		237		—		—
Consumer	—		—		—		—
Total loans	$	25,175	$	23,680	$	1,495	$	520


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements


	Balance at December 31, 2021
(Dollars in thousands)	Total Non-accrual Loans		Non-accrual Loans without a Specific Reserve		Non-accrual Loans with a Specific Reserve		Related Specific Reserve
Commercial real estate	$	22,870	$	7,144	$	15,726	$	896
Commercial and industrial	1,542		1,337		205		185
Commercial construction	1,045		1,045		—		—
SBA PPP	—		—		—		—
Residential mortgages	794		633		161		161
Home equity	246		246		—		—
Consumer	25		—		25		25
Total loans	$	26,522	$	10,405	$	16,117	$	1,267

At March 31, 2022 and December 31, 2021, all loans past due 90 days or more were carried as non-accrual, in addition to those loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal that have also been designated as non-accrual, despite their payment due status.

Non-accrual loans that were not adversely classified amounted to $3 thousand at both March 31, 2022 and December 31, 2021. These balances primarily represented the guaranteed portions of non-performing SBA loans.

The ratio of non-accrual loans to total loans amounted to 0.85% and 0.91% at March 31, 2022 and December 31, 2021, respectively.

At March 31, 2022 and December 31, 2021, additional funding commitments for non-accrual loans were not material.

Collateral-dependent loans

Loans that have been individually evaluated and repayment is expected substantially from the operations or ultimate sale of the underlying collateral are deemed to be collateral-dependent loans. Collateral-dependent loans are adversely classified loans that may also be troubled debt restructurings ("TDRs"). These loans may be accruing or on non-accrual status. Collateral-dependent loans are carried at the lower of the recorded investment in the loan or the estimated fair value. When the estimated fair value of the underlying collateral, less estimated costs to sell, is not sufficient to cover the outstanding carrying balance on the loan, a specific reserve is assigned for the amount of the estimated credit loss. These estimated credit losses are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.

The carrying value of collateral dependent loans amounted to $30.8 million at March 31, 2022 compared to $34.6 million at December 31, 2021. Total accruing collateral dependent loans amounted to $5.8 million while non-accrual collateral dependent loans amounted to $25.0 million as of March 31, 2022. Total accruing collateral dependent loans amounted to $8.4 million while non-accrual collateral dependent loans amounted to $26.2 million as of December 31, 2021.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

The following tables present the recorded investment in collateral dependent individually evaluated loans and the related specific allowance by portfolio allocation as of the dates indicated:


	Balance at March 31, 2022
(Dollars in thousands)	Unpaid Contractual Principal Balance		Total Recorded Investment in Collateral Dependent Loans		Recorded Investment without a Specific Reserve		Recorded Investment with a Specific Reserve		Related Specific Reserve
Commercial real estate	$	29,537	$	26,923	$	25,597	$	1,326	$	372
Commercial and industrial	5,556		1,447		1,353		94		27
Commercial construction	1,181		1,028		1,028		—		—
SBA PPP	—		—		—		—		—
Residential mortgages	1,303		1,158		1,158		—		—
Home equity	407		237		237		—		—
Consumer	—		—		—		—		—
Total	$	37,984	$	30,793	$	29,373	$	1,420	$	399


	Balance at December 31, 2021
(Dollars in thousands)	Unpaid Contractual Principal Balance		Total Recorded Investment in Collateral Dependent Loans		Recorded Investment without a Specific Reserve		Recorded Investment with a Specific Reserve		Related Specific Reserve
Commercial real estate	$	29,562	$	27,617	$	11,891	$	15,726	$	896
Commercial and industrial	8,880		4,699		4,191		508		128
Commercial construction	1,181		1,045		1,045		—		—
SBA PPP	—		—		—		—		—
Residential mortgages	1,165		1,033		1,033		—		—
Home equity	347		246		246		—		—
Consumer	—		—		—		—		—
Total	$	41,135	$	34,640	$	18,406	$	16,234	$	1,024

At March 31, 2022 and December 31, 2021, additional funding commitments for collateral dependent loans were not material.

Troubled debt restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of

financial difficulties of the borrower, the Company grants the borrower a concession on the terms that would not otherwise be

considered. Typically, such concessions may consist of one or a combination of the following: a reduction in interest-rate to a

below market rate, taking into account the credit quality of the note; extension of additional credit based on receipt of adequate

collateral; or a deferment or reduction of payments (principal or interest) which materially alters the Bank's position or

significantly extends the note's maturity date, such that the present value of cash flows to be received is materially less than

those contractually established at the loan's origination. All loans that are modified are reviewed by the Company to identify if a

TDR has occurred. TDR loans are individually reviewed and evaluated, and a specific reserve is assigned for the amount of the

estimated credit loss.

Total TDR loans as of March 31, 2022 amounted to $13.3 million compared to $16.4 million as of December 31, 2021. At March 31, 2022 and December 31, 2021, TDR loans on accrual status amounted to $5.9 million and $8.6 million and TDR loans included in non-accrual loans amounted to $7.4 million and $7.8 million, respectively.

The Company continues to work with customers and enter into loan modifications (which may or may not be TDRs) to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and future prospects of the borrower.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

At March 31, 2022 and March 31, 2021, additional funding commitments for TDR loans were not material.

The following table presents the number and balance of loans modified as TDRs, by portfolio classification, during the three months indicated:



	Three months ended
	March 31, 2022					March 31, 2021
(Dollars in thousands)	Number of Restructurings	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment		Number of Restructurings	Pre-modification Outstanding Recorded Investment		Post-modification Outstanding Recorded Investment
Commercial real estate	2	$	1,718	$	1,699	2	$	991	$	914
Commercial and industrial	—	—		—		—	—		—
Commercial construction	—	—		—		—	—		—
SBA PPP	—	—		—		—	—		—
Residential mortgages	—	—		—		1	224		224
Home equity loans and lines	—	—		—		—	—		—
Consumer	—	—		—		—	—		—
Total	2	$	1,718	$	1,699	3	$	1,215	$	1,138

There were no subsequent charge-offs associated with the new TDRs noted in the table above during the three months ended March 31, 2022 and March 31, 2021.

Payment defaults by portfolio classification, during the three months indicated, on loans modified as TDRs within the preceding twelve months are detailed below:



	Three months ended
	March 31, 2022			March 31, 2021
(Dollars in thousands)	Number of TDRs that Defaulted	Post- modification Outstanding Recorded Investment		Number of TDRs that Defaulted	Post- modification Outstanding Recorded Investment
Commercial real estate	—	$	—	—	$	—
Commercial and industrial	1	48		—	—
Commercial construction	—	—		—	—
SBA PPP	—	—		—	—
Residential mortgages	—	—		—	—
Home equity loans and lines	—	—		—	—
Consumer	—	—		—	—
Total	1	$	48	—	$	—

The following table sets forth the post modification balances of TDRs listed by type of modification for TDRs that occurred during the three-month periods indicated:


	Three months ended
	March 31, 2022			March 31, 2021
(Dollars in thousands)	Number of Restructurings	Amount		Number of Restructurings	Amount

Extended maturity date	—	$	—	1	$	234
Temporary payment reduction and payment re-amortization of remaining principal over extended term	1	1,404		2	904
Temporary interest only payment plan	1	295		—	—


Total	2	$	1,699	3	$	1,138
Amount of ACL for loans associated with TDRs listed above		$	—		$	—


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

ACL and provision for credit loss activity

For the three months ended March 31, 2022 and March 31, 2021, the total provision for credit losses amounted to $530 thousand and $680 thousand, respectively, and included provisions for credit losses on loans and unfunded commitments.

Management believes that the Company's ACL for loans and reserve for unfunded commitments were adequate as of March 31, 2022.

ACL for loans

The ACL for loans amounted to $48.4 million and $47.7 million at March 31, 2022 and December 31, 2021, respectively. The ACL for loans to total loans ratio was 1.63% at both March 31, 2022 and December 31, 2021.

Changes in the ACL for loans by portfolio classification for the three months ended March 31, 2022 and March 31, 2021, respectively, are presented below:


(Dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Residential Mortgage		Home Equity		Consumer		Total
Beginning Balance at December 31, 2021	$	31,847	$	9,574	$	4,090	$	1,405	$	465	$	323	$	47,704

Provision for credit losses for loans	2,089		(543)		(572)		(83)		(15)		(51)		825
Recoveries	—		24		—		—		4		5		33
Less: Charge-offs	—		105		—		—		—		33		138
Ending Balance at March 31, 2022	$	33,936	$	8,950	$	3,518	$	1,322	$	454	$	244	$	48,424


(Dollars in thousands)	Commercial Real Estate		Commercial and Industrial		Commercial Construction		Residential Mortgage		Home Equity		Consumer		Total
Beginning Balance at December 31, 2020	$	26,755	$	9,516	$	6,129	$	1,530	$	467	$	168	$	44,565
CECL adjustment upon adoption	7,664		1,988		(2,416)		(695)		(158)		177		6,560
Provision for credit losses for loans	1,081		(263)		(230)		54		(22)		(10)		610
Recoveries	—		55		—		—		5		1		61
Less: Charge-offs	1,825		70		—		—		—		2		1,897
Ending Balance at March 31, 2021	$	33,675	$	11,226	$	3,483	$	889	$	292	$	334	$	49,899

Reserve for unfunded commitments

The Company’s reserve for unfunded commitments amounted to $3.4 million as of March 31, 2022 and $3.7 million at December 31, 2021. The provision for unfunded commitments amounted to a benefit of $295 thousand for the three months ended March 31, 2022 compared to a provision of $70 thousand for the three months ended March 31, 2021, respectively.

Other real estate owned ("OREO")

The Company had no OREO properties at March 31, 2022 or December 31, 2021. During the three months ended March 31, 2022 and 2021, there were no additions, sales or subsequent write-downs of OREO.

At March 31, 2022 and December 31, 2021, the Company had no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions.

(5)Leases

For the Company, material leases consist of operating leases on our facilities, mainly leased branch locations; leases 12 months or less and immaterial equipment leases have been excluded. As of March 31, 2022, the Company had 17 operating real estate leases. The Company's leased facilities are contracted under various non-cancelable operating leases, most of which provide options to the Company to extend the lease periods and include periodic rent adjustments. While the Company typically exercises its option to extend lease terms, the lease contains provisions that allow the Company, upon notification, to terminate the lease at the end of the lease term, or any option period. Several real estate leases also provide the Company the right of first refusal should the property be offered for sale.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Lease expense for the three months ended March 31, 2022 and March 31, 2021 were $416 thousand and $329 thousand, respectively. Variable lease costs and short-term lease expenses included in lease expense during these periods were immaterial.

The weighted average remaining lease term for operating leases at March 31, 2022 and March 31, 2021 was 30.1 years and 26.4 years, respectively. The weighted average discount rate was 3.45% at March 31, 2022 and 3.80% at March 31, 2021.

At March 31, 2022, the remaining undiscounted cash flows by year of these lease liabilities were as follows:


(Dollars in thousands)	Operating Leases
2022 (nine remaining months)	$	1,049
2023	1,407
2024	1,435
2025	1,440
2026	1,452
Thereafter	32,848
Total lease payments	39,631
Less: Imputed interest	15,330
Total lease liability	$	24,301

In addition, the Company currently collects rent through non-cancellable leases for a small portion of the overall square-footage within its Lowell, Massachusetts campus headquarters and at one of its branch locations. These leases are deemed immaterial.

See also Item (k), "Leases," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements contained in the 2021 Annual Report on Form 10-K, for further information regarding the accounting for the Company's leases.

(6)Deposits

Deposits are summarized as follows as of the periods indicated:


(Dollars in thousands)	March 31, 2022		December 31, 2021
Non-interest checking	$	1,444,047	$	1,364,258
Interest-bearing checking	718,107		743,587
Savings	334,923		310,244
Money market	1,337,670		1,355,701
CDs $250,000 or less	149,309		154,403
CDs greater than $250,000	50,444		52,046


Deposits	$	4,034,500	$	3,980,239

All of the Company' s deposits outstanding at both March 31, 2022 and December 31, 2021 were customer deposits. Customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks due to our customers electing to participate in Company offered programs which allow for enhanced FDIC insurance. Essentially, the equivalent of the customers' original deposited funds comes back to the Company and are carried within the appropriate category under deposits. The Company's balances in these reciprocal products were $540.3 million and $546.7 million at March 31, 2022 and December 31, 2021, respectively.

(7)Borrowed Funds and Subordinated Debt

The Company's borrowed funds amounted to $3.0 million and $5.5 million at March 31, 2022 and December 31, 2021, respectively, in FHLB advances.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Borrowed funds at March 31, 2022 and December 31, 2021 are summarized, as follows:


	March 31, 2022				December 31, 2021
(Dollars in thousands)	Balance		Rate		Balance		Rate

Within 12 months	$	—	—	%	$	2,485	0.29	%
Over 5 years	$	2,974	1.71	%	$	2,994	1.70	%

The Company's borrowings at March 31, 2022 and December 31, 2021 were related to specific lending projects under the FHLB's community development programs.

The Company also had outstanding subordinated debt (net of deferred issuance costs) of $59.0 million at both March 31, 2022 and December 31, 2021.

On March 31, 2021, the Company redeemed $15.0 million in aggregate principal amount of fixed-to-floating rate subordinated notes issued by the Company in January 2015, which were due in January 2030 (the "January 2015 Notes"). The redemption of the January 2015 Notes was recorded as a loss on the extinguishment of subordinated debt in the amount of $713 thousand, consisting of $600 thousand in prepayment penalties and $113 thousand in unamortized issuance costs.

(8) Derivatives and Hedging Activities

The Company may enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and unknown cash amounts, the value of which are determined by interest rates. In addition, the Company provides certain commercial customers back-to-back swaps, which do not meet hedge accounting requirements and therefore changes in the fair value of both the customer swaps and the counterparty swaps, which have an offsetting relationship, are recognized directly in earnings.

The tables below present a summary of the Company's derivative financial instruments, notional amounts and fair values for the periods presented:


	As of March 31, 2022
(Dollars in thousands)	Asset Notional Amount		Asset Derivatives(1)		Liability Notional Amount		Liability Derivatives(1)




Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed	$	11,643	$	465	$	3,657	$	59
Interest-rate contracts - pay fixed, receive floating	—		—		15,300		406
Total back-to-back interest-rate swaps	$	11,643	$	465	$	18,957	$	465


	December 31, 2021
(Dollars in thousands)	Asset Notional Amount		Asset Derivatives(1)		Liability Notional Amount		Liability Derivatives(1)




Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed	$	36,263	$	528	$	—	$	—
Interest-rate contracts - pay fixed, receive floating	—		—		36,263		528
Total back-to-back interest-rate swaps	$	36,263	$	528	$	36,263	$	528

__________________________________________

(1) Accrued interest balances related to the Company’s interest-rate swaps are not included in the fair values above and are immaterial.

The Company had no derivative fair value or cash flow hedges at either March 31, 2022 or December 31, 2021.

Interest-rate swaps with counterparties are subject to master netting agreements, while interest-rate swaps with customers are not. Each Back-to-Back swap consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of 6 interest-rate swaps outstanding at March 31, 2022 and 10 at December 31, 2021. As a result of this offsetting relationship, there were no net gains or losses recognized in income on Back-to-Back swaps during the three months ended March 31, 2022 or March 31, 2021.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

At December 31, 2021, all the Back-to-Back swaps with the counterparty were in the same liability position, therefore there was no netting reflected in the Company’s Consolidated Balance Sheets.

The table below presents the Company's liability derivative positions and the potential effect of those netting arrangements on its financial position at as the date indicated. As noted above, interest-rate swaps with customers are not subject to master netting agreements and therefore are not included in the table below.



	March 31, 2022
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
Liabilities Derivatives
Interest-rate contracts - pay fixed, receive floating	$	465	$	59	$	406

Credit Risk

By using derivative financial instruments, the Company exposes itself to counterparty-credit risk. Credit risk is the risk of

failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is

positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative is

negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative

instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be

creditworthy. Additionally, counterparty interest-rate swaps contain provisions for collateral to be posted if the derivative

exposure exceeds a threshold amount.

The Company had one counterparty and it was rated A and A2 by Standard & Poor's and Moody's, respectively, at March 31, 2022. The Company had unsecured credit risk exposure of $465 thousand at March 31, 2022 and no credit risk exposure at December 31, 2021 relating to interest-rate swaps with counterparties. The Company received notice of cash collateral of $500 thousand posted by the counterparty at March 31, 2022 and posted restricted cash collateral of $840 thousand at December 31, 2021. When the Company has credit risk exposure, collateral is posted by the counterparty. Collateral posted by counterparties is restricted and not considered an asset of the Company, therefore, it is not carried on the Company's Consolidated Balance Sheets. If the Company posts collateral, the restricted cash is carried on the Company's Consolidated Balance Sheets.

Customer-related credit risk on Back-to-Back swaps is minimized by the cross collateralization of the loan and the interest-rate swap agreement to the customer's underlying collateral.

Credit-risk-related Contingent Features

The Company's interest-rate swaps with counterparties contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness.

As of March 31, 2022, the fair value of derivatives related to these agreements was at a net asset position of $465 thousand, which excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and as of March 31, 2022, has not posted collateral related to these agreements.

Other Derivative Related Activity

The Company also participates in loans originated by third party banks, where the originating bank utilizes a back-to-back interest-rate swap structure; however, the Company is not a party to the swap agreements. Under the terms of the loan

participations, the Company has accepted contingent liabilities that would only be realized if the swaps were terminated early

and there were outstanding losses not covered by the underlying borrowers and the borrowers' pledged collateral. If applicable,

the Company's swap-loss exposure would be equal to a percentage of the originating bank's swap loss based on the ratio of the

Company's loan participation to the underlying loan. At both March 31, 2022 and December 31, 2021, the Company had one participation loan where the originating bank utilizes a back-to-back interest-rate swap structure. At March 31, 2022, management considers the risk of material swap-loss exposure related to this participation loan to be unlikely based on the borrower's financial and collateral strength. Management continues to closely monitor for credit changes resulting from the pandemic.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Interest-rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments. The commitments to sell loans are also considered derivative instruments. At March 31, 2022 and December 31, 2021, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

(9) Regulatory Capital Requirements

Capital Raised and Capital Adequacy Requirements

As of March 31, 2022, and December 31, 2021, the Company met the definition of "well-capitalized" under the applicable regulations of the Board of Governors of the Federal Reserve System and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.

The Company's and the Bank's actual capital amounts and ratios are presented as of March 31, 2022, and December 31, 2021 in the tables below:


	Actual				Minimum Capital for Capital Adequacy Purposes(1)				Minimum Capital to be Well Capitalized(2)
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of March 31, 2022
The Company
Total Capital to risk-weighted assets ("RWA")	$	444,858	13.72	%	$	259,367	8.00	%	N/A		N/A
Tier 1 Capital to RWA	345,183		10.65	%	194,526		6.00	%	N/A		N/A
Tier 1 Capital to average assets ("AA") or Leverage Ratio	345,183		7.83	%	176,248		4.00	%	N/A		N/A
Common Equity Tier 1 Capital to RWA	345,183		10.65	%	145,894		4.50	%	N/A		N/A

The Bank
Total Capital to RWA	$	445,265	13.73	%	$	259,367	8.00	%	$	324,209	10.00	%
Tier 1 Capital to RWA	404,599		12.48	%	194,526		6.00	%	259,367		8.00	%
Tier 1 Capital to AA, Leverage Ratio	404,599		9.18	%	176,248		4.00	%	220,310		5.00	%
Common Equity Tier 1 Capital to RWA	404,599		12.48	%	145,894		4.50	%	210,736		6.50	%


	Actual				Minimum Capital for Capital Adequacy Purposes(1)				Minimum Capital to be Well Capitalized(2)
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of December 31, 2021
The Company
Total Capital to RWA	$	435,328	13.73	%	$	253,610	8.00	%	N/A		N/A
Tier 1 Capital to RWA	336,577		10.62	%	190,208		6.00	%	N/A		N/A
Tier 1 Capital to AA, Leverage Ratio	336,577		7.56	%	177,978		4.00	%	N/A		N/A
Common Equity Tier 1 Capital to RWA	336,577		10.62	%	142,656		4.50	%	N/A		N/A

The Bank
Total Capital to RWA	$	434,430	13.70	%	$	253,610	8.00	%	$	317,013	10.00	%
Tier 1 Capital to RWA	394,658		12.45	%	190,208		6.00	%	253,610		8.00	%
Tier 1 Capital to AA, Leverage Ratio	394,658		8.87	%	177,978		4.00	%	222,473		5.00	%
Common Equity Tier 1 Capital to RWA	394,658		12.45	%	142,656		4.50	%	206,058		6.50	%

__________________________________________

(1)Before application of the capital conservation buffer of 2.50% as of March 31, 2022, and December 31, 2021. See discussion below.

(2)For the Bank to qualify as "well-capitalized," it must maintain at least the minimum ratios listed under the regulatory prompt corrective action framework. This framework does not apply to the Company.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

The Company is subject to the Basel III capital ratio requirements which include a "capital conservation buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. If a banking organization dips into its capital conservation buffer it may be restricted in its activities, including its ability to pay dividends and discretionary bonus payments to its executive officers. Both the Company's and the Bank's actual ratios, as outlined in the table above, exceeded the Basel III risk-based capital requirement with the capital conservation buffer as of March 31, 2022.

Failure to meet minimum capital requirements can initiate or result in certain mandatory and possibly additional discretionary

supervisory actions by regulators that, if undertaken, could have a material adverse effect on the Company's consolidated

financial statements. Under applicable capital adequacy requirements and the regulatory framework for prompt corrective

action applicable to the Bank, the Company must meet specific capital guidelines that involve quantitative measures of the

Company's assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. The

Company's capital amounts and classifications are also subject to qualitative judgments by the regulators about components,

risk weightings, and other factors.

(10)Comprehensive Income (Loss)

The following table presents a reconciliation of the changes in the components of other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):


	Three months ended March 31, 2022						Three months ended March 31, 2021
(Dollars in thousands)	Pre-Tax		Tax Benefit		After Tax Amount		Pre-Tax		Tax Benefit		After Tax Amount
Change in fair value of debt securities	$	(56,974)	$	12,840	$	(44,134)	$	(11,080)	$	2,458	$	(8,622)
Less: net security gains reclassified into non-interest income	1,062		(234)		828		128		(29)		99
Net change in fair value of debt securities	(58,036)		13,074		(44,962)		(11,208)		2,487		(8,721)

Change in fair value of cash flow hedges	—		—		—		1,047		(294)		753
Less: net cash flow hedges losses reclassified into income	—		—		—		236		(66)		170
Net change in fair value of cash flow hedges	—		—		—		811		(228)		583

Total other comprehensive loss, net	$	(58,036)	$	13,074	$	(44,962)	$	(10,397)	$	2,259	$	(8,138)

Information on the Company's accumulated other comprehensive income (loss), net of tax, is comprised of the following components as of the periods indicated:


	Three months ended March 31, 2022						Three months ended March 31, 2021
(Dollars in thousands)	Unrealized Gains (Losses) on Debt Securities		Unrealized Gains (Losses) on Cash Flow Hedges		Total		Unrealized Gains (Losses) on Debt Securities		Unrealized Gains (Losses) on Cash Flow Hedges		Total
Accumulated other comprehensive (loss) income - beginning balance	$	4,662	$	—	$	4,662	$	24,216	$	(2,023)	$	22,193
Total other comprehensive loss, net	(44,962)		—		(44,962)		(8,721)		583		(8,138)
Accumulated other comprehensive (loss) income - ending balance	$	(40,300)	$	—	$	(40,300)	$	15,495	$	(1,440)	$	14,055

(11)Supplemental Retirement Plans and Other Post-Retirement Benefit Obligations

Supplemental Employee Retirement Plan ("SERP")

The Company has SERP agreements with two of its current executive officers and one former executive officer.

The SERP is a non-qualified plan and represents a direct liability of the Company, and as such, the Company has no specific assets set aside to settle the benefit obligation. The aggregate amount accrued, or the "accumulated benefit obligation," is equal


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

to the present value of the benefits to be provided to the employee or any beneficiary. Benefits paid under the SERP amounted to $69 thousand for both the three months ended March 31, 2022 and March 31, 2021.

Total expenses for the SERP were $13 thousand for the three months ended March 31, 2022, compared to $15 thousand for the three months ended March 31, 2021. The Company anticipates accruing an additional $40 thousand related to the SERP during the remainder of 2022.

Supplemental Life Insurance

The Company has provided supplemental life insurance through split-dollar life insurance arrangements for certain executive and senior officers on whom the Bank owns bank-owned life insurance.

These arrangements provide a death benefit to the officer's designated beneficiaries that extend to post-retirement periods for some of the supplemental life insurance plans. The Company has recognized a liability for these future post-retirement benefits.

These non-qualified plans represent a direct liability of the Company and, as such, the Company has no specific assets set aside to settle the benefit obligation. The funded status is the aggregate amount accrued, or the "accumulated post-retirement benefit obligation," which is the present value of the post-retirement benefits associated with this arrangement.

Total net periodic post-retirement benefit cost for supplemental life insurance plans, which consisted mainly of interest costs, was $29 thousand for the three months ended March 31, 2022, compared to $16 thousand for the three months ended March 31, 2021.

(12)Stock-Based Compensation

The Company currently has one active stock incentive plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended (the "2016 plan"). At the Company's 2021 Annual Shareholders' Meeting held on May 4, 2021, the Company's shareholders voted to approve an amendment to the 2016 Plan increasing the number of shares of common stock available for awards made under the 2016 Plan by 400,000 shares of common stock. As of March 31, 2022, 436,994 shares of Company common stock remained available for future grants under the 2016 plan.

Awards previously granted under an earlier, now expired, plan remain outstanding and may be exercised through 2028.

The Company's stock-based compensation expense related to these plans includes stock options and stock awards to officers

and other employees included in salary and benefits expense, and stock awards and stock compensation in lieu of cash fees to

non-employee directors, both included in other operating expenses. Non-employee director fees are accrued and carried in

"Accrued expenses and other liabilities" during the year and distributed to those directors in January of the following year. Total stock-based compensation expense was $478 thousand for the three months ended March 31, 2022, compared to $451 thousand for the three months ended March 31, 2021.

A tax benefit associated with employee exercises and vesting of stock compensation of $121 thousand was recorded as an adjustment to the Company's income tax expense for the three months ended March 31, 2022, compared with $16 thousand for the three months ended March 31, 2021.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Stock Option Awards

The table below provides a summary of the options granted, including the weighted average fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the periods indicated:


	Three months ended March 31,
	2022			2021
Options granted	16,797			17,385
Term in years	10			10
Weighted average assumptions used in the fair value model:
Expected volatility	44		%	44		%
Expected dividend yield	3.05		%	3.00		%
Expected life in years	6.5			6.5
Risk-free interest-rate	2.19		%	1.28		%
Weighted average market price on date of grants	$	38.58		$	32.73
Per share weighted average fair value	$	14.40		$	11.95
Fair value as a percentage of market value at grant date	37		%	37		%

Options granted during the first three months of 2022 and 2021 generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards.

The Company utilizes the Black-Scholes option valuation model to determine the per share grant date fair value of stock option grants.

The Company recognized stock-based compensation expense related to stock option awards of $48 thousand for the three months ended March 31, 2022, compared to $45 thousand for the three months ended March 31, 2021.

Restricted Stock Awards

Restricted stock awards are granted at the market price of the Company's common stock on the date of the grant. Employee restricted stock awards generally vest over four years in equal portions beginning on or about the first anniversary date of the restricted stock award or are performance-based restricted stock awards that vest upon the Company achieving certain predefined performance objectives. Non-employee director restricted stock awards generally vest over two years in equal portions beginning on or about the first anniversary date of the restricted stock award.

The table below provides a summary of restricted stock awards granted during the periods indicated:


	Three months ended March 31,
Restricted Stock Awards (number of underlying shares)	2022		2021
Two-year vesting	8,823		8,109
Four-year vesting	21,554		23,920
Performance-based vesting	22,254		21,559
Total restricted stock awards granted	52,631		53,588
Weighted average grant date fair value	$	38.58	$	32.73

Stock-based compensation expense recognized in association with stock awards, mainly restricted stock awards, amounted to $360 thousand for the three months ended March 31, 2022, compared to $340 thousand for the three months ended March 31, 2021.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Stock in Lieu of Directors' Fees

In addition to restricted stock awards discussed above, the non-employee members of the Company's Board may opt to receive newly issued shares of the Company's common stock in lieu of cash compensation for attendance at meetings of the Board and committees of the Board. Stock-based compensation expense related to these directors' fees amounted to $70 thousand for the three months ended March 31, 2022, compared to $66 thousand for the three months ended March 31, 2021, and is included in other operating expenses and in "Accrued expenses and other liabilities." In January 2022, non-employee directors were issued 7,375 shares of the Company's common stock in lieu of 2021 annual cash fees of $252 thousand at a price of $34.14 per share, based on the Company's average quarterly close prices during 2021.

(13)Earnings per Share

Basic earnings per share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding (including participating securities) during the year. The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.

The table below presents the increase in average shares outstanding, using the treasury stock method, for the diluted earnings per share calculation for the periods indicated:


	Three months ended March 31,
		2022	2021
Basic weighted average common shares outstanding		12,055,991	11,959,469
Dilutive shares		63,845	34,968
Diluted weighted average common shares outstanding		12,119,836	11,994,437

There were 34,210 and 92,712 stock options outstanding for the three months ended March 31, 2022 and March 31, 2021, respectively, that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for the respective periods. These stock options, which were not dilutive, may potentially dilute earnings per share in the future.

Unvested participating restricted awards amounted to 125,973 shares and 113,871 shares as of March 31, 2022, and December 31, 2021, respectively.

(14)Fair Value Measurements

The FASB defines the fair value of an asset or liability to be the price which a seller would receive in an orderly transaction between market participants (an exit price) and also establishes a fair value hierarchy segregating fair value measurements using three levels of inputs: (Level 1) quoted market prices in active markets for identical assets or liabilities; (Level 2) significant other observable inputs, including quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs such as interest rates and yield curves, volatilities, prepayment speeds, credit risks and default rates which provide a reasonable basis for fair value determination or inputs derived principally from observed market data; and (Level 3) significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability. Unobservable inputs must reflect reasonable assumptions that market participants would use in pricing the asset or liability, which are developed based on the best information available under the circumstances.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

The following tables summarize significant assets and liabilities carried at fair value and placement in the fair value hierarchy at the dates specified:


	March 31, 2022
			Fair Value Measurements Using:
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	907,052	$	—	$	907,052	$	—
Equity securities	2,961		2,961		—		—
FHLB stock	2,048		—		2,048		—
Interest-rate swaps	465		—		465		—
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)	1,021		—		—		1,021


Liabilities measured on a recurring basis:
Interest-rate swaps	$	465	$	—	$	465	$	—


	December 31, 2021
			Fair Value Measurements Using:
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	956,430	$	—	$	956,430	$	—
Equity securities	1,785		1,785		—		—
FHLB stock	2,164		—		2,164		—
Interest-rate swaps	528		—		528		—
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)	15,210		—		—		15,210


Liabilities measured on a recurring basis:
Interest-rate swaps	$	528	$	—	$	528	$	—

The Company utilizes third-party pricing vendors to provide valuations on its debt securities. Fair values provided by the vendors were generally determined based upon pricing matrices utilizing observable market data inputs for similar or benchmark securities in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association's standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Therefore, management regards the inputs and methods used by third-party pricing vendors to be "Level 2 inputs and methods" as defined in the "fair value hierarchy." The Company periodically obtains a second price from an impartial third party on debt securities to assess the reasonableness of prices provided by the primary independent pricing vendor.

The Company's equity portfolio fair value is measured based on quoted market prices for the shares; therefore, these securities are categorized as Level 1 within the fair value hierarchy.

The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB. The stock is issued, redeemed, repurchased and transferred by the FHLB only at their fixed par value. This stock is classified as a restricted investment and carried at FHLB par value which management believes approximates fair value; therefore, these securities are categorized as Level 2 measures.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

For loans individually assessed and deemed to be collateral dependent management has estimated the value and the probable credit loss by comparing the loan's amortized cost against the expected realizable fair value of the collateral (appraised value, or internal analysis, less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date). Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent loans carried at realizable fair value are categorized as Level 3 within the fair value hierarchy. A specific reserve is assigned to the collateral dependent loan for the amount of management's estimated probable credit loss. The specific reserve assigned to individually evaluated loans that are collateral dependent amounted to $399 thousand at March 31, 2022, compared to $1.0 million at December 31, 2021.

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at the estimated fair value of the property acquired, less estimated costs to sell, establishing a new cost basis. The estimated fair value is based on market appraisals and the Company's internal analysis. Certain inputs used in appraisals or the Company's internal analysis, are not always observable, and therefore, OREO may be categorized as Level 3 within the fair value hierarchy.

The fair values for the interest-rate swap assets and liabilities, which is comprised of back-to-back swaps and cash flow hedges, represent a FASB Level 2 measurement and are based on settlement values adjusted for credit risks and observable market interest-rate curves. Refer also to Note 8, "Derivatives and Hedging Activities," this Form 10-Q, contained above, for additional information on the Company's interest-rate swaps.

Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party. The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements. In accordance with the FASB, the estimated fair values of these commitments are carried on the Consolidated Balance Sheets as a liability and amortized to income over the life of the letters of credit, which are typically one year. The estimated fair value of these commitments carried on the Consolidated Balance Sheets at March 31, 2022 and December 31, 2021 were deemed immaterial.

Interest-rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments. The commitments to sell loans are also considered derivative instruments. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices. These commitments are accounted for in accordance with FASB guidance. The fair values of the Company's derivative instruments are deemed to be FASB Level 2 measurements. At March 31, 2022 and December 31, 2021, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

The following table presents additional quantitative information about assets measured at fair value on a non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of March 31, 2022 and December 31, 2021:

Fair Value

(Dollars in thousands)

March 31, 2022

December 31, 2021

Valuation Technique

Unobservable Input

Unobservable Input Value or Range

Assets measured on a non-recurring basis:

Individually evaluated loans (collateral dependent)

1,021

15,210

Appraisal of collateral

Appraisal adjustments(1)

15% - 50%

__________________________________________

(1)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the Consolidated Balance Sheets, the Company is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the Consolidated Balance Sheets.


Table of Contents			ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

Financial instruments for which the fair value is disclosed but not recognized on the Consolidated Balance Sheets are summarized below. The table includes the carrying value, estimated fair value and its placement in the fair value hierarchy as follows:


	March 31, 2022
					Fair Value Measurement
(Dollars in thousands)	Carrying Value		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:

Loans, net	$	2,914,297	$	2,905,801	$	—	$	—	$	2,905,801
Financial liabilities:
CDs	199,753		197,973		—		197,973		—

Borrowed funds	2,974		2,313		—		2,313		—
Subordinated debt	59,009		61,142		—		61,142		—


	December 31, 2021
					Fair Value Measurement
(Dollars in thousands)	Carrying Value		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:

Loans, net	$	2,872,980	$	2,922,947	$	—	$	—	$	2,922,947
Financial liabilities:
CDs	206,449		206,450		—		206,450		—

Borrowed funds	5,479		5,121		—		5,121		—
Subordinated debt	58,979		58,460		—		58,460		—

Excluded from the tables above are certain financial instruments with carrying values that approximated their fair value at the dates indicated, as they were short-term in nature or payable on demand. These include cash and cash equivalents, accrued interest and non-term deposit accounts. The respective carrying values of these instruments would all be classified within Level 1 in the fair value hierarchy.

Also excluded from these tables are the fair values of commitments for unused portions of lines of credit and commitments to originate loans that were short-term, at current market rates and estimated to have no significant change in fair value.

(15)Supplemental Cash Flow Information

The supplemental cash flow information for the three months ended March 31, 2022 and March 31, 2021 is as follows:


	Three months ended March 31,
(Dollars in thousands)	2022		2021
Supplemental financial data:
Cash paid for: interest	$	2,222	$	3,364
Cash paid for: income taxes	5,060		4,624
Cash paid for: lease liability	331		304
Supplemental schedule of non-cash activity:
Net purchases of investment securities not yet settled	1,500		—

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Item 2 -Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's discussion and analysis should be read in conjunction with the Company's unaudited consolidated interim financial statements and notes thereto contained in this Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 (this "Form 10-Q"), and the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report on Form 10-K") as filed with the Securities and Exchange Commission (the "SEC") on March 10, 2022.

Throughout this Management Discussion & Analysis, certain measures have been adjusted to provide what management believes are more meaningful comparisons between periods. The items principally impacted and reported as non-GAAP were loans (PPP loans), liquidity (interest-earning deposits with banks), net interest margin, shareholders' equity (accumulated other comprehensive income), and any related measures presented. See "Non-GAAP Measures" below for additional information on the non-GAAP measures of the Company’s performance.

Special Note Regarding Forward-Looking Statements

This Form 10-Q contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements about the Company and its industry involve substantial risks and uncertainties. Statements other than statements of current or historical fact, including statements regarding the Company’s future financial condition, results of operations, business plans, liquidity, cash flows, projected costs, and the impact of any laws or regulations applicable to the Company, are forward-looking statements. Forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as "will," "should," "could," "anticipates," "believes," "expects," "intends," "may," "plans," "pursue," "views" and similar terms or expressions. We caution you that any such forward-looking statements are not guarantees of future performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict. Although we believe that the expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially different from the results expressed or implied by the forward-looking statements.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

•the impact, duration and severity of the ongoing COVID-19 pandemic ("pandemic"), and any current or future variants thereof, and the Company’s participation in and execution of government programs related to the pandemic;

•failure of risk management controls and procedures;

•the adequacy of the allowance for credit losses;

•risk specific to commercial loans and borrowers;

•changes in the business cycle and downturns in the local, regional, or national economies, including changes in consumer spending and deterioration in the local real estate market, could negatively impact credit and/or asset quality and result in credit losses and increases in the Company's allowance for credit losses;

•the uncertain inflationary outlook in the United States and our market areas, and its impact on interest rates, the economy and credit quality;

•deterioration of capital markets, which could adversely affect the value or credit quality of the Company's assets and the availability of funding sources necessary to meet the Company's liquidity needs;

•changes in interest rates could negatively impact net interest income;

•increases in interest rates could negatively impact bond market values and result in a lower net book value;

•our ability to successfully manage the interest-rate environment, our credit risk and the level of future non-performing assets and charge-offs;

•potential decreases or growth of assets, deposits, future non-interest expenditures and non-interest income;

•our ability to maintain adequate liquidity and to raise necessary capital to fund our operations or to meet minimum regulatory capital levels;

•material decreases in the amount of deposits we hold, or a failure to grow our deposit base as necessary to help fund our growth and operations;

•changes in market interest rates that affect the pricing of our loans and deposits and our net interest income, as well as the potential discontinuance of London Interbank Offer Rate (“LIBOR”) and the uncertainty around its replacement;

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•our ability to keep pace with technological change or difficulties when implementing new technologies;

•technology-related risk, including technological changes and technology service interruptions or failure could adversely impact the Company's operations and increase technology-related expenditures;

•cybersecurity risk including security breaches and identity theft could impact the Company's reputation, increase regulatory oversight, and impact the financial results of the Company;

•increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the Company's competitive position within its market area and reduce demand for the Company's products and services;

•our ability to retain and increase our aggregate assets under management;

•our ability to enter new markets successfully and capitalize on growth opportunities, including the receipt of required regulatory approvals;

•damage to our reputation in the markets we serve;

•risks associated with fraudulent, negligent, or other acts by our customers, employees or vendors;

•exposure to legal claims and litigation;

•the inability to raise capital, on terms favorable to us, could cause us to fall below regulatory minimum capital adequacy levels and consequently restrict our business and operations;

•our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;

•our ability to attract, hire and retain qualified management personnel;

•recent and future changes in laws and regulations that apply to the Company's business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, which could cause the Company to incur additional costs and adversely affect the Company's business environment, operations and financial results;

•future regulatory compliance costs, including any increase caused by new regulations imposed by the government;

•changes in tariffs and trade barriers;

•governmental monetary and fiscal policies, including the policies of the Board of Governors of the Federal Reserve System (the “Federal Reserve”);

•our ability to comply with supervisory actions by federal and state banking agencies;

•changes in the scope and cost of Federal Deposit Insurance Corporation (the “FDIC”) insurance and other coverage;

•changes in accounting and/or auditing standards, policies and practices, as may be adopted or established by the regulatory agencies, FASB, or the Public Company Accounting Oversight Board could negatively impact the Company's financial results; and

•systemic risks associated with the soundness of other financial institutions.

The Company cautions readers that the forward-looking statements in this Form 10-Q reflect numerous assumptions that management believes to be reasonable, but which are inherently uncertain and beyond the Company's control. Forward-looking statements involve a number of risks and uncertainties that could cause the Company's actual results to differ materially from those expressed in, or implied by, the forward-looking statement. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance and readers should not place undue reliance on such forward-looking information and statements. Any forward-looking statements in this Form 10-Q are based on information available to the Company as of the date of this Form 10-Q, and the Company undertakes no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law.

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Overview

Executive Summary

The Company strategically operates with a long-term mindset that is focused on organic growth and supporting such growth by continually investing in our people, products, services, technology, including digital evolution, and both new and existing branches. The relocations of our Lawrence and Lexington, Massachusetts branches were completed in August 2021 and March 2022, respectively and our 27th branch located in Londonderry, New Hampshire is expected to open in May of 2022.

Net income for the three months ended March 31, 2022, amounted to $10.3 million, or $0.85 per diluted common share, compared to $10.4 million, or $0.86 per diluted common share, for the three months ended March 31, 2021. Net interest income declined $703 thousand, the provision for credit losses declined $150 thousand, non-interest income increased $1.3 million and non-interest expense increased $1.1 million for the three months ended March 31, 2022 compared to the prior year period. Income tax expense was reduced by $265 thousand due to a lower effective tax-rate compared to the prior year period.

Total assets amounted to $4.45 billion at both March 31, 2022 and December 31, 2021. Investment securities at fair value declined $48.2 million, primarily due to a decline in the bond portfolio’s market value. Total loans increased $42.0 million consisting of an increase in loans excluding PPP of $81.4 million and a decrease in PPP loans of $39.3 million. Customer deposits increased $54.3 million, and shareholders’ equity decreased $36.4 million with the latter primarily from the decline in bond market values, net of tax.

Non-GAAP Measures

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with GAAP. However, certain financial measures we present are supplemental measures that are not required by or are not presented in accordance with GAAP. We refer to any measure that excludes PPP loans as "core" and any measure that excludes PPP loans and interest-earning deposits with banks as "adjusted". The activity which resulted in the Company's use of non-GAAP measures consisted of: (1) the Company originated over $717 million in short-term PPP loans between April 2020 and May 2021; (2) forgiveness of PPP loans by the SBA began in November 2020 and continued through the current period, with approximately 95% of the principal balance of PPP loans originated by the Company forgiven by the SBA as of March 31, 2022; (3) liquidity, carried as lower-yielding interest-earning deposits with banks, has increased significantly following the trends in customer deposits and PPP loan forgiveness over the past two years; and (4) the significant increase in market interest rates during the first quarter of 2022 resulted in unrealized losses in the Company’s available-for-sale debt securities portfolio of $52.1 million and a corresponding reduction in shareholder's equity of $40.3 million at March 31, 2022.

These non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with the Company's GAAP financial information. In addition, the non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies; therefore, these measures may not be comparable to other similarly titled measures as presented by other companies.

The following tables summarize the reconciliation of GAAP to non-GAAP measures related to the impact of PPP loans on total loans and loan interest income:


(Dollars in thousands)	March 31, 2022		December 31, 2021		March 31, 2021
TOTAL CORE LOANS
Total loans	$	2,962,721	$	2,920,684	$	3,109,360
Adjustment: PPP loans	(33,182)		(73,885)		(496,457)
Adjustment: Deferred PPP fees	1,029		2,383		12,282
Total core loans (non-GAAP)	$	2,930,568	$	2,849,182	$	2,625,185

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	Three months ended
	March 31,
(Dollars in thousands)	2022		2021
LOAN INCOME EXCLUDING PPP INCOME
Loan income	$	30,695	$	33,650
Adjustment: PPP income	(1,478)		(6,013)
Loan income excluding PPP income (non-GAAP)	$	29,217	$	27,637

NET INTEREST INCOME EXCLUDING PPP INCOME
Net interest income	$	34,033	$	34,736
Adjustment: PPP income	(1,478)		(6,013)
Net interest income excluding PPP income (non-GAAP)	$	32,555	$	28,723

The following tables summarize the reconciliation of GAAP to non-GAAP measures related to the impact of PPP loans and interest-earning deposits with banks on net interest margin:


	Three months ended
(Dollars in thousands)	March 31, 2022			March 31, 2021
ADJUSTED INTEREST-EARNING ASSETS
Total average interest-earning assets	$	4,241,602		$	3,924,153
Adjustment: Average PPP loans, net	(48,930)			(452,813)
Adjustment: Average interest-earning deposits with banks	(381,517)			(279,796)
Total adjusted average interest-earning assets (non-GAAP)	$	3,811,155		$	3,191,544

ADJUSTED NET INTEREST INCOME
Net interest income (tax equivalent)	$	34,376		$	37,454
Adjustment: PPP income	(1,478)			(6,013)
Adjustment: Interest on interest-earning deposits with banks	(171)			(68)
Adjusted net interest income (tax equivalent) (non-GAAP)	$	32,727		$	31,373

ADJUSTED NET INTEREST MARGIN
Net interest margin (tax equivalent)	3.28		%	3.62		%
Adjustment: PPP effect(1)	(0.11)		%	(0.23)		%
Adjustment: Interest-earning deposits with banks effect(2)	0.30		%	0.29		%
Adjusted net interest margin (tax equivalent) (non-GAAP)	3.47		%	3.68		%

__________________________________________

(1)PPP loan adjustments include an elimination of average PPP loans, net of deferred SBA fees, as well as interest income on PPP loans and related SBA fee accretion, included in net interest income.

(2)Interest-earning deposit adjustments include an elimination of average interest-earning deposits with banks, as well as interest income on interest-earning deposits with banks, included in net interest income.

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The following tables summarize the reconciliation of GAAP to non-GAAP measures related to the impact of AOCI on the Company's reported book value per common share and return on average shareholders' equity:


	At or for the three months ended
(Dollars in thousands, except per share data)	March 31, 2022			December 31, 2021			March 31, 2021
SHAREHOLDERS' EQUITY EXCLUDING AOCI
Total shareholders' equity (as reported)	$	310,539		$	346,895		$	328,755
Less: accumulated other comprehensive (loss) income	(40,300)			4,662			14,055
Shareholders' equity (excluding AOCI)(1)	$	350,839		$	342,233		$	314,700

BOOK VALUE PER COMMON SHARE EXCLUDING AOCI
Book value per common share (as reported)	$	25.66		$	28.82		$	27.38
Book value per common share (excluding AOCI)(1)	$	28.99		$	28.43		$	26.21

AVERAGE SHAREHOLDERS' EQUITY EXCLUDING AOCI
Total average shareholders' equity (as reported)	$	332,035		$	342,635		$	328,547
Less: average accumulated other comprehensive (loss) income	(22,228)			3,585			17,375
Average shareholders' equity (excluding AOCI)(1)	$	354,263		$	339,050		$	311,172

RETURN ON AVERAGE SHAREHOLDERS' EQUITY EXCLUDING AOCI
Return on average shareholders' equity (as reported)	12.56		%	12.56		%	12.78		%
Return on average shareholders' equity (excluding AOCI)(1)	11.78		%	12.69		%	13.49		%

__________________________________________

(1)A non-GAAP measure.

Risk Management Framework

Management utilizes a comprehensive enterprise risk management framework that enables a coordinated and structured approach for identifying, assessing and managing risks across the Company and provides reasonable assurance that management has the tools, programs, people, and processes in place to support informed decision making, anticipate risks before they materialize and maintain the Company's risk profile consistent with its strategic planning, and applicable laws and regulations.

See Part I, Item 1, "Business," under the "Risk Management Framework," section of the 2021 Annual Report on Form 10-K for additional information on the Company's key risk mitigation strategies.

In addition to the risks outlined in this Form 10-Q, numerous other factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model, are addressed in Part I, Item 1A, "Risk Factors," of the 2021 Annual Report on Form 10-K.

Accounting Policies/Critical Accounting Estimates

The Company has not materially changed its significant accounting and reporting policies from those disclosed in its 2021 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 1, Item (c), "Recent Accounting Pronouncements," to the Company's unaudited consolidated interim financial statements in this Form 10-Q for information regarding recent accounting pronouncements.

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Results of Operations for the three months ended March 31, 2022 and March 31, 2021

Unless otherwise indicated, the reported results are for the three months ended March 31, 2022 with the "same period," the "prior year period," the "comparable period," "prior year," and "prior period" being the three months ended March 31, 2021. Average yields are presented on an annualized tax equivalent basis.

Net Income

Net income for the three months ended March 31, 2022, amounted to $10.3 million, a decrease of $65 thousand compared to the prior year period. Pre-tax income decreased by $330 thousand, or 2%, over the same periods. The effective tax rate was 22.9% at March 31, 2022, compared to 24.3% at March 31, 2021.

•The decrease in pre-tax income was attributable primarily to a decrease in net interest income of $703 thousand and an increase in non-interest expense of $1.1 million, partially offset by an increase in non-interest income of $1.3 million.

•Current period tax expense benefited from a lower effective tax rate compared to the prior year period due to increases in tax-exempt income, lower-taxed income at investment security corporations and discrete tax benefits related to stock-based compensation transactions.

Interest and Dividend Income

Total interest and dividend income amounted to $35.5 million for the three months ended March 31, 2022, a decrease of $1.6 million, or 4%, compared to the prior year period. See the "Net Interest Income and Margin" discussion below for further information on the decrease in yields.

Interest Expense

For the three months ended March 31, 2022, total interest expense amounted to $1.4 million, a decrease of $942 thousand, or 40%, over the same period in 2021, due primarily to decreases in interest expense on deposits of $723 thousand and interest expense on subordinated debt of $224 thousand. The average cost of funding, including the impact of non-interest deposit accounts balances, decreased 12 basis points. For the three months ended March 31, 2022, the average balance of checking, savings and money market accounts increased $272.5 million, or 13%, and the average balance of borrowed funds remained relatively unchanged compared to the respective prior year period.

Non-interest deposit accounts are an important component of the Company's core funding strategy. For the three months ended March 31, 2022, the average balance of non-interest checking accounts increased $159.5 million, or 13%, as compared to the same period in 2021. This non-interest-bearing funding source represented 35% and 33% of total average deposit balances for the three months ended March 31, 2022 and March 31, 2021.

Net Interest Income and Margin

Net interest income for the three months ended March 31, 2022, amounted to $34.0 million, a decrease of $703 thousand, or 2%, compared to the three months ended March 31, 2021.

•The decrease in net interest income was due largely to a decrease in PPP income of $4.5 million, partially offset by increases in loan income, excluding PPP (non-GAAP), of $1.6 million, investment security income of $1.2 million, and a decrease in interest expense of $942 thousand.

•PPP income amounted to $1.5 million for three months ended March 31, 2022, compared to $6.0 million for the three months ended March 31, 2021.

•PPP loans amounted to $32.2 million at March 31, 2022, compared to $484.2 million at March 31, 2021, a decrease of $452.0 million, or 93%, due to the continued forgiveness of PPP loans during the period.

Tax equivalent net interest margin ("net interest margin" or "margin") was 3.28% and 3.62% for the three months ended March 31, 2022, and 2021, respectively. Margin has also been negatively impacted by large balances in lower-yielding interest-earning deposits with banks, and to a lesser extent, PPP loans, as illustrated below.

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For the three months ended March 31, 2022 and 2021:

•Average interest-earning deposits with banks amounted to $381.5 million and $279.8 million, respectively.

•Average PPP loan balances, net of deferred SBA fees, amounted to $48.9 million and $452.8 million, respectively.

•Adjusted net interest margin (non-GAAP) was 3.47% and 3.68%, respectively.

Other key items impacting margin for the period ended March 31, 2022, compared to the prior year period included:

•Average investment securities increased $472.8 million, or 55%, and the yield decreased 22 basis points.

•Average core loans (non-GAAP) increased $248.5 million, or 10%, and the yield decreased 15 basis points.

•Average customer deposits increased $394.5 million, or 11%, and the yield decreased 6 basis points.

Interest-rate risk is reviewed in detail in Item 3, "Quantitative and Qualitative Disclosures About Market Risk," below.

Rate / Volume Analysis

The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended March 31, 2022, compared to the three months ended March 31, 2021. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (i) volume (change in average portfolio balance multiplied by prior year average rate); and (ii) interest rate (change in average interest rate multiplied by prior year average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.


			Increase (decrease) due to
(Dollars in thousands)	Net Change		Volume		Rate
Interest income
Loans and loans held for sale (tax equivalent)	$	(2,965)	$	(1,760)	$	(1,205)
Investment securities (tax equivalent)	1,202		1,993		(791)
Other interest-earning assets(1)	116		28		88
Total interest-earning assets (tax equivalent)	(1,647)		261		(1,908)

Interest expense
Interest checking, savings and money market	$	(93)	$	61	$	(154)
CDs	(377)		(82)		(295)
Brokered deposits	(253)		(127)		(126)
Borrowed funds	5		(3)		8
Subordinated debt	(224)		(199)		(25)
Total interest-bearing funding	(942)		(350)		(592)
Change in net interest income (tax equivalent)	$	(705)	$	611	$	(1,316)

__________________________________________

(1)Income on other interest-earning assets includes interest on deposits with banks, federal funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the three months ended March 31, 2022 and 2021:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS


	Three months ended March 31, 2022						Three months ended March 31, 2021
(Dollars in thousands)	Average Balance		Interest(1)		Average Yield(1)		Average Balance		Interest(1)		Average Yield(1)
Assets:
Loans and loans held for sale(2) (tax equivalent)	$	2,911,282	$	30,806	4.29	%	$	3,066,648	$	33,771	4.46	%
Investment securities(3) (tax equivalent)	946,732		4,820		2.04	%	575,775		3,618		2.51	%
Other interest-earning assets(4)	383,588		181		0.19	%	281,730		65		0.09	%
Total interest-earnings assets (tax equivalent)	4,241,602		35,807		3.41	%	3,924,153		37,454		3.86	%
Other assets	154,167						158,595
Total assets	$	4,395,769					$	4,082,748

Liabilities and stockholders' equity:
Interest checking, savings and money market	$	2,371,320	378		0.06	%	$	2,098,846	471		0.09	%
CDs	202,702		222		0.44	%	240,207		599		1.01	%
Brokered deposits	—		—		—	%	74,999		253		1.37	%
Borrowed funds	4,263		13		1.27	%	5,964		8		0.56	%
Subordinated debt(5)	58,991		818		5.54	%	73,592		1,042		5.68	%
Total interest-bearing funding	2,637,276		1,431		0.22	%	2,493,608		2,373		0.38	%
Non-interest checking	1,373,267		—				1,213,764		—
Total deposits, borrowed funds and subordinated debt	4,010,543		1,431		0.14	%	3,707,372		2,373		0.26	%
Other liabilities	53,192						46,829
Total liabilities	4,063,735						3,754,201
Stockholders' equity	332,034						328,547
Total liabilities and stockholders' equity	$	4,395,769					$	4,082,748

Net interest-rate spread (tax equivalent)					3.19	%					3.48	%
Net interest income (tax equivalent)			34,376						35,081
Net interest margin (tax equivalent)					3.28	%					3.62	%
Less tax equivalent adjustment			343						345
Net interest income			$	34,033					$	34,736
Net interest margin					3.25	%					3.58	%

_______________________________________

(1)Average yields and interest income are presented on a tax equivalent basis, calculated using a U.S. federal income tax rate of 21% in both 2022 and 2021, based on tax equivalent adjustments associated with tax exempt loans and investments interest income.

(2)Average loans and loans held for sale include non-accrual loans and are net of average deferred loan fees.

(3)Average investment balances are presented at average amortized cost.

(4)Average other interest-earning assets includes interest-earning deposits with banks, federal funds sold, and FHLB stock.

(5)The subordinated debt is net of average deferred debt issuance costs.

Provision for Credit Losses

The provision for credit losses for the three months ended March 31, 2022, amounted to $530 thousand, a decrease of $150 thousand, compared to the three months ended March 31, 2021.

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•The provision for credit losses for the three months ended March 31, 2022, resulted primarily from core loan growth (non-GAAP), partially offset by decreases in reserves for individually evaluated loans and unfunded commitments (included in other liabilities).

The provision for credit losses is a significant factor in the Company's operating results. For further discussion regarding the provision for credit losses and management's assessment of the adequacy of the ACL see "Asset Quality," and "ACL for Loans" under "Financial Condition" in this Item 2, below.

Non-Interest Income

Non-interest income for the three months ended March 31, 2022, amounted to $5.6 million, an increase of $1.3 million, or 30%, compared to three months ended March 31, 2021.

•The increase in non-interest income resulted primarily from increases in net gains on sales of debt securities of $934 thousand. Excluding the increase in net gains on sales of debt securities, non-interest income increased $362 thousand, or 9%.

•Other components of the increase included deposit and interchange fees of $196 thousand and income on bank-owned life insurance of $159 thousand, partially offset by greater losses on equity investment fair values of $151 thousand (included in other income).

Non-Interest Expense

Non-interest expense for the three months ended March 31, 2022, amounted to $25.8 million, an increase of $1.1 million, or 4%, compared to the three months ended March 31, 2021.

•Non-interest expense in the prior year period included a loss on the extinguishment of subordinated debt of $713 thousand. Excluding this item, non-interest expense increased $1.8 million, or 7%.

•The increase in non-interest expense resulted primarily from increases in salaries and employee benefits of $1.1 million, advertising and public relations expense of $153 thousand, deposit insurance premiums of $200 thousand, and audit legal and professional of $143 thousand.

Income Taxes

The effective tax rate was 22.9% and 24.3% for the three months ended March 31, 2022 and March 31, 2021, respectively. Current period tax expense benefited from a lower effective tax rate compared to the prior year period due to increases in tax-exempt income, lower-taxed income at investment security corporations and discrete tax benefits related to stock-based compensation transactions

Financial Condition

Total assets amounted to $4.45 billion at both March 31, 2022 and December 31, 2021, as an increase in core loans (non-GAAP) of $81.4 million was offset by decreases in interest-earning deposits with banks of $18.6 million, investments securities at fair value of $48.2 million, and PPP loans outstanding of $39.3 million, since December 31, 2021. The balance sheet composition and changes since December 31, 2021 are discussed below.

Cash and cash equivalents

Cash and cash equivalents may be comprised of cash on hand and cash items due from banks, interest-earning deposits with banks (deposit accounts, excess reserve cash balances, money markets, and money market mutual funds accounts) and federal funds sold ("fed funds"). Cash and cash equivalents at March 31, 2022 decreased $6.9 million since December 31, 2021. At both March 31, 2022 and December 31, 2021, cash and cash equivalents amounted to 10% of total assets. The decrease in cash and cash equivalents over the prior period was due primarily to total interest-earning deposits with banks which amounted to $384.5 million at March 31, 2022 compared to $403.0 million at December 31, 2021, as excess liquidity was partially utilized to fund growth in the Company's core loan (non-GAAP) portfolio during the first quarter of 2022.

While balances in cash and cash equivalents will fluctuate due primarily to the timing of net cash flows from deposits, borrowings, loans and investments, and the immediate liquidity needs of the Company, management believes customers have generally maintained higher liquidity in response to the pandemic and a low interest rate environment.

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Investments

At March 31, 2022, the fair value of the investment portfolio amounted to $910.0 million, a decrease of $48.2 million, or 5%, since December 31, 2021. The investment portfolio at fair value represented 20% and 22% of total assets at March 31, 2022 and December 31, 2021, respectively. The change resulted primarily from a decrease in the fair value of the Company's investment portfolio of $58.0 million during the three months ended March 31, 2022 caused primarily by significant increases in market interest rates. As of March 31, 2022 and December 31, 2021, the Company's securities portfolio was comprised primarily of debt securities, classified as available-for-sale, with a small portion of the portfolio invested in equity securities.

During the three months ended March 31, 2022, the Company purchased $68.3 million in debt securities, had principal pay downs, calls and maturities totaling $26.1 million, and sold debt securities with an amortized cost of approximately $31.7 million realizing net gains on sales of $1.1 million.

Net unrealized losses on the debt securities portfolio amounted to $52.1 million at March 31, 2022, compared to net unrealized gains of $5.9 million at December 31, 2021 and $19.9 million at March 31, 2021. The Company attributes the change in net unrealized gains (losses) compared to December 31, 2021 to a significant increase in market interest rates during the period.

The mix of investment securities remained relatively unchanged at March 31, 2022 compared to December 31, 2021. The effective duration of the debt securities portfolio at March 31, 2022 was approximately 5.1 years compared to 4.9 years at December 31, 2021.

Loans

As of March 31, 2022, total loans increased $42.0 million, or 1%, compared to December 31, 2021. The increase in total loans as of March 31, 2022 compared to December 31, 2021 was primarily due to net core loan growth (non-GAAP) of $81.4 million, partially offset by a decrease in PPP loans outstanding of $39.3 million due to forgiveness from the SBA. The mix of loans within the Company's loan portfolio remained relatively unchanged with commercial loans amounting to 88% of total loans at both March 31, 2022 and December 31, 2021, compared to 89% at March 31, 2021.

The following table sets forth the loan balances by loan portfolio segment at the dates indicated and the percentage of each segment to total loans:


	March 31, 2022				December 31, 2021				March 31, 2021
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Commercial real estate	$	1,779,691	60.0	%	$	1,680,792	57.5	%	$	1,516,287	48.8	%
Commercial and industrial	408,341		13.8	%	412,070		14.1	%	417,436		13.4	%
Commercial construction	375,709		12.7	%	410,443		14.1	%	353,855		11.4	%
SBA PPP	32,153		1.1	%	71,502		2.4	%	484,175		15.5	%
Total commercial loans	2,595,894		87.6	%	2,574,807		88.1	%	2,771,753		89.1	%
Residential mortgages	280,507		9.5	%	256,940		8.8	%	247,591		8.0	%
Home equity	78,557		2.7	%	80,467		2.8	%	81,437		2.6	%
Consumer	7,763		0.2	%	8,470		0.3	%	8,579		0.3	%
Total retail loans	366,827		12.4	%	345,877		11.9	%	337,607		10.9	%




Total loans	2,962,721		100.0	%	2,920,684		100.0	%	3,109,360		100.0	%
Allowance for credit losses	(48,424)				(47,704)				(49,899)
Net loans	$	2,914,297			$	2,872,980			$	3,059,461

As of or for the three months ended March 31, 2022,

•Commercial real estate loans increased $98.9 million, or 6%, compared to December 31, 2021, and $263.4 million, or 17%, compared to March 31, 2021. The increase resulted from strong customer demand.

•Commercial and industrial loans decreased by $3.7 million, or 1%, compared to December 31, 2021 and $9.1 million, or 2%, compared to March 31, 2021.

•Commercial construction loans decreased by $34.7 million, or 8%, since December 31, 2021, and increased $21.9 million, or 6%, compared to March 31, 2021.

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•PPP loan forgiveness by the SBA amounted to $40.7 million.

•Total retail loans increased by $21.0 million, or 6%, since December 31, 2021, and $29.2 million, or 9%, compared to March 31, 2021. The increase resulted from the Company retaining more residential mortgages on its balance sheet.

At March 31, 2022, commercial loan balances participated out to various banks amounted to $60.2 million, compared to $66.7 million at December 31, 2021, and $67.2 million at March 31, 2021. These balances participated out to other institutions are not carried as assets on the Company's financial statements. Commercial loans originated by other banks in which the Company is a participating institution are carried at the pro-rata share of ownership and amounted to $44.0 million, $62.6 million and $77.0 million at March 31, 2022, December 31, 2021, and March 31, 2021, respectively. See Note 3, "Loans," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q above for information on loans serviced for others and loans pledged as collateral.

Asset Quality

The following table sets forth information regarding non-performing assets, TDR loans and delinquent loans 60-89 days past due as to interest or principal, held by the Company at the dates indicated:


(Dollars in thousands)	March 31, 2022			December 31, 2021			March 31, 2021
Non-accrual loan summary:
Commercial real estate	$	21,854		$	22,870		$	27,193
Commercial and industrial	1,293			1,542			4,735
Commercial construction	1,028			1,045			2,945
SBA PPP	—			—			—
Residential mortgages	763			794			398
Home equity	237			246			358
Consumer	—			25			1



Total non-performing loans	25,175			26,522			35,630
OREO	—			—			—
Total non-performing assets	$	25,175		$	26,522		$	35,630
Total loans	$	2,962,721		$	2,920,684		$	3,109,360
Accruing TDR loans not included above	$	5,883		$	8,556		$	9,534
Delinquent loans 60-89 days past due and still accruing	$	—		$	38		$	1
Loans 60-89 days past due and still accruing to total loans	—		%	—		%	—		%

Non-performing loans to total loans	0.85		%	0.91		%	1.15		%
Non-performing assets to total assets	0.57		%	0.60		%	0.84		%
Allowance for credit losses for loans	$	48,424		$	47,704		$	49,899
Allowance for credit losses for loans to non-performing loans	192.35		%	179.87		%	140.05		%
Allowance for credit losses for loans to total loans	1.63		%	1.63		%	1.60		%

As of March 31, 2022, the ACL for loans to total core loans ratio (non-GAAP) was 1.65% at March 31, 2022 compared to 1.67% at December 31, 2021. Total core loans (non-GAAP) exclude PPP loans, as all qualifying PPP loans are fully guaranteed by the SBA.

The majority of non-accrual loans were also carried as adversely classified during the periods presented. At March 31, 2022, December 31, 2021, and March 31, 2021, the Company had adversely classified loans (loans carrying "special mention," "substandard," "doubtful" or "loss" classifications) amounting to $55.0 million, $61.0 million, and $72.6 million, respectively. The decrease in adversely classified loans at March 31, 2022, compared to December 31, 2021, was due to principal pay-downs and credit upgrades based on improved performance, partially offset by additional downgrades.

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Adversely classified loans that were performing but possessed potential weakness and, as a result, could ultimately become non-performing loans amounted to $29.9 million at March 31, 2022 and $34.5 million at December 31, 2021. The remaining balances of adversely classified loans were non-accrual loans, amounting to $25.2 million at March 31, 2022 and $26.5 million at December 31, 2021. Non-accrual loans that were not adversely classified amounted to $3 thousand at both March 31, 2022 and December 31, 2021 and primarily represented the guaranteed portions of non-performing SBA loans.

Total individually evaluated collateral dependent loans amounted to $30.8 million and $34.6 million at March 31, 2022 and December 31, 2021, respectively. Total accruing collateral dependent loans amounted to $5.8 million and $8.4 million at March 31, 2022 and December 31, 2021, respectively, while non-accrual collateral dependent loans amounted to $25.0 million and $26.2 million as of March 31, 2022 and December 31, 2021, respectively.

In management's opinion, the majority of collateral dependent loan balances at March 31, 2022 and December 31, 2021 were supported by the net realizable value of the underlying collateral. Based on management's collateral assessment at March 31, 2022, collateral dependent loans totaling $29.4 million required no specific reserves while collateral dependent loans totaling $1.4 million required specific reserves of $399 thousand. At December 31, 2021, collateral dependent loans totaling $18.4 million required no specific reserves while collateral dependent loans totaling $16.2 million required specific reserves of $1.0 million.

Total TDR loans as of March 31, 2022 and December 31, 2021 were $13.3 million and $16.4 million, respectively. TDR loans on accrual status amounted to $5.9 million and $8.6 million at March 31, 2022 and December 31, 2021, respectively. TDR loans included in non-accrual loans amounted to $7.4 million at March 31, 2022 and $7.8 million at December 31, 2021. The Company continues to work with customers and enters into loan modifications (which may or may not be TDRs) to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and prospects of the borrower.

ACL for Loans

There have been no material changes to the Company's underwriting practices or credit risk management system used to estimate credit loss exposure as described in the 2021 Annual Report on Form 10-K. See Note 4, "ACL for Loans," to the Company's audited consolidated financial statements contained the 2021 Annual Report on Form 10-K.

On January 1, 2021, the Company adopted the CECL methodology under the modified retrospective approach. Upon adoption, the Company recorded a reduction to retained earnings of $6.5 million, net of $2.5 million in deferred income taxes. The ACL for loans increased by $6.6 million and the reserve for unfunded commitments (included in other liabilities) increased by $2.4 million. Prior to 2021, the Company measured the allowance under the incurred loss method.

See Note 4, "ACL for Loans," to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, for further information regarding credit quality and the allowance for credit losses and the Company's methodology under CECL.

While management uses available information and judgment to estimate credit losses on loans, future additions to the ACL may be necessary. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL for loans. Such agencies may require the Company to recognize additions to the ACL based on judgments different from those of management.

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ACL for loans activity

The following table summarizes the activity in the ACL for loans for the periods indicated:


	Three Months Ended March 31,
(Dollars in thousands)	2022			2021
Balance at beginning of year	$	47,704		$	44,565

Day one CECL adjustment	—			6,560
Provision for credit losses for loans	825			610
Recoveries on charged-off loans:
Commercial real estate	—			—
Commercial and industrial	24			55
Commercial construction	—			—
SBA PPP	—			—
Residential mortgages	—			—
Home equity	4			5
Consumer	5			1
Total recovered	33			61
Charged-off loans
Commercial real estate	—			1,825
Commercial and industrial	105			70
Commercial construction	—			—
SBA PPP	—			—
Residential mortgages	—			—
Home equity	—			—
Consumer	33			2
Total charged-off	138			1,897

Net loans charged-off (recovered)	105			1,836
Ending balance	$	48,424		$	49,899
Annualized net loans charged-off to average loans outstanding	0.01		%	0.24		%

Net charge-offs for the prior year period related primarily to an individually evaluated commercial real estate loan, which was fully reserved for prior to 2021.

See Note 4, "ACL for Loans," to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, for further information regarding the ACL for loans and credit quality.

Reserve for unfunded commitments

The reserve for unfunded commitments is classified within "Other liabilities" on the Company's Consolidated Balance Sheets. The estimate of credit loss incorporates assumptions for both the likelihood and amount of funding over the estimated life of the commitments, including adjustments for current conditions and reasonable and supportable forecasts. Management periodically reviews and updates its assumptions for estimated funding rates.

The Company’s reserve for unfunded commitments amounted to $3.4 million at March 31, 2022, compared to $3.7 million at December 31, 2021 and the associated provisions amounted to a benefit of $295 thousand for the three months ended March 31, 2022, compared to a provision of $70 thousand for the three months ended March 31, 2021.

Management believes that the Company's ACL for loans and the reserve for unfunded commitments were adequate as of March 31, 2022.

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Deposits

As of March 31, 2022, customer deposits increased $54.3 million, or 1%, since December 31, 2021, and $293.4 million, or 8%, since March 31, 2021. Since December 31, 2021, the largest growth occurred in checking accounts and to a lesser extent money market accounts. Management believes the deposit growth since March 31, 2021 was due in large part to customers depositing funds received from PPP loan advances, stimulus checks, and generally maintaining higher liquidity in response to the pandemic and a low interest rate environment.

The Company offers its customers the ability to enhance FDIC insurance coverage by electing to participate a portion of their deposit balance into nationwide deposit networks. The Company’s total customer deposits reflect the equal and reciprocal deposits received from other banks' customers participating in the programs. Essentially, the equivalent of the original customers' deposited funds comes back to the Company and are carried within the appropriate category under total customer deposits. The Company's balances in these reciprocal products were $540.3 million, $546.7 million and $533.7 million at March 31, 2022, December 31, 2021 and March 31, 2021, respectively. Savings accounts are not eligible for this program.

Borrowed Funds

The Company had borrowed funds outstanding of $3.0 million, $5.5 million, and $8.6 million at March 31, 2022, December 31, 2021, and March 31, 2021, respectively, all of which were FHLB advances. FHLB borrowings outstanding at each of these dates were related to specific lending projects under the FHLB's community development and affordable housing programs.

Subordinated Debt

The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.0 million at both March 31, 2022 and December 31, 2021 and $58.9 million at March 31, 2021.

See also Note 7, "Borrowed Funds and Subordinated Debt," to the Company's unaudited consolidated interim financial statements contained in Item 1 above in this Form 10-Q, for further information regarding the Company's subordinated debt.

Derivatives and Hedging

The Company had no derivative fair value or cash flow hedges at either March 31, 2022 or December 31, 2021.

The Company also has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swap with qualified commercial banking customers and simultaneously enters into an equal and opposite interest-rate swap with a swap counterparty. The customer interest-rate swap agreement allows commercial banking customers to convert a floating-rate loan payment to a fixed-rate payment. The notional value of interest-rate swaps with customers decreased to $11.6 million at March 31, 2022 from $36.3 million at December 31, 2021. The fair value of assets and corresponding liabilities associated with these swaps and carried on the Company's Consolidated Balance Sheets was $465 thousand at March 31, 2022 compared to $528 thousand at December 31, 2021.

For further information on the Company's derivatives and hedging activities see Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements contained in Item 1 above in this Form 10-Q.

Liquidity

Liquidity is the ability to meet cash needs arising from, among other things, fluctuations in loans, investments, deposits and

borrowings. Liquidity management is the coordination of activities so that cash needs are anticipated and met readily and

efficiently. The Company's liquidity is maintained by projecting cash needs, balancing maturing assets with maturing liabilities, monitoring various liquidity ratios, monitoring deposit flows, maintaining cash flow within the investment portfolio, and maintaining wholesale funding resources.

The Company's wholesale funding sources included primarily borrowing capacity at the FHLB and brokered deposits. In addition, the Company's secondary funding sources include uncommitted overnight federal fund purchase arrangements with

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correspondent banks, access to the FRB Discount Window. At March 31, 2022, the Bank had the capacity to borrow additional funds from the FHLB and FRB Discount Window of up to approximately $770 million and $329 million, respectively.

Management believes that the Company has adequate liquidity to meet its obligations. However, if general economic conditions, the pandemic, or other events, cause these sources of external funding to become restricted or are eliminated, the Company may not be able to raise adequate funds or may incur substantially higher funding costs or operating restrictions in order to raise the necessary funds to support the Company's operations and growth.

Capital Resources

Both the Company's and the Bank's actual regulatory capital ratios, as outlined in Note 9 "Regulatory Capital Requirements," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q, exceeded the Basel III risk-based capital requirement with the capital conservation buffer as of March 31, 2022.

On January 1, 2021, the Company's adoption of CECL resulted in the Company recording a net cumulative-effect adjustment that decreased retained earnings by $6.5 million, net of $2.5 million in deferred income taxes.

On March 31, 2021, the Company redeemed the January 2015 Notes. The redemption of the January 2015 Notes was funded through a dividend from the Bank.

For the three months ended March 31, 2022 and March 31, 2021, the Company declared cash dividends of $2.5 million and $2.2 million, shareholders utilized the dividend reinvestment portion of the DRSPP to purchase aggregate shares of the Company's common stock amounting to 8,915 shares and 10,241 shares, totaling $346 thousand and $313 thousand, respectively.

On April 19, 2022, the Company announced a quarterly dividend of $0.205 per share to be paid on June 1, 2022 to shareholders of record as of May 11, 2022.

For further information about the Company's capital, see Note 9 "Regulatory Capital Requirements," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q.

Assets Under Management

Wealth assets under management and administration are not carried as assets on the Company's consolidated balance sheets. The Company provides a wide range of wealth management and wealth services, including investment management, brokerage, annuities, trust, and 401(k) administration.

Wealth assets under management and administration, which are not carried as assets on the Company's consolidated balance sheets, amounted to $961.5 million and $243.2 million, respectively, at March 31, 2022, representing decreases of $79.9 million, or 8%, and $14.6 million, or 6%, respectively, compared to December 31, 2021. The decreases in wealth assets under management and administration were attributable primarily to declines in market values during the three months ended March 31, 2022.

Item 3 -Quantitative and Qualitative Disclosures About Market Risk

Interest Margin Sensitivity Analysis

Refer to Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the Company's 2021 Annual Report on Form 10-K for further information on the Company’s net interest income and net interest margin sensitivity under different interest rate and yield curve scenarios as well as different asset and liability mix scenarios.

At March 31, 2022, the Company's net interest income sensitivity decreased compared to December 31, 2021, resulting primarily from growth in the Company’s fixed rate commercial real estate and residential mortgage portfolios and a reduction in commercial construction loans which generally have a variable rate. The increase in residential mortgages was from the Company retaining more production on the balance sheet instead of selling into the secondary market.

Net short-term liquidity, which is included in the table below is defined as interest-earning deposits in banks less short-term wholesale borrowings consisting of brokered deposits and FHLB borrowings. The balance is considered to be unusually high at

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March 31, 2022 and December 31, 2021 and results in large part to customers depositing funds received from PPP loan advances, stimulus checks, and generally maintaining higher liquidity in response to the pandemic and low interest rates.

The net interest income simulation model assumes a static balance sheet over 24 months, but we anticipate that the net liquidity balance will diminish over time. In the 200 and 400 basis point rising rate scenarios below, net interest income is projected to increase in the first 24 months primarily due to the elevated balance of net short-term liquidity that reprices immediately. In the declining rate scenario, net interest income is projected to decrease as funding costs are at low levels and do not decline as significantly as asset yields.


(Dollars in thousands, except for percentage data)	March 31, 2022			December 31, 2021
Net short-term liquidity	$	381,480		$	397,525

Changes in interest rates	Percentage Change			Percentage Change
Rates Rise 400 Basis Points	7.08		%	9.73		%
Rates Rise 200 Basis Points	3.85		%	5.37		%
Rates Unchanged	—		%	—		%
Rates Decline 100 Basis Points	(4.78)		%	(4.95)		%

The results in the table above are subject to various assumptions as reported in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the Company's 2020 Annual Report on Form 10-K. Refer to heading "Results of Operations" contained within Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q for further discussion of margin.

Item 4 -Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains a set of disclosure controls and procedures and internal controls designed to ensure that the information required to be disclosed in reports that it files or furnishes to the SEC under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

The Company carried out an evaluation as of the end of the period covered by this Form 10-Q under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of March 31, 2022.

Changes in Internal Control over Financial Reporting

There have been no significant changes in the Company's internal control over financial reporting that occurred during the Company's most recent fiscal quarter (i.e., the three months ended March 31, 2022) that materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1 -Legal Proceedings

There are no material pending legal proceedings to which the Company or its subsidiaries are a party or to which any of its property is subject, other than ordinary routine litigation incidental to the business of the Company. Management does not believe resolution of any present litigation will have a material adverse effect on the business, consolidated financial condition or results of operations of the Company.

Item 1A -Risk Factors

Except as provided in the risk factor below, management believes that there have been no material changes in the Company's risk factors as reported in the 2021 Annual Report on Form 10-K.

If the United States or the markets in which we operate encounter sustained economic stress or recession, or if long-term consequences or lagging effects of the pandemic are experienced by our customers and businesses, many of the risk factors identified in the Company's 2021 Annual Report on Form 10-K could become heightened and such effects could have a material adverse impact on the Company in a number of ways related to credit, collateral, customer demand, funding, operations and interest-rate risk.

Item 2 -Unregistered Sales of Equity Securities and Use of Proceeds

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended March 31, 2022:


	Total number of shares repurchased(1)	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Announced	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January	3,186	$	41.79	—	—
February	—	$	—	—	—
March	3,706	$	39.13	—	—

_________________________________

(1)Amounts include shares repurchased that were not part of a publicly announced repurchase plan or program. These shares were owned and tendered by employees as payment for taxes upon vesting of restricted stock (net settlement of shares).

Item 3 -Defaults upon Senior Securities

Not Applicable.

Item 4 -Mine Safety Disclosures

Not Applicable.

Item 5 -Other Information

Not Applicable.

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Item 6 -Exhibits

EXHIBIT INDEX

_____________

Exhibit No. Description

3.1.1 Amended and Restated Articles of Organization of the Company, as amended as of June 4, 2013 incorporated by reference to the Company's Current Report on Form 8-K filed June 10, 2013 (File No. 001-33912).

3.1.2 Articles of Amendment to the Restated Articles of Organization of the Company, as amended as of May 16, 2017 incorporated by reference to the Company's Current Report on Form 8-K filed May 18, 2017 (File No. 001-33912).

3.1.3 Articles of Amendment to the Amended and Restated Articles of Organization of the Company, as amended as of January 5, 2018, incorporated by reference to the Company’s Current Report on Form 8-K filed January 11, 2018 (File No. 001-33912).

3.2 Second Amended and Restated Bylaws of the Company, as amended as of January 19, 2021, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed on January 22, 2021 (File No. 001-33912).

10.1 Enterprise Bank 2022 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 18, 2022 (File No. 001-33912).

10.2 Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan 2022 Addendum, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed March 18, 2022 (File No. 001-33912).

31.1* Certification of Principal Executive Officer under Securities Exchange Act Rule 13a-14(a).

31.2* Certification of Principal Financial Officer under Securities Exchange Act Rule 13a-14(a).

32* Certification of Principal Executive Officer and Principal Financial Officer under 18 U.S.C. § 1350 Furnished Pursuant to Securities Exchange Act Rule 13a-14(b).

101* The following materials from Enterprise Bancorp, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 were formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021; (ii) Consolidated Statements of Income for the three months ended March 31, 2022 and 2021; (iii) Consolidated Statements of Comprehensive Income for the three months ended March 31, 2022 and 2021; (iv) Consolidated Statements of Changes in Equity for the three months ended March 31, 2022 and 2021; (v) Consolidated Statements of Cash Flows for the three months ended March 31, 2022 and 2021; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

104* The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2022 has been formatted in Inline XBRL and contained in Exhibit 101.

____________________

*Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		ENTERPRISE BANCORP, INC.

DATE:	May 9, 2022	By:	/s/ Joseph R. Lussier
			Joseph R. Lussier
			Executive Vice President, Treasurer
			and Chief Financial Officer