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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K

ýANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year endedDecember 31, 20172023
OR

¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ 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)
Massachusetts04-3308902
Massachusetts04-3308902
(State or other jurisdiction of incorporation of organization)(IRS Employer Identification No.)
222 Merrimack Street, Lowell, MassachusettsLowell,Massachusetts01852
(Address              (Address of principal executive offices)(Zip code)
(978) 459-9000

Registrant’sRegistrant's telephone number, including area code
(978) 459-9000


Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $0.01 par value per shareEBTCNASDAQ GlobalStock Market
(Title of each class)(Name of exchange on which registered)
 Securities registered pursuant to Section 12(g) of the Exchange Act:
NONE
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.      o Yes ý No
Indicate by check mark if the registrant is not required to file pursuant to Section 13 or Section 15(d) of the Act.      o Yes ý No
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.      ý Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
ý Yes o No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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 of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act (Check one):

Large accelerated filer o
Accelerated filer x
Non-accelerated filer o

Smaller reporting company o
Emerging growth company o
Large accelerated filer☐Accelerated filerx

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.      o☐


Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.      ☒

If the securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.      ☐

Indicate by check mark whether any of those error corrections are restatements that required a recover analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recover period pursuant to §240.10D-1(b).      ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)     o☐ Yes ý No

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid price and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $345,319,719$296,960,546 ($35.5428.94 per share) as of June 30, 20172023, the last trading day of the registrant’s most recently completed second quarter.

Indicate the number of shares outstanding of each of the registrant’sregistrant's classes of common stock, as of the latest practicable date:
March 2, 2018, February 29, 2024, Common Stock, par value $0.01, 11,635,04412,278,649 shares outstandingoutstanding.


 DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its annual meeting of stockholdersshareholders to be held on May 1, 20187, 2024, are incorporated by reference in Part III of this Form 10-K.

Table of Contents

ENTERPRISE BANCORP, INC.
TABLE OF CONTENTS
Page Number
Page Number
PART I
34
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3435
3435
3437
37
3437
PART II
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39
40
7262
7464
117
138120
138120
138120
120
Part III
138120
138120
138120
138120
138120
��
Part IV
139121
143125
125
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ACRONYMS AND ABBREVIATIONS

The acronyms and abbreviations defined in the table below are provided to aid the reader when reviewing this Form 10-K:
AcronymDescription
ACH:
Signature page
Automatic clearing house
ACL:
143
Allowance for credit losses
AOCI:Accumulated other comprehensive income
ASC:Accounting Standards Codification
ASU:Accounting Standards Update
BTFP:Bank Term Funding Program
BOLI:Bank-owned life insurance
CBLRCommunity Bank Leverage Ratio
CD:Certificate of deposit
CDE:Community Development Entities
CECL:Current expected credit loss
CEO:Chief executive officer
CERCLA:Comprehensive Environmental Response, Compensation and Liability Act
CET1:Common equity tier 1
CFPB:Consumer Financial Protection Bureau
CISO:Chief information security officer
CMO:Collateralized mortgage obligations
CMP:Compliance Management Program
CRA:Community Reinvestment Act of 1977
CTA:Corporate Transparency Act of 2019
DRSPP:Dividend reinvestment and direct stock purchase plan
DIF:Deposit Insurance Fund
DTA:Deferred tax asset
EWMC:Enterprise Wealth Management Committee
EGRRCPA:Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018
FASB:Financial Accounting Standards Board
FDIA:Federal Deposit Insurance Act
FDIC:Federal Deposit Insurance Corporation
FHLB:Federal Home Loan Bank
FinCEN:Financial Crimes Enforcement Network
Fintech:Financial technology
FIRREA:Financial Institutions Reform, Recovery and Enforcement Act
FRB:Federal Reserve Bank of Boston
FS-ISACFinancial Services Information Sharing and Analysis Center
GAAP:Generally Accepted Accounting Principles
HMDA:Home Mortgage Disclosure Act
IRS:Internal Revenue Service
MBS:Mortgage-backed securities
Net Interest Margin:Tax-equivalent net interest margin
NH BFA:New Hampshire Business Finance Authority
NIST:National Institute of Standards and Technology
NMTC:New Market Tax Credit
OREO:Other real estate owned
PPP:Paycheck Protection Program
RESPA:Real Estate Settlement Procedures Act
ROU:Right-of-use
RPA:Risk participation agreement
SAR:Suspicious activity reports
SBA:Small Business Administration
SERP:Supplemental employee retirement plan
SIEM:Security Information and Event System
TDR:Troubled debt restructuring
TILA:Truth-in Lending Act
U.S.:United States
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PART I
 
Item 1.Business
Item 1.Business
 
Organization
 
Enterprise Bancorp, Inc. (the "Company," "Enterprise," "us," "we," or "our") is a Massachusetts corporation organized in 1996, which operates as the parent holding company of Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the “Bank”"Bank")., a community-focused commercial bank. Substantially all of the Company’s operations are conducted through the Bank.Bank and its subsidiaries. The Bank, a Massachusetts trust company and state chartered commercial bank that commenced banking operations in 1989, has five wholly owned subsidiaries that are included in the Company’s consolidated financial statements:

Enterprise Insurance Services, LLC, organized in 2000 in the State of Delaware for the purpose of engaging in insurance sales activities;
Enterprise Wealth Services, LLC, organized in 2000 in the State of Delaware for the purpose of offering non-deposit investment products and services, under the name of “Enterprise Wealth Services,” and
•Three Massachusetts security corporations, Enterprise Security Corporation (2005), Enterprise Security Corporation II (2007) and Enterprise Security Corporation III (2007), which hold various types of qualifying securities. The security corporations are limited to conducting securities investment activities that the Bank itself would be allowed to conduct under applicable laws.
•Enterprise Wealth Services, LLC, organized in 2000 in the State of Delaware for the purpose of offering non-deposit investment products and services, under the name of "Enterprise Wealth Services."
Enterprise’s•In February 2023, the Bank organized the EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") under the laws of the State of Delaware for the purpose of investing in a local NMTC project which provides federal tax incentives for investments in distressed communities.

Enterprise's headquarters are located at 222 Merrimack Street in Lowell, Massachusetts.

The community banking services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company’sCompany's only reportable operating segment.

All material intercompany balances and transactions have been eliminated in consolidation.

The Company's common stock trades on the NASDAQ Global Market under the trading symbol "EBTC."

Market Area
 
The Company’sCompany's primary market area is the Greater Merrimack ValleyNorthern Middlesex, Northern Essex, and North Central regionsNorthern Worcester counties of Massachusetts and the Southern New Hampshire (Southern Hillsborough and Southern Rockingham counties).counties in New Hampshire. Enterprise has 2427 full-service branch banking officesbranches located in the Massachusetts communities of Acton, Andover, Billerica (2), Chelmsford (2), Dracut, Fitchburg, Lawrence, Leominster, Lexington, Lowell (2), Methuen, North Andover, Tewksbury Tyngsboro(2), Tyngsborough and Westford and in the New Hampshire communities of Derry, Hudson, Nashua (2), Pelham, Londonderry, Salem, and Windham, which serve those cities and towns as well as the surrounding communities.Windham.


Management actively seeks to strengthen itsthe Company's market position by capitalizing on market opportunities to grow all business lines and through the continued pursuit of organic growth and strategic expansion within existing and into neighboring geographic markets.
 
Products and Services
 
The Company principally is engaged in the business of gathering deposits from the general public and investing primarily in commercial loans and investment securities and utilizing the resulting cash flows to conduct operations, expand the branch network, and pay dividends to stockholders.securities. Through the Bank and its subsidiaries, the Company offers a range of commercial, residential and consumer loan products, deposit products and cash management services, as well as investment advisorywealth management and wealth management, trust and insurance services.

The integrated branch network serves all product channels with knowledgeable service providers and well-appointedstate-of-the-art facilities. The Bank also offers various digital banking capabilities via online and mobile platforms. Management continually examines new products and technologies in order to maintain a highly competitive mix of offerings and state-of-the-art delivery channels in order to tailor product lines to customers' needs. These products, services and servicesdelivery channels are outlined below.



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The Company's business is not dependent on one, or a few customers, nor upon a particular industry, the loss of which would have a material adverse impact on the financial condition or operations of the Company.

Lending Products
 
General
 
The Company specializes in lending to business entities, non-profit organizations, professional practices, and individuals. The Company’sCompany's primary lending focus is on the development of high qualityhigh-quality, long-term commercial relationships achieved through active business development efforts, long-term relationships with established commercial developers, strong community involvement, and focused marketing strategies. Loans made to businesses, non-profits, and professional practicesCommercial loans may include commercial real estate mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit. The Company also originates equipment lease financing for businesses. Loans made to individualsConsumer or "retail" loans may include conventional residential mortgage loans, home equity loans and lines of credit, residential construction loans on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company manages its loan portfolio to avoid concentration by industry, relationship size, and source of repayment to lessen its credit risk exposure.


Interest rates charged on loans may be fixed or variable; variable rate loans may have fixed initial periods before periodic rate adjustments begin. Individual rates offered are dependent on the associated degree of credit risk, term, underwriting and servicing costs, loan amount, and the extent of other banking relationships maintained with the borrower, and may be subject to interest rate floors. Rates are also subject to competitive pressures, the current interest rateinterest-rate environment, availability of funds, and government regulations. The Company has a “Back-to-Back Swap” program whereby the Bank enters into an interest-rate swap with a qualified commercial banking customer 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 transaction structure effectively minimizes the Bank’s net risk exposure resulting from such transactions.


Enterprise employs a seasoned commercial lending staff, with commercial lenders supporting each of the Bank's branch location.locations. An internal loan review function assesses the compliance of commercial loan originations with the Company’sCompany's internal policies and underwriting guidelines and monitors the ongoing credit quality of the loan portfolio. The credit risk management function monitors a wide variety of individual borrower and industry factors; and the Company's internal loan credit risk rating system classifies loans depending on risk of loss characteristics. The Company also contracts with an external loan review company to review, on a pre-determined schedule, the internal credit ratings assigned to loans in the commercial loan portfolioportfolio. The review is focused on a pre-determined schedule,the non-criticized segment of the commercial loan portfolio, based on the type, size, credit rating, and overall risk of the loan.loan and generally encompasses 65% or more of the commercial loan portfolio. This same company is also contracted to perform limited stress testing on the commercial real estate loan portfolio on an annual basis.


The Company's internal residential origination and underwriting staff originate residential loans and are responsible for compliance with residential lending regulations, consumer protection and internal policy guidelines. The Company contracts with an external loan review company to complete a regular quality control review in accordance with secondary market underwriting requirementsstandards for residential mortgage loans sold.loans. The sample reviewed is based on loan volume originated since the prior review. Additionally, the Company's internal compliance department monitors the residential loan origination activity for regulatory compliance.


A management loan review committee, consisting of senior lending officers, credit, loan workout, loan operations, risk management and accounting personnel, is responsible for setting loan policy and procedures, as well as reviewing loans on the internal “watched"watch asset list”list" and classified loan report.

An internal credit review committee, consisting of senior lending officers and credit review personnel, meets to review and approve loan requests related to borrowing relationships of certain dollar levels, as well as other borrower relationships recommended for discussion by committee members.
 
The Loan Committee of the Company’sCompany's Board of Directors (the “Board”"Board") approves loan relationships exceeding certain prescribed dollar limits. The Board's Loan Committee reviews current portfolio statistics, problem credits, construction loan reviews, watchedwatch assets, loan delinquencies, and the allowance for loancredit losses, as well as current market conditions and issues relating to the construction and commercial real estate development industry and the reports from the external loan review company. The Board’sBoard's Loan Committee is also responsible for approval of the loan policy and credit-related charge-offs recommended by management, subject to final approval by the full Board.
 
At December 31, 2017,2023, the Bank’sBank's statutory lending limit, based on 20% of capital (capital stock plus surplus and undivided profits, but excluding other comprehensive income), to any individual borrower and related entities was approximately $49.1$93.5 million,, subject to certain exceptions provided under applicable law.
5

See also "Risk Factors" contained in Item 1A and "Credit Risk" contained in Item 7, for further discussion on a varietyTable of risks and uncertainties that may affect the Company’s loan portfolio.Contents
Commercial Real Estate, Commercial and Industrial, and Commercial Construction Loans

Commercial real estate loans include loans secured by both owner-useowner and non-owner occupied (investor) real estate. These loans are typically secured by a variety of commercial, residential investment, and industrial property types, including one-to-four and multi-family apartment buildings, office, industrial, or mixed-use facilities, strip shopping centers, or other commercial properties, and are generally guaranteed by the principals of the borrower. Commercial real estate loans generally have repayment periods of approximately fifteen15 to twenty-five30 years. Variable interest rateinterest-rate loans have a variety of adjustment terms and underlying interest rateinterest-rate indices and are generally fixed for an initial period before periodic rate adjustments begin.

Commercial and industrial loans include seasonal and formula-based revolving lines of credit, working capital loans, equipment financing (including equipment leases), and term loans. Also included in commercial and industrial loans are loans partially or fully guaranteed by the U.S. Small Business Administration ("SBA"),SBA, and loans under various other government and municipal programs and agencies. Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally guaranteed by the principals of the borrower. Variable rate loans and lines in this portfolio have interest rates that are periodically adjusted, with loans generally having fixed initial periods. Revolving lines of credit are written on demand and those over $100 thousand are subject to annual credit review. Revolving lines of credit below this threshold are monitored based on payment history and other performance criteria. Commercial and industrial loans have average repayment periods of one1 to seven7 years.

Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by underlying real estate collateral and are generally guaranteed by the principals of the borrowers. Construction lenders work to cultivate long-term relationships with established developers.In many cases, these loans move into the permanent commercial real estate portfolio when the construction phase is completed. The Company limits the amount of financing provided to any single developer for the construction of properties built on a speculative basis. Funds for construction projects are disbursed as pre-specified stages of construction are completed. Regular site inspections are performed, prior to advancing additional funds, at each construction phase, either by experienced construction lenders on staff or by independent outside inspection companies. Commercial construction loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms of one1 to three3 years.

From time to time, the Company participates with other banks in the financing of certain commercial projects. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently. In some cases, the Company may act as the lead lender, originating and servicing the loans, but participating out a portion of the funding to other banks.  In other cases, the Company may participate in loans originated by other institutions. In each case, the participating bank funds a percentage of the loan commitment and takes on the related pro-rata risk. In each case in which the Company participates in a loan, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks.  When the participation qualifies as a sale under U.S. generally accepted accounting procedures ("GAAP"),GAAP, the balances participated out to other institutions are not carried as assets on the Company’sCompany's consolidated financial statements. The Company performs an independent credit analysis of each commitment andWhen a review of the participating institution prior to participation indoes not qualify as a sale under GAAP, the loan is carried at gross principal outstanding and an annual review thereafter of each participating institution.the balances participated out to other institutions are carried as secured borrowings on the Company's consolidated financial statements. Loans originated by other banks in which the Company is a participating institution are carried in the loan portfolio at the Company’s pro-rata share of ownership.

In addition, the Company participates in various community development loan funds in which local banks contribute to a loan pool which is independently managed. These loan pools make small dollar loans available to local businesses and start-ups that might otherwise not qualify for traditional small business loans directly from banks, with the potential risk spread among the participating banks. The goal of these partnerships with community development loan funds is to stimulate local economic development, create jobs, and help small businesses and entrepreneurs to become more viable, bankable and an integrated part of the local community.

Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party.third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.


Residential Loans

Enterprise Bank originates conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower’sborrower's primary residence, or as vacation homes or investment properties. Loan-to-value policy limits vary, generally from 75% for multi-family owner-occupied properties, up to 97% for single family owner-occupied properties, with mortgage insurance coverage required for loan-to-value ratios greater than 80% based on program parameters. In addition, financing is provided for the construction of owner-occupied primary and secondary residences. Residential mortgage loans may have terms of up to 30 years at either fixed or adjustable ratesadjustable-rates of interest. Fixed and adjustable rateadjustable-rate residential mortgage loans are generally originated using secondary market underwriting and documentation standards.

Depending on the current interest rateinterest-rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable rateadjustable-rate residential mortgage loans whichthat are eligible for sale in the secondary market or hold some or all of this residential loan production for the Company’sCompany's portfolio. Mortgage loans are generally not pooled for sale, but instead sold on an individual basis. The Company may retain or
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sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans classified as held for sale are carried as a separate line item on the balance sheet.


Home Equity Loans and Lines of Credit
("Home equity term loans have in the past been originated for one-to-four family residential properties with maximum original loan-to-value ratios generally up to 80% of the automated valuation or appraised value of the property securing the loan. Home equity loan payments consist of monthly principal and interest based on amortization ranging from three to fifteen years. The rates may be variable or fixed.equity")
 
The Company originates home equity revolving lines of credit for one-to-fourone-to-two family residential properties with maximum original loan-to-value ratios generally up to 80%75% of the automated valuation or appraised value of the property securing the loan. Home equity lines generally have interest rates that adjust monthly based on changes in the Wall Street Journal Prime Rate,prime lending rate, although minimum rates may be applicable. Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment schedule for standard home equity lines requires interest only payments for the first ten years of the lines. Generally, at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year15-year amortization schedule or, for eligible borrowers meeting certain requirements, the line availability may be extended for an additional interest only period. Home equity line of credit programs are available with the ability to convert all or a portion of the home equity line of credit balance to a fixed-rate term note subject to certain requirements and limitations. Available credit on the home equity line becomes available again as principal is repaid on the converted amounts.

Consumer Loans


Consumer loans consist primarily of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities (Mass Save ®), and overdraft protection lines on checking accounts extended to individual customers. The aggregate amountamounts of overdrawn deposit accounts are reclassified as loan balances.


Credit Risk and Allowance for LoanCredit Losses
 
Information regarding the Company’sCompany's credit risk and allowance for loancredit losses is contained in Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations," contained in the section "Financial Condition," under "Loans," in the headings “Creditsubsections "Credit Risk,” “Asset Quality”" and “Allowance"ACL for Loan Losses.”Loans" of this Annual Report on Form 10-K for the year ended December 31, 2023 (this "Form 10-K"). See also Note 1, "Summary of Significant Accounting Policies," under Item (h) "Credit Risk Management and ACL for Loans Methodology" to the Company's audited consolidated financial statements, contained in Item 8 of this Form 10-K.
 
Deposit Products
 
Deposits have traditionally been the principal source of the Company’sCompany's funds. Enterprise offers commercial checking, business and municipal savings accounts, term certificates of deposit ("CDs"), money market and business sweep accounts, Interest on Lawyers Trust Accounts ("IOLTA's"), and escrow management accounts, as well as checking and Simplified Employee Pension ("SEP") accounts to employees of our business customers.  Aa broad selection of competitive commercial and retail deposit products, are also offered, including personal checking accounts, earning interest and/or reward points,limited-transactional savings accounts,and money market accounts, individual retirement accounts ("IRA")commercial sweep products, and term CDs. Terms on CDsThe Company's deposit products are offered ranging from one month to seventy-two months.commercial businesses, professionals, municipalities, non-profit organizations, and individuals. As a member of the Federal Deposit Insurance Corporation (the "FDIC"),FDIC, the Bank's depositors are provided deposit protection up to the maximum FDIC insurance coverage limits.

 
In addition to the deposit products noted above, the Company also provides customers the ability to allocateautomate allocation of investment sweep (commercial only), money market, checking deposits and CDsCD balances to nationwide networks of reciprocating FDIC insured banks. Deposits are placed into a nationwide networksnetwork of banks in increments that are eligible for FDIC insurance. This allows the Company to offer enhanced FDIC insurance coverage on larger deposit balances by placing the “excess”"excess" funds ininto participating FDIC insured accounts or term certificates issued by other banks participating in the networks.CDs. In exchange, the other institutions place dollar-for-dollar matching reciprocal and insurable deposits with the Company via the networks. Essentially, the equivalent of the original deposit comes back to the Company and is available to fund local loan growth.operations. The original funds placed into the networks are not carried as deposits on the Company's consolidated balance sheet,Consolidated Balance Sheet, however the network's reciprocal dollar deposits are carried as customer deposits within the appropriate product category under totalcustomer deposits on the consolidated balance sheet.Consolidated Balance Sheet.
 
Management determines the interest rates offered on deposit accounts based on current and expected economic conditions, competition, liquidity needs, the volatility of existing deposits, the asset-liability position of the Company and the overall objectives of the Company regarding the growth and retention of relationships. Low-cost checking deposits are an important component of the Company's core funding strategy.
 
Enterprise may also utilizesutilize brokered deposits, bothmainly term and overnight,products, from a number ofseveral available sources as part of the Company's asset-liability management strategy and as an alternative to borrowed funds to support asset growth in excess of internally generated deposits. Brokered The Company collectively refers to brokered
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deposits along withand borrowed funds may be referred to as wholesale"wholesale funding."


Cash Management Services


In addition to the lending and deposit products discussed above, commercial banking and municipalpublic sector customers may take advantage of cash management services includingand products that provide comprehensive reporting, streamline the processing of deposits and facilitate the use of those funds for purposes such as disbursements and automated short-term investment activities.

Cash management clients can enroll in remote check deposit capture, Automated Clearing House ("ACH") creditlockbox, ACH origination, domestic and debit origination, credit card processing, lockbox, escrow management, Non-Sufficient Funds check recovery, coin and currency processing, check reconciliation, check payment fraud prevention, international and domesticU.S. dollar wire transfers, corporate credit cards, overnightforeign currency wire transfers, "Positive Pay" to reduce check fraud and unauthorized ACH received items, account reconciliation, zero balance target transfers, automated investment sweeps, and commercial card and merchant services programs offered through third parties.

Investment sweep services withinclude third-party FDIC enhanced FDIC coverage, and money markets with enhanced FDIC coverage.

Third-party money market or third-party non-deposit mutual funds are also offered for commercial sweep accounts.funds. Management believes that commercial customers benefit from this productthe flexibility of these products, while retaining a conservative investment optionoptions of high quality and safety. The balances swept on a daily basis into mutual funds do not represent obligations of the Company and are not insured by the FDIC.


Product Delivery Channels


In addition to traditional product access channels, on-line banking customers may connect to their bank accounts securely via personal computer or any internet-enabled phone or mobile device.  Various electronicvarious digital banking capabilities includeare delivered through the following:Bank's online website and mobile apps allowing customers to view account inquiries; viewing of recent transactions;statements, activity and images, as well as perform internal and external account transfers; loan payments; bill payments; persontransfers, pay bills, place stop payments, make person-to-person payments, and conduct mobile deposits. Digital wallet and mobile card controls provide smart phone users with additional debit card safety features to person payments; check deposits; placement of stop payments; access to images of checks paid;actively control and access to prior period account statements; commercial customers can additionally launch cash management services described above.monitor their virtual debit card.

On-lineOnline and mobile banking tools utilize multiple layers of customer authentication including device, geographiccommensurate with the risk posed by the varying types of transactions and biometric recognition, personal access ID’sinformation available within each tool.

Wealth Management and passwords, as well as digital signatures for certain transactions.

Personal and business debit card customers may also enlist in various digital wallet applications for their Android and Apple compatible devices to conduct convenient contactless debit payments in a unique secure environment at hundreds of thousands of retail locations.

InvestmentWealth Services
 
The Company provides a range of investmentwealth advisory and management services delivered via two channels, Enterprise Wealth Management and Enterprise Wealth Services.
 
InvestmentWealth advisory and management services include customized investment management and trust services provided under the label “Enterprise"Enterprise Wealth Management”Management" to individuals, family groups, commercial businesses, trusts, foundations, non-profit organizations, and endowments.


Enterprise Wealth Management primarily utilizes an open-architecture approach to client investment management.  The philosophy ismanagement, focusing on strategic asset allocation to identify and select high performing mutual funds and independent investment management firms and individual securities on behalf of our clients. The Company partners with an investment research firms and due diligence firmuses state of the art analytic tools to strengthen strategic development and provide performance monitoring capabilities.  This firm performs detailed researchinform the asset allocation and due diligence reviews and provides an objective analysis of each independentportfolio construction processes. The investment management firm based on historic returns, management quality, longevity, investment style, risk profile, and other criteria, and maintains ongoing oversight and monitoring of their performance.  This due diligenceprocess is intended to enable the Company to customizebuild and maintain investment portfolios to meet each customer’sclient’s financial objectives and aims to deliver superior long-term performance.results.
Enterprise Wealth Management also offers the flexibility of an individually managed portfolio for clients who prefer customized asset management with a variety of investment options, which includes our Large Cap Core Equity Strategy, a proprietary blend of value and growth stocks.  Various secondary research sources are utilized with our individually managed portfolios.

Enterprise Wealth Services provides brokerage and management services through a third-party arrangement with Commonwealth Financial Network, a licensed securities brokerage firm, with products designed primarily for the individual investor. Retirement plan services are offered through third-party arrangements with leading 401(k) plan providers.

InsuranceThe EWMC of the Board is responsible for overseeing that the fiduciary and investment activities of Enterprise Wealth Management and Enterprise Wealth Services
Enterprise Insurance Services, LLC, engages in insurance sales activities through a third-party arrangement are consistent with HUB International New England, LLC (“HUB”), which is a full-service insurance agency, with offices in Massachusettsthose powers delegated by the Board and New Hampshire,that prudent care and is part of HUB International Limited, which operates throughout the United States and Canada. Enterprise Insurance Services provides, through HUB, a full array of insurance products including property and casualty, employee benefits and risk-management solutions tailored to serve the specific insurance needs of businesses in a range of industries operatingdiscretion are followed in the Company’s market area.management of client assets. EWMC is also responsible for reviewing investment performance of investment advisors, strategic planning initiatives and results, and proposed new products or services, among other responsibilities.




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Investment Activities
 
The Company's investment portfolio activities are an integral part of the overall asset-liability management program of the Company. The investment function provides readily available fundsliquidity to support loan growth, as well as to meet withdrawals and maturities of deposits, and attempts to provide maximum return consistent with liquidity constraints and general prudence, including diversification and safety of investments. In addition to the Bank, the Company holds investment securities in three Massachusetts security corporation subsidiaries, which serve to increase after tax returns in order to provide enhanced tax savings associatedaccordance with certain state tax policies related to investment income.policy.
 
The securities in which the Company may invest are limited by regulation. In addition, an internal investment policy restricts investments in debt securities to high-quality securities within prescribed categories as approved by the Board. Management utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios within prescribed guidelines set by management. The Company’sCompany's internal investment policy also sets sector limits as a percentage of the total portfolio, identifies acceptable and unacceptable investment practices, and denotes approved security dealers. The effect of changes in interest rates, market values, timing of principal payments and credit risk are considered when purchasing securities.
 
Cash equivalents are defined as highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and present insignificant risk of changes in value due to changes in interest rates. The Company's 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 marketmarkets and money market mutual fund accounts and short-termaccounts), short team U.S. Agency Discount Notes)Treasury notes and overnight and term federal funds sold ("fed funds") to money center banks. 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.
 
The Company primarily invests in debt securities, with a small portion of the portfolio invested in equities. As of the balance sheet dates reflected in this annual report,Form 10-K, all of the investmentdebt securities within the Company's investment portfolio were classified as available-for-sale and carried at fair value. Management regularly reviews the portfolio for securities with unrealized losses that are other-than-temporarily-impaired ("OTTI"). If a decline in the market value of an equity security or fund is considered other than temporary, the cost basis of the individual security or fund is written down to market value, with a charge to earnings. For debt securities, OTTI is generally recognized through a charge to earnings as of the balance sheet date, while non-OTTI unrealized losses are recognizedchanges in fair value reflected in other comprehensive income. Unrealized losses on debtThe equity securities are deemed OTTI if: 1) the Company intends to sell the security, 2) it is more likely than not that the Company will be required to sell the security before recovery, or 3) a credit loss exists and the Company does not expect to recover the

entire amortized cost. For debt securities that have a credit loss, any portion of the loss related to other factors is recordedcarried at fair value, with changes in other comprehensivefair value recognized in net income.


Management reports investment transactions, portfolio allocation, effective duration, marketfair value at risk and projected cash flows to the Board on a periodic basis. Credit risk inherent in the portfolio is closely monitored by management and presented at least annually to the Board. The Board also approves the Company’sCompany's internal investment policy annually and ongoing investment strategy.


The Company is required to purchase Federal Home Loan Bank of Boston (“FHLB”)FHLB stock at par value in association with the Bank’sBank's outstanding advances from the FHLB; this stock is classified as a restricted investment and carried at cost which management believes approximates fair value.
See also "Risk Factors" contained in Item 1A, and "Impairment Review of Investment Securities" contained under the heading "Accounting Policies/Critical Accounting Estimates" in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for further discussion on a variety of risks and uncertainties that may affect the Company’s investment portfolio.
Other Sources of Funds
As discussed above, deposit gathering has been the Company's principal source of funds.  Asset growth in excess of deposits may be funded through cash flows from our loan and investment portfolios, or the following sources:

Borrowed Funds
 
Total borrowing capacity includes borrowing arrangements at the FHLB, andthe FRB discount window, the BTFP established by the Board of Governors of the Federal Reserve Bank of Boston ("FRB"System (the "Federal Reserve Board") Discount Window, and borrowing arrangements with correspondent banks. On January 24, 2024, the Federal Reserve Board announced that the BTFP will cease making new loans after March 11, 2024.
 
Membership in the FHLB provides borrowing capacity based on qualifying collateral balances pre-pledged to the FHLB, including certain residential loans, home equity lines, commercial loans, U.S. government and U.S. Governmentagency securities and Agencycertain municipal securities.


Borrowings from the FHLB typically are utilized to fund short-term liquidity needs or specific lending projects under the FHLB’sFHLB's community development programs. ThisThe FHLB funding facility is an integral component of the Company’sCompany's asset-liability management program.
 
The FRB Discount Windowdiscount window and BTFP borrowing capacity is based on the pledge of qualifying collateral balances to the FRB. Collateral pledged for thisto the FRB facility consists primarily of certain municipal and corporate securities held in the Company's investment portfolio. Additional types of collateral are available to increase borrowing capacity with the FRB if necessary.

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Pre-established non-collateralized overnight borrowing arrangements with large national and regional correspondent banks provide additional overnight and short-term borrowing capacity for the Company.Company and are classified as "other borrowings" under Borrowed Funds on the Company's balance sheets.

See also “Risk Factors” contained in Item 1A, for further discussion on a variety of risks and uncertainties that may affect the Company’s ability to obtain funding and sustain liquidity.

Subordinated Debt
 
The Company had $14.8 millionhas issued subordinated notes as a component of its capital management strategy. As of the balance sheet dates contained in this Form 10-K, the Company's outstanding subordinated debt (net of deferred issuance costs) at both December 31, 2017 and December 31, 2016, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notesfixed-to-floating rate subordinated notes (the "Notes") issued July 2020, callable in January 2015, with a 15 year term, net of debt issuance costs.whole or part beginning in 2025, due in 2030. The Notes are intended to qualify at the Company as Tier 2 capital for regulatory purposes and pay interest at a fixed rate of 6.00% per annum through January 30, 2025, after which floating rates apply.purposes.

See Note 7, "Borrowed Funds and Subordinated Debt" to the consolidated financial statements in Item 8 below, for further information regarding the Notes and the Company’s other borrowings.



Capital Resources
 
Capital planning by the Company and the Bank considers current needs and anticipated future growth. Historically, theThe primary sources of capital for the Company and the Bank have beeninclude proceeds from the issuance of the Company's common stock, and proceeds from the issuance of subordinated debt. Ongoing sources of capital include thedebt and retention of earnings, less dividends paid, proceeds from the exercise of employee stock options and proceeds from purchases of shares pursuant to the Company’s dividend reinvestment plan and direct stock purchase plan (together, the "DRSPP").paid. The Company believes its current capital is adequate to support ongoing operations.


In the second quarter of 2016, the Company completed a combined shareholder subscription rights offering and supplemental community offering (the "Offering"), at an offering price of $21.50 per share. The Company issued 930,232 shares of common stock and received gross proceeds of $20.0 million ($19.7 million, net of offering costs). The Company contributed the net proceedsis subject to the Bank to support future asset growth and for general corporate purposes.

Since January 1, 2015, the Company has been subject to increasingregulatory capital ratio requirements, with a phase in period that extends to January 2019, as a result of regulation adopted by the federal bank regulatory agenciesframework known as the "Basel III Rules."Rules" which include risk-based capital ratio requirements. Management believes, as of December 31, 2017,2023, that the Company and the Bank meetmet all capital adequacy requirements to which they were subject.subject under Basel III. As of December 31, 2017,2023, the Company met the definition of “well-capitalized”"well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.


See also "Capital Requirements" belowRequirements," and "Capital Requirements under Basel III," under the heading “Supervision"Supervision and Regulation” for further information regarding the Company’s and the Bank’s regulatory capital requirements.  See also Note 10, "Stockholders' Equity" to the Company's consolidated financial statements,Regulation," contained in Item 8,below, for further information regarding the Company's and the Bank's regulatory capital ratios.requirements. 


Patents, Trademarks, etc.
 
The Company holds a number ofseveral registered service marks and trademarks related to product names and corporate branding. The Company holds no other patents, registered trademarks, licenses (other than licenses required to be obtained from appropriate banking regulatory agencies), franchises or concessions that are material to its business.


EmployeesHuman Capital Resources


The Company distinguishes itself through our strong sense of teamwork, purpose, inclusion, and equity, and through caring for each other, our customers, and our communities. We routinely engage independent third parties to conduct cultural, engagement, and inclusion surveys to assess our engagement and to act, if necessary, to address areas of improvement. Based on the feedback provided by our team members, management believes its team member relations are excellent.

At December 31, 2017,2023, the Company employed 482570 full-time equivalent employees.team members. None of the Company's employees are presently represented by a union or covered by a collective bargaining agreement.  Management believes its employee relations

Diversity, Equity, Inclusion & Belonging

At Enterprise Bank, we encourage and foster a culture of diversity, equity, inclusion, and belonging where everyone feels valued and respected. Our Bank-wide DEIB Program Steering Committee was founded to further embrace and promote awareness of personal identity in the workplace, to identify and help resolve equity gaps and to strengthen everyone’s sense of belonging within our Enterprise family. To help team members with similar backgrounds and experiences connect, and to bring together supportive networks, we’ve established several Employee Resource Groups at the Bank, including the PRIDE Community of Respecting People’s Sexuality & Gender, Veterans ERG, Working Parents ERG, and our Multicultural Alliance, a cross-functional team of ambassadors who promote diversity and share ideas to help celebrate our differences while seeking connections through intercultural conversations, awareness, and respect. In 2023, a Young Professionals ERG was established at the Bank with a mission to help develop our young professionals through education, guidance, resources, and networking opportunities.

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As of December 31, 2023, 68% of our team members are excellent.women and 22% are self-identified as Black, Indigenous, and persons of color. Of our managerial team members, 66% are women and 13% are self-identified as Black, Indigenous, and persons of color.

Employee Development

We strive to attract the best talent and to foster their growth and development by continually investing in and supporting the ongoing development of our team members. Our Enterprise team has the opportunity to participate in in-house training, seminars, webinars, and conferences. We also support professional certifications and designations, continued education assistance and reimbursement.

Managers are encouraged to work with their team members to develop individualized career development plans and strategies based on our S.O.A.R. framework: Strengths, Opportunities, Aspirations, Results. Enterprise also offers a mentorship program to help guide team members and contribute to their holistic personal and professional development.

Employee Benefits & Wellness

Enterprise strives to provide team members with a range of compensation and reward programs that are meaningful and important to them. We offer compensation opportunities that are competitive with our geographic markets. New team members starting in entry level roles begin at above minimum wage and we have increased starting pay each year.

Enterprise offers unique programs to give team members a greater vested interest in the Bank’s success. We offer a Spot Bonus Award Program, an Equity Ownership Participation Program, a Variable Compensation Incentive Plan, and Sales Incentive Plans to incentivize team members to perform well by rewarding them with a monetary payout when the team member and the Bank are successful.

As part of our "total rewards," we offer employees several insurance plan options, including three health insurance plans, two dental insurance plans, two vision insurance plans and 401(k) matches. Enterprise bankers also have access to our Employee Assistance Program, which offers help to team members and/or their household members who may be experiencing problems related to life changes and/or personal stress, paternity leave, tuition reimbursement, short- and long-term disability and flexible work arrangements.

Enterprise Bank’s wellness program encourages a healthy lifestyle and supports team members’ physical, financial, spiritual and emotional well-being through ongoing holistic education programs, interactive initiatives and social support.

Company WebsiteWebsites
 
The Company currently uses outside vendors to design, support, and host its two primary internet websites; www.enterprisebanking.com, for general banking products and services and Company information, as noted below; and www.enterprisewealth.com, for investment advisory and management services offered by the Bank, with a client portal that provides access to various customizable reports and statements for customers' wealth accounts.  The underlying structure of the websites allows for ongoing maintenance to be performed by third parties, and updates of information to be performed by authorized Company personnel.website: www.enterprisebanking.com. The information contained on or accessible from our websites does not constitute a part of this reportForm 10-K and is not incorporated by reference.

The Bank's siteCompany's website provides information on the Company and its products and services. Users have the ability to securely open various deposit accounts, as well as the ability to submit mortgage loan applications and related documentation securely online and, via a link, to access their bank accounts and perform various financial transactions, with thoseand via the wealth-management link to access various wealth account reports and statements, and the ability to consolidate all investment accounts using a(Enterprise or others) on one secure Online Banking platform.

The siteBank's website also provides the access point to a variety of specified banking services and information, various financial management tools, and Company investor and corporate information, which includes a corporate governance page. The Company’sCompany's corporate governance page includes the corporate governance guidelines,Corporate Governance Guidelines, Code of Business Conduct and Ethics, and whistleblowerWhistleblower and non-retaliation protectionNon-Retaliation policy, as well as the charters of the Board of Directors’Board's Audit, Compensation and Human Resources, and Corporate Governance/Nominating committees.
 

In the Investor Relations section of the Bank'sCompany's website, under the SEC Filings tab, the Company makes available copies of the Company’sCompany's annual reports on Form 10-K, quarterly reports on Form 10-Q ("Form 10-Q"), proxy statements and current reports on Form 8-K.8-K ("Form 8-K"). Additionally, the site includes current registration statements that the Company has been required or elected to file in connection with the issuance of its shares.shares and other securities. The Company similarly makes available all insider stock ownership and transaction reports filed with the SEC by executive officers, directors and any 10% or
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greater stockholdersshareholders under Section 16 of the Securities Exchange Act of 1934, as amended ( the(the "Exchange Act") (Forms 3, 4 and 5). Access to all of these reports is made available free of charge and is essentially simultaneous with the SEC’sSEC's posting of these reports on its EDGAR system through the SECSEC's website (www.sec.gov).

Competition
 
EnterpriseThe Company faces robust competition to attract and retain customers within existing and neighboring geographic markets. This competition stems from nationalThe Company's ability to achieve its long-term strategic growth and market share objectives will depend in part upon management's continued success in differentiating the Company in the marketplace and its ability to strengthen its competitive position. National and larger regional banks numerousand financial institutions have a local presence in the Company's market area. These larger institutions have certain competitive advantages, including greater financial resources and the ability to make larger loans to a single borrower. Within our market area we also compete with government sponsored enterprises that can offer commercial real estate loans on apartments, multifamily and senior housing projects with a variety of competitive terms.

Numerous local savings banks, commercial banks, cooperative banks, and credit unions which have a presencealso compete in the region.Company's market area. The expanded commercial lending capabilities of credit unions and the shift to commercial lending by traditional savings banks means that both types of traditionally consumer-orientated institutions compete for the Company's targeted commercial customers. In addition, the non-taxable status of credit unions allows them an advantage as compared to taxable institutions such as Enterprise. Competition for loans, deposits and cash management services, investmentand wealth advisory assets and insurance business also comes from other businesses that provide financial services, including consumer finance companies, mortgage brokers and lenders, private lenders, insurance companies, securities brokerage firms, institutional mutual funds, and registered investment advisors,advisors.

Internet-based banks, non-bank electronic payment and funding channels, internet based banks and other tech-based financial intermediaries.

See also "Supervisionintermediaries have become a fast-growing and Regulation" below, Item 1A, "Risk Factors,” and "Opportunities and Risks" includedstrong competitor in the section entitled "Overview," whichfinancial services marketplace. The evolving Fintech industry aims to compete with traditional banking services and delivery methods and although the industry offers opportunities for strategic partnerships, it is contained in Item 7, "Management’s Discussionalso a source for direct competition.

The Company faces increasing competition within its marketplace on the pricing and Analysisterms of Financial Conditionloans. This is expected to be an ongoing competitive challenge; however, the Company is committed to maintaining asset quality and Resultsfocuses its sales efforts on building long-term full relationships, rather than competing for individual transactions or easing loan terms.

The Company faces ongoing competition within its marketplace on the pricing and terms of Operations," for further discussion on how new lawsdeposit products. The Company actively seeks to increase deposit market share and regulations and other factors may affect the Company’sstrengthen its competitive position growth and/with a commitment to providing an enhanced customer experience. The Company continuously reviews its deposit product offerings, cash management and ancillary services and delivery channels to ensure it is competitive.

Enterprise carefully plans market expansion through the addition of new branch locations, identifying markets strategically located to complement existing locations while expanding the Company's geographic market footprint. The integrated branch network serves all product channels.

The increased use and advances in technology, data analytics and storage, such as online and mobile, and non-bank electronic payment channels, electronic transaction processing, block-chain based assets including digital currency and non-fungible tokens, and cloud-computing and storage, among others are expected to have a significant impact on the future competitive landscape confronting financial service businesses.

In addition, the cost of compliance with new and existing government regulations, changes in tax legislation and the interest-rate environment continue to impact competition and consolidation within the industry in various ways, with some participants better equipped to manage these changes than others based on size, depth of resources, or profitability.competitive product positioning, among other factors.


Supervision and Regulation
General


Set forth below is a summary description of the significantmaterial elements of the laws and regulations applicable to the Company and the Bank. The description is qualified in its entirety by reference to the full text of the statutes, regulations and policies that are described. Moreover, these statutes, regulations and policies are continually under review by the U.S. Congress and state legislatures and federal and state regulatory agencies. A change in statutes, regulations, or regulatory policies applicable to the
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Company or its principal subsidiary, the Bank, could have a material effect on our business.business, financial condition or results of operations.


Regulatory Agencies

As a registered bank holding company, the Company is subject to the supervision and regulation of the Federal Reserve Board and, acting under delegated authority, the FRB pursuant to the Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act"). The Massachusetts Division of Banks (the "Division") also retains supervisory jurisdiction over the Company.


As a Massachusetts state-chartered bank, the Bank is subject to the supervision and regulation of the Massachusetts Division of Banks (the "Division") and, with respect to the Bank's New Hampshire branching operations, the New Hampshire Banking Department. As a state-chartered bank that accepts deposits and is not a member of the Federal Reserve System, the Bank is also subject to the supervision and regulation of the FDIC.

The Division also retains supervisory jurisdiction over the Company.


Bank Holding Company Regulation
As a registered bank holding company, the Company is required to furnish to the FRB annual and quarterly reports of its financial condition and results of operations, and may also be required to furnish such additionalamong other information and reports as the Federal Reserve Board or the FRBthat may require.be required.


Acquisitions by Bank Holding Companies


Under the Bank Holding Company Act, the Company must obtain the prior approval of the Federal Reserve Board or, acting under delegated authority, the FRB before (1)(i) acquiring direct or indirect ownership or control of any class of voting securities of any bank or bank holding company if, after the acquisition, the Company would directly or indirectly own or control 5% or

more of thesuch class; (2)(ii) acquiring all or substantially all of the assets of another bank or bank holding company; or (3)(iii) merging or consolidating with another bank holding company. The Company's acquisition of or merger with another bank holding company or acquisition of another bankThese activities would also require the prior approval of the Division.


Under the Bank Holding Company Act, and the regulations promulgated by the Federal Reserve Board thereunder, any company must obtain approval of the Federal Reserve Board or, acting under delegated authority, the FRB, prior to acquiring control of the Company or the Bank. For purposesSection 2(a)(2) of the Bank Holding Company Act applies a three-prong test for determining whether a company acquires "control" is defined as: (i) ownership, ofcontrol, or the power to vote 25% or more of any class of voting securities of the Company or the Bank, (ii) the ability to control in any manner the election of a majority of the directors of the Company or the Bank, or (iii) the direct or indirect exercise of a controlling influence over management or policies of the Company or the Bank. "Control" is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company.


Control Acquisitions

TheIn addition, regulations promulgated by the Federal Reserve Board related to determinations of "control" for purposes of the Bank Holding Company Act include presumptions for use in control determinations according to a tiered methodology using 5%, 10% and 15% as the presumption thresholds. These regulations apply to questions of control under the Bank Holding Company Act but do not extend to the Change in Bank Control Act of 1978, as amended (the "Change in Bank Control Act"),.

Control Acquisitions

The Change in Bank Control Act and the related regulations of the Federal Reserve Board generally require any person or groups of persons acting in concert (except for companies required to make application under the Bank Holding Company Act), to file a written notice with the Federal Reserve Board or, acting under delegated authority, the appropriate Federal Reserve Bank,FRB, before the person or group acquires control of the Company. The Change in Bank Control Act defines “control”"control" as the direct or indirect power to vote 25% or more of any class of voting securities or to direct the management or policies of a bank holding company or an insured bank. A rebuttable presumption of control arises under the Change in Bank Control Act where a person or group controls 10% or more, but less than 25%, of a class of the voting stock of a company or insured bank which is a reporting company under the Securities Exchange Act, of 1934, as amended, such as the Company, or such ownership interest is greater than the ownership interest held by any other person or group.


In addition, the Change in Bank Control Act prohibits any entity from acquiring 25% (5%(or 5% in the case of an acquirer that is a bank holding company) or more of a bank holding company’scompany's or bank’sbank's voting securities, or otherwise obtaining control or a controlling influence over a bank holding company or bank without the approval of the Federal Reserve Board. On September 22, 2008, theThe Federal Reserve Board has issued a policy statement on equity investments in bank holding companies and banks, which allows the Federal Reserve Board to generally be able to conclude that an entity’sentity's investment is not “controlling”"controlling" if the investment in the
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form of voting and nonvoting shares represents in the aggregate (i) less than one-third of the total equity of the banking organization (and less than one-third of any class of voting securities, assuming conversion of all convertible nonvoting securities held by the entity) and (ii) less than 15% of any class of voting securities of the banking organization.

Under the Change in Bank Control Act and applicable Massachusetts law, any person or group of persons acting in concert would also be required to file a written notice with the FDIC and the Division before acquiring any such direct or indirect control of the Bank.


Permissible Activities


The Bank Holding Company Act and the implementing regulations of the Federal Reserve Board also limitslimit the investments and activities of bank holding companies. In general, a bank holding company is prohibited from acquiring direct or indirect ownership or control of more than 5% of the voting shares of a company that is not a bank or a bank holding company or from engaging directly or indirectly in activities other than those of banking, managing or controlling banks, providing services for its subsidiaries, and various non-bank activities that are deemed to be closely related to banking. The activities of the Company are subject to these legal and regulatory limitations under the Bank Holding Company Act and the implementing regulations of the Federal Reserve Board.

In connection with the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act"), the Volcker Rule amended the Bank Holding Company Act to generally prohibit banking entities from engaging in the short-term proprietary trading of securities and derivatives for their own account and bar them from having certain relationships with hedge funds or private equity funds. Included within the range of funds covered by the regulations are certain trust preferred securities that back collateralized debt obligations. As the Company does not currently hold any of the prohibited investments, this aspect of the Volcker Rule does not have any impact on the Company’s consolidated financial statements at this time.


A bank holding company may also electthat qualifies and elects to become a "financial holding company," by which a qualified parent holding company of a banking institutioncompany" may engage, directly or through its non-bank subsidiaries, in any activity that is financial in nature or incidental to such financial activity or in any other activity that is complementary to a financial activity and does not pose a substantial risk to the safety and soundness of depository institutions or the financial system generally. These activities include securities underwriting and dealing, insurance underwriting and making merchant banking investments. A bank holding

company will be able to successfully elect to be regulated as a financial holding company if all of its depository institution subsidiaries meet certain prescribed standards pertaining to management, capital adequacy and compliance with the Community Reinvestment Act, as amended (the "Community Reinvestment Act"), such as being "well-managed" and "well-capitalized," and must have a Community Reinvestment Act rating of at least "satisfactory." Financial holding companies remain subject to regulation and oversight by the Federal Reserve Board. The Company believes that the Bank, which is the Company's sole depository institution subsidiary, presently satisfies all of the requirements that must be met to enable the Company to successfully elect to become a financial holding company. However, the Company has no current intention of seeking to become a financial holding company. Such a course of action may become necessary or appropriate at some time in the future depending upon the Company's strategic plan.


Source of Strength


UnderThe Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") codified the Federal Reserve Board's "source-of-strength" doctrine, which requires a bank holding company is required to act as a source of financial and managerial strength to any of its subsidiary banks. The bank holding company is expected to commit resources to support its subsidiary bank, including at times when the bank holding company may not be in a financial position to provide such support. A bank holding company's failure to meet its source-of-strength obligations may constitute an unsafe and unsound practice or a violation of the Federal Reserve Board's regulations, or both. This doctrine was codified by the Dodd-Frank Act, but the Federal Reserve Board has not yet adopted regulations to implement this requirement.


Imposition of Liability for Undercapitalized"Undercapitalized" Subsidiaries


Bank regulators are required to take "prompt corrective action" to resolve problems associated with insured depository institutions whose capital declines below certain levels. In the event an institution becomes "undercapitalized," it must submit a capital restoration plan to its regulators. The capital restoration plan will not be accepted by the regulators unless each company having control of the undercapitalized"undercapitalized" institution guarantees the subsidiary’ssubsidiary's compliance with the capital restoration plan up to a certain specified amount. Any such guarantee from a depository institution’sinstitution's holding company is entitled to a priority of payment in bankruptcy.


The aggregate liability of the holding company of an undercapitalized"undercapitalized" bank is limited to the lesser of 5% of the institution’sinstitution's assets at the time it became undercapitalized"undercapitalized" or the amount necessary to cause the institution to be "adequately capitalized." The bank regulators have greater power in situations where an institution becomes "significantly" or "critically" undercapitalized"undercapitalized" or fails to submit a capital restoration plan. For example, a bank holding company controlling such an institution can be required to obtain prior Federal Reserve Board approval of proposed dividends, or it may be required to consent to a consolidation or to divest the troubled institution or other affiliates.


Safety and Soundness


The federal banking agencies have adopted the Interagency Guidelines for Establishing Standards for Safety and Soundness. The guidelinesSoundness, which establish general standards relating to internal controls and information systems, internal audit systems, loan documentation, credit underwriting, interest rateinterest-rate exposure, asset growth, asset quality, earnings and compensation, and fees and benefits. In general, these guidelines require, among other things, appropriate systems and practices to identify and manage the risk and exposures specified in the guidelines. These guidelines also prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal stockholder.shareholder.


Bank holding companies are not permitted to engage in unsafe or unsound banking practices. The Federal Reserve Board has the power to order a bank holding company to terminate any activity or investment, or to terminate its ownership or control of any subsidiary, when it has reasonable cause to believe that the continuation of such activity or investment or such ownership or
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control constitutes a serious risk to the financial safety, soundness, or stability of any subsidiary bank of the bank holding company. The Federal Reserve Board also has the authority to prohibit activities of non-banking subsidiaries of bank holding companies which represent unsafe and unsound banking practices or which constitute violations of laws or regulations.

For example, the Federal Reserve Board's Regulation Y requires a holding company to give the Federal Reserve Board prior notice of any redemption or repurchase of its own equity securities, if the consideration to be paid, together with the consideration paid for any repurchases in the preceding year, is equal to 10% or more of the bank holding company's consolidated net worth. There is an exception for bank holding companies that are well-managed, well-capitalized, and not subject to any unresolved supervisory issues. The Federal Reserve Board may oppose the transaction if it believes that the

transaction would constitute an unsafe or unsound practice or would violate any law or regulation. As another example, a holding company may not impair its subsidiary bank's soundness by causing it to make funds available to non-banking subsidiaries or their customers if the Federal Reserve Board believes it not prudent to do so.

The Federal Reserve Board can assess civil money penalties for activities conducted on a knowing and reckless basis, if such unsafe and unsound activities caused a substantial loss to a depository institution. The FIRREA expanded the Federal Reserve Board's authority to prohibit activities of bank holding companies and their non-banking subsidiaries which represent unsafe and unsound banking practices, or which constitute violations of laws or regulations. Potential penalties can be as high as $1 million for each day the activity continues.


Capital Requirements


The federal banking agencies have adopted risk-based capital guidelines for bank holding companies and banks that are expected to provide a measure of capital that reflects the degree of risk associated with a banking organization's operations for both transactions reported on the consolidated balance sheet as assets, such as loans, and those recorded as off-balance sheet items, such as commitments, letters of credit and recourse arrangements. The risk-based guidelines apply on a consolidated basis to bank holding companies with consolidated assets of $1$3 billion or more.more, such as the Company, or with a material amount of equity securities outstanding that are registered with the SEC.


Pursuant to federal regulations, banks and bank holding companies must maintain capital levels commensurate with the level of risk to which they are exposed, including the volume and severity of problem loans. For example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital positions substantially above the minimum supervisory levels, without significant reliance on intangible assets. The federal banking agencies may change, existing capital guidelinesadopt or adoptrequire new capital guidelines in the future and have required manyunder certain situations such as for high growth or acquisitive bank holding companies, when banks and bank holding companies are subject to enforcement actions, to maintain capital ratios in excess of the minimum ratios otherwise required to be deemed well-capitalized, in which case the affected institution may no longer be deemed well-capitalized and may be subjecthave also subjected such institutions to restrictions on various activities, including a bank's ability to accept or renew brokered deposits.


Under these capital guidelines, a banking organization is required to maintain certain minimum capital ratios, which are obtained by dividing its qualifying capital by its total risk-adjusted assets and off-balance sheet items. In general, the dollar amounts of assets and certain off-balance sheet items are "risk-adjusted" and assigned to various risk categories. In addition to such risk adjusted capital requirements, banking organizations are also required to maintain an additional minimum “leverage”"leverage" capital ratio, which is calculated based on the basis of average total assets without any adjustment for risk being made to the value of the assets.


Qualifying capital is classified depending on the type of capital as follows:


"Tier 1 capital" consists of common equity, retained earnings, qualifying non-cumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual preferred stock and minority interests in the equity accounts of consolidated subsidiaries, less goodwill and certain other intangible assets. In determining bank holding company compliance with holding company level capital requirements,certain limited circumstances, qualifying Tier 1 capital may count trust preferred securities, subject to certain criteria and quantitative limits for inclusion of restricted core capital elements in Tier 1 capital, provided that the bank holding company has total assets of less than $15 billion and such trust preferred securities were issued before May 19, 2010;securities.


"Tier 2 capital" includes, among other things, hybrid capital instruments, perpetual debt, mandatory convertible debt securities, qualifying term subordinated debt, preferred stock that does not qualify as Tier 1 capital, and a limited amount of allowance for loancredit and lease losses.


    Capital Requirements under the Basel III Rules

Federal banking regulations implementing the international regulatory capital framework, referred to as the "Basel III Rules," apply to both depository institutions and (subject to certain exceptions not applicable to the Company) their holding companies. Under the Basel III Rules, (defined below), effective January 1, 2015, a bank holding company must satisfy increasedcertain capital levels in order to comply with the prompt corrective action framework and to avoid limitations on capital distributions and discretionary bonus payments once Basel III Rules are fully phased in. See “Capital Requirements under Basel III” below.

Capital Requirements under Basel III

The rules adopted by the regulators implementing the international regulatory capital framework, referred to as the “Basel III Rules,” apply to both depository institutions and (subject to certain exceptions not applicable to the Company) their holding companies. Although parts of the Basel III Rules apply only to large, complex financial institutions, substantial portions of the Basel III Rules apply to the Company and the Bank. The Basel III Rules include requirements contemplated by the Dodd-Frank Act, as well as certain standards initially adopted by the Basel Committee on Banking Supervision in December 2010.


The Basel III Rules include higher risk-based and leverage capital ratio requirements and redefine what constitutes “capital” for purposes of calculating those ratios. Among the most important changes are stricter eligibility criteria for regulatory capital instruments that disallow the inclusion of instruments, such as trust preferred securities (other than grandfathered trust preferred securities), in Tier 1 capital and constraints on the inclusion of minority interests, mortgage-servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions.

The Basel III Rules also introduced a common equity Tier 1 ("CET1") risk-based capital ratio. CET1 capital consists of retained earnings and common stock instruments, subject to certain adjustments. In addition, the rule requires that most regulatory capital deductions be made from CET1 capital.

executives.
The Basel III Rules also establish a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. The capital conservation buffer requirement was phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. An institution will be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio.


The Basel III Rules generally became effective January 1, 2015.
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The Basel III minimum capital ratios as applicable towith the Company and the Bank in 2019 after the full phase-in period of the capital conservation buffer are summarized in the table below.
Basel III Minimum for Capital Adequacy PurposesBasel III Additional Capital Conservation BufferBasel III Ratio with Capital Conservation Buffer
Total Risk-Based Capital (total capital to risk-weighted assets)8.00%2.50%10.50%
Tier 1 Risk-Based Capital (tier 1 to risk-weighted assets)6.00%2.50%8.50%
Tier 1 Leverage Ratio (tier 1 to average assets)(1)
4.00%N/A4.00%
Common Equity Tier 1 Risk-Based Capital (CET1 to risk-weighted assets)4.50%2.50%7.00%
  Basel III Minimum for Capital Adequacy Purposes Basel III Additional Capital Conservation Buffer Basel III Ratio with Capital Conservation Buffer
Total Risk Based Capital (total capital to risk weighted assets) 8.00% 2.50% 10.50%
Tier 1 Risk Based Capital (tier 1 to risk weighted assets) 6.00% 2.50% 8.50%
Tier 1 Leverage Ratio (tier 1 to average assets) 4.00% —% 4.00%
Common Equity Tier 1 Risk Based Capital (CET1 to risk weighted assets) 4.50% 2.50% 7.00%
 __________________________________________

(1)Capital conservation buffer is not applicable to Tier 1 Leverage Ratio.
The Basel III Rules set forth certain changes in the methods of calculating certain risk-weighted assets, which in turn will affect the calculation of risk-based ratios. Under the Basel III Rules, higher or more sensitive risk weights are assigned to various categories of assets, including, certain credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or on non-accrual, foreign exposures and certain corporate exposures. In addition, these rules include greater recognition of collateral and guarantees, and revised capital treatment for derivatives and repo-style transactions.


In addition, the Basel III Rules include certain exemptions to address concerns about the regulatory burden on community banks. For example, banking organizations with less than $15 billion in consolidated assets as of December 31, 2009 are permitted to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock issued and included in Tier 1 capital prior to May 19, 2010 on a permanent basis, without any phase out. Community banks were also allowed to elect, on a one timeone-time basis in their March 31, 2015 quarterly filings, to permanently opt-out of the requirement to include most accumulated other comprehensive income ("AOCI")AOCI components in the calculation of CET1 capital and, in effect, retain the AOCI treatment under the previous capital rules. Under the Basel III Rules, in 2015 the Company made such an election to permanently exclude AOCI from capital.


Overall,Management believes that, as of December 31, 2023, the Company met all capital adequacy requirements to which it was subject under Basel III Rules provide some important concessions for smaller, less complex financial institutions, such asIII. As of December 31, 2023, the Company. These concessions may be expanded under a proposed interagency rulemaking release on September 27, 2017. This rulemaking could, if finalized and among other things, reviseCompany met the definition and capital framework for high volatility commercial real estate and simplifyof "well-capitalized" under the capital treatment of mortgage servicing assets, deferred tax assets, and investments in the capital of unconsolidated financial institutions.applicable Federal Reserve Board regulations.

Regulatory Restrictions on Dividends and Stock Redemptions and Repurchases


The Company is regarded as a legal entity separate and distinct from the Bank. The principal source of the Company’sCompany's revenues is dividends received from the Bank. Both Massachusetts and federal law limit the payment of dividends by the

Company. Under Massachusetts law, the Company is generally prohibited from paying a dividend or making any other distribution if, after making such distribution, it would be unable to pay its debts as they become due in the usual course of business, or if its total assets would be less than the sum of its total liabilities plus the amount that would be needed if it were dissolved at the time of the distribution, to satisfy any preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is made. The Federal Reserve Board also has further authority to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices.
The Federal Reserve Board has issued a policy statement and supervisory guidance on the payment of cash dividends by bank holding companies which expresses the Federal Reserve Board's view that a bank holding company should pay cash dividends only to the extent that (1)(i) the bank holding company's net income for the past year is sufficient to cover the cash dividends, (2)(ii) the rate of earnings retention is consistent with the bank holding company's capital needs, asset quality, and overall financial condition, and (3)(iii) the minimum regulatory capital adequacy ratios are met. The Federal Reserve Board policy statement also provides that a bank holding company should inform the Federal Reserve Board or the FRB reasonably in advance of declaring or paying a dividend that exceeds earnings for the period for which the dividend is being paid or that could result in a material adverse change to the bank holding company's capital structure. Bank holding companies also are required to consult with the Federal Reserve Board or the FRB before materially increasing dividends. It is also the Federal Reserve Board's policy that bank holding companies should not maintain dividend levels that undermine their ability to serve as a source of strength to their banking subsidiaries. The Federal Reserve Board or the FRB could prohibit or limit the payment of dividends by a bank holding company if it determines that payment of the dividend would constitute an unsafe or unsound practice.
Bank holding companies must consult with the Federal Reserve Board or the FRB before redeeming any equity or other capital instrument included in tier 1 or tier 2 capital prior to stated maturity, if (x) such redemption could have a material effect on the level or composition of the organization's capital base or (y) as a result of such repurchase, there is a net reduction of the outstanding amount of common stock or preferred stock outstanding at the beginning of the quarter in which the redemption or repurchase occurs. In addition, bank holding companies are unable to repurchase shares equal to 10% or more of their net worth if they would not be "well-capitalized" (as defined by the Federal Reserve Board) after giving effect to such repurchase. Bank holding companies experiencing financial weaknesses, or that are at significant risk of developing financial weaknesses, must
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consult with the Federal Reserve Board or the FRB before redeeming or repurchasing common stock or other regulatory capital instruments.
Bank Regulation
The Bank is subject to the supervision and regulation of the Division and the FDIC, and, with respect to its New Hampshire branching operations, of the New Hampshire Banking Department. Federal and Massachusetts laws and regulations that specifically apply to the Bank's business and operations cover, among other matters, the scope of its business, the nature of its investments, its reserves against deposits, the timing of the availability of deposited funds, its activities relating to dividends, investments, loans, the nature and amount of and collateral for certain loans, borrowings, capital requirements, certain check-clearing activities, branching, and mergers and acquisitions. The Bank is also subject to federal and state laws and regulations that restrict or limit loans or extensions of credit to, or other transactions with, “insiders,” including officers, directors and principal stockholders, and loans or extension of credit by banks to affiliates or purchases of assets from, or other transactions with, affiliates, including parent holding companies.acquisitions, as discussed below.
The FDIC and the Division may exercise extensive discretion in connection with their supervisory and enforcement activities and examination policies, including policies with respect to the classification of assets and the establishment of adequate loancredit loss reserves for regulatory purposes. If as a result of an examination, the Massachusetts Division of Banks or the FDIC should determine that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity, sensitivity to market risk, or other aspects of the Bank's operations are unsatisfactory or that the Bank or its management is violating or has violated any law or regulation, the Division and the FDIC have authority to undertake a variety of enforcement measures of varying degrees of severity, including, the following:among other things:
Requiring(i)requiring the Bank to take affirmative action to correct any conditions resulting from any violation or practice;

Directing(ii)directing the Bank to increase capital and maintain higher specific minimum capital ratios, which may preclude the Bank from being deemed to be well-capitalized"well-capitalized" and restrict its ability to engage in various activities;

Restricting(iii)restricting the Bank's growth geographically, by products and services, or by mergers and acquisitions;

Requiring(iv)requiring the Bank to enter into an informal or formal enforcement action to take corrective measures and cease unsafe and unsound practices, including requesting the board of directors to adopt a binding resolution, sign a memorandum of understanding or enter into a consent order;

Requiring(v)requiring prior approval for any changes in senior management or the board of directors;

Removing(vi)removing officers and directors and assessing civil monetary penalties; andor

Taking(vii)taking possession of, closing and liquidating the Bank or appointing the FDIC as receiver under certain circumstances.


Permissible Activities
Under the Federal Deposit Insurance Act,FDIA, as amended, (the "FDIA"), and applicable Massachusetts law, the Bank may generally engage in any activity that is permissible under Massachusetts law and either is permissible for national banks or the FDIC has determined does not pose a significant risk to the FDIC's Deposit Insurance Fund ("DIF").DIF. In addition, the Bank may also form, subject to the approvals of the Massachusetts Division of Banks and the FDIC, "financial subsidiaries" to engage in any activity that is financial in nature or incidental to a financial activity. In order to qualify for the authority to form a financial

subsidiary, the Bank is required to satisfy certain conditions, some of which are substantially similar to those that the Company would be required to satisfy in order to elect to become a financial holding company. The Company believes that the Bank would be able to satisfy all of the conditions that would be required to form a financial subsidiary, although the Bank has no current intention of doing so. Such a course of action may become necessary or appropriate at some time in the future depending upon the Bank's strategic plan.
Capital Adequacy Requirements
The FDIC monitors the capital adequacy of the Bank by using a combination of risk-based guidelines and leverage ratios. The FDIC considers the Bank’sBank's capital levels when taking action on various types of applications and when conducting supervisory activities related to the safety and soundness of the Bank and the banking system. UnderAs noted above, the Basel III rules which became effective on January 1, 2015,Rules require banks are required to maintain four minimum capital standards: (1)(i) a Tier 1 capital to adjusted total assets ratio, or "leverage capital ratio," of at least 4.0%, (2)(ii) a Tier 1 capital to risk-weighted assets ratio, or "Tier 1 risk-based capital ratio," of at least 6.0%, (3)(iii) a total risk-based capital (Tier 1 plus Tier 2) to risk-weighted assets ratio, or "total risk-based capital ratio," of at least 8.0%, and (4)(iv) a CET1 capital ratio of 4.5%, which are the same minimum capital standards to which the Company is held on a consolidated basis. In addition, the FDIC’sFDIC's prompt corrective action standards discussed below, in effect, increase the minimum regulatory capital ratios for banking organizations. These capital requirements are minimum requirements.organizations in order to be considered "well-capitalized." Higher capital levels may be required if warranted by the particular circumstances or risk profiles of individual institutions, or if required by the banking regulators due to the economic conditions impacting our market. For example, FDIC regulations provide
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Management believes that, higheras of December 31, 2023, the Bank exceeded its minimum capital may be requiredrequirements and met all capital adequacy requirements to take adequate account of, among other things, interest rate risk andwhich it was subject under the risks posed by concentrations of credit, nontraditional activities or securities trading activities.Basel III Rules.

Prompt Corrective Action

The federal banking agencies have issued regulations pursuant to the FDIA, as revised by the Basel III Rules, definingdefine five categories in which an insured depository institution will be placed, based on the level of its capital ratios: well-capitalized, adequately"well-capitalized," "adequately capitalized, undercapitalized, significantly undercapitalized," "undercapitalized," "significantly undercapitalized" and critically"critically undercapitalized. As of January 1, 2015, insured" Insured depository institutions are required to meet the following capital levels in order to qualify as "well-capitalized:" (i) a Total risk-based capital ratio of 10% (unchanged from current rules); (ii) a Tier 1 risk-based capital ratio of 8% (increased from 6%); (iii) a Tier 1 leverage ratio of 5% (unchanged from current rules); and (iv) a CET1 risk-based capital ratio of 6.5%. Accordingly, a financial institution may be considered "well-capitalized" under the prompt corrective action framework, but not satisfy the full phased-in Basel III capital ratios. The Company's regulatory capital ratios and thoserequirements of the Bank were in excess of the levels established for "well-capitalized" institutions under the Basel III Rules as of December 31, 2017.Rules. Generally, a financial institution must be "well-capitalized" before the Federal Reserve Board or the FRB will approve an application by a bank holding company to acquire a bank or merge with a bank holding company. The FDIC applies the same requirement in approving bank merger applications.

A bank that may otherwise meetmeets the minimum requirements to be classified as well-capitalized, adequately capitalized,"well-capitalized," "adequately capitalized" or undercapitalized"undercapitalized" may be treated instead as though it were in the next lower capital category if the appropriate federal banking agency, after notice and opportunity for hearing, determines that an unsafe or unsound condition, or an unsafe or unsound practice, warrants such treatment. Under the prompt corrective action regulations, a bank that is deemed to be undercapitalized"undercapitalized" or in a lesser capital category will be required to submit to its primary federal banking regulator a capital restoration plan and to comply with the plan.
Any bank holding company that controls a subsidiary bank that has been required to submit a
The Bank's regulatory capital restoration plan will be required to provide assurances of compliance by the bank with the capital restoration plan, subject to limitations on the bank holding company's aggregate liabilityratios were in connection with providing such required assurances. Failure to restore capital under a capital restoration plan can result in the bank being placed into receivership if it becomes critically undercapitalized. A bank subject to prompt corrective action also may affect its parent holding company in other ways. These include possible restrictions or prohibitions on dividends or subordinated debt payments to the parent holding company by the bank, as well as limitations on other transactions between the bank and the parent holding company. In addition, the Federal Reserve Board may impose restrictions on the abilityexcess of the bank holding company itself to pay dividends, or require divestiturelevels established for "well-capitalized" institutions as of holding company affiliates that pose a significant risk toDecember 31, 2023. As noted above, as of December 31, 2023, management believes the subsidiary bank, or require divestiture ofBank satisfied all capital adequacy requirements under the undercapitalized subsidiary bank. At each successive lower capital category, an insured bank may be subject to increased operating restrictions by its primary federal banking regulator.Basel III Rules.
Branching
MassachusettsBranching

State and Federal law provides that a Massachusetts banking company may be "eligible" to submit a notice to the Division and the FDIC to establish a branch within the Commonwealth. A bank is "eligible" to submit a notice to establish a branch in the

Commonwealth if the following conditions are met:if: (i) the bank has received a satisfactory"satisfactory" or higher Community Reinvestment Act (the "CRA")CRA rating at its most recent CRA examination by the Division or federal banking regulator; (ii) the bank is adequately capitalized"adequately capitalized" as defined under the provisions of the Federal Deposit Insurance Act and the FDIC’sFDIC's Capital Adequacy Regulations; and (iii) the bank has not been notified that it is in troubled condition by the Division or any federal banking regulatory agency. A bank must also submitmake an application to the Division and FDIC to relocate or close an existing branch in the Commonwealth.branch. The Division and the FDIC consider a number ofseveral factors when making a decision to approve the notice, including financial condition, capital adequacy, earnings prospects, the needs of the community, and whether competition would be adversely affected.
Previously, under
The Dodd-Frank Act amended the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act"), a bank's ability to branch into a particular state was largely dependent upon whether the state "opted in" to de novo interstate branching. Many states did not "opt-in," which resulted in branching restrictions in those states. The Dodd-Frank Act amended the Riegle-Neal legal framework for interstate branching to permit national banks and state banks to establish branches in any state if that state would permit the establishment of the branch by a state bank chartered in that state. The Bank may, therefore, also establish branches in any other state if that state would permit the establishment of a branch by a state bank chartered in that state. In this case, the Bank would also be required to file an applicationa notice with the Division, the FDIC and potentially the banking authority of the state into which the Bank intends to establish a branch.

Deposit Insurance

The FDIC insures the deposits of federally insured banks, such as the Bank, and thrifts, up to prescribed statutory limits of $250,000 for each depositor, through the DIF and safeguards the safety and soundness of the banking and thrift industries. The amount of FDIC assessments paid by each insured depository institution is based on its relative risk of default as measured by regulatory capital ratios and other supervisory factors.

At least semi-annually, the FDIC will update its loss and income projections for the DIF and, if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required. However, if there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, the Bank may be required to pay higher FDIC insurance premiums. Additionally, under the FDIA, the FDIC may terminate deposit insurance upon a finding that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has
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violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

The Bank is generally unable to control the amount of premiums that it is required to pay for FDIC insurance. In connection with the Dodd FrankDodd-Frank Act's requirement that insurance assessments be based on assets, in July 2016, the FDIC redefined its deposit insurance premium assessment base to be an institution's average consolidated total assets minus average tangible equity and revised its deposit insurance assessment rate schedule in lightschedule. Assessments for institutions with assets of this changeless than $10 billion, such as Enterprise Bank, are based on financial measures and supervisory ratings derived from statistical modeling estimating the probability of an institution's failure within three years. The FDIC is considering, and is expected to adopt, a final rule to apply the CBLR framework to the deposit insurance assessment base.system.
At least semi-annually,
On October 18, 2022, the FDIC adopted a final rule applicable to all insured depository institutions increasing initial base deposit insurance assessment rate schedules by 2 basis points, beginning in the first quarterly assessment period of 2023. The FDIC also issued a notice maintaining a DIF reserve ratio of 2.0% for 2023. The increase in assessment rate schedules is intended to increase the likelihood that the DIF reserve ratio reaches the statutory minimum of 1.35% by September 30, 2028, the statutory deadline set by the Dodd-Frank Act. The new assessment rate schedules will update its lossremain in effect unless and income projectionsuntil the DIF reserve ratio meets or exceeds 2.0% in order to support growth in the DIF in progressing toward the FDIC's long-term goal of a 2.0% designated reserve ratio for the DIF and,DIF. FDIC staff may in the future recommend additional assessment rate adjustments if needed, will increase or decrease assessment rates, following notice-and-comment rulemaking, if required. If there are additional bank or financial institution failures or if the FDIC otherwise determines to increase assessment rates, the Bank may be required to pay higher FDIC insurance premiums. Any future increases in FDIC insurance premiums may have a material and adverse effect on the Company's earnings.deemed necessary.
In addition, all FDIC-insured institutions are required to pay assessments to the FDIC to fund interest payments on bonds issued by the Financing Corporation ("FICO"), an agency of the federal government established to recapitalize the predecessor to the DIF. These assessments, which are included in Deposit Insurance Premiums on the Consolidated Statements of Income, will continue until the FICO bonds mature between 2017 and 2019.
Restrictions on Dividends and Other Capital Distributions
The Company's ability to pay dividends on its shares depends primarily on dividends it receives from the Bank.
Both Massachusetts and federal law limit the payment of dividends by the Bank. Under FDIC regulations and applicable Massachusetts law, the dollar amount of dividends and any other capital distributions that the Bank may make depends upon its capital position and recent net income. Generally, so long asAny dividend payment that would exceed the Bank remains adequately capitalized, it may make capital distributions during any calendar year equal to up to 100%total of the Bank's net incomeprofits for the current year to date plus its retained net income forprofits of the preceding two preceding years. However,years would require the Massachusetts Division of Banks' approval. The Massachusetts banking statues define the term "net profits" to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes. Applicable provisions of the FDIA also prohibit a bank from paying any dividends on its capital stock if the bank is in default on the payment of any assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become "undercapitalized." If the Bank's capital becomes impaired or the FDIC or Division otherwise determines that the Bank is in need ofneeds more than normal supervision, the Bank may be prohibited or otherwise limited from paying any dividends or making capital distributions to the Company. Consequently, any other capital distributions.restrictions on the ability of the Bank to pay dividends to the Company may, in turn, restrict the ability of the Company to pay dividends to its shareholders.

Community Reinvestment Act

The Community Reinvestment Act of 1977CRA and the regulations issued thereunder are intended to encourage banks to help meet the credit needs of their entire assessment area, including lowlow- and moderate incomemoderate-income neighborhoods, consistent with the safe and sound operations of such banks. The CRA requires that the FDIC and the Division evaluate the record of each financial institution in meeting such credit needs. The CRA evaluation is also considered by the bank regulatory agencies in evaluating approvals for mergers, acquisitions, and applications to open, relocate or close a branch or facility. Failure to adequately meet the criteria

within CRA guidelines could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the ability to request the Bank’sBank's CRA Performance Evaluation and other various related documents. The Bank received a rating of "High Satisfactory" by the Division and "Satisfactory" by the FDIC on its most recent Community Reinvestment ActCRA examination.

On October 24, 2023, the federal banking agencies adopted a final rule to modernize regulations implementing the CRA. Under the final rule, (1) the federal banking agencies will evaluate bank performance across the varied activities they conduct and communities in which they operate in order to encourage banks to expand access to credit, investment, and banking services in low- and moderate-income communities, (2) the CRA regulations are updated to evaluate lending outside traditional assessment areas generated by the growth of non-branch delivery systems, such as online and mobile banking, branchless banking, and hybrid models, (3) a new metrics-based approach was adopted to evaluate bank retail lending and community development financing, using benchmarks based on peer and demographic data, and (4) CRA evaluations and data collection are tailored according to bank size and type. In addition, the final rule also exempts small and intermediate banks from new data collection and reporting requirements that apply to banks with assets of at least $2 billion, such as the Bank, and limits certain new data requirements to large banks with assets greater than $10 billion. Most provisions of the final rule will become effective on January 1, 2026, and the data reporting requirements will become effective on January 1, 2027.
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Restrictions on Transactions with Affiliates and Loans to Insiders

Transactions between the Bank and its affiliates are subject to the provisions of Section 23A and 23B of the Federal Reserve Act (the "Affiliates Act"), and the Federal Reserve Board's Regulation W, as such provisions are made applicable to state non-member banks by Section 18(i) of the Federal Deposit Insurance Act. Affiliates of a bank include, among other entities, the bank's holding company and companies that are under common control with the bank.

These provisions place limits on the amount of:
loans or extensions of credit to affiliates;
investment in affiliates;
assets that may be purchased from affiliates, except for real and personal property exempted by the Federal Reserve Board;
the amount of loans or extensions of credit and investment in affiliates; assets that may be purchased; extensions of credit to third parties collateralized by the securities or obligations of affiliates;obligation; and
the guarantee, acceptance or letter of credit issued on behalf of an affiliate.


The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of the Bank's capital and surplus and, as to all affiliates combined, to 20% of its capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements and the types of permissible collateral may be limited. The Bank must also comply with other provisions designed to avoid the purchase or acquisition of low-quality assets from affiliates. The Dodd-Frank Act expanded the scope of Section 23A, which now includes investment funds managed by an institution as an affiliate, as well as other procedural and substantive hurdles.

The Bank is also prohibitedsubject to Section 23B of the Federal Reserve Act which, among other things, prohibits the Bank from engaging in any transaction with an affiliate unless the transaction is on terms substantially the same, or at least as favorable to the Bank or its subsidiaries, as those prevailing at the time for comparable transactions with non-affiliated companies. The Federal Reserve Board has also issued Regulation W which codifies prior regulations under the Affiliates Act and interpretive guidance with respect to affiliate transactions.

Under both Massachusetts and federal law, including Section 22(h) of the Federal Reserve Act and Regulation O promulgated by the Federal Reserve thereunder, the Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal stockholdersshareholders and their related interests. These extensions of credit (1)(i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, (ii) must follow the credit underwriting procedures at least as stringent as those applicable to comparable transactions with third parties, and (2)(iii) must not involve more than the normal risk of repayment or present other unfavorable features. The Dodd-Frank Act expanded coverageIn addition, these extensions of transactionscredit may not exceed, together with all other outstanding loans to such persons and affiliated entities, the Bank's total capital and surplus. Any extension of credit to insiders by including credit exposure arising from derivative transactions (which are also covered byabove specified amounts must receive the expansionprior approval of Section 23A). The Dodd-Frank Act prohibits an insured depository institution from purchasingthe Bank's board of directors. Any violation of these restrictions may result in the assessment of substantial civil monetary penalties on the Bank or selling an asset to an executiveany officer, director, employee, agent or principal stockholder (or any related interest of such a person) unlessother person participating in the transaction is on market terms, and, if the transaction exceeds 10%conduct of the institution's capital, it is approved in advance by a majorityaffairs of the disinterested directors.Bank, the imposition of a cease-and-desist order, and other regulatory sanctions.

Concentrated Commercial Real Estate Lending Regulations

The federal banking agencies, including the FDIC, have promulgated guidance governing financial institutions with concentrations in commercial real estate lending. The guidance provides that a bank has a concentration in commercial real estate lending if (i) total reported loans for construction, land development, and other land represent 100% or more of total capital or (ii) total reported loans secured by multifamily and non-farm nonresidential properties (excluding loans secured by owner-occupied properties) and loans for construction, land development, and other land represent 300% or more of total capital and the bank's commercial real estate loan portfolio has increased 50% or more during the prior 36 months. If a concentration is present, management must employ heightened risk management practices that address the following key elements: including board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. OnAs of December 18, 2015,31, 2023, the federal banking agencies jointly issued a "Statement on Prudent Risk Management for Commercial Real Estate Lending" reminding banksBank's concentrations of the need to engage in risk management practices for commercial real estate lending.loans fell slightly above the established levels and the Company believes its credit risk administration to be consistent with heightened risk management regulatory guidance.


The Dodd-Frank Wall Street Reform and Consumer Protection Act
The Dodd-Frank Act implemented significant changes to the regulation of the financial services industry and includes the following provisions that have affectedBasel III Rules also require loans categorized as "high-volatility commercial real estate," or are likely to affect the Company:
Repeal of the federal prohibitions on the payment of interest on demand deposits effective July 21, 2011, thereby permitting, but not requiring, depository institutions to pay interest on business transaction and other accounts.
Imposition of comprehensive regulation of the over-the-counter derivatives market, including provisions that effectively prohibit insured depository institutions from conducting certain derivatives activities from within the institution.
Implementation of corporate governance revisions, including proxy access requirements for all publicly traded companies.
Increase in the Federal Reserve Board's examination authority with respect to bank holding companies' non-banking subsidiaries.
Limitations on the amount of any interchange fee charged by a debit card issuerHVCRE, to be reasonableassigned a 150% risk weighting and proportional torequire additional capital support. However, the cost incurred by the issuer. The interchange rate cap has been set at $0.24 per transaction. While these restrictions do not apply to banks like Enterprise with less than $10 billion in assets, the rule could affect the competitivenessEGRRCPA prohibits federal banking regulators from imposing this higher capital standard on HVCRE exposures unless they are for higher risk loans for acquisition, development or construction, or ADC, and clarifying ADC status.




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Table of debit cards issued by smaller banks. We believe that market forces may erode the effectiveness of this exemption now that merchants can select more than one network for transaction routing.Contents
Significant increases in the regulation of mortgage lending and servicing by banks and non-banks.  In particular, requirements that mortgage originators act in the best interests of a consumer and seek to ensure that a consumer will have the capacity to repay a loan that the consumer enters into; requirements that mortgage originators be properly qualified, registered, and licensed and comply with any regulations designed by the Consumer Financial Protection Bureau ("CFPB") to monitor their operations; mandates of comprehensive additional and enhanced residential mortgage loan related disclosures, both prior to loan origination and after; mandates of additional appraisal practices for loans secured by residential dwellings, including potential additional appraisals at the banks cost; mandates of additional collection and reporting requirements on transactions that are reportable under the Home Mortgage Disclosure Act; additional restrictions on the compensation of loan originators; and requirements that mortgage loan securitizers retain a certain amount of risk (as established by the regulatory agencies).  However, mortgages that conform to the new regulatory standards as "qualified residential mortgages" will not be subject to risk retention requirements.

Although the majority of the Dodd-Frank Act’s rulemaking requirements have been met with finalized rules, approximately one-fifth of the rulemaking requirements are either still in the proposal stage or have not yet been proposed. In addition, on February 3, 2017, the President signed an executive order ("Order") calling for the administration to review various U.S. financial laws and regulations. Pursuant to this Order, the U.S. Department of the Treasury released their first report on June 12, 2017 and their second report on October 6, 2017. The full scope of the current administration's legislative agenda is not yet fully known, but it may include certain deregulatory measures for the banking industry, including the structure and powers of the CFPB and other areas under the Dodd-Frank Act. On June 8, 2017, the House of Representatives approved a bill known as the Financial Choice Act, which scales back or eliminates many of the post-crisis banking rules, including the repeal of the Vockler Rule and limitations on the CFPB's authority to regulate large banks and payday lenders. On December 5, 2017, the Senate Banking Committee passed the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018

On May 24, 2018, the EGRRCPA was enacted, which repeals or modifies certain provisions of the Dodd-Frank Act and eases regulations on all but the largest banks. The EGRRCPA's provisions—for which banking agencies have now issued certain corresponding guidance documents and/or proposed or final rules—include, among other things: (i) creating a more targeted financial reform bill. Accordingly,new category of "qualified mortgages" presumed to satisfy ability-to-repay requirements for loans that meet certain criteria and are held in portfolio by banks with less than $10 billion in assets; (ii) not requiring appraisals for certain transactions valued at less than $400,000 in rural areas; (iii) exempting banks that originate fewer than 500 open-end and 500 closed-end mortgages from the Home Mortgage Disclosure Act's expanded data disclosures; (iv) clarifying that, subject to various conditions, reciprocal deposits of another depository institution obtained using a deposit broker through a deposit placement network for purposes of obtaining maximum deposit insurance would not be considered brokered deposits subject to the FDIC's brokered-deposit regulations; and (v) simplifying capital calculations by requiring regulators to establish for institutions under $10 billion in assets a community bank leverage ratio (Tier 1 capital to average consolidated assets) at a percentage not less than 8% and not greater than 10% that such institutions may elect to replace the general applicable risk-based capital requirements for determining well-capitalized status. For those regulations that have been implemented, most will have little to no impact on the Company. However, the Company may be impacted by future agency rulemaking in connection with implementation of the EGRRCPA and it is difficult to anticipate the continued impact this expansive legislation willmay have on the Company, its customers and the financial industry generally. To

For more information on the extentEGRRCPA, please see the Dodd-Frank Act remains in place or is not materially amended, it is likely to continue to increase the Company's cost of doing business, limit the Bank's permissible activities,following sections "Permissible Activities," "Community Bank Leverage Ratio," and affect the competitive balance within the industry"Concentrated Commercial Real Estate Lending Regulations," above, and market."Consumer Financial Protection Bureau" and "HMDA," below.

Consumer Financial Protection Bureau

The Consumer Financial Protection BureauCFPB was created under the Dodd-Frank Act to centralize responsibility for consumer financial protection with broad rulemaking, supervision and enforcement authority for a wide range of consumer protection laws that would apply to all banks and thrifts, including the Equal Credit Opportunity Act, Truth-in Lending Act, ("TILA"), Real Estate Settlement Procedures Act, ("RESPA"), Fair Credit Reporting Act, Fair Debt Collection Act, the Consumer Financial Privacy provisions of the Gramm-Leach-Bliley Act and certain other statutes. Significant recent CFPB developments include:

•continued focus on fair lending, including promoting racial and economic equity for underserved, vulnerable and marginalized communities;
•focused efforts on enforcing certain compliance obligations the CFPB deems a priority, such as automobile loan servicing, debt collection, deposit, overdraft, non-sufficient funds, representment fees and other services fees, mortgage origination and servicing, and remittances, among others; and
•rulemaking plans concerning, among others, consumers' access to their financial information and requirements for financial institutions to collect, report and make public certain information concerning credit applications made by women-owned, minority-owned and small businesses.

Banking institutions with total assets of $10 billion or less, such as the Bank, remain subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws and such additional regulations as may be adopted by the CFPB.


On January 10, 2013, the CFPB released its finalThe "Ability-to-Repay/Qualified Mortgage" rules, which amended TILA’sTILA's implementing regulation, Regulation Z. The ruleZ generally requiresrequires creditors to make a reasonable, good faith determination of a consumer's ability to repay for certain consumer credit transactions secured by a dwelling and establishes certain protections from liability under this requirement for "qualified mortgages." The final rule implements sections 1411, 1412EGRRCPA provides that for certain insured depository institutions and 1414 of the Dodd-Frank Act. Finally, the final rule requires creditors to retain evidence of complianceinsured credit unions with the rule for three years after a covered loan is consummated. This rule became effective January 10, 2014. The CFPB allowed for a small creditor exemption for banks with assets under $2 billion and that originate less than 500$10 billion in total consolidated assets, mortgage loans adjusting annually. Asthat are originated and retained in portfolio will automatically be deemed to satisfy the "ability to repay" requirement. To qualify for this treatment, the insured depository institutions and credit unions must meet conditions relating to prepayment penalties, points and fees, negative amortization, interest-only features and documentation among other conditions.

The Dodd-Frank Act implemented significant increases in the regulation of January 1, 2016mortgage lending and continuing in 2017, the small creditor exemption was extended toservicing by banks with assets under $2.052 billion. As the Bank's assets are above $2.052 billion, the Bank does not meet this exemption.
On November 20, 2013, pursuant to section 1032(f) ofand non-banks. In particular, the Dodd-Frank Act includes, among other things, (i) requirements that mortgage originators act in the best interests of a consumer and seek to ensure that a consumer will have the capacity to repay a loan that the consumer enters into; (ii) requirements that mortgage originators be properly qualified, registered, and licensed and comply with any regulations
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designed by the CFPB issued the Know Before You Owe TILA/RESPA Integrated Disclosure Rule ("TRID"), which combined the disclosures required under TILAto monitor their operations; (iii) mandates of comprehensive additional and sections 4 and 5 of RESPA, into a single, integrated disclosure forenhanced residential mortgage loan transactions covered by those laws. TRID, which requires the use of a Loan Estimate that must be delivered or placed in the mail no later than the third business day after receiving the consumer’s application and a Closing Disclosure that must be provided to the consumer at least three business daysrelated disclosures, both prior to consummation, became effectiveloan origination and after; and (iv) mandates of additional appraisal practices for applications received on or after October 3, 2015, for applicable closed-end consumer credit transactionsloans secured by real property. TRID also has changedresidential dwellings, including potential additional appraisals at the scope of transactions applicable, and adjusted the tolerance requirements and record retention requirements.banks cost.

Home Mortgage Disclosure Act ("HMDA")

On October 15, 2015, pursuant to sectionSection 1094 of the Dodd-Frank Act, the CFPB issued amended rules in regardsregard to the collection, reporting and disclosure of certain residential mortgage transactions under the Home Mortgage Disclosure Act (the "HMDA Rules"). The Dodd-Frank Act mandated additional loan data collection points in addition to authorizing the Bureau to require other data collection points under implementing Regulation C. Most of the provisions of the HMDA Rule go into effect on January 1, 2018 and apply to data collected in 2018 and reporting in 2019 and later years. The HMDA Rule adoptsRules adopted a uniform loan volume threshold for all financial institutions, modifies the types of transactions that are subject to collection and reporting, expands the loan data information being collected and reported, and modifies procedures for annual submission and annual public disclosures. EGRRCPA amended provisions of the HMDA Rules to exempt certain insured institutions from most of the expanded data collection requirements required of the Dodd-Frank Act. The CFPB further amended the HMDA Rules in April 2020 so that, effective January 1, 2022, institutions originating fewer than 100 dwelling secured closed-end mortgage loans or fewer than 200 dwelling secured open-end lines are exempt from the expanded data collection requirements. On February 1, 2023, the Office of the Comptroller of the Currency issued OCC Bulletin 2023-5 which clarified that, following a recent court decision vacating the 2020 HMDA Final Rule as to the loan volume reporting threshold for closed-end mortgage loans, the loan origination threshold for reporting HMDA data on closed-end mortgage loans reverted to the 25 loan threshold established by the 2015 HMDA Final Rule. The Bank does not receive this reporting relief based on the number of dwellings secured mortgage loans reported annually.

UDAP and UDAAP

Banking regulatory agencies have increasingly used a general consumer protection statute to address "unethical""unfair," "deceptive" or otherwise "bad""abusive" acts and business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law. The law of choice for enforcement against such business practices has been Section 5 of the Federal Trade Commission Act, referred to as the FTC Act, which is the primary federal law that prohibits unfair or deceptive acts or practices, referred to as UDAP, and unfair methods of competition in or affecting commerce. "Unjustified consumer injury" is the principal focus of the FTC Act. Prior to the Dodd-Frank Act, there was little formal guidance to provide insight to the parameters for compliance with UDAP laws and regulations. However, UDAP laws and regulations have beenwere expanded under the Dodd-Frank Act to apply to "unfair, deceptive or abusive acts or practices," referred to as UDAAP which have beenand were delegated to the CFPB for rule-making.rulemaking. The federal banking agencies have the authority to enforce such rules and regulations. Under the Dodd-Frank Act, CFPB looks to various factors to assess whether an act or practice unfair, including whether it causes or is likely to cause substantial injury to consumers, the injury is not reasonably avoidable by consumers, and the injury is not outweighed by countervailing benefits to consumers or to competition. A key focus of CFPB is whether an act or practice hinders a consumer's decision-making.

Incentive Compensation

In June 2010, the Federal Reserve Board, the Office of the Comptroller of the Currency and the FDIC issued comprehensive final guidance on incentive compensation policies intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The guidance, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’sorganization's incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’sorganization's ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’sorganization's board of directors.
The Federal Reserve Board will review, as part of the regular, risk-focused examination process, the incentive compensation arrangements of banking organizations, such as the Company, that are not "large, complex banking organizations." The findings of the supervisory initiatives will be included in reports of examination. Enforcement actions may be taken against a banking organization if its incentive compensation arrangements, or related risk-managementrisk management control or governance processes,

pose a risk to the organization’sorganization's safety and soundness and the organization is not taking prompt and effective measures to correct the deficiencies.

In addition, publicly traded companies are required by the SEC to give stockholdersshareholders a non-binding vote on executive compensation at least every three years and on so-called "golden parachute" payments in connection with approvals of mergers and acquisitions unless previously voted on by stockholders.shareholders. Also, certain publicly traded companies will beare required to disclose
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the ratio of the compensation of its chief executive officer (CEO)their CEO to the median compensation of its employees. These companies will be required to provide disclosure of their pay ratios for their first fiscal year beginning on or after January 1, 2017.The Company addresses these votes and disclosures in its annual Proxy Statement.

The Dodd-Frank Act directs the federal banking regulators to promulgate rules prohibiting excessive compensation paid to executives of depository institutions and their holding companies with assets in excess of $1 billion, regardless of whether the company is publicly traded or not. In May 2016, the federal banking regulators, joined by the SEC, proposed such a rule that is tailored based on the asset size of the institution. All covered financial institutions would be subject to a prohibition on paying compensation, fees, and benefits that are "unreasonable" or "disproportionate" to the value of the services performed by a person covered by the proposed rule (generally, senior executive officers and employees who are significant risk-takers). Moreover,As of the proposeddate of this Form 10-K, the federal banking regulators have not yet implemented a final rule includes a new requirement which provides that an incentive-basedwith respect to excessive compensation arrangement must (i) include financialpaid to executives of depository institutions and non-financial measures of performance, (ii) be designed to allow non-financial measures of performance to override financial measures of performance, when appropriate (so called safety and soundness factors), and (iii) be subject to adjustment to reflect actual losses, inappropriate risk taking, compliance deficiencies, or other measures or aspects of financial and non-financial performance.their holding companies. Finally, the Dodd-Frank Act gives the SEC authority to prohibit broker discretionary voting on elections of directors and executive compensation matters.

In August 2022, the SEC adopted the final "pay-for-performance" rule mandated by the Dodd-Frank Act. Among other disclosure requirements, the rule requires companies to disclose the relationships among named executive officer compensation "actually paid," total shareholder return and certain financial performance measures that the company uses to link compensation to company performance for its five most recent fiscal years. The rule first applied to disclosures in the Company's proxy statement for the 2023 annual meeting of shareholders.

In October 2022, the SEC adopted a final rule directing national securities exchanges and associations, including the NASDAQ, to implement listing standards that require listed companies to adopt policies mandating the recovery or "clawback" of excess incentive-based compensation earned by a current or former executive officer during the three fiscal years preceding the date the listed company is required to prepare an accounting restatement, including to correct an error that would result in a material misstatement if the error were corrected in the current period or left uncorrected in the current period. In accordance with Rule 10D-1 promulgated by the SEC under the Exchange Act and Nasdaq Listing Rule 5608, the Compensation and Human Resources Committee of the Board of Directors adopted and implemented an Incentive Award Recoupment Policy, effective as of October 2, 2023. The Incentive Award Recoupment Policy can be found within Item 15, "Exhibits, Financial Statement Schedules," of this Form 10-K.

Technology Risk Management and Consumer Privacy

State and federal banking regulators have issued various policy statements emphasizing the importance of technology risk management and supervision in evaluating the safety and soundness of depository institutions with respect to banks that contract with third-party vendors to provide data processing and core banking functions. The use of technology-related products, services, delivery channels and processes exposesexpose a bank to various risks, particularly operational, privacy, cyber and information security, strategic, reputation and compliance risk. Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.

Under Section 501 of the Gramm-Leach-Bliley Act, and its implementing regulations, the federal banking agencies have established appropriate standards for financial institutions regarding the implementation of safeguards to protect the security and confidentiality of customer records and information, protection against any anticipated threats or hazards to the security or integrity of such records and protection against unauthorized access to or use of such records or information in a way that could result in substantial harm or inconvenience to a customer. Among other matters, theUnder these rules, require each bankall financial institutions are required to implement a comprehensive written information security program that includes administrative, technical and physical safeguards relating to customer information. In addition, Massachusetts has established Standards for the Protection of Personal Information which create minimum standards to be met in connection with the safeguarding of personal information and outline the content and timing of disclosures required following a system breach or compromise.

Beginning on May 1, 2022, a bank holding company, such as the Company, and an FDIC-supervised depository institution, such as the Bank, are required to notify the Federal Reserve or FDIC, respectively, as soon as possible and no later than 36 hours after a determination that a computer-security incident that rises to the level of a notification incident has occurred.

On July 26, 2023, the SEC adopted final rules that require public companies to promptly disclose material cybersecurity incidents in a Current Report on Form 8-K and detailed information regarding their cybersecurity risk management, strategy, and governance on an annual basis in its Annual Reports on Form 10-K. Companies are required to report on Form 8-K any cybersecurity incident they determine to be material within four business days of making that determination.
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Under the Gramm-Leach-Bliley Act, aall financial institution must also provide its customers with a notice of privacy policies and practices. Section 502 prohibits a financial institution from disclosing nonpublic personal information about a customer to non-affiliated third parties unless the institution satisfies various notice and opt-out requirements and the customer has not elected to opt out of the disclosure. Under Section 504, the agencies are authorized to issue regulations as necessary to implement notice requirements and restrictions on a financial institution's ability to disclose nonpublic personal information about customers to non-affiliated third parties. Under the final rule the regulators adopted, all banksinstitutions must develop initial and annual privacy notices which describethat are provided to its customers describing in general terms, the bank's information sharing practices. Banks that share nonpublic personal information about customers withpractices to affiliated and non-affiliated third parties must also provide customers with anand the customer's ability to opt-out notice and a reasonable period of time for the customer to opt out of any such disclosure (with certain exceptions).information sharing practices. Limitations are placed on the extent to which a bank can disclose an account number or access code for credit card, deposit or transaction accounts to any nonaffiliatedunaffiliated third-party for use in marketing.


Bank Secrecy Act, and Anti-Money Laundering Initiatives and USA PATRIOT Act

Our Company and the Bank are also subject to the Bank Secrecy Act, as amended by the USAUniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the "USA PATRIOT Act") and as further amended by the National Defense Authorization Act for Fiscal Year 2021 (the "National Defense Authorization Act"), which gives the federal government powers to address money laundering and terrorist threats through enhanced domestic security measures, expanded surveillance powers, and mandatory transaction reporting obligations. The Bank Secrecy Act imposesand USA PATRIOT Act impose an affirmative obligation on the Bank to establish an anti-money laundering program designed to monitor and prohibit against certain transactions and account relationships, create due diligence standards for "know your customer;" regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers; report currency transactions that exceed certain thresholdsthresholds; and to report other transactions determined to be suspicious. Financial institutions must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to report any suspicious information maintained by financial institutions. The Bank Secrecy Act requires that all banking institutions develop and provide for the continued administration of a program reasonably designed to assure and monitor compliance with certain record-keeping and reporting requirements regarding both domestic and international currency transactions. These programs must, at a minimum, provide for a system of internal controls to assure ongoing compliance, provide for independent testing of such systems and compliance, designate individuals responsible for such compliance and provide appropriate personnel training.
On May 10, 2016, the Financial Crimes Enforcement Network
The FinCEN issued a final rule regarding customer due diligence requirements for covered financial institutions in connection with their Bank Secrecy Act and Anti-Money Laundering policies.policies, that became effective in May 2018. The final rule adds a requirement to understand the nature and purpose of customer relationships and identify the "beneficial owner" (25% or more ownership interest) of legal entity customers. Bank regulators routinely examine institutions for compliance with these obligations and they must consider an institution's anti-money laundering compliance when considering regulatory applications filed by the institution, including applications for bank mergers and acquisitions. The formal implementation date is May 11, 2018.regulatory authorities have imposed "cease-and-desist" orders and civil money penalty sanctions against institutions found to be violating these obligations.
USA Patriot
Further, on January 1, 2021, Congress passed the National Defense Authorization Act, which enacted the most significant overhaul of the Bank Secrecy Act and Know-Your-Customer
Underrelated anti-money laundering laws since the USA PATRIOT Act,Act. Notable amendments include (i) significant changes to the collection of beneficial ownership information and the establishment of a beneficial ownership registry placing responsibility to the corporate entities to report beneficial ownership information to FinCEN (which will be maintained by FinCEN and made available upon request to financial institutions); (ii) enhanced whistleblower provisions, which provide that one or more whistleblowers who voluntarily provide original information leading to the successful enforcement of violations of the anti-money laundering laws in any judicial or administrative action brought by the Secretary of the Treasury or the Attorney General resulting in monetary sanctions exceeding $1 million; (iii) increased penalties for violations of the Bank Secrecy Act; (iv) improvements to existing information sharing provisions that permit financial institutions are subject to prohibitions againstshare information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and (v) expanded duties and powers of FinCEN. Many of the amendments, including those with respect to beneficial ownership, require the Department of Treasury and FinCEN to promulgate rules.

On September 29, 2022, FinCEN issued a final rule establishing a beneficial ownership information reporting requirement, pursuant to the CTA. The rule requires most corporations, limited liability companies, and other entities created in or registered to do business in the United States to report information about their beneficial owners-the persons who ultimately own or control the company, to FinCEN. On December 22, 2023, FinCEN issued a final rule regarding access by authorized recipients to beneficial ownership information that will be reported to FinCEN pursuant to Sec. 6403 of the CTA, which is part of the NDAA. The regulations implement strict protocols required by the CTA to protect sensitive personally identifiable information reported to FinCEN and establish the circumstances in which specified financial transactionsrecipients have access to beneficial ownership information, along with data protection protocols and account relationships,oversight mechanisms applicable to each recipient category. The disclosure of beneficial ownership information to authorized recipients in accordance with appropriate protocols and oversight
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will help law enforcement and national security agencies prevent and combat money laundering, terrorist financing, tax fraud, and other illicit activity, as well as enhanced due diligence and "know your customer" standards intended to detect, and prevent, the use of the United States financial system for money laundering and terrorist financing activities. The USA Patriot Act requires financial institutions, including banks, to establish anti-money laundering programs, including employee training and independent audit requirements, meet minimum standards specified by the act, follow minimum standards for customer identification and maintenance of customer identification records, and regularly compare customer lists against lists of suspected terrorists, terrorist organizations and money launderers.protect national security.

Other Operations and Consumer Compliance Laws

The Bank must comply with numerous other federal anti-money laundering and consumer protection statutes and implementimplementing regulations, including but not limited to the Truth in Savings Act, Electronic Funds Transfer Act, Expedited Funds Availability Act, the Community Reinvestment Act, the Equal Credit Opportunity Act, the Federal Housing Act, the National Flood Insurance Act and various other federal and state privacy protection laws. Failure to comply in any material respect with any of these laws could subject the Bank to lawsuits and could also result in administrative penalties, including fines and reimbursements. The Company and the Bank are also subject to federal and state laws prohibiting unfair or fraudulent business practices, untrue or misleading advertising and unfair competition. These laws and regulations mandate certain disclosure requirements and regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services. Failure

Environmental Laws Potentially Impacting the Bank

We are subject to comply in any material respect with any of thesestate and federal environmental laws and regulations could subjectregulations. The CERCLA is a federal statute that generally imposes strict liability on all prior and present "owners and operators" of sites containing hazardous waste. However, Congress acted to protect secured creditors by providing that the Bank to various penalties, including but notterm "owner and operator" excludes a person whose ownership is limited to enforcement actions, injunctions, finesprotecting its security interest in the site. Since the enactment of the CERCLA, this "secured creditor exemption" has been the subject of judicial interpretations which have left open the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan, which costs often substantially exceed the value of the property.

Other Pending and Proposed Legislation

From time to time, various legislative and regulatory initiatives are introduced in Congress, as well as by regulatory agencies. Such initiatives may include proposals to expand or criminal penalties, punitive damagescontract the powers of bank holding companies and depository institutions or proposals to consumers,substantially change the financial institution regulatory system. Such legislation could change banking statutes and the lossoperating environment of certain contractual rights.the Company or Bank in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to the company or our subsidiaries could have a material effect on the Company's business, financial condition, and results of operations.

The Company maintains a Compliance Management Program designed to meet regulatory and legislative requirements. See alsoKey Risk Areas, below under the heading "Risk Management Framework."

Risk Management Framework

In addition to the risks discussed below, 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 Item 1A, "Risk Factors," of this Form 10-K. This Risk Management Framework discussion should be read in conjunction with Item 1A and "OpportunitiesItem 1C, "Cybersecurity," of this Form 10-K.

Management utilizes a comprehensive enterprise risk management framework that enables a coordinated and Risks" includedstructured 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.

These risks, and the decisions related thereto, include, but are not limited to: credit risk, market and interest rate risk, liquidity management, capital risk, information technology and cybersecurity risk, legal and regulatory compliance risk, corporate governance, internal control over financial reporting, reputational risk, strategic risk, compensation risk, physical
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security, loss and fraud prevention, policy reviews, third-party risk management (direct and indirect vendors) and contract management, business continuity and succession planning, and short and long-term capital projects and facility planning.

The Company promotes proactive risk management by all Enterprise employees with clear ownership and accountability. Managers in each line of business have responsibility for identifying, assessing, and managing the risks in their areas. The Risk Management department is responsible for providing guidance, oversight, and input on remediation to business lines to provide reasonable assurance that risk assessments and mitigating controls and procedures are properly designed and functioning within their areas. The Risk Management department also independently monitors operational risk, including information security, third-party risk management, disaster recovery and business continuity planning. Periodically, management reports and risk assessments are provided to the Board or its committees relating to the Bank's risk profile and the adequacy of the risk management program. In addition, the Internal Audit department, which is independent of management, through reviews and testing, confirms appropriate risk management controls, processes and systems are in place and functioning effectively.

The Company also maintains a package of commercial insurance policies with national insurers, which provides for a broad range of insurance coverage for a variety of risk factors, at levels deemed appropriate by management. Insurance policies are reviewed annually, or as circumstances change, by management for necessary updates and adjustments in coverage, in addition to reviews by an independent third-party and the Audit Committee of the Board.

Key Risk Areas

Operational risk includes the threat of loss from inadequate or failed internal processes, people, systems, or external events, due to, among other things: fraud or error; the inability to deliver products or services; failure to maintain a competitive position; lack of, or insufficient information security, cybersecurity, or physical security; inadequate procedures or controls followed by third-party service providers; or violations of ethical standards. In addition to ongoing employee training, and employee and customer awareness campaigns, controls to manage operational risk include, but are not limited to, technology administration, cyber and information security, third-party risk management, and disaster recovery and business continuity planning.

The Company's technology administration includes policies and guidelines for the design, procurement, installation, management and acceptable use of hardware, software, and network devices as well as third-party hosted and cloud-based solutions. The Company's project management standards are designed to provide risk-based oversight, coordinate and communicate ideas, and to prioritize and manage project implementation in a manner consistent with corporate objectives.

Information Security, third-party risk management, cybersecurity governance and the incident response plan are reviewed in detail in Item 1C, "Cybersecurity Risk Management and Strategy," of this Form 10-K, below. The Technology & Information Security Committee of the Board oversees the technology and cybersecurity strategies and their alignment with business strategies. The Committee also oversees the effectiveness of the information security program and monitors the results of third-party testing and risk assessments and responses to breaches of customer data, among other project management, cybersecurity governance, and business continuity oversight functions.

The Company's Disaster Recovery and Business Continuity Program combined with the Company's Pandemic Plan (the "plans") provide the information and procedures required to enable a rapid recovery from an occurrence that would disable the Company's operations for an extended period, due to circumstances such as: loss of personnel; loss of data and/or loss of access to, or the physical destruction or damage of facilities, infrastructure or systems; or denial of access to our systems or information by outside parties. The plans, which are reviewed annually, establish responsibility for assessing a disruption of business, contains alternative strategies for the continuance of critical business functions during an emergency, assigns responsibility for restoring services, and sets recovery point and time objectives by which critical services will be restored. A bank-owned and maintained secondary data center location provides the Company with back-up network processing capabilities if needed.

The Company maintains a CMP designed to meet regulatory and legislative compliance requirements. The CMP provides a framework for tracking and implementing regulatory changes, monitoring the effectiveness of policies and procedures, conducting compliance risk assessments, managing customer complaints, and educating employees in matters relating to regulatory compliance. The Audit Committee of the Board oversees the effectiveness of the CMP.

Credit risk management is reviewed in detail in Item 7, "Management's Discussion and Analysis of Financial Condition and
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Results of Operations," in the section entitled "Overview,"Loans," whichunder the heading "Credit Risk" of this Form 10-K. The Loan Committee of the Board oversees the effectiveness of credit risk management.

Liquidity management is containedreviewed in Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations," in the section entitled "Financial Condition" under the heading "Liquidity" of this Form 10-K.

Interest rate risk is reviewed in detail under Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-K below. The Board of Directors oversees the Company's asset–liability management, which includes managing interest rate risk and liquidity.

For information regarding capital planning, current capital framework requirements applicable to the Company and the Bank and their respective capital levels at December 31, 2023, see the section within Item 1, "Business," entitled "Capital Resources" and the sections within "Supervision and Regulation" entitled "Capital Requirements" and "Capital Requirements under Basel III" and for further discussionthe Bank "Capital Adequacy Requirements" of this Form 10-K and also see Note 12, "Shareholders' Equity," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data," of this Form 10-K.

The Company maintains a set of internal controls over financial reporting designed to provide reasonable assurance to management that the information required to be disclosed in reports it files with or furnishes to the SEC is prepared and fairly presented based on how new lawsproperly recorded, processed, and regulationssummarized information. The Audit Committee of the Board oversees the effectiveness of the internal control over financial reporting. See Item 9A, "Controls and Procedures," of this Form 10-K, below, for management's reports on its evaluation of disclosure controls and internal control over financial reporting.

Any system of controls or contingency plan, however well designed and operated, is based in part on certain assumptions and has inherent limitations and may affectnot prevent or detect all risks, and therefore can provide only reasonable, not absolute, assurances that the Company’s business, financial condition and resultsobjectives of operations.the system are met. An overview of these risks, among others, related to the Company are outlined in Part I, Item 1A, "Risk Factors," in this Form 10-K, below.



Item 1A.Risk Factors

Item 1A.Risk Factors

An investment in the Company’sCompany's common stock is subject to a variety of risks and uncertainties including, without limitation, those set forth below, any of which could cause the Company's actual results to vary materially from recent results or from the other forward lookingforward-looking statements that the Company may make from time to time in news releases, annualperiodic reports and other written or oral communications. The materialThis Form 10-K is qualified in its entirety by these risk factors.

Realization of any of the risks outlined in the following sections, the Company's inability to identify, respond and uncertainties that management believes may affectcorrect a
breakdown in the Company are described below.  These risksintegrity of the design or functioning of the Company’s internal controls and uncertainties are not listed in any particular order of priority and are not necessarily the only ones facing the Company.  Additionalcontingency plan, or additional risks and uncertainties that management is not aware of, or focused on or that managementmay currently deemsdeem immaterial, may also impair the Company’sCompany's business in a variety of ways, including, but not limited to, any one or a combination of the following consequences: loss of assets; an interruption in the ability to conduct business and process transactions; loss of customer business; loss of key personnel; expose customers' personal information to unauthorized parties; additional regulatory scrutiny and potential enforcement actions and/or penalties against the Company or the Bank; damage the Company's reputation; expose the Company to civil litigation and possible financial liability; result in unanticipated charges against capital; increase operational costs; decrease revenue; restrict funding sources, which could adversely impact the Company's ability to meet cash needs; force the Company to liquidate investments or other assets; limit growth and branch network expansion; close locations or reduce staffing; or limit permissible activities. As a result, the Company's overall business, financial condition, and results of operations.
This annual report on Form 10-K is qualified in its entirety by these risk factors.  If any of the following risks actually occur, the Company’s business, financial condition and results of operations, capital position, ability to pay dividends on outstanding common stock, liquidity position, and financial performance could be materially and adversely affected. If this were to happen, the value of the Company’sCompany's common stock could decline significantly, and stockholdersshareholders could lose some or all of their investment.

The Company’s Profitability Depends Significantly on Economic Conditionsmaterial risks and uncertainties that management believes may affect the Company are outlined below. These risks and uncertainties are not listed in any order of priority and are not necessarily the Company’s Primary Market Areasonly ones facing the Company.




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RISK MANAGEMENT CONTROLS

Risk Management Controls and Procedures Could Fail or Be Circumvented
Management regularly reviews and updates the Company's internal controls, corporate governance policies, Information Security Program, compensation policies, Code of Business Conduct and Ethics and security controls to prevent and detect errors and potential monetary losses, loss of confidential information and data, denial of service attacks and loss of physical assets by theft, malicious destruction or damage, fraud, or robbery from both internal and external, physical or cyber sources.

The Company’s success depends principally onCompany is at risk of ineffective design of internal controls, any circumvention of the Company's internal controls and procedures, whether intentional or unintentional, or failure to comply with regulations related to controls and procedures, or failure to adequately execute controls and procedures, whether by employees, management, directors, or external elements, or any illegal activity conducted by a Bank customer or employee.

ECONOMICS & FINANCIAL MARKETS

The Company's financial results are impacted by the general economic conditions of the United States and the primary market areas in which the Company operates. The local economic conditions in these regions have a significant impact on the demand for the Company’s products and services, as well as the ability of the Company’s customers to repay loans, the value of the collateral securing loans and the stability of the Company’s deposit funding sources.
Any weakening in general economic conditions in the United States or the New England region, or anya long-term deterioration of national and global economies, as well as any possible subsequent effects of negative trends, could weaken the regional economy, and have long-term adverse consequences onthe local industries, employment levels, foreclosure rates and commercial real estate values, whichimpact of worsening national economic conditions or continued geopolitical instability could negatively impact the Company’s business, financial condition, capital position, liquidity, and performance in a variety of ways. Potential adverse effects on the Company could include the following: continued downward pressure on its net interest margin; deterioration in its asset quality; a decline in the underlying values of commercial and residential real estate collateral; an increased level of loan delinquencies; an increase in the level of its allowance for loan losses; a decline in the value of its investment portfolio; unanticipated charges against capital; restrictions on funding sources, which could adversely impact the Company’s ability to meet cash needs; and a decline in the market price of the Company’s common stock.results.

In addition to the consequences of a weakening economic environment, any significant and sustained decline in general economic conditions caused by national or global political situations, acts of terrorism, an outbreak of hostilities or other international or domestic occurrences, market interest rate changes, or other factors, could also impact local economic conditions and, in turn, have a material adverse effect on the Company’s business, financial condition and results of operations.

The Company is Subject to Extensive Government Regulation and Supervision
Federal and state banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not the interests of stockholders.  These regulations affect the Company’s lending practices, capital structure, investment practices, dividend policy and growth, among other things. 

Federal and state statutes and related regulations, including tax policy and corporate governance rules, can significantly affect the way in which bank holding companies, and public companies in general, conduct business. Notwithstanding the current administration's agenda, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. The full scope of the current administration's legislative agenda is not yet fully known, but it may include certain deregulatory measures for the banking industry, including the structure and powers of the Consumer Finance Protection Bureau and other areas under the Dodd-Frank Act. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. A change in statutes, regulations or regulatory policies applicable to the Company or our subsidiaries could have a material effect on the Company’s business, financial condition and results of operations.

Banking institutions with total assets of $10 billion or less, such as the Bank, remain subject to the supervision and enforcement of their primary federal banking regulator with respect to the federal consumer financial protection laws and such additional

regulations as may be adopted by the CFPB. The Company and the Bank are also subject to a variety of federal and state laws and regulations which mandate nondiscriminatory lending requirements and certain disclosure requirements, regulate the manner in which financial institutions must deal with customers when taking deposits, making loans, collecting loans, and providing other services, and laws to prevent and detect money laundering and other illegal conduct and terrorist activities. In addition to subjecting the Bank to reputational risk, the failure to comply in any material respect with any of these laws and regulations could subject the Bank to various penalties, including but not limited to enforcement actions, injunctions, fines or criminal penalties, punitive damages to consumers, and the loss of certain contractual rights. Ongoing compliance with these laws and regulations may result in additional operating expenses which could have a material adverse effect on the Company’s financial condition and results of operations.
See the section entitled "Supervision and Regulation" contained in Item 1, "Business," for additional information regarding the supervisory and regulatory issues facing the Company and the Bank.

The Company is Subject to Lending Risk
There are inherent risks associated with the Company’s lending activities.  These risks include, among other things, the impact of changes in the economic conditions in the market areas in which the Company operates and changes in interest rates.  In addition, the Company may be impacted by the following risks associated with its lending activities:
Commercial Lending Generally Involves a Higher Degree of Risk than Retail Residential Mortgage Lending
The Company’s loan portfolio consists primarily of commercial real estate, commercial and industrial, and commercial construction loans.  These types of loans are generally viewed as having more risk of default than owner-occupied residential real estate loans or consumer loans, and also typically have larger balances. The underlying commercial real estate values, the actual costs necessary to complete a construction project, or customer cash flow and payment expectations on such loans can be more easily influenced by adverse conditions in the related industries, the real estate market or in the economy in general. Any significant deterioration in the credit quality of the commercial loan portfolio or underlying collateral values could have a material adverse effect on the Company’s financial condition and results of operations.

The Company May Need to Increase its Allowance for Loan Losses
The Company maintains an allowance for loan losses, which is established through a provision for loan losses charged to earnings, that represents management’s estimate of probable losses inherent within the existing portfolio of loans.  The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks and trends, all of which may undergo material changes. In addition, bank regulatory agencies periodically review the Company’s allowance for loan losses and may require an increase in the provision for loan losses or the recognition of further loan charge-offs, based on judgments that differ from those of the Company’s management. While the Company strives to carefully monitor credit quality and to identify loans that may become non-performing, it may not be able to identify deteriorating loans before they become non-performing assets, or be able to limit losses on those loans that have been identified to be non-performing. The Financial Accounting Standards Board has announced changes to accounting standards that will impact the way banking organizations estimate their allowance for loan losses beginning in January 2020. These changes or any others to accounting rules governing credit impairment estimates and recognition may increase the level of the allowance for loan losses. Any increases in the allowance for loan losses will result in a decrease in net income and, depending upon the magnitude of the changes, could have a material adverse effect on the Company’s financial condition and results of operations.

Increases in the Company's Non-performing Assets Could Adversely Affect the Company's Results of Operations and Financial Condition in the Future
Non-performing assets adversely affect net income in various ways. While the Company pays interest expense to fund non-performing assets, no interest income is recorded on non-accrual loans or other real estate owned, thereby adversely affecting income and returns on assets and equity. In addition, loan administration and workout costs increase, resulting in additional reductions of earnings. When taking collateral in foreclosures and similar proceedings, the Company is required to carry the property or loan at its then-estimated fair market value less estimated cost to sell, which, when compared to the carrying value of the loan, may result in a loss. These non-performing loans and other real estate owned also increase the Company's risk profile and the capital that regulators believe is appropriate in light of such risks, and have an impact on the Company's FDIC risk based deposit insurance premium rate. The resolution of non-performing assets requires significant time commitments from management and staff. The Company may experience further increases in non-performing loans in the future, and non-performing assets may result in further costs and losses in the future, either of which could have a material adverse effect on the Company's financial condition and results of operations.

The Company's Use of Appraisals in Deciding Whether to Make a Loan Does Not Ensure the Value of the Collateral
In considering whether to make a loan secured by real property or other business assets, the Company generally requires an internal evaluation or independent appraisal of the asset. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made, and involve a large degree of estimates and assumptions and an error in fact or judgment could adversely affect the reliability of the valuation. Changes in those estimates resulting from continuing change in the economic environment and events occurring after the initial assessment may cause the value of the assets to decrease in future periods.  As future events and their effects cannot be determined with precision, actual values could differ significantly from these estimates. As a result of any of these factors, the value of collateral backing a loan may be less than estimated at the time of assessment, and if a default occurs the Company may not recover the outstanding balance of the loan.

The Company is Subject to Environmental Risks Associated with Real Estate Held as Collateral or Occupied
When a borrower defaults on a loan secured by real property, the Company may purchase the property in foreclosure or accept a deed to the property surrendered by the borrower. The Company may also take over the management of commercial properties whose owners have defaulted on loans. The Company also occupies owned and leased premises where branches and other bank facilities are located. While the Company's lending, foreclosure and facilities policies and guidelines are intended to exclude properties with an unreasonable risk of contamination, hazardous substances could exist on some of the properties that the Company may own, acquire, manage or occupy. Environmental laws could force the Company to clean up the properties at the Company's expense. The cost of cleaning up or paying damages and penalties associated with environmental problems could increase the Company's operating expenses. It may cost much more to clean a property than the property is worth and it may be difficult or impossible to sell contaminated properties. The Company could also be liable for pollution generated by a borrower's operations if the Company takes a role in managing those operations after a default.

Concentrations in Commercial Real Estate Lending is Subject to Heightened Risk Management and Regulatory Review
As noted above, the Company’s loan portfolio consists primarily of commercial real estate loans. If a concentration in commercial real estate lending is present, as measured under government banking regulations, management must employ heightened risk management practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. If a concentration is determined to exist, the Company may incur additional operating expenses in order to comply with additional risk management practices and increased capital requirements which could have a material adverse effect on the Company’s financial condition and results of operations.

See the discussions contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," under the headings "Loans," "Credit Risk," and "Asset Quality" included in the section entitled "Financial Condition," for further information regarding the Company’s commercial loan portfolio and credit risk.
The Company’s Investment Portfolio Could Incur Losses or Fair Market Value Could Deteriorate
There are inherent risks associated with the Company’s investment activities.  These risks include the impact from changes in interest rates, weakness in real estate, municipalities, government sponsored enterprises, or other industries, the impact of changes in income tax rates on the value of tax exempt securities, adverse changes in regional or national economic conditions, and general turbulence in domestic and foreign financial markets, among other things.  These conditions could adversely impact the fair market value and/or the ultimate collectability of the Company’s investments. In addition to fair market value impairment, carrying values may be adversely impacted due to a fundamental deterioration of the individual municipality, government agency, or corporation whose debt obligations the Company owns or of the individual company or fund in which the Company has invested.

If an investment’s value is deemed other than temporarily impaired, then the Company is required to write down the carrying value of the investment which may involve a charge to earnings.  The determination of the level of OTTI involves a high degree of judgment and requires the Company to make significant estimates of current market risks and future trends, all of which may undergo material changes.  Any OTTI charges, depending upon the magnitude of the charges, could have a material adverse effect on the Company’s financial condition and results of operations.

As a member of the FHLB, the Company is required to purchase certain levels of FHLB capital stock in association with the Company's borrowing relationship from the FHLB. This stock is classified as a restricted investment and carried at cost, which management believes approximates fair value. FHLB stock represents the only restricted investment held by the Company. If

negative events or deterioration in the FHLB financial condition or capital levels occurs, the Company's investment in FHLB capital stock may become other than temporarily impaired to some degree.

In addition, the benefit of tax exempt investments are directly related to the enacted tax law and rates, and lower tax rates will diminish the tax advantages of certain investments, as recently experienced with the 2017 federal tax cuts.

See the discussions contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Impairment Review of Investment Securities," which is contained in the "Accounting Policies/Critical Accounting Estimates" section, Note 1, "Summary of Significant Account Policies" under Item (d) "Investments," and (e) "Restricted Investments," and Note 2, "Investment Securities” to the consolidated financial statements in Item 8 below for further information regarding the process by which the Company determines the level of OTTI.

The Company is Subject to Interest Rate Risk
The Company’sCompany's earnings and cash flows are largely dependent upon its net interest income, meaning the difference, or spread, between interest income earned on interest-earning assets and interest expense paidpaid. Changes in market interest rates may affect the rates on interest-bearing liabilities. The re-pricing frequencyour loan, investment and magnitude ofdeposit products at differing speeds in both time and scale, which could negatively impact the Company’s assetsdemand for bank products and liabilities are not identical, and therefore subjectnet interest margin. Our net interest margin may decrease even if the Company toFederal Reserve Bank lowers the risk of adverse changes infederal funds rate interest rates.rate. Interest rates are highly sensitive to many factors that are beyond the Company’sCompany's control, including competition from both banks and non-bank financial service providers, the monetary policy of the federal government,Federal Reserve, inflation and deflation, and volatility of domestic and global financial markets volatilitydue to any number of credit markets, and competition. If thefactors including, among other things, widening geopolitical tensions. The current environment of elevated interest rates paidcould continue to increase our funding costs and negatively impact our net interest margin and our asset-liability management strategies for funding loan growth.

The Company is subject to Inflation and Deflation Risks
Unlike an industrial company, virtually all assets and liabilities of the Company are monetary in nature. As a result, interest rates, which are impacted by inflation, have a more significant impact on interest-bearing deposits and other liabilities increase at a faster rate or magnitudethe Company's performance than the general level of inflation. Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services impacted by inflation.

The ongoing inflationary environment in the United States and our market areas has resulted in higher interest rates receivedand increased interest rate risk as our interest earning asset yields are generally longer in duration and therefore reprice less quickly than our interest-bearing liabilities (only 13% of deposits are certificates of deposit). The risks to our business from inflation depend on loansthe durability of the current inflationary pressures in our markets. Persistent inflation could lead to tighter-than-expected monetary policy and other investments,higher interest rates, which could slow loan growth and increase cost of funds for the Company’sCompany, reduce net interest income,margin and therefore earnings,profitability, lower asset prices and weaken economic activity. Conversely a prolonged period of deflation may also lead to a deterioration in economic conditions in the United States and our markets causing stress on commercial customers and unemployment, which could beresult in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affected.  Earnings could also be adversely affected if the interest rates received on loansaffect our business, financial condition and other investments fall more quickly or steeply than falling interest rates paid on interest-bearing liabilities.results of operations.

SeeRefer to Item 7A,7A. "Quantitative and Qualitative Disclosures aboutAbout Market Risk," below in this Form 10-K, for further discussionsmore information on the projected impact of interest rates on the Company’s balance sheet at December 31, 2023.

The Company's Investment Portfolio Could Incur Losses or Fair Value Could Deteriorate
There are inherent risks associated with the Company's investment activities. These risks include the impact from changes in interest rates, credit risk related to weakness in real estate values, municipalities, government sponsored enterprises, or other industries, the Company’s managementimpact of changes in income tax rates on the value of tax-exempt securities, adverse changes in regional or national economic conditions, and general turbulence in domestic and foreign financial markets, among other
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things. These conditions could adversely impact the ultimate collectability of the Company's investments.
If an investment's value is in an unrealized loss position, the Company is required to assess the security to determine if a valuation allowance for the credit exposure of the debt security is necessary, which, if necessary, is recorded as a charge to earnings.

Higher market interest rate risk.rates have resulted in unrealized losses on the Company's fixed income bond portfolio. If market interest rates continue to rise, the fair value of the fixed income bond portfolio will decrease, resulting in additional unrealized losses, and depending on the extent of the rise in interest rates, the increase in unrealized losses could be significant. The non-credit portion of unrealized losses are recorded to AOCI, a component of Shareholders' Equity. A significant increase in market rates may have a negative impact on the Company's book value per common share. The Company's bond portfolio is expected to mature at par and therefore the unrealized losses in the portfolio that result from higher market interest rates will decrease as the bonds become closer to maturity. However, if the Company were required to sell investment securities with an unrealized loss for any reason, including liquidity needs, the unrealized loss would become realized and reduce both net income for the reported period and regulatory capital, which as currently reported, excludes unrealized losses on investment securities.


The Potential for Bank Failures and any Related Negative Impact on Customer Confidence in the Safety and Soundness of the Banking Industry may Adversely Affect our Business.
If other financial institutions experience severe financial difficulties, it could result in an adverse impact on the regional banking industry, generally, and the business environment in which the Company operates. Regional bank failures or failure of confidence in the financial industry generally, could result in significant market volatility among publicly traded bank holding companies which may cause uncertainty in the investor community, generally.

This uncertainty may negatively impact customer confidence in the safety and soundness of the banking system and, as a result, the Company's customers may choose to withdraw some or all of their deposited funds, which could have a materially adverse impact on our liquidity, cost of funding, loan growth, net interest margin, capital and results of operations. In addition, advances in technology have increased the speed at which deposits can be moved, as well as the speed and reach of media attention, including social media, and its ability to disseminate concerns or rumors, in each case potentially exacerbating liquidity concerns.

LIQUIDITY

Deposit Outflows May Increase Reliance on Borrowings and Brokered Deposits as Sources of Funds
The Company has traditionallyhistorically funded its asset growth principally through customer deposits and borrowings.to a lesser extent through wholesale borrowings (e.g., brokered deposits and borrowed funds). As a general matter, customer deposits are typically a lower cost source of funds than external wholesale funding (brokered deposits and borrowed funds), because interest rates paid for deposits are typically less than interest rates charged for wholesale funding. If as a result of competitive pressures, market interest rates, alternative investment opportunities that present more attractive returns to customers, general economic conditions or other events, the balance of the Company’sCompany's customer deposits decreases relative todecrease or are less than the Company’s overall banking operations,Company's asset growth, the Company may have to rely more heavily on higher-costing wholesale funding or other sources of external funding or may have to significantly increase deposit rates to maintain deposit levels in the future.  Any such increased reliance on wholesale funding, or increases in funding rates in general could have a negative impact onfuture, all of which may lower the Company’sCompany's net interest income, net interest margin and consequently, on its results of operations and financial condition.profitability.

See the discussions contained in the section entitled "Other Sources of Funds" contained in Item 1, "Business," and in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Liquidity," which is included in the section entitled "Financial Condition" for further information regarding the Company’s sources of contingent liquidity.


Sources of External Funding Could Become Restricted and Impact the Company’sCompany's Liquidity
Liquidity risk is the potential that we will be unable to meet our obligations as they come due because of an inability to liquidate assets or obtain adequate funding. The Company’s external wholesaleBank’s access to funding sources in amounts adequate to finance our activities or on acceptable terms could be impaired by factors that affect our organization, the financial services industry, or the economy in general. Factors that could detrimentally impact access to liquidity sources include borrowing capacity at the FHLB and FRB, capacitya downturn in the brokeredmarkets in which our loans are concentrated or adverse regulatory actions against the Bank. Market conditions or other events could also negatively affect the level or cost of funding, affecting the Bank’s ongoing ability to meet liability maturities and deposit markets, other borrowing arrangements with correspondent banks, as well as accessing the public markets through offerings of the Company’s stock or issuance of debt.  withdrawals, meet contractual obligations and fund asset growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences.

If, as a result of general economic conditions or other events, these sources of external funding become restricted or are eliminated, the Company may not be able to raise adequate funds, or may incur substantially higher funding costs, be required to sell assets, restrict operations, or operating restrictions in order to raiserestrict the necessary funds to support the Company's operations and growth. Any such increase in funding costs or restrictions could have a negative impact on the Company’s net interest income and, consequently, on its resultspayment of operations and financial condition.

See the discussions contained in the section entitled "Other Sources of Funds" contained in Item 1, "Business," and in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Liquidity," included in the section entitled "Financial Condition" for further information regarding the Company’s sources of contingent liquidity.


The Company’s Capital Levels Could Fall Below Regulatory Minimums
The Company and the Bank are both subject to the capital adequacy guidelines of the Federal Reserve Board and FDIC, respectively.  Failure to meet applicable minimum capital ratio requirements (including the capital conservation "buffer" imposed by Basel III) may subject the Company and/or the Bank to various enforcement actions and restrictions.  If the Company’s capital levels decline, ordividends. Furthermore, if regulatory requirements increase, and the Company is unable to raise adequate funds through external sources, the Company may need to sell assets with unrealized losses in order to generate additional liquidity, which could decrease the capital to offset that decline or meetof the increased requirements, then its capital ratios may fall below regulatory capital adequacy levels.  The Company’s capital ratios could decline due to it experiencing rapid asset growth, or due toCompany and have an adverse effect on our business, financial condition and results of operations.


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LENDING

There are inherent risks associated with the Company's lending activities. These risks include, among other factors, such as, by waythings, the impact of example only, possible future net operating losses, impairment charges against tangible or intangible assets, or adjustments to retained earnings due to changes in accounting rules.the economic conditions in the market areas in which the Company operates and changes in interest rates. In addition, the Company may be impacted by the following risks associated with its lending activities:


Commercial Lending Generally Involves a Higher Degree of Risk than Retail Residential Mortgage Lending
The Company's failureloan portfolio consists primarily of commercial real estate, commercial and industrial, and commercial construction loans. These types of loans are generally viewed as having more risk of default than owner-occupied residential real estate loans and typically have larger balances. The underlying commercial real estate values, lower demand for office and retail space, increase costs to remain "well-capitalized"complete construction projects. Customer cash flows can be more easily influenced by adverse conditions in the related industries, the real estate market or in the economy.

Commercial real estate values may be elevated and the outlook for commercial real estate remains dependent on the broader economic environment and, specifically, how major subsectors respond to higher interest rate environment and prices for commodities, goods and services. Credit performance across the industry over the medium- and long-term is susceptible to economic and market forces and our non-performing loans and charge offs may increase. Some degree of general instability in the broad commercial real estate market may occur in the coming quarters as loans are refinanced at higher interest rates and in markets with higher vacancy rates under current economic conditions. Our commercial borrowers may experience greater difficulties meeting their obligations if debt service coverage declines as adjustable-rate loans reprice to higher interest rates and customer cash flows are impacted by inflationary pressures. Conversely, in periods of decreasing interest rates, likely resulting from economic slowdown or recession, borrowers may experience difficulties meeting their obligations and seek to refinance their loans for lower rates, which may adversely affect income from these lending activities. Instability and uncertainty in the commercial real estate markets and elevated level of interest rates could have a material adverse effect on our financial condition and results of operations.

The Company May Need to Increase its Allowance for Credit Losses
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity and requires the Company to make significant estimates of current credit risks, non-performing trends, and economic forecasts, all of which may undergo material changes. In addition, bank regulatory purposes couldagencies periodically review the Company's allowance for credit losses and may require an increase in the provision for credit losses or the recognition of loan charge-offs, based on judgments that may differ from those of the Company's management.

Increases in the Company's Non-performing Assets Could Adversely Affect the Company's Results of Operations and Financial Condition in the Future
Non-performing assets adversely affect customer confidence, restrictour net income in various ways. No interest income is recorded on non-accrual loans or other real estate owned, thereby adversely affecting income and returns on assets and equity. In addition, loan administration and workout costs increase, including significant time commitments from management and staff, resulting in additional reductions of earnings. When taking collateral in foreclosures and similar proceedings, the Company is required to carry the property or loan at its then-estimated fair value less estimated cost to sell, which, when compared to the carrying value of the loan, may result in a loss. In addition, any errors in documentation or previously unknown defects in deeds may impact the Company's ability to grow (bothperfect title of the collateral in foreclosure. These non-performing loans and other real estate owned assets and branching activity),also increase the Company's costsrisk profile and the capital that regulators believe is appropriate in light of fundssuch risks and have an impact on the Company's FDIC risk-based deposit insurance costs, prohibitpremium rate.

The Company's Use of Appraisals in Deciding Whether to Make a Loan Does Not Ensure the Value of the Collateral
In considering whether to make a loan secured by real property or other business assets, the sale of which may provide ultimate recovery of the outstanding balance of the loan, the Company generally requires an internal evaluation or independent appraisal of the collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations. As a result, the value of collateral securing a loan may be less than estimated at the time of assessment, and if a default occurs the Company may not recover the outstanding balance of the loan.

The Company is Subject to Environmental Risks Associated with Real Estate Held as Collateral or Occupied
While the Company’s lending, foreclosure and facilities policies and guidelines are intended to exclude properties with an
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unreasonable risk of contamination, hazardous substances could exist on some of the properties that the Company may own, acquire, manage, or occupy. Environmental laws could force the Company to clean up the properties at the Company’s expense. It may cost much more to clean a property than the property is worth, and it may be difficult or impossible to sell contaminated properties. The Company could also be liable for pollution generated by a borrower’s operations if the Company takes a role in managing those operations after a default.

Concentrations in Commercial Real Estate Loans are Subject to Heightened Risk Management and Regulatory Review
If a concentration in commercial real estate lending is present, as measured under government banking regulations, management must employ heightened risk management lending practices that address the following key elements: board and management oversight and strategic planning, portfolio management, development of underwriting standards, portfolio risk assessment and monitoring through market analysis and stress testing, and maintenance of increased capital levels as needed to support the level of commercial real estate lending. Management believes that it is in compliance with the enhanced risk management practices. When a concentration is determined to exist, the Company may incur additional operating expenses in order to comply with additional risk management practices and increased capital requirements.

INFORMATION & TECHNOLOGY RESOURCES

The use of technology related products, services, delivery channels, access points and processes expose the Company to various risks, particularly operational, privacy, cybersecurity, strategic, reputation and compliance risk. The ongoing move towards more cloud-based and third-party hosted technology solutions may subject the Bank to certain heightened cyber risks. The potential use of generative artificial intelligence to launch sophisticated cyber-attacks, and the threat that foreign state-sponsored agencies' cyber threat operations may pose heightened risk of disruptions to U.S. critical infrastructure and thereby the Bank's operations. Banks are required by regulatory agencies to prudently manage cyber, third-party, cloud-based and technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring, and controlling these risks.

Failure to Keep Pace with Technological Change Could Affect the Company's Profitability
The banking industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products, services, extended service and settlement frequencies, data management and delivery channels. Failure to successfully plan or keep pace with technological changes affecting the banking industry, or failure to adequately plan, train and educate staff and customers on the use and risks of new technologies and extended service cycles, failure to capture or manage data, or failure to comply adequately with regulatory guidance regarding information and cybersecurity could have a material adverse effect on the Company's business and, in turn, the Company's financial condition and results of operations. In addition, there may be significant time and expenses associated with upgrading and implementing new technology, technology compliance, information security and cybersecurity processes.

Information Systems Could Experience an Interruption, Failure, Breach in Security, or Cyber-Attack
The Company relies heavily on public utilities infrastructure, internal information and operating systems, and cloud-based solutions and storage to conduct its business effectively, and these systems could fail in a variety of ways. In addition, the use of network, cloud-based, or third-party hosted systems expose the Company to the increased sophistication and activity of cyber-criminals, both domestic and international. Current geopolitical tensions could result in serious and catastrophic attempts at cyber-attacks on the U.S. web-based infrastructure. A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity, or availability of the information resources of the Company. These incidents may be an intentional attack or an unintentional event and could involve blocking the Company from accessing its own systems or remote servers in exchange for a ransom payment, gaining unauthorized access directly to our information systems, or indirectly through our vendors and customers systems or servers, for purposes of misappropriating assets, stealing confidential corporate information or customers' Personally Identifiable Information, corrupting data, denying access or causing operational disruption. The Company's independent third-party service providers or their subcontractors may also expose the Company to cybersecurity risk. Additionally, vendors' and customers' home, business or mobile information systems and the servers they rely on, are at risk of fraudulent corporate account takeovers which the Company may not be able to detect, and may impact the Company's ability to pay dividends on common shares,service its customers. There is no guarantee the Company's counteractions will be successful or that the Company will have the resources or technical expertise to anticipate, detect or prevent rapidly evolving types of cyber-attacks.

The occurrence of any failures or disruptions as noted above, or the Company's inability to detect, respond, disclose and itscorrect such occurrence or compromise in a timely manner, could subject the Company to increased operational costs to detect and rectify the situation, damage the Company's reputation and deter customers from using the Company's services,
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increase the Company insurance cost or the ability to make acquisitions, and have a negative impact on the Company's business, results of operation and financial conditions, generally. Under FDIC rules, if the Bank ceases to be a "well-capitalized" institution for bank regulatory purposes, its ability to accept brokered deposits and the interest rates that it pays may be restricted.

See the sections entitled "Supervision and Regulation" and "Capital Resources" contained in Item 1, "Business," for additional information regarding regulatory capital requirements forobtain adequate cyber insurance coverage, subject the Company to additional regulatory scrutiny, and the Bank and new capital requirements under Basel III regulatory capital and liquidity standards.

The Investment Management Feesexpose the Company Receives May Decrease as a Result of a Decline in Aggregate Assets Under Management, Which Could Decrease Revenuesto civil litigation and Net Earningspossible financial liability.
The Company's Enterprise Wealth Management and Enterprise Wealth Services channels derive their revenues primarily from investment management fees based on assets under management. Investment advisory and wealth management clients can terminate their relationships with us, reduce their aggregate assets under management, or shift their funds to other types of accounts with different rate structures for any number of reasons. The Company's ability to maintain or increase investment assets under management is subject to a number of factors, including changes in investment preferences of clients, changes in our reputation in the marketplace, change in management or control of clients, poor investment decisions, loss of key investment management personnel, our ability to maintain customer service levels, competition from investment management companies and alternative investment options, investors' perception of our past investment performance, in either relative or absolute terms, fluctuations in financial markets and various economic conditions.

OPERATIONS
Investment performance is one of the most important factors in retaining existing clients and competing for new wealth management clients. Poor investment performance, or to the extent our future investment performance is perceived to be poor, in either relative or absolute terms, could impair our ability to attract and retain funds from existing and new clients. Financial markets are affected by many factors, all of which are beyond our control, including general economic conditions, securities market conditions, the level and volatility of interest rates and equity prices, and general turbulence in domestic and foreign financial markets, among many other factors which could adversely impact the fair market value of customer portfolios. Even when market conditions are generally favorable, our investment performance may be adversely affected by the investment style of our wealth management and investment advisors and the particular investments that they make.


The Company Operates in a Competitive Industry and Market Area
The Company faces substantial competition in all areas of its operations from a variety of different competitors severalwithin its market area and beyond. Some of whichthese competitors are larger and have more financial resources than the Company.  Competitors within the Company’s market area include not only national, regional, other community banks and internet based banks, but also various types of other non-bank financial institutions, including credit unions, consumer finance companies, mortgage brokers and lenders, as well as private lenders, insurance companies, securities brokerage firms, institutional mutual funds, registered investment advisors, other financial intermediaries and non-bank electronic payment and funding channels. Additionally,Company; some of these competitors are not subject to the same degree of government regulation as the Company and thus may have a competitive advantage over the Company.advantage. If due to the inability to compete successfully within the Company's target banking markets, the Company encounters difficulties attracting and retaining customers it would have a material adverse effect on the Company's growth and profitability.

See the section entitled "Competition" contained in Item 1, "Business," for additional information regarding the competitive issues facing the Company.


Controls and Procedures Could Fail, or Be Circumvented by Theft, Fraud or Robbery
Management regularly reviews and updates the Company’s internal controls over financial reporting, corporate governance policies, compensation policies, Code of Business Conduct and Ethics and security controls to prevent and detect theft, fraud or robbery from both internal and external sources.  Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met.  Any failure or circumvention of the Company’s internal controls and procedures, or failure to comply with regulations related to controls and procedures, or a physical theft or robbery, whether by employees, management, directors, or external elements, or any illegal activity conducted by a Bank customer, could result in loss of assets, regulatory actions against the Company, financial loss, damage the Company’s reputation, cause a loss of customer business, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, results of operations and financial condition.

See the discussion under the heading "Opportunities and Risks" contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Company’s operational risk management.

The Company is Subject to Technology Related Risk
The use of technology related products, services, delivery channels, access points and processes exposes the Company to various risks, particularly operational, privacy, cyber-security, strategic, reputation and compliance risk. Banks are generally expected to prudently manage technology-related risks as part of their comprehensive risk management policies by identifying, measuring, monitoring and controlling risks associated with the use of technology.

Failure to Keep Pace with Technological Change Could Affect the Company’s Profitability
The banking industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products, services and delivery channels. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.  Several of the Company’s competitors have substantially greater resources to invest in technological improvements.  Failure to successfully plan or keep pace with technological changes affecting the banking industry, or failure to adequately train and educate staff on the use and risks of new technologies, or failure to comply adequately with regulatory guidance regarding protection of information security systems could have a material adverse effect on the Company’s business and, in turn, the Company’s financial condition and results of operations. In addition, there may be significant expenses associated with upgrading and implementing new technology, technology compliance and security processes the cost of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

The Infrastructure Necessary to Run Technology May Experience an Interruption or Failure
The Company's and key service provider's information systems, in general, rely heavily on infrastructures such as electrical grids, voice and data communication, and internet server networks, which could be subject to failures or disruptions as a result of natural disasters, power or telecommunications disruptions, acts of terrorism or war, physical or electronic security breaches, industry wide or localized cyber-attacks, wide-spread Distributed Denial of Service attacks, or similar events or disruptions. A material disruption to infrastructure could result in an interruption in customer services and ability to conduct transactions, loss of customer business and damage the reputation of the Company, any of which may have a material adverse effect on the Company’s business, financial condition and results of operations.

Information Systems Could Experience an Interruption or Failure
The Company relies heavily on internal information systems to conduct its business.  These systems must be continually reviewed, managed and upgraded on a recurring basis. The occurrence of any failures or interruptions of the Company’s information systems (including any breakdown in logic and/or algorithms used), access points (or those of third-party service providers), or in commonly used operating systems could disrupt the Company’s ability to conduct business and process transactions for an indeterminable length of time.  Any breakdown in these information systems or the Company's inability to identify, respond and correct such breakdown, could result in an interruption in the ability to conduct transactions, a loss of customer business, damage the Company’s reputation, subject the Company to additional regulatory scrutiny, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

See the discussion under the heading "Opportunities and Risks" contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Company’s information security and technology practices and the Company’s Disaster Recovery and Business Continuity Plan.


Technology Systems Could Experience a Breach in Security or Cyber-Attack
The use of networked operating systems exposes the Company to the increased sophistication and activity of cyber-criminals engaged in the theft of Personally Identifiable Financial Information, strategic business information and disruption of service attacks and social engineering schemes. The Company's independent third-party service providers may also have access to customers’ personal information and therefore also expose the Company to cyber-security risk. Additionally, vendors' and customers’ home, business or mobile information systems are at risk of fraudulent corporate account takeovers which the Company may not be able to detect.  There is no guarantee the Company's counter-actions will be successful or that the Company will have the resources or technical expertise to anticipate, detect or prevent rapidly evolving types of cyber-attacks.

Any breach in the security of these networked information systems or the Company's inability to detect, respond and correct such infiltration, could expose customers’ personal information to unauthorized parties, increase the risk of fraud or customer identity theft, subject the Company to increased operational costs to detect and rectify the situation, damage the Company’s reputation, subject the Company to additional regulatory scrutiny, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company’s business, financial condition and results of operations.

See the discussion under the heading "Opportunities and Risks" contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Company’s information security and technology practices and the Company’s Disaster Recovery and Business Continuity Plan.


The Company May Experience a Prolonged Interruption in its Ability to Conduct Business
The Company relies heavily on its personnel and facilities to conduct its business. A material loss of people or physical damage, destruction, or denial of access to our core operating facilities, for any number of reasons such asincluding localized natural disasters, infectious disease outbreak, powerglobal pandemics and government's reaction thereto, demonstrations/pickets at or telecommunications disruptions, actsnear facilities, or the local impact of terrorism or war, or similar events or disruptionsgeopolitical tensions, could result in an interruption inprolonged business interruptions impacting customer services and our ability to conduct transactions, loss of customer business and damage the Company's reputation, any of which may have a material adverse effect on the Company’s financial condition and results of operations.transactions.


The Company Relies on Third-PartyExternal Service Providers
The Company relies on independent third-party firms, including indirect vendors utilized by such third parties, to provide critical services necessary to conducting its business. These services include but are not limited to:to electronic funds delivery networks;networks, check clearing houses;houses, electronic banking services; investmentservices, wealth advisory, management and custodial services;services, correspondent banking services;services, information security assessments and technology support services;services, and loan underwriting and review services.services, among others. The occurrence of any failures or interruptions of the independent firms’firms' systems or in their delivery of services, or failure to perform in accordance with contracted service level agreements, for any number of reasons could alsoin turn impact the Company's ability to conduct business and process transactions and result in loss of customer business and damage to the Company's reputation, any of which may have a material adverse effect on the Company’s business, financial condition and results of operation.transactions.


See the discussion under the heading "Opportunities and Risks" contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," for further information regarding the Company’s Disaster Recovery and Business Continuity Plan and third-party risk management.

The Company Relies on Financial Counterparty Relationships
The Company routinely executes transactions with counterparties in the financial services industry, including brokers and dealers, other community banks, investment banks, and mutual and hedge funds, in order to maintain correspondent bank relationships, liquidity, manage certain loan participations, and mortgage sales activities, interest-rate swaps, engage in securities transactions, and engage in other financial activities with counterparties that are customary to our industry. Many of these transactions expose the Company to counterparty credit, liquidity and/or reputation risk in the event of default by the counterparty, or negative publicity or public complaints, whether real or perceived, about one or more of the Company's financial counterparty,counterparties, or the financial services industry in general. Although the Company seeks to manage these risks through internal controls and procedures, the Company may experience loss or interruption of business damage to its reputation, or incur additional costs or liabilities as a result of unforeseen events with these counterparties.  Any financial cost, liability or reputational damage could have a material adverse effect on the Company's business, which in turn, could have a material adverse effect on the Company's financial condition

Wealth Management and results of operations.

The Company May Not be Able to Attract, Retain or Develop Key Personnel
The Company’s success depends, in large part, on its ability to attract, retain and develop key personnel.  Competition for the best people in most activities engaged in byWealth Services Expose the Company can be intense,to Financial, Operational and the Company may not be able to hire or retain the

key personnel that it depends upon for success.  The unexpected loss of key personnel or the inability to identify and develop individuals for planned succession to key senior positions within management, or on the board of directors, could have a material adverse impact on the Company’s business because of the loss of their skills, knowledge of the Company’s market, years of industry or business experience and the difficulty of promptly finding qualified replacements.

Slower than Expected Growth in New Branches and Products Could Adversely Affect the Company’s Profitability
The Company has placed a strategic emphasis on expanding the Bank’s branch network and market share through organic growth.  Executing this strategy carries risks of slower than anticipated growth in new branches or new geographic market areas.  New branches and new products and services require a significant investment of both financial and personnel resources.  Lower than expected loan and deposit growth in new branches and/or lower than expected fee or other income generated from new branches could decrease anticipated revenues, increase costs and reduce net income generated by such investments. In addition, branch openings, relocations and closings require the approval of various state and federal regulatory agencies, which may or may not approve the Company’s application for a branch. Opening new branches in existing markets or new market areas could also divert resources from current core operations and thereby further adversely affect the Company’s growth and profitability.

Growth Strategies Involving Acquisitions Could Adversely Affect the Company’s ProfitabilityLegal Risk
The Company's primary growth strategyWealth Management and Wealth Services channels derive their revenues primarily from investment management fees based on the market value of assets under management. The Company's ability to maintain or increase investment assets under management is organic growth via strategic expansion within existing and into neighboring geographic markets. However, in the future the Company could explore growth opportunities through acquisition of other banks, financial services companies or lines of business. These activities would involvesubject to a number of risks,factors, including but not limited to: the potential inaccuracychanges in client investment preferences, investment decisions by us or our third-party service provider partners, and various economic conditions, among other factors. Clients can terminate their relationships with us, reduce their aggregate assets under management, or shift their funds to other types of accounts with different rate structures for any number of reasons.

Investment performance is one of the estimatesmost important factors in retaining existing clients and judgments used to evaluate credit, operations,competing for new wealth management and market risks with respect to a targeted institution; the time and costsclients. Financial markets are affected by many factors, any of evaluating potential acquisition targets, new markets, hiring or retaining experienced local management, and opening new offices and the time lags between these activities and the generation of sufficient assets and deposits to support the costs of the expansion; the incurrence and possible impairment of goodwill associated with an acquisition and possible adverse effects on the Company's results of operations; and the risk of loss of key employees and customers.

Any future acquisitionwhich could adversely affectimpact the Company’s profitability based on management’s ability to successfully complete the acquisition and integration of the acquired business.

The Carrying Value of the Company’s Goodwill Could Become Impaired
In accordance with generally accepted accounting principles, the Company does not amortize goodwill and instead, at least annually, evaluates whether the carrying value of goodwill has become impaired. Impairment of goodwill may occur when the estimated fair value of customer portfolios. Even when market conditions are generally favorable, our investment performance may be adversely affected by the Company is less than its recorded book value (i.e.,investment style of our wealth management and investment advisors and the net book value of its recorded assets and liabilities). This may occur, for example, when the estimated fair value of the Company declines due to changes in the assumptions and inputs used in management’s estimate of fair value.  A determinationinvestment decisions that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a resulting charge to operations.  Any write down of goodwill will result in a decrease in net income and, depending upon the magnitude of the charge, could have a material adverse effect on the Company’s financial condition and results of operations.

See the discussions contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," under the heading "Impairment Review of Goodwill," contained in the "Accounting Policies/Critical Accounting Estimates" section, for further information regarding the process by which the Company determines whether an impairment of goodwill has occurred.

Damage to the Company’s Reputation Could Affect the Company’s Profitability and Stockholders' Value
The Company is dependent on its reputation within its market area, as a trusted and responsible financial company, for all aspects of its business with customers, employees, vendors, third-party service providers, and others, with whom the Company conducts business or potential future business.  Any negative publicity or public complaints,they make. Poor investment performance, whether real or perceived, disseminated by word of mouth, by the general media, by electronicin either relative or social networking means, or by other methods, regarding, among other things, the Company’s current or potential business practices or activities, cyber-security issues, regulatory compliance, an inability to meet obligations, employees, management or directors’ ethical standards or actions, or about the banking industry in general,absolute terms, could harm the Company’s reputation.  Any damage to the Company’s reputation could affect itsimpair our ability to attract and retain investment assets under management from existing and develop the business relationships necessary to conduct business which in turn could negatively impact the Company’s business, financial condition, results of operations and the market price of the Company’s common stock.new clients.



The Company is Exposed to Legal Claims and Litigation
The Company is subject to legal challenges under a variety of circumstances in the course of its normal business practices in regards to laws and regulations, duties, customer expectations of service levels, in addition to potentially illegal activity (at a federal or state level) conducted by any of our customers, use of technology and patents, operational practices and those of contracted third-party service providers and vendors, and stockholder matters, among others. Regardless of the scope or the merits of any claims by potential or actual litigants, the Company may have to engage in litigation that could be expensive, time-consuming, disruptive to the Company's operations, and distracting to management. Whether claims or legal action are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability, damage the Company’s reputation, subject the Company to additional regulatory scrutiny and restrictions, and/or adversely affect the market perception of our products and services, as well as impact customer demand for those products and services. Any financial liability or reputation damage could have a material adverse effect on the Company's business, which in turn, could have a material adverse effect on the Company's financial condition and results of operations.

The Company’s Insurance Coverage May Not be Adequate to Prevent Additional Liabilities or Expenses
The Company maintainsworks with an independent third-party insurance advisor to obtain insurance policies that provide coverage for variousa variety of business and cyber risks at coverage levels that compare favorably to bench-marked coverage for loss exposures that are faced by similarly sized financial institutions. However, there are no guarantees that the Company deemswill
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be able to obtain or maintain comparable or adequate to provide reasonable coverage for losses.  The coverage applies to incidents and events which may impact such areas as: loss of bank facilities; accidental injury or death of employees; injuries sustained on bank premises; cyber and technology attacks or breaches; loss of customer nonpublic personal information; processing of fraudulent transactions; robberies, embezzlement and theft; improper processing of negotiable items or electronic transactions; improper loan underwriting and perfection of collateral, among others.  These policies will provide varying degrees of coverage for losses under specific circumstances, andlevels in most cases after related deductible amounts are paid by the Company.  However,future. In addition, there is no guarantee that the circumstancecircumstances of an incident will meet the criteria for insurance coverage under a specific policy, and despite the insurance policies in place the Company may experience a material loss incident or eventevent.

Lack of or Slower than Expected Growth Could Adversely Affect the Company's Profitability and its Ability to Pay Dividends
The Company operates with a long-term focus on organic growth, which requires a significant investment of both financial and personnel resources. The Company relies on its deposit and lending activities to generate the cash flow to conduct operations, expand service and product offerings, expand the branch network, and pay dividends to shareholders. Contraction or slower than expected loan and/or deposit growth and/or lower than expected fee or other income generated from these and other products and services could lower our profitability and net cash flow available for funding our growth strategies and paying dividends to shareholders.

The Company May Not be Able to Attract, Retain or Develop Key Personnel
The Company's success and growth strategy depends, in large part, on its ability to attract, retain and develop top performing banking professionals within our markets, and its ability to successfully identify and develop personnel for succession to key executive management positions and to the board of directors. The inability to do so could have a material adverse effectimpact on the Company’s business reputation, financial conditionbecause of the loss of their skills, knowledge of the Company's market, years of industry or business experience and resultsthe difficulty of operations.promptly hiring qualified replacements.


REGULATION

The Trading VolumeCompany is Subject to Extensive Government Regulation and Supervision
The Company and the Bank are subject to a variety of federal and state laws and regulations that are primarily intended to protect consumers in the Company’s Common Stock is Less Than Thatfinancial marketplace, provide fair and equal availability of Larger Companies
Althoughproducts and services, preserve depositors' funds and the Company’s common stock is listed for trading onFDIC insurance fund, and to safeguard the NASDAQ Global Market,banking system as a whole, and not necessarily the trading volumeinterests of shareholders. These regulations affect the Company's lending practices, capital structure, investment practices, dividend policy, growth, and net income, among other things. Federal and state laws and regulations may not always align in the Company’s common stock is substantially less than that of larger companies.  Given the lower trading volume of the Company’s common stock, significant purchasesprinciple or sales of the Company’s common stock, or the expectation of such purchases or sales, could cause significant swings up or down in the Company’s stock price.

The Market Price of the Company’s Common Stock Could be Affected by General Industry Issues
The banking industrystatue, and preemptive federal laws may be more affectedor less restrictive than those of a state. Future legislation could increase or decrease the cost of doing business, negatively impact consumers' faith in the banking system leading them to seek out non-banking alternatives, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other industries by certain economic,financial institutions.

Climate Change and Related Legislative and Regulatory Initiatives May Materially Affect the Company’s Business
Climate change, which is having a dramatic effect on weather patterns and causing more frequent and severe weather events, may negatively impact the regional and local economy, increasing credit regulatory or information security issues.  Althoughand other financial risks for the Company itselfand our customers. The physical effects of climate change may or may not be directly impactedadversely impact the value of real property securing the loans in our portfolios and our customers' ability to continue to conduct operations at their business locations. Additionally, if insurance obtained by such issues, the Company’s stock price may swing up or down dueour borrowers is insufficient to cover any losses sustained to the influence, both real and perceived, of these issues, among others, oncollateral, or if insurance coverage is otherwise unavailable to our borrowers, the banking industry in general. Investment in the Company's stock is not insured against loss by the FDIC, or any other public or private entity. As a result, and for the other reasons described in this "Risk Factors" section and elsewhere in this report, if you acquirecollateral securing our common stock, you may lose some or all of your investment.

Stockholder Dilution Could Occur if Additional Stock is Issued in the Future
If the Company’s Board of Directors should determine in the future that there is a need to obtain additional capital through the issuance of additional shares of the Company’s common stock or securities convertible into shares of common stock, such issuances could result in dilution to existing stockholders’ ownership interest. Similarly, if the Board of Directors decides to grant additional stock awards or options for the purchase of shares of common stock, the issuance of such additional stock awards and/or the issuance of additional shares upon the exercise of such options would expose stockholders to dilution.

Changes in Accounting Standards Could Materially Impact the Company's Financial Condition and Results of Operations
From time to time, the Financial Accounting Standards Board changes the accounting and reporting standards that govern the recording of financial transactions and preparation of financial statements. Future changesloans may be difficult to implementnegatively impacted.

Further, the U.S. Congress, state legislatures and may materially impact how the Company records and reports its financial transactions, financial condition, and results of operations and could impact the Company's business activities and strategy.

See item (t), "Recent Accounting Pronouncements," contained in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements in Item 8 below for further information about the status of the Company's assessment of recently adopted and pending Accounting Standard Updates.


Changes in Tax Policies at Both the Federal and State Levels Could Impact the Company's Financial Condition and Results of Operations
The Company’s financial performance is impacted by federal and state tax laws. Enactment of newregulatory agencies continue to propose numerous initiatives to supplement the global effort to combat climate change. The Company cannot predict what legislation or changes in the interpretation of existing law, may have a material effect on the Company’s financial condition and results of operations. A deferred tax asset is created by the tax effect of the differences between an asset’s book value and its tax basis. The deferred tax asset is measured using enacted tax rates expected to apply to taxable income in the years in which the temporary differences are expected to be recovered or settled. Accordingly, a reduction in enacted tax rates may result in a decrease in current tax expense and a decrease to the Company’s deferred tax asset, with an offsetting charge to current tax expense. The alternative would occur with an increase to enacted tax rates. In addition, certain tax strategies taken in the past derive their tax benefit from the current enacted tax rates. Accordingly, a change in enacted tax rates may result in a decrease/increase to anticipated benefit of the Company’s previous transactions which in turn, could have a material effect on the Company's financial condition and results of operations.

The recently enacted Tax Cuts and Jobs Act will reduce the Bank’s federal tax rate in future periods, beginning in 2018 to 21% from its previous level of approximately 35%. As noted above, the change required the Bank to revalue its deferred tax assets for the year ended 2017 based upon the lower rate at which they will be recovered, thereby lowering their value. The reduction ofenacted, and, if enacted, the corporate federal tax rate is only one of many aspects of the new regulation; the Company continues to assess the full impacteffect that the new federal tax changes willit, or any implementing regulations, would have on the Company's effective tax rate beginning in 2018.business.


ESTIMATES AND ASSUMPTIONS

The Company's Financial Condition and Results of Operation Rely in Part on Management Estimates and Assumptions
In preparing the financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, estimates and assumptions to be utilized. These estimates and assumptions affect the reported values of assets and liabilities at the balance sheet date and income and expenses for the years then ended. Changes in those estimates resulting from continuing change in the economic environment and other factors will be reflected in the financial statements and results of operations in future periods. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates and be adversely affected should the assumptions and estimates used be incorrect or change over time due to changestime. The most significant areas in circumstances.which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses for loans, and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.


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The Net DTAs May be Determined to be Unrealizable in Future Periods
In making its assessment on the future realizability of net DTAs, management considers all available relevant information, including recent financial operations, projected future taxable income, and recoverable past income tax paid. If in the future, management believes based upon historical and expected future earnings that it is more likely than not that the Company will not generate sufficient taxable income to utilize the DTA balance, then a valuation allowance would be booked against the DTA, with the write down offset to current earnings. Factors beyond management's control can affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the DTAs in the future.

REPUTATION & LEGAL

Damage to the Company's Reputation Could Affect the Company's Profitability and Shareholders' Value
The Company is dependent on its reputation within its market area as a trusted and responsible financial company for all aspects of its business with customers, employees, vendors, third-party service providers, and others with whom the Company conducts business or potential future business. Any negative publicity or public complaints, whether real or perceived, disseminated by word of mouth, by the general media, by electronic or social networking means, or by other methods, could harm the Company's reputation.

Environmental, Social and Governance Oversight May Influence Stock Price and Increase Compliance Costs
Investors have begun to consider how corporations are addressing environmental, social and governance matters, commonly known as "ESG matters" when making investment decisions. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, health and safety, diversity, executive compensation, labor conditions and human rights. These shifts in investing priorities may result in adverse effects on the trading price of the Company’s common stock if investors determine, whether real or perceived, that the Company's ESG actions are not satisfactory. In addition, new government regulations could also result in new or more stringent forms of ESG oversight and expanding mandatory and voluntary reporting, diligence, and disclosure. Increased ESG related compliance costs could result in increases to our overall operational costs.

The Company is Exposed to Legal Claims and Litigation
The Company is subject to legal challenges under a variety of circumstances in the course of its normal business practices. Regardless of the scope or the merits of any claims by potential or actual litigants, the Company may have to engage in litigation that could be expensive, time-consuming, disruptive to the Company's operations, and distracting to management. Whether claims or legal action are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to the Company, they may result in significant financial liability, damage the Company's reputation, subject the Company to additional regulatory scrutiny and restrictions, and/or adversely affect the market perception of our products and services, as well as impact customer demand for those products and services.

COMMON STOCK, SHAREHOLDER’S EQUITY, CAPITAL

The Trading Volume in the Company's Common Stock is Less Than That of Larger Companies
Although the Company's common stock is listed for trading on the NASDAQ Global Market, the trading volume in the Company's common stock is substantially less than that of larger companies. Given the lower trading volume of the Company's common stock, significant purchases or sales of the Company's common stock, or the expectation of such purchases or sales, could cause significant movement in the Company's stock price.

The Company's Capital Levels Could Fall Below Regulatory Minimums
If the Company's regulatory capital levels decline, or if regulatory requirements increase, and the Company is unable to raise additional capital to offset that decline or meet the increased requirements, then its regulatory capital ratios may fall below regulatory minimum capital adequacy levels.

The Company's failure to remain "well-capitalized" for bank regulatory purposes could affect customer confidence, restrict the Company's ability to grow (both assets and branching activity), increase the Company's costs of funds and FDIC insurance expense, prohibit the Company's ability to pay dividends on common shares, and restrict its ability to make acquisitions, among other impacts. Under FDIC rules, if the Bank ceases to be a "well-capitalized" institution, its ability to accept brokered deposits and the interest rates that it pays may be restricted. The Basel III Rules establish, among other rules, a "capital conservation buffer" of 2.5% above the regulatory minimum risk-based capital requirements. An institution
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will be subject to limitations on certain activities, including payment of dividends, share repurchases and discretionary bonuses to executive officers, if its capital level is below the buffered ratio.

The Company's Articles Ofof Organization, By-Laws and Shareholders Rights Plan as Well as Certain Banking and Corporate Laws Could Have an Anti-Takeover Effect
Although management believes that certain anti-takeover strategies are in the Company's best interest of the Company and its shareholders, provisions of the Company’sCompany's articles of organization, and by-laws, itsand shareholders rights plan and certain federal and state banking laws and state corporate laws, including regulatory approval requirements for any acquisition of control of the Company, could make it more difficult for a third-party to acquire the Company, even if doing so would be perceived to be beneficial to the Company’s stockholders.Company's shareholders. The combination of these provisions effectively inhibitsis intended to prohibit a non-negotiated merger, or other business combination involving an acquisition of the Company, which, in turn, could adversely affect the market price of the Company’sCompany's common stock.


Directors and Executive Officers Own a Significant Portion of Common Stock
The Company’sCompany's directors and executive officers, as a group, beneficially own approximately 20%23% of the Company’sCompany's outstanding common stock as of December 31, 2017.2023. Management views this ownership commitment by insiders as an integral component of maintaining the Company’s locally managed connection to the communities we serve and sense ofCompany's ownership. However, as a result of this combined ownership interest, the directors and executive officers have the ability, if they vote their shares in a like manner, to significantly influence the outcome of all matters submitted to stockholdersshareholders for approval, including the election of directors.


The Company Relies on Dividends from the Bank for Substantially All of its Revenue
Holders of the Company’s common stock are entitled to receive dividends only when, and if declared by our Board. Although the Company has historically declared cash dividends on our common stock, we are not required to do so, and our Board may reduce or eliminate our common stock dividend in the future.

The Company is a separate and distinct legal entity from the Bank. It receives substantially all of its revenue from dividends paid by the Bank. These dividends are the principal source of funds used to pay dividends on the Company’s common stock and interest and principal on the Company’s subordinated debt. Various federal and state laws and regulations limit the amount of dividends that the Bank may pay to the Company.Company, and certain regulators may prohibit the Bank or the Company from paying future dividends if deemed an unsafe or unsound practice. If the Bank, due to its capital position, inadequate net income levels, or otherwise, is unable to pay dividends to the Company, then the Company will be unable to service its debt, pay obligations or pay dividends on the Company’s common stock.  The Bank’s inability to pay dividendsstock, which could have a material adverse effect on the Company’s business, financial condition, results of operations and the market price of the Company’s common stock.

See the discussion under the heading "Dividends" which is contained in
Item 5, "Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities" below.1B.Unresolved Staff Comments


Item 1B.Unresolved Staff Comments
 
None.

Item 2.Properties


Item 1C.Cybersecurity
Overall Process
We have developed and implemented a comprehensive multi-layered cybersecurity risk management program, consisting of a dedicated cybersecurity function, risk assessments, policies and procedures managed by internal and external resources, that we believe is reasonably designed to prevent, detect and respond to cyber risks and incidents. We utilize a set of tools and services, including regular network, endpoint and cloud monitoring, vulnerability assessments, penetration testing, SIEM, and tabletop exercises to identify and assess material risks from cybersecurity threats and to evaluate our cyber defense capabilities.

Internal security controls are designed to align with standards set by the NIST. We monitor emerging data protection laws, conduct background checks of our employees in specific technology and cybersecurity roles, apply least privilege access to users, test the maturity and readiness of our cybersecurity program, conduct table top exercises based on current threat scenarios to increase awareness, conduct phishing testing, provide cybersecurity training to our Board and employees, and provide cybersecurity alerts to our customers on ongoing threats. We monitor notifications and alerts from the FS-ISAC and other industry cybersecurity sites to stay abreast of the most recent cybersecurity alerts.

Enterprise Risk Management Process Integration
The Company has implemented layered security approaches for all electronic delivery channels to detect, prevent and respond to rising cybersecurity risks. Management utilizes a combination of third-party information security assessments, key
35
technologies, and ongoing internal and external evaluations to provide a level of protection of non-public personal information, to continually monitor and attempt to safeguard information on its operating systems, in cloud-based solutions, and those of third-party service providers, and to prevent, quickly detect and respond to attacks. The Company also utilizes firewall technology, multi-factor authentication, complex password construction, and a combination of software and third-party monitoring to detect and prevent intrusion, and cybersecurity threats, guard against unauthorized access, and continuously identify and prevent computer viruses on the Company's information solutions. To minimize debit card losses, the Company works with a third-party provider to establish parameters for allowable transaction activity, monitor transactions, and alert customers of potentially fraudulent activity.

The Bank maintains a written Information Security Program based on a collection of information security policies, regulatory requirements, standards, guidelines, processes, procedures, third-party recommendations, and industry best practices. The purpose of this Program is to establish a company-wide approach for assessing and protecting the integrity, availability, and confidentiality of the Bank’s information assets.

Third-party Access
The Company has a fully integrated third-party risk management program to identify, assess, monitor and mitigate risks associated with third-party relationships, including cybersecurity risks. Under the program, risk ratings are assigned to each of the vendors based on an assessment of the vendor and its access to networks, systems, and confidential information. An assessment is conducted on each vendor to identify and measure the risks from cybersecurity threats that could impact our customer’s data and our environment. Third parties that have access to our systems or customer data must have appropriate technical and organizational security measures and security control principles based on commercially acceptable security standards, and we require third parties in this class to agree by contract to manage their cybersecurity risks.

In our Risk Factors, we describe whether and how risks from identified cybersecurity threats, including as a result of any previous cybersecurity incidents, have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations or financial condition.

Material Incidents
We are not aware of any risks from cybersecurity threats, including as a result of any previous cybersecurity incidents, that have materially affected or are reasonably likely to materially affect the Company, including our business strategy, results of operations or financial condition. Although we have a robust cybersecurity program that is designed to assess, identify, and manage material risks from cybersecurity threats, we cannot provide absolute surety that we have properly identified or mitigated all vulnerabilities or risks of incidents. We, and the third parties that we engage, are subject to constant and evolving threats of attack and cybersecurity incidents may be more difficult to detect for periods of time. A cybersecurity incident could harm our business strategy, results of operations, financial condition, reputation, and/or subject us to regulatory actions or litigation which may result in fines, judgments or indictments.

Incidents and Risks
The Company has developed an Incident Response Plan to guide its actions in responding to real and suspected information security incidents. This includes unlawful, unauthorized, or unacceptable actions that involve a computer system or a computer network such as Distributed Denial of Service attacks, Corporate Account Takeover schemes, or ransomware. Additionally, an event that disrupts one of the Bank's service channels, whether from a security incident or not, is also considered an incident requiring a response under this program. These disclosure controls and procedures compel the Company to make accurate and timely disclosures of material events and incidents to both customers and regulatory authorities. The reaction to an incident aims to reduce potential damage and loss and to protect and restore confidence through timely communication and the restoration of normal operating conditions for computers, services, and information. Management will work closely with its cybersecurity insurance provider, cybersecurity legal counsel, and forensic experts when investigating and responding to cyber or ransomware attacks.

Cybersecurity Governance
Cybersecurity risk management processes are an integral part of our enterprise risk management which is overseen by the Board and the Technology & Information Security Committee of the Board. The Board oversees the risk management policies of the Company and is responsible for the periodic review and approval of the risk management policies of the company and provides general oversight over the information security and technology programs. The TISC oversees the technology and cybersecurity strategies and their alignment with business strategies, the effectiveness of the information security program, monitors the results of third-party testing and risk assessments and responses to breaches of customer data, among other project management, cybersecurity, and business continuity oversight functions. The Committee meets five times during the year, or
36
more as needed. An information security advisor participates in the meetings and is available to provide additional insights into cybersecurity methodologies, best practices, threat trends, and resource planning.

The CISO has over 17 years of banking experience, is a Certified Information Systems Security Professional, and has been involved with the management of information and cybersecurity for over ten years. The CISO regularly reports to the Board Technology & Information Security Committee on information and cybersecurity strategy, testing, training, policies, procedures, cybersecurity insurance, and overall effectiveness of the Information Security Program and would report and discuss material incidents, and ongoing mitigation status, if any should occur. The CISO is the chair of Management’s Information Security Committee that meets on a monthly basis to evaluate threats, incidents, defense system effectiveness, accepted risks, results of third-party cyber assessments and engagements, and the overall adequacy of the cybersecurity program. In addition, the Chief Information Officer has over 15 years of experience in managing bank technologies, information security, and risk management, and collaborates in supporting the Information Security Program. The CISO reports directly to the Chief Risk Officer and meets on a monthly basis with the Executive Management team to discuss cybersecurity risk management matters.

Item 2.Properties

The Company's main office and operational support and lending offices are located in Lowell, Massachusetts. The main Lowell campus consists of four closely situated buildings, twothree of which are owned and two of which are leased,the fourth is under a 40 year lease, with ample on-site customer parking. The Company also owns and maintains a back-up operations/data facility in the Merrimack Valley region of Massachusetts. As of December 31, 2017,2023, the Company had 2427 full-service branch banking offices serving the Greater Merrimack ValleyNorthern Middlesex, Northern Essex and North Central regionsNorthern Worcester counties of Massachusetts, and Southern New Hampshire (Southern Hillsborough and Southern Rockingham counties). Of these branches, 15 were leased and 9 were owned.counties in New Hampshire.


The Company believes that all of its facilities are well maintained and suitable for the purpose for which they are used. However,
As of December 31, 2023, the Company regularly looks for opportunities to improve its facilities and locations. We expectwas the relocation (leased to owned) of our Leominster, MA branch to be completed in spring of 2018.lessee under 16 active operating real estate leases.


The Company's leased facilities are contracted under various non-cancelable operating leases, most of which provide options to extend lease periods and periodic rent adjustments. Several leases provide the Company the right of first refusal should the property be offered for sale or purchase options at specified periods mutually agreeable to the parties. In February 2017, the Company purchased, at fair market value, a multi-tenant building which included a previously leased branch location. The location remains an active full service banking branch, with approximately 50% of the building designated as tenant space. With the relocation of the Salem, NH branch in 2017, the Company remains party to the lease on the previous branch location, which expires in 2018.

See Note 5, "Premises and Equipment" to the consolidated financial statements in Item 8 below, for further information regarding the Company’s lease obligations listed above.3.Legal Proceedings

Item 3.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 4.Mine Safety Disclosures

Item 4.Mine Safety Disclosures

Not Applicable.


PART II


Item 5.Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market for Common Stock


The Company’sCompany's common stock trades on the NASDAQ Global Market under the trading symbol "EBTC."
 
The following table sets forth sales volume and price information for the common stock of the Company for the periods indicated.
Fiscal Year 
Trading
Volume
 
Share Price
High
 
Share Price
Low
2017    
  
4th Quarter
 548,890 $38.25
 $33.80
3rd Quarter
 538,569 37.89
 30.00
2nd Quarter
 1,089,356 36.89
 29.02
1st Quarter
 1,066,573 39.25
 30.04
       
2016    
  
4th Quarter
 927,525 $38.96
 $25.35
3rd Quarter
 1,000,337 30.81
 22.34
2nd Quarter
 771,472 26.00
 21.36
1st Quarter
 527,670 27.06
 20.01

As of March 2, 2018,February 29, 2024, there were 1,221 registered stockholders of the Company’s common stock and 11,635,04412,278,649 shares of the Company’sCompany's common stock outstanding.outstanding held by 1,079 shareholders of record.


Dividends
 
In 2017,During the year ended December 31, 2023, quarterly dividends of $0.135$0.23 per share were paid to the Company's stockholdersshareholders in March, June, September, and December. Total 2017 dividends of $0.54paid to the Company's shareholders during the year ended December 31, 2023, equaled $0.92 per share represented an increase of 3.8% compared to total dividends of $0.52$0.82 per share, paid to the Company's stockholdersshareholders on a quarterly basis in 2016.during the year ended December 31, 2022.

The
37
Table of Contents
On January 16, 2024, the Company announced a quarterly dividend of $0.24 per share, which was paid on March 1, 2024, to shareholders of record as of February 9, 2024.

In addition, the Company maintains a dividend reinvestment and direct stock purchase plan (the "DRSPP").  The DRSPP which enables stockholders,shareholders, at their discretion, to continue to elect to reinvest cash dividends paid on their shares of the Company’sCompany's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, stockholdersshareholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums.

For the year ended December 31, 2017, the Company paid $6.2 million in cash dividends to holders of common stock. Stockholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of 44,752 shares of the Company's common stock totaling $1.5 million. The direct purchase component of the DRSPP was used to purchase 2,014 shares of the Company's common stock totaling $70 thousand during the year ended December 31, 2017.

In 2016, the Company paid $5.7 million in cash dividends to holders of common stock. Stockholders utilized the dividend reinvestment portion of the DRSPP to purchase 53,516 shares of the Company’s common stock totaling $1.4 million. The direct purchase component of the DRSPP was used to purchase 1,562 shares of the Company's common stock totaling $38 thousand during the year ended December 31, 2016.


On January 16, 2018, the Company announced a quarterly dividend of $0.145 per share, which was paid on March 1, 2018 to stockholders of record as of February 8, 2018. On an annualized basis, this quarterly dividend represents a 7.4% increase over the 2017 quarterly dividend rate.

The Company is regarded as a legal entity separate and distinct from the Bank. The principal source of the Company’s revenues is dividends received from the Bank. Both Massachusetts and federal law limit the payment of dividends by the Company. Under Massachusetts law, the Company is generally prohibited from paying a dividend or making any other distribution if, after making such distribution, it would be unable to pay its debts as they become due in the usual course of business, or if its total assets would be less than the sum of its total liabilities plus the amount that would be needed if it were dissolved at the time of the distribution, to satisfy any preferential rights on dissolution of holders of preferred stock ranking senior in right of payment to the capital stock on which the applicable distribution is made. The Federal Reserve Board also has further authority to prohibit dividends by bank holding companies if their actions constitute unsafe or unsound practices. The Federal Reserve Board has issued a policy statement and supervisory guidance on the payment of cash dividends by bank holding companies, which expresses the Federal Reserve Board's view that a bank holding company should pay cash dividends only to the extent that, (1) the company's net income for the past year is sufficient to cover the cash dividends, (2) the rate of earnings retention is consistent with the company's capital needs, asset quality, and overall financial condition, and (3) the minimum regulatory capital adequacy ratios are met. It is also the Federal Reserve Board's policy that bank holding companies should not maintain dividend levels that undermine their ability to serve as a source of strength to their banking subsidiaries.

Under Massachusetts law, trust companies such as the Bank may pay dividends only out of “net profits” and only to the extent that such payments will not impair the Bank’s capital stock.  Any dividend payment that would exceed the total of the Bank’s net profits for the current year plus its retained net profits of the preceding two years would require the Massachusetts Division of Banks' approval. Applicable provisions of the FDIA also prohibits a bank from paying any dividends on its capital stock if the bank is in default on the payment of any assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become undercapitalized.  Any restrictions, regulatory or otherwise, on the ability of the Bank to pay dividends to the Company may restrict the ability of the Company to pay dividends to the holders of its common stock.

The statutory term "net profits" essentially equates with the accounting term “net income” and is defined under the Massachusetts banking statutes to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes.


Securities Authorized for Issuance under Equity Compensation Plans
 
The following table provides information as of December 31, 2017,2023, with respect to the Company’sCompany's 2009 Stock Incentive Plan, as amended, and theits 2016 Stock Incentive Plan, as amended, which together constitute all of the Company’sCompany's existing equity compensation plans that have been previously approved by the Company’s stockholders. Company's shareholders. The 2009 Plan expired in 2019 and is closed for future grants, although awards previously granted under the 2009 Plan remain outstanding and may be exercised through 2028.

Plan CategoryNumber of Securities
to be issued upon
exercise of
outstanding options,
warrants and rights		Weighted-average
exercise price of
outstanding options,
warrants and rights		Number of Securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in second
column from left)
Equity compensation plans approved by security holders162,539 $28.07 370,680 
Equity compensation plans not approved by security holders— — — 
TOTAL162,539 $28.07 370,680 

See also Note 14, "Stock-Based Compensation" to the Company's consolidated financial statements contained in Item 8 of this Form 10-K below for further information regarding the Company's Equity Compensation Plan.

Repurchases of Common Stock

During the three months ended December 31, 2023, the Company made no repurchases of common stock.


38
Plan Category 
Number of Securities
to be issued upon
exercise of
outstanding options,
warrants and rights
 
Weighted-average
exercise price of
outstanding options,
warrants and rights
 
Number of Securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in second
column from left)
Equity compensation plans approved by security holders 194,218
 $19.29
 465,198
Equity compensation plans not approved by security holders —
 —
 —
TOTAL 194,218
 $19.29
 465,198
Table of Contents


Performance Graph
 
The following graph compares the cumulative total shareholder return (which assumes the reinvestment of all dividends) on the Company’sCompany's common stock with the cumulative total return reflected by a broad-based equity market index and an appropriate published industry index. This graph shows the changes over the five-year period ended on December 31, 20172023, in the value of $100 invested in (i) the Company’sCompany's common stock, (ii) the Standard & Poor's 500 Index, and (iii) the SNL Bank $1B to $5B index.Standard & Poor's U.S. Small Cap Banks Index.
3258
 Period Ending
Index12/31/1812/31/1912/31/2012/31/2112/31/2212/31/23
Enterprise Bancorp, Inc.$100.00 $107.60 $83.58 $150.20 $120.86 $113.94 
S&P 500 Index100.00 131.49 155.68 200.37 164.08 207.21 
S&P U.S. Small Cap Banks Index100.00 125.46 113.94 158.62 139.85 140.55 

Item 6. [Reserved]

Not Applicable.









39
  Period Ending
Index 12/31/12 12/31/13 12/31/14 12/31/15 12/31/16 12/31/17
Enterprise Bancorp, Inc. $100.00
 $131.52
 $160.71
 $148.75
 $249.88
 $230.29
S&P 500 Index 100.00
 132.39
 150.51
 152.59
 170.84
 208.14
SNL Bank $1B - $5B Index 100.00
 145.41
 152.04
 170.20
 244.85
 261.04




The following table represents information with respect to repurchasesTable of common stock made by the Company during the three months ended December 31, 2017.

Contents
  
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
October 2,289 $37.20 — —
November 0 0 — —
December 0 0 — —
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations


(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 on vesting restricted stock (net settlement of shares).

Item 6.Selected Financial Data
  Year Ended December 31,
(Dollars in thousands, except per share data) 2017 2016 2015 2014 2013
EARNINGS DATA  
  
  
  
  
Net interest income $97,522
 $86,792
 $78,294
 $71,230
 $65,791
Provision for loan losses 1,430
 2,993
 3,267
 1,395
 3,279
Net interest income after provision for loan loss 96,092
 83,799
 75,027
 69,835
 62,512
Non-interest income 14,958
 13,639
 13,139
 12,813
 12,553
Net gains on sales of investment securities 716
 802
 1,828
 1,619
 1,239
Non-interest expense 76,145
 70,328
 65,732
 62,031
 55,824
Income before income taxes 35,621
 27,912
 24,262
 22,236
 20,480
Provision for income taxes 16,228
 9,161
 8,114
 7,585
 6,951
Net income $19,393
 $18,751
 $16,148
 $14,651
 $13,529
           
COMMON SHARE DATA  
  
  
  
  
Basic earnings per share $1.68
 $1.71
 $1.56
 $1.45
 $1.37
Diluted earnings per share 1.66
 1.70
 1.55
 1.44
 1.36
Book value per share at year end 19.97
 18.72
 17.38
 16.35
 15.14
Dividends paid per share $0.54
 $0.52
 $0.50
 $0.48
 $0.46
Basic weighted average shares outstanding 11,568,430
 10,966,333
 10,323,016
 10,118,762
 9,862,678
Diluted weighted average shares outstanding 11,651,763
 11,039,511
 10,389,934
 10,209,243
 9,950,609
           
YEAR END BALANCE SHEET AND OTHER DATA  
  
  
  
Total assets $2,817,564
 $2,526,269
 $2,285,531
 $2,022,228
 $1,849,925
Loans serviced for others 89,059
 80,996
 71,272
 64,122
 72,711
Investment assets under management 844,977
 725,338
 678,377
 674,604
 667,330
Total assets under management (1)
 $3,751,600
 $3,332,603
 $3,035,180
 $2,760,954
 $2,589,966
           
Total loans $2,269,904
 $2,022,729
 $1,859,962
 $1,672,604
 $1,524,056
Allowance for loan losses 32,915
 31,342
 29,008
 27,121
 26,967
Investment securities 405,206
 374,790
 300,358
 245,065
 215,369
Interest-earning deposits and fed funds 14,496
 17,428
 19,177
 10,102
 12,371
Deposits 2,441,362
 2,268,921
 2,018,148
 1,768,546
 1,635,992
Borrowed funds 89,000
 10,671
 53,671
 58,900
 36,534
Subordinated debt 14,847
 14,834
 14,822
 10,825
 10,825
Total stockholders’ equity 231,810
 214,786
 180,327
 166,950
 151,334
           
RATIOS  
  
  
  
  
Return on average total assets 0.73% 0.78% 0.76% 0.76% 0.78%
Return on average stockholders’ equity 8.58% 9.33% 9.29% 9.20% 9.32%
Allowance for loan losses to total loans 1.45% 1.55% 1.56% 1.62% 1.77%
Stockholders’ equity to total assets 8.23% 8.50% 7.89% 8.26% 8.18%
Dividend payout ratio 32.14% 30.41% 32.05% 33.10% 33.58%
(1) Loans serviced for others and investment assets under management are not carried as assets on the Company's consolidated balance sheet, and as such total assets under management is not a financial measurement recognized under GAAP.

Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations
Management’sManagement's discussion and analysis should be read in conjunction with the Company’sCompany's (also referred to herein as "Enterprise," "us," "we," or "our") consolidated financial statements and notes thereto, contained in Item 8, "Financial Statements and Supplementary Data"Data," and the other financial and statistical information contained in this report.Annual Report on Form 10-K for the year ended December 31, 2023 (this “Form 10-K”).

Special Note Regarding Forward-Looking Statements


This report on Form 10-K (this "Form 10-K") contains certain forward-looking statements concerning plans, objectives, future events or performanceas defined in the Private Securities Litigation Reform Act of 1995. Such forward-looking statements about the Company and assumptionsits industry involve substantial risks and other statements that areuncertainties. Statements other than statements of current or historical fact.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,"anticipates," "believes," "expects," "intends," "may," "plans," "pursue," "views" and similar terms or expressions. VariousWe caution you that any such forward-looking statements containedare 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 Item 7 - "Management's Discussion and Analysisthese forward-looking statements are reasonable as of Financial Condition and Results of Operations" and Item 7A - "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-Kthe 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, statementsthe following:

•potential recession in the United States and our market areas;
•the impacts related to management's views onor resulting from recent bank failures and any continuation of the recent uncertainty in the banking industry, including the associated impact to the Company and other financial institutions of any regulatory changes or other mitigation efforts taken by government agencies in response thereto;
•increased competition for deposits and related changes in deposit customer behavior;
•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 effects of declines in housing prices in the United States and our market areas;
•declines in commercial real estate prices;
•the persistence of the current inflationary environment in the United States and our market areas, and its impact on market interest rates, the economy and credit quality;
•increases in unemployment rates in the United States and our market areas;
•deterioration of capital markets, which could adversely affect the value or credit quality of the Company's assets and the economy, competitionavailability of funding sources necessary to meet the Company's liquidity needs;
•changes in market interest rates could negatively impact the pricing of our loans and deposits and decrease our net interest income or net interest margin;
•increases in market expansion opportunities,interest rates could negatively impact bond market values and result in a lower net book value;
•our ability to successfully manage the interest ratecurrent rising market interest-rate environment, our credit risk and the level of future non-performing assets and charge-offs, charge-offs;
•potential asset and depositdecreases or growth of assets, deposits, future non-interest expenditures and non-interest incomeincome;
•inability to maintain adequate liquidity;
•the inability to raise the necessary capital to fund our operations or to meet minimum regulatory capital levels would restrict our business and operations;
40
•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 borrowing capacity are forward-looking statements.operations;
•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 cyber incidents or other failures, disruptions or breaches of our operational or security systems or infrastructure, or those of our third-party vendors or other service providers, including as a result of a cyber attack, 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;
•our ability to maintain an effective system of disclosure controls and procedures and internal control over financial reporting;
•inability 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;
•our ability to navigate the uncertain impacts of quantitative tightening and current and future governmental monetary and fiscal policies, including the current and future policies of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board");
•uncertainty regarding United States fiscal debt and budget matters;
•severe weather, natural disasters, acts of war or terrorism, geopolitical instability or other external events;
•our ability to comply with supervisory actions by federal and state banking agencies;
•changes in the scope and cost of 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 foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in this Form 10-K, including those discussed in Item 1A, "Risk Factors," of this Form 10-K. The Company cautions readers that suchthe forward-looking statements in this Form 10-K 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-K are based on information available to the Company as of the date of this Form 10-K, 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. The following important factors, among others, could cause the Company's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein: (i) changes in interest rates could negatively impact net interest income; (ii) changes in the business cycle and downturns in the local, regional or national economies, including 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 loan losses; (iii) changes in consumer spending could negatively impact the Company's credit quality and financial results; (iv) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers


41
Table 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; (v) deterioration of securities markets 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; (vi) technology-related risk, including technological changes and technology service interruptions or failure could adversely impact the Company's operations and increase technology-related expenditures; (vii) cyber-security risk including security breaches and identity theft could impact the Company's reputation, increase regulatory oversight and impact the financial results of the Company; (viii) increases in employee compensation and benefit expenses could adversely affect the Company's financial results; (ix) changes in laws and regulations that apply to the Company's business and operations, including without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and the Tax Cuts and Jobs Act enacted on December 22, 2017 and the additional regulations or repeals that may be forthcoming as a result thereof, could cause the Company to incur additional costs and adversely affect the Company's business environment, operations and financial results; (x) 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; (xi) our ability to enter new markets successfully and capitalize on growth opportunities, including the receipt of required regulatory approvals; (xii) future regulatory compliance costs, including any increase caused by new regulations imposed by the government's current administration; and (xiii) the risks and uncertainties described in the documents that the Company files or furnishes to the SEC, including those discussed above in Item 1A, "Risk Factors" which could have a material adverse effect on the Company's business, financial condition and results of operations. Therefore, the Company cautions readers not to place undue reliance on any such forward-looking information and statements.Contents

Overview

Executive Summary


The Company operates with a long-term outlook, focused on organic growth supported by continually investing in our people, products, services, technology, and branch network.

Key financial results at or for the twelve months ended December 31, 2023 are as follows:
•Net income amounted to $38.1 million, or $3.11 per diluted common share.
•Return on average assets and average equity were 0.85% and 12.48%, respectively.
•Net interest margin (non-GAAP) was 3.51%.
•Total loans increased 12% compared to December 31, 2022.
•Total deposits decreased 1% compared to December 31, 2022.
•The Company had no brokered deposits and only $25.8 million in borrowed funds.
•Wealth assets under management and administration amounted to $1.3 billion and increased 21% compared to December 31, 2022.

Net income for the year ended December 31, 2017,2023, amounted to $19.4$38.1 million, or $3.11 per diluted common share, compared to $42.7 million, or $3.52 per diluted common share, for the year ended December 31, 2022. The decrease in net income of $4.7 million for the year ended December 31, 2023 was attributable primarily to increases in the provision for credit losses of $3.4 million and non-interest expense of $1.9 million and a decrease in non-interest income of $853 thousand, partially offset by an increase in net interest income of $642 thousand$1.3 million.

The Company’s financial results for the years ended December 31, 2023 and 2022 were impacted by multiple non-core operating transactions. The non-core operating transactions for 2023 included net losses on sales of debt securities of $2.4 million and Employee Retention Credits of $3.6 million (included in salaries and benefits). The non-core operating transactions for 2022 included net losses on sales of debt securities of $2.0 million and a net gain on sale of insurance commissions of $2.0 million.

Total assets amounted to $4.47 billion at December 31, 2023, compared to $4.44 billion at December 31, 2022. Investment securities at fair value decreased $152.2 million during the year ended December 31, 2023, due primarily to sales of debt securities as well as principal pay-downs, calls and maturities, partially offset by a decrease in unrealized losses on debt securities. Total loans increased $387.1 million, or 12% versus a year ago with growth primarily in commercial real estate and commercial construction loans.

Credit quality remained strong at December 31, 2023 with the non-performing loan to total loan ratio amounting to 0.32% compared to 0.19% at December 31, 2022. Net charge-offs for 2023 were $105 thousand. The ACL for loans to total loans ratio was 1.65% at December 31, 2023 compared to 1.66% at December 31, 2022.

Customer deposits amounted to $3.98 billion, a decrease of $58.3 million, or 1%. In 2023, the Company experienced a highly competitive marketplace for deposits from bank and non-bank alternatives. As a result, the Company experienced a shift in deposit mix during the year with lower cost checking and savings balances decreasing $313.5 million while higher cost money market and certificate of deposit balances increased $255.2 million.

Shareholders’ equity increased $46.9 million, or 17%, due primarily to an increase in retained earnings of $26.8 million and a decrease in the accumulated other comprehensive loss of $16.4 million with the latter resulting from slightly lower market interest rates at December 31, 2023 compared to December 31, 2022.
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Selected Financial Data and Ratios

The following table sets forth selected financial data and ratios for the Company at or for the years ended as indicated:

At or for the year ended December 31,
(Dollars in thousands, except per share data)20232022202120202019
Balance Sheet Data  
Total cash and cash equivalents$56,592$267,589$436,576$253,782$63,794
Total investment securities at fair value668,171820,371958,215583,049505,255
Total loans3,567,6313,180,5182,920,6843,073,8602,565,459
Allowance for credit losses(58,995)(52,640)(47,704)(44,565)(33,614)
Total assets4,466,0344,438,3334,447,8194,014,3243,235,049
Total deposits3,977,5214,035,8063,980,2393,551,2632,786,730
Subordinated debt59,49859,18258,97973,74414,872
Total shareholders' equity329,117282,267346,895334,426296,641
Total liabilities and shareholders' equity4,466,0344,438,3334,447,8194,014,3243,235,049
Wealth Management
Wealth assets under management(1)
$1,077,761$891,451$1,041,409$976,502$914,301
Wealth assets under administration(1)
$242,338$198,586$257,867$210,900$187,501
Shareholders' Equity Ratios
Book value per common share$26.82$23.26$28.82$28.01$25.09
Dividends paid per common share$0.92$0.82$0.74$0.70$0.64
Regulatory Capital Ratios
Total capital to risk-weighted assets13.12 %13.49 %13.73 %14.62 %11.88 %
Tier 1 capital to risk-weighted assets(2)
10.34 %10.56 %10.62 %10.77 %10.13 %
Tier 1 capital to average assets8.74 %8.10 %7.56 %7.52 %8.86 %
Credit Quality Data
Non-performing loans$11,414$6,122$26,522$38,050$14,771
Non-performing loans to total loans0.32 %0.19 %0.91 %1.24 %0.58 %
Non-performing assets to total assets0.26 %0.14 %0.60 %0.95 %0.46 %
ACL for loans to total loans1.65 %1.66 %1.63 %1.45 %1.31 %
Net charge-offs$105$239$3,964$1,548$1,415
Income Statement Data
Net interest income$153,084$151,798$141,556$130,134$115,857
Provision for credit losses9,2495,8001,77012,4991,180
Total non-interest income17,60918,46218,10717,24716,319
Total non-interest expense110,199108,314102,13593,25486,415
Income before income taxes51,24556,14655,75841,62844,581
Provision for income taxes13,18713,43013,58710,17210,381
Net income$38,058$42,716$42,171$31,456$34,200
Income Statement Ratios
Diluted earnings per common share$3.11$3.52$3.50$2.64$2.89
Return on average total assets0.85 %0.96 %0.98 %0.82 %1.10 %
Return on average shareholders' equity12.48 %14.47 %12.49 %9.95 %12.31 %
Net interest margin (tax-equivalent)(3)
3.51 %3.54 %3.44 %3.59 %3.95 %
_____________________________________________________________________________
(1)Wealth assets under management and wealth assets under administration are not carried as assets on the Company’s Consolidated Balance Sheet.
(2)Ratio also represents common equity tier 1 capital to risk-weighted assets as of the periods presented.
(3)Tax-equivalent net interest margin is net interest income adjusted for the tax-equivalent effect associated with tax-exempt loan and investment income, expressed as a percentage of average interest-earning assets.
43
Results of Operations

COMPARISON OF YEARS ENDED DECEMBER 31, 2023 AND 2022

Unless otherwise indicated, the reported results are for the year ended December 31, 2023, with the "prior year" referring to the year ended December 31, 2022. Average yields are presented on a tax-equivalent basis.
Net Income
Net income for the year ended December 31, 2023, amounted to $38.1 million, a decrease of $4.7 million, or 11%, compared to the year ended December 31, 2016. Diluted earnings per share were $1.66 for2022. The components of the year ended December 31, 2017, asdecrease in net income compared to $1.70 for the prior year ended December 31, 2016. Diluted earnings per share for the year ended December 31, 2017 includes the full year dilutive impact of the Company’s equity offering issued on June 23, 2016.are discussed below.


Like most banks, the Company’s 2017 results were impacted by a tax expense adjustment to the Bank's net deferred tax assets because of the recently enacted Tax Cuts and Jobs Act ("the new federal tax bill"). This noncash expense for the Company was approximately $4.8 million. The new federal tax bill will reduce the Bank’s federal tax rate in future periods, beginning in 2018, to 21% from its 2017 level of approximately 35%. This reduced rate will positively impact net income in future periods, but as noted above also required the Bank to revalue its net deferred tax assets for the year ended 2017 based upon the lower rate at which they will be recovered, thereby lowering the value of net deferred tax assets.Net Interest Income
2017 was a strong year of growth for our franchise and this growth positively impacted our financial results. Total assets, loans, and customer deposits have increased 12%, 12%, and 4%, respectively, as compared to December 31, 2016.

Strategically, our focus remains on organic growth and continually planning for and investing in our future. In addition to our recently opened 24th branch, in Windham, NH, and the completed relocation of our branch in Salem, NH, we expect the relocation of our Leominster, MA branch to be completed in the spring of 2018. These new branches in prime locations will provide improved, state-of-the-art experiences in these communities to better serve our customers.

Composition of Earnings

The Company’s earnings are largely dependent on its net interest income, which is the difference between interest earned on loans and investments and the cost of funding (primarily deposits and borrowings).  Net interest income expressed as a percentage of average interest earning assets is referred to as net interest margin.  The Company reports net interest margin on a tax equivalent basis ("margin").

Net interest income for the year ended December 31, 20172023, amounted to $97.5$153.1 million, an increase of $10.7$1.3 million, or 12%1%, compared to the year ended December 31, 2016.2022. The increase in net interest income during the current period was due primarilylargely to increases in loan growth. Averageinterest income of $36.6 million and, to a lesser extent, other interest-earning asset income of $3.9 million, partially offset by an increase in deposit interest expense of $38.7 million.

The increase in net interest income of $1.3 million, or 1%, was negatively impacted by increases in funding costs that exceeded the increase in loan balances (including loans held for sale) increased $209.5yields. Additionally, the Company had $2.6 million in PPP related income in 2022 that was not present in the 2023 results.

Net Interest Margin
Net interest margin was 3.51% for the year ended December 31, 2017,2023, compared to the same 2016 period average. Margin was 3.97%3.54% for the year ended December 31, 2017,2022.

Net interest margin compared to 3.94% for the prior year ended December 31, 2016. Seewas impacted by the discussion underfollowing factors:
•Average interest-earning deposits with banks decreased $136.6 million, or 41%, while the heading "Results of Operations" below, in this Item 7, for further information regarding changes in margin.yield increased 322 basis points.

•Average debt securities decreased $90.3 million, or 9%, while the tax-equivalent yield increased 14 basis points.
•Average loan balances increased $293.8 million, or 10%, and the tax-equivalent yield increased 71 basis points.
•Average total deposits increased $28.4 million, or 1%, and the yield increased 95 basis points.

The re-pricing frequencydecrease in net interest margin over the respective periods was due primarily to increases in deposit costs, partially offset by increases in loan and other interest earning assets yields as well as strong loan growth. The increase in loan and other interest earning assets yields were positively impacted by the Federal Reserve Board federal funds rate increases of the Company’s assets525 basis points from March 2022 through July 2023. Deposit costs increased from higher market and liabilities are not identical,competitor interest rates as well as a change in mix as deposits migrated from lower yielding checking and therefore subject the Companysavings products into higher yielding money market and certificate of deposit products compared to the riskrespective periods.

The Company's 12% loan growth in 2023 was funded primarily by interest-earning deposits with banks and investment cash flows, including the sale of adverse changes$84.8 million in interest rates. This is often referred to as "interestdebt securities in June 2023.

Interest rate risk" andrisk is reviewed in more detail inunder the heading Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-K.10-K, below.










44
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 for the period indicated. 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.

 December 31,
 2023 vs 2022
  Increase (Decrease) due to
(Dollars in thousands)Net
Change		VolumeRate
Interest income   
Loans and loans held for sale (tax-equivalent)$36,696 $13,600 $23,096 
Investment securities (tax-equivalent)(613)(1,904)1,291 
Other interest-earning assets(1)
3,929 (3,280)7,209 
Total interest-earning assets (tax-equivalent)40,012 8,416 31,596 
Interest expense   
Interest checking, savings, and money market26,865 38 26,827 
CDs11,813 2,418 9,395 
Borrowed funds61 35 26 
Subordinated debt115 17 98 
Total interest-bearing liabilities38,854 2,508 36,346 
Change in net interest income (tax-equivalent)$1,158 $5,908 $(4,750)

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

The table on the following page presents the Company's average balance sheet, net interest income and average rates for the years ended December 31, 20172023, 2022 and December 31, 2016, the provisions to the allowance for loan losses amounted to $1.4 million2021:
45
 Average Balances, Interest and Average Yields
 Year ended December 31, 2023Year ended December 31, 2022Year ended December 31, 2021
(Dollars in thousands)Average
Balance
Interest(1)
Average
Yield(1)
Average
Balance
Interest(1)
Average
Yield (1)
Average
Balance
Interest(1)
Average
Yield(1)
Assets:         
Loans and loans held for sale(2) (tax-equivalent)
$3,328,387 $173,077 5.20 %$3,034,608 $136,381 4.49 %$2,969,777 $133,696 4.50 %
Investment securities(3) (tax-equivalent)
868,137 19,278 2.22 %955,927 19,891 2.08 %680,261 16,072 2.36 %
Other interest-earning assets(4)
196,931 9,943 5.05 %333,433 6,014 1.80 %501,201 682 0.14 %
Total interest-earning assets (tax-equivalent)4,393,455 202,298 4.60 %4,323,968 162,286 3.75 %4,151,239 150,450 3.62 %
Other assets84,914   110,238   169,315   
Total assets$4,478,369   $4,434,206   $4,320,554   
Liabilities and shareholders' equity:         
Non-interest checking$1,233,908 $— $1,422,618 $— $1,341,633 $— 
Interest checking, savings and money market2,404,132 30,956 1.29 %2,381,774 4,091 0.17 %2,249,023 1,558 0.07 %
CDs415,840 13,433 3.23 %221,050 1,620 0.73 %224,627 1,700 0.76 %
Brokered deposits— — — %— — — %45,617 664 1.46 %
Total deposits4,053,880 44,389 

1.09 %4,025,442 5,711 0.14 %3,860,900 3,922 0.10 %
Borrowed funds5,090 113 2.23 %3,286 52 1.58 %7,632 60 0.79 %
Subordinated debt(5)
59,333 3,467 5.84 %59,050 3,352 5.68 %62,546 3,495 5.59 %
Total funding liabilities4,118,303 47,969 1.16 %4,087,778 9,115 0.22 %3,931,078 7,477 0.19 %
Other liabilities55,163   51,274   51,913   
Total liabilities4,173,466   4,139,052   3,982,991   
Shareholders' equity304,903   295,154   337,563   
Total liabilities and shareholders' equity$4,478,369   $4,434,206   $4,320,554   
Net interest-rate spread (tax-equivalent)2.94 %3.41 %3.33 %
Net interest income (tax-equivalent) 154,329   153,171   142,973  
Net interest margin (tax-equivalent)3.51 %3.54 %3.44 %
Less tax-equivalent adjustment1,245 1,373 1,417 
Net interest income$153,084 $151,798 $141,556 
Net interest margin  3.48 %  3.51 %  3.41 %
 _________________________________________
(1)Average yields and $3.0 million, respectively. The decreaseinterest income are presented on a tax-equivalent basis, calculated using a U.S. federal corporate income tax rate of 21% in the years ended 2023, 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 are presented at average amortized cost and include non-accrual loans.
(3)Average investment are presented at average amortized cost.
(4)Average other interest-earning assets includes interest-earning deposits with banks, fed funds sold, and FHLB stock.
(5)The subordinated debt is net of average deferred debt issuance costs.
46
Provision for Credit Losses

The provision for the year ended December 31, 2017 was due primarily to generally improving credit quality metrics and underlying collateral values, partially offset by increased loan growth compared to the prior year.

Contributing to the changes in the provision for loan losses for the year ended December 31, 20172023, amounted to $9.2 million, an increase of $3.4 million, compared to the year ended December 31, 2022.

The primary components of the provision for credit losses during the year ended December 31, 2023, are as follows:
•The provision expense on loans collectively evaluated resulted primarily from growth in commercial real estate and commercial construction loans, partially offset by the impact of a reduction in general reserve factors related to improved economic metrics in our ACL model relative to the prior year were:year.

Total non-performing•The provision expense on loans asindividually evaluated resulted primarily from one commercial loan relationship that was deemed individually evaluated and assigned a percentagespecific reserve of total loans amounted to 0.40%$2.5 million at December 31, 2017, compared to 0.47% at December 31, 2016.2023. For further discussion regarding this commercial loan relationship, see "Credit Risk," included in the section titled "Financial Condition," contained in this Item 7 of this Form 10-K.

•The ratio of adversely classifiedACL for loans to total loans amounted to 1.16%ratio was 1.65% at December 31, 2017,2023 compared to 1.70%1.66% at December 31, 2016.2022.

•The provision for unfunded commitments resulted primarily from increases in commitments on construction and commercial real estate commitments.

The balanceprovision 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 allowanceadequacy of the ACL for loan losses allocated to impairedloans see "Credit Risk," and adversely classified loans decreased by $1.4 million"ACL for Loans" included in the section titled "Financial Condition," contained in this Item 7 of this Form 10-K above, for further information regarding the provision for credit losses. 

Non-Interest Income

Non-interest income for the year ended December 31, 2017,2023, amounted to $17.6 million, a decrease of $853 thousand, or 5%, compared to the prior year.

The following table sets forth the components of non-interest income and the related changes for the periods indicated:
 Year Ended December 31,
(Dollars in thousands)20232022Change% Change
Wealth management fees$6,730 $6,533 $197 3 %
Deposit and interchange fees8,475 8,196 279 3 %
Income on bank-owned life insurance, net1,264 1,202 62 5 %
Net losses on sales of debt securities(2,419)(1,973)(446)23 %
Net gains on sales of loans34 30 4 13 %
Net gain on sale of insurance commissions— 2,034 (2,034)100 %
Gain (loss) on equity securities666 (514)1,180 (230)%
Other income2,859 2,954 (95)(3)%
Total non-interest income$17,609 $18,462 $(853)(5)%

The primary components of the decrease in non-interest income during the year ended December 31, 2023, are as follows:
•Non-interest income for the current year period included losses on sales of debt securities of $2.4 million and gains on equity securities of $666 thousand while non-interest income in the prior year included losses on sales of debt securities of $2.0 million, a gain on the sale of insurance commissions of $2.0 million and losses on equity securities of $514 thousand.
•Excluding these items, non-interest income for the year ended December 31, 2023 increased $446 thousand, or 2%, compared to the year ended December 31, 2022 due primarily to an increase in deposit and interchange fees of $279 thousand which was driven by increases in overdraft income and growth in business customer relationships resulting in greater product transaction volumes.


47
Non-Interest Expense
Non-interest expense for the year ended December 31, 2023, amounted to $110.2 million, an increase of $1.9 million, or 2%, compared to the prior year.
The following table sets forth the components of non-interest expense and the related changes for the periods indicated:

 Year Ended December 31,
(Dollars in thousands)20232022Change% Change
Salaries and employee benefits$72,283 $72,120 $163 — %
Occupancy and equipment expenses9,722 9,299 423 5 %
Technology and telecommunications expenses10,656 10,735 (79)(1)%
Advertising and public relations expenses2,786 2,758 28 1 %
Audit, legal and other professional fees2,945 2,949 (4)— %
Deposit insurance premiums2,712 1,783 929 52 %
Supplies and postage expenses998 912 86 9 %
Other operating expenses8,097 7,758 339 4 %
Total non-interest expense$110,199 $108,314 $1,885 2 %

The primary components of the increase in non-interest expense during the year ended December 31, 2023, are as follows:
•Deposit insurance premiums increased $929 thousand due to an industry-wide increase in the FDIC insurance assessment rates.
•Salaries and employee benefits expense increased $163 thousand during the year and was favorably impacted by the receipt of $3.6 million in Employee Retention Credits and a decrease in performance-based compensation expense of $1.2 million during the year ended December 31, 2016.2023.

The Company recorded net recoveries of $143 thousand•Excluding these items, salaries and employee benefits for the year ended December 31, 2017, compared to net charge-offs of $659 thousand for the year ended December 31, 2016.

Loan growth for the year ended December 31, 2016 was $247.2 million, compared to $162.8 million during the year ended December 31, 2016.

The allowance for loan losses to total loans ratio was 1.45% at December 31, 2017 and 1.55% at December 31, 2016.

For further information regarding loan quality statistics and the allowance for loan losses, see the sections below under the heading "Financial Condition" titled "Credit Risk," "Asset Quality," and "Allowance for Loan Losses."

Non-interest income for the year ended December 31, 2017 amounted to $15.7 million, an increase of $1.22023 increased $5.0 million, or 9%8%, compared to the year ended December 31, 2016.2022. The increase resulted from open positions filled during 2023 along with normal employee salary and benefit increases which were unfavorably impacted by the higher inflation conditions.

Income Tax Expense

The effective tax rate was 25.7% and 23.9% for the years ended December 31, 2023 and 2022, respectively. The increase in non-interest income over the prior year period was dueeffective tax rate resulted primarily from an increase in state taxes including a transfer of funds from the Bank's investment subsidiary corporations and annual book to increasestax return adjustments that increased tax expense in depositthe fourth quarter of 2023. Refer to Note 15, "Income Taxes," to the Company's consolidated financial statements, contained in Item 8 of this Form 10-K, for additional information about the Company's tax positions.

Results of Operations Comparison of Years Ended December 31, 2022 and interchange fees2021

For a comparison of the results of operations for the years ended December 31, 2022 and investment advisory fees, partially offset by decreases2021, see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" in loan sale income.
Forour Annual Report on Form 10-K for the fiscal year ended December 31, 2017, non-interest expense2022, as filed with SEC on March 8, 2023 (the"2022 Form 10-K").

Financial Condition

Total assets amounted to $76.1 million,$4.47 billion at December 31, 2023, compared to $4.44 billion at December 31, 2022, an increase of $5.8 million, or 8%, over the year ended$27.7 million. The balance sheet composition and changes since December 31, 2016. The increase in expenses over the prior year primarily related to the Company’s strategic growth2022, are discussed below.

Cash and market expansion initiatives, mainly increases in salariescash equivalents

Cash and benefits expenses.
In addition to the impact from the new federal tax bill, in the first quarter of 2017 the Company adopted a new accounting standard update ("ASU"), ASU No. 2016-09 “Compensation-Stock Compensation (Topic 718) Improvements to Employee Share-Based Payment Accounting,” which, among other aspects, relates to the tax treatment of equity compensation. The Company's provision for income taxes decreased by approximately $922 thousand for the year ended December 31, 2017 related to the adoption of this standard.

Sources and Uses of Funds

The Company's primary sources of funds are customer and brokered deposits, Federal Home Loan Bank ("FHLB") borrowings, current earnings and proceeds from the sales, maturities and pay-downs on loans and investment securities.  The Company may also, from time to time, utilize overnight borrowings from correspondent banks. Additionally, funding for the Companycash equivalents may be generated through equity transactions, including the dividend reinvestmentcomprised of cash on hand and direct stock purchase plan or exercise of stock options,cash items due from other banks, interest-earning deposits with banks (deposit accounts, excess reserve cash balances, money markets, and occasionally the issuance of debt securities or the sale of new stock. The Company's sources ofmoney market mutual funds are intended to be used to originate loans, purchase investment securities, conduct operations, expand the branch network,accounts), federal funds sold and pay dividends to stockholders.

The investment portfolio is primarily used to provide liquidity, manage the Company’s asset-liability positionshort-term treasury securities. Cash and to invest excess funds, providing additional sources of revenue. Total investments, one of the key components of interest-earning assets,cash equivalents amounted to $405.2$56.6 million at December 31, 2017, an increase2023,
48
compared to $267.6 million at December 31, 2022, a decrease of $211.0 million, or 8%, since79%. As of December 31, 20162023, cash and comprised 14%cash equivalents represented 1% of total assets compared to 6% of total assets at December 31, 20172022. The decrease in cash and cash equivalents since December 31, 2022 was related primarily to funding loan growth.

Investments

At December 31, 2023, the fair value of the investment portfolio amounted to $668.2 million, a decrease of $152.2 million, or 19%, since December 31, 2022. As of December 31, 2023, the investment portfolio represented 15% of total assets as compared to 18% of total assets at December 31, 2016.

Enterprise's main asset strategy is to grow loans, the largest component2022 and was comprised primarily of interest earning assets,debt securities, classified as available-for-sale, with a focussmall portion of the portfolio invested in equity securities at each period. The decrease over the respective periods was attributable to sales of debt securities as well as principal pay-downs, calls and maturities. During the year ended December 31, 2023, the Company had no purchases of debt securities, principal pay-downs, calls and maturities of $88.2 million, and sold debt securities with an amortized cost of $87.2 million realizing net losses on high quality commercial lending relationships. Totalthese sales of $2.4 million.

During the year ended December 31, 2022, the Company had purchases of $145.9 million in debt securities, principal pay-downs, calls and maturities of $82.8 million, and sold debt securities with an amortized cost of $71.6 million realizing net losses on these sales of $2.0 million.

Sales of debt securities during the years ended December 31, 2023 and 2022 were made in order to improve the Company's balance sheet positioning and enhance future earnings.

Net unrealized losses on the debt securities portfolio amounted to $102.9 million at December 31, 2023, compared to $124.1 million at December 31, 2022. Management has concluded that the unrealized losses resulted from significant increases in market interest rates relative to the book yield on the securities held and that no allowance for credit losses was considered necessary as of December 31, 2023. The Company attributes the decrease in net unrealized losses compared to December 31, 2022 to a decrease in market interest rates at December 31, 2023 compared to December 31, 2022 and from the sale of $84.8 million in debt securities in the second quarter of 2023.

Debt Securities

The following table summarizes the fair value of debt securities at the dates indicated:
 December 31,
202320222021
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Federal agency obligations$4,978 1 %$4,977 1 %$— — %
U.S. treasury securities15,925 2 %43,251 5 %62,166 6 %
Federal agency CMO334,751 50 %406,982 50 %486,713 51 %
Federal agency MBS18,812 3 %21,021 3 %22,894 2 %
Taxable municipal securities226,977 34 %239,277 29 %275,850 29 %
Tax-exempt municipal securities45,419 7 %83,653 10 %92,672 10 %
Corporate bonds3,966 1 %6,294 1 %9,000 1 %
Subordinated corporate bonds10,285 2 %10,647 1 %7,135 1 %
Total debt securities$661,113 100 %$816,102 100 %$956,430 100 %

Management continuously monitors and evaluates the debt securities portfolio to identify and assess risks within the portfolio, including, but not limited to, the impact of the current market interest-rate environment, prepayment risk, and credit quality. The mix of debt securities at December 31, 2023, compared to December 31, 2022, remained relatively unchanged. At December 31, 2023, the Company's debt securities portfolio consisted of 56% in U.S. Government or U.S. Federal Agency bonds and 41% in taxable and tax-exempt municipal bonds. The effective duration of debt securities portfolio at December 31, 2023 was approximately 5.1 years compared to 5.0 years at December 31, 2022.




49
The contractual maturity distribution as of December 31, 2023, of the debt securities portfolio with the weighted average tax-equivalent yield for each category is set forth below:
 Under 1 Year>1 – 5 Years>5 – 10 YearsOver 10 Years
(Dollars in thousands)AmountYieldAmountYieldAmountYieldAmountYield
At amortized cost:
Federal agency obligations$5,006 4.20 %$— — %$— — %$— — %
U.S. treasury securities9,995 0.71 %6,998 1.01 %— — %— — %
Federal agency CMO8,388 2.39 %9,615 2.85 %4,962 1.61 %373,700 1.88 %
Federal agency MBS— — %5,911 2.75 %375 2.66 %15,300 2.33 %
Taxable municipal securities960 3.02 %38,775 2.59 %220,433 2.22 %2,000 2.57 %
Tax-exempt municipal securities5,708 3.17 %21,289 3.20 %14,582 3.42 %3,969 3.12 %
Corporate bonds600 3.94 %3,259 3.62 %199 3.94 %— — %
Subordinated corporate bonds— — %— — %11,957 3.97 %— — %
Total debt securities$30,657 2.33 %$85,847 2.69 %$252,508 2.36 %$394,969 1.91 %
Total debt securities at fair value$30,252 $81,696 $217,720 $331,445 

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 $133.4 million, which can be redeemed by the issuer prior to the maturity presented above. Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.

Loans

This discussion should be read in conjunction with the material presented in Item 1, "Business," under the heading "Lending Products" of this Form 10-K, above.

At December 31, 2023, total loans amounted to $2.27$3.6 billion, at December 31, 2017, compared to $2.02 billion at December 31, 2016, an increase of $247.2$387.1 million, or 12%, comprising 81%since December 31, 2022. As of December 31, 2023, total loans represented 80% of total assets, compared to 72% of total assets at December 31, 20172022.
The following table sets forth the loan balances by certain loan categories at the dates indicated and 80% atthe percentage of each category to total loans:
 December 31,
 202320222021
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Commercial real estate$2,064,737 58 %$1,921,410 61 %$1,680,792 58 %
Commercial and industrial430,749 12 %414,490 13 %412,070 14 %
Commercial construction585,113 16 %424,049 13 %410,443 14 %
SBA PPP— — %— — %71,502 2 %
Total commercial loans3,080,599 86 %2,759,949 87 %2,574,807 88 %
Residential mortgages393,142 11 %332,632 10 %256,940 9 %
Home equity85,375 3 %79,807 3 %80,467 3 %
Consumer8,515 — %8,130 — %8,470 — %
Total retail loans487,032 14 %420,569 13 %345,877 12 %
Total loans3,567,631 100 %3,180,518 100 %2,920,684 100 %
Allowance for credit losses(58,995) (52,640) (47,704) 
Net loans$3,508,636  $3,127,878  $2,872,980  


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As of or for the year ended December 31, 2016. Total2023:
•Commercial real estate loans increased $143.3 million, or 7%, compared to December 31, 2022. The commercial real estate segment was the largest segment of the loan portfolio and was comprised of approximately 30% in owner occupied loans and 70% in non-owner occupied loans. The composition of owner and non-owner occupied loans within the commercial real estate segment has remained relatively consistent compared to December 31, 2022.
◦Non-owner occupied commercial real estate loans were comprised of approximately 46% residential (multi-family and 1-4 family), 11% retail, 10% office and 10% in industrial warehouse. All other collateral categories fell below 10% of total non-owner occupied commercial real estate loans.
◦Non-owner occupied commercial real estate secured by retail amounted to $1.98 billion,4% of total loans and consisted mostly local strip plazas and not large shopping centers or 87%mall complexes.
◦Non-owner occupied commercial real estate secured by office buildings amounted to 4% of grosstotal loans atand were located mainly in suburban areas and were modest in physical size.
•Commercial and industrial loans increased $16.3 million, or 4%, compared to December 31, 2017, which was relatively consistent with the composition at2022.
•Commercial construction loans increased $161.1 million, or 38%, since December 31, 2016.2022, particularly in the 4th quarter of 2023, driven primarily by residential development projects to meet the strong demand in our market area.

◦Commercial construction loans were comprised of approximately 21% multi-family, 18% residential condominiums, 16% land approved for development, 12% single residential lots and 12% commercial buildings. All other collateral categories fell below 10% of total commercial construction loans.
Management's preferred strategy for funding asset growth is to grow relationship-based deposit balances, preferably transactional deposits (comprised of demand deposit accounts, checking accounts and traditional savings accounts).  Asset growth in excess of transactional deposits is typically funded through non-transactional deposits (comprised of money market accounts, commercial tiered rate•Total retail loans increased $66.5 million, or "investment savings" accounts and term certificates of deposit) and wholesale funding (brokered deposits and borrowed funds).

Customer deposits (total deposits excluding brokered deposits) were $2.29 billion at16%, since December 31, 2017, and equated2022. The increase resulted as the Company retained more residential mortgage production on its balance sheet due to 81%minimal activity in the secondary market related to high market interest rates. Residential secured one-to-four family mortgage loans continue to make up the largest portion of total assets,the retail segment.

At December 31, 2023, commercial loan balances participated out to various banks amounted to $69.8 million, compared to $2.21 billion at December 31, 2016, or 87% of total assets, an increase of $84.3 million, or 4%. During the year, the increase was primarily due to increases in checking account balances (mainly non-interest bearing accounts), partially offset by decreases in money market account balances.

Wholesale funding amounted to $236.5$59.1 million at December 31, 2017,2022. 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 equatedamounted to 8% of total assets, compared to $70.0$126.6 million and $94.8 million at December 31, 2016, or 3%2023, and 2022, respectively.

See also Note 3, "Loans," to the Company's consolidated financial statements, contained in Item 8 of total assets, an increasethis Form 10-K, below, for information on related party loans, loans serviced for others and loans pledged as collateral.

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Opportunities and Risks

The Company's business model is to provide a full range of diversified financial products and services through a highly-trained staff of knowledgeable banking professionals, with in-depth understanding of our markets, and a commitment to open and honest communication with clients. Management believesfollowing table sets forth the Company has differentiated itself from the competition by building a solid reputation within the local market as a dependable commercial-focused community bank, delivering consistent and exceptional customer service, offering competitive products and taking an active role in support of the communities we serve. The Company's banking professionals are committed to upholding the Company's core values, including significant and active involvement in many charitable and civic organizations, and community development programs throughout our service area. This long-held commitment to community not only contributes to the welfare of the communities we serve, it also helps to fuel the local economy and has led to a strong referral network with local businesses, non-profit organizations and community leaders. Management believes the Company's community service culture and reputation makes the Enterprise team stand out among the competition and positions the Company to be a leading banking provider of loans, deposits and cash management services, investment advisory and wealth management, trust and insurance services in its growing market area.

The Company actively seeks to increase market share and strengthen its competitive position through continuous reviews of deposit product offerings, cash management and ancillary services and state-of-the-art secure delivery channels, targeted to businesses, non-profits, professional practice groups, municipalities and consumers' needs. In addition, Enterprise carefully plans market expansion through new branch development, identifying markets strategically located to complement existing branch locations while expanding the Company's geographic market footprint. In early July 2016, a second branch location was opened in Nashua, NH, and in July 2017, the Company opened its 24th branch office, in Windham, NH, its seventh location in Southern New Hampshire. In addition, the Company recently relocated the Salem, NH branch, and expects the relocation of the Leominster, MA branch to be completed in the spring of 2018. These new and enlarged branches in prime locations will provide improved, state-of-the-art experiences in these communities to better serve our customers. Branch expansion is aimed at achieving not only deposit market share growth, but also is intended to contribute to loan originations and generate referrals for investment advisory and wealth management, trust and insurance services and cash management products.

Management believes that Enterprise is also well equipped to capitalize on market potential to grow both the commercial and residential loan portfolios through strong business development and referral efforts, while utilizing a disciplined and consistent lending approach and credit review practices, which have served to provide consistent quality asset growth over varying economic cycles during the Company's history.  The Company has a skilled lending sales force with a broad breadth of business knowledge and depth of lending experience to draw upon, supported by a highly qualified and experienced commercial credit review function.

The Company's investment services, including customized investment management, advisory and trust services and brokerage services, provide for additional income diversification. The Company's wealth management and advisory service channel derives revenues primarily from investment management fees based on assets under management. The Company's brokerage services channel revenue is split between fees based on assets under management and commissions. Management believes that the Company's investment services are distinguished from the competition by a client-centric open architecture approach in which clients work with a dedicated portfolio manager to hand-select funds with styles that match the client's investment goals. The Company's goal is to design and maintain portfolios that provide the income, growth potential, and risk tolerances that match the clients' comfort levels and exceeds their financial expectations. The Company's investment advisory team consists of a variety of certified financial and licensed brokerage professionals adept in a number of financial and investment disciplines dedicated to providing personalized investment service to each client.


Enterprise faces robust competition to attract and retain customers within existing and neighboring geographic markets. The Company's ability to achieve its long-term strategic growth and market share objectives will depend in part upon management's continued success in differentiating the Company in the marketplace and its ability to strengthen its competitive position. National and larger regional banks and financial institutions have a local presence in the Company's market area.  These larger institutions have certain competitive advantages, including greater financial resources and the ability to make larger loans to a single borrower. Numerous local savings banks, commercial banks, cooperative banks and credit unions also compete in the Company's market area. The expanded commercial lending capabilities of credit unions and the shift to commercial lending by traditional savings banks means that both of these types of traditionally consumer-orientated institutions now compete for the Company's targeted commercial customers. In addition, the non-taxable status of credit unions allows them certain advantages as compared to taxable institutions such as Enterprise. Competition for loans, deposits and cash management services, investment advisory assets, and insurance business also comes from other businesses that provide financial services, including consumer finance companies, mortgage brokers and lenders, private lenders, insurance companies, securities brokerage firms, institutional mutual funds, registered investment advisors, internet based banks, non-bank electronic payment and funding channels, and other financial intermediaries.  Consolidation within the industry, customer disenfranchisement with larger national/international banks, and banks exiting certain business lines and/or markets are expected to continue to have an impact on the regional competitive market.

The Company also faces increasing competition within its marketplace on the pricing of loans. This is expected to be an ongoing competitive challenge; however, the Company is committed to maintaining asset quality and focuses its sales efforts on building long-term relationships, rather than competing for individual transactions or easing loan terms.

The increased use and advances in technology such as internet and mobile banking, non-bank electronic payment channels, electronic transaction processing and cyber-security, are expected to have a significant impact on the future competitive landscape confronting financial service businesses.

In addition, the cost of compliance with new government regulations, changes in tax legislation and the interest rate environment continue to impact competition and consolidation within the industry in various ways, with some participants better equipped to manage these changes than others based on size, depth of resources, or competitive product positioning, among other factors.

Management continues to undertake significant strategic initiatives, including investments in employee hiring, training and development; marketing and public relations; technology and electronic delivery methods; ongoing improvements, renovations or strategic relocation of existing facilities; and the continued development of recently added branches.  Industry consolidation also provides management the opportunity to recruit experienced banking professionals with market knowledge who complement the Enterprise sales and service culture. From time-to-time the Company renovates existing branches or embarks upon the strategic relocation of individual branches to provide improved and state-of-the-art facilities in prime locations to better serve our customers. While management recognizes that such investments increase expenses in the short term, Enterprise believes that such initiatives are a necessary investment in the long-term growth and earnings potential of the Company and will help the Company to capitalize on opportunities in the current marketplace for community banks such as Enterprise. However, lower than expected returns on these investments, such as slower than anticipated loan and deposit growth in new branches and/or lower than expected fee or other income generated from new technology or initiatives, could decrease anticipated revenues and net income on such investments in the future.

Any prolonged deterioration of the general economic environment in the national or local New England economy including, but not limited to general inflation and rising rates, could have adverse repercussions on local industries, leading to increased unemployment and mortgage foreclosures, deterioration of local commercial real estate values, margin compression and other unforeseen consequences, which could have a severe negative impact on the Company's financial condition, capital position, liquidity, and performance. In addition, the loan portfolio consists primarilyscheduled maturities of commercial real estate, commercial and industrial and commercial construction loans.  These typesloans in the Company's portfolio at December 31, 2023. The table also sets forth the dollar amount of loans which are typically larger and are generally viewed as having more riskscheduled to mature after one year which have fixed or adjustable-rates.

(Dollars in thousands)Commercial
Real Estate		Commercial &
Industrial		Commercial
Construction
Amounts due(1):
   
One year or less, and demand notes$102,737 $282,823 $298,807 
After one year through five years424,598 75,830 97,426 
After five years through fifteen years1,226,432 68,772 159,743 
Beyond fifteen years310,970 3,324 29,137 
 $2,064,737 $430,749 $585,113 
Interest rate terms on amounts due after one year:   
Fixed$186,918 $71,637 $28,004 
Adjustable(2)
$1,775,082 $76,289 $258,302 

(1)    Scheduled contractual maturities may not reflect the actual maturities of defaultloans. The average maturity of loans may be shorter than owner occupied residential real estate loans or consumer loans. Any significant deterioration in the credit quality of the commercial loan portfolio or underlying collateral valuestheir contractual terms principally due to prepayments and demand features.
(2)    Adjustable-rate loans may have fixed initial periods before periodic rate adjustments begin.

Credit Risk

Non-performing assets are comprised of non-accrual loans (loans contractually past due, with respect to interest or principal, by 90 days, or where reasonable doubt exists as to the full and timely collection of interest or principal), and OREO. The designation of a downturn in the economic environment,loan or other factors, could have a material adverse effect onasset as non-performing does not necessarily indicate that loan principal and interest will ultimately be uncollectible. However, management recognizes the Company's financial conditiongreater risk characteristics of these assets and results of operations. Thetherefore considers the potential risk of loss due to customers' non-payment of loans or lines of credit is called "credit risk.”  Credit risk management is reviewed belowon assets included in this Item 7 undercategory in evaluating the headings "Credit Risk," "Asset Quality" and "Allowance for Loan Losses."

The valueadequacy of the investment portfolio asallowance for credit losses. The level of delinquent and non-performing assets is largely a whole, or individual securities held, including restricted FHLB capital stock, could be negatively impacted by any sustained volatility infunction of economic conditions and the financial markets or in credit markets, or fundamental deterioration in

credit quality ofoverall banking environment and the individual security, fundbusiness circumstances of borrowers. Despite prudent loan underwriting, adverse changes within the Company's market area, or issuer, which could possibly resultdeterioration in the recognition of additional other-than-temporary impairment ("OTTI") charges in the future.

A decline in the aggregate balance of the assets under management could decrease investment advisory fee income. The Company's ability to maintainlocal, regional, or increase investment assets under management is subject to a number of factors, including competition from investment management companies and alternative investment options, fluctuations in financial markets and variousnational economic conditions, among others.

A sustained low interest rate environment could negatively impact the Company's level of non-performing assets in the future.

See item (g) "Loans" contained in Note 1, "Summary of Significant Accounting Policies" of this Form 10-K, for additional information on the Company's loan accounting policies and Credit Risk monitoring.

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The following table sets forth information regarding non-performing assets and delinquent loans 60-89 days past due as to interest or principal, held by the Company at the dates indicated:
 December 31,
(Dollars in thousands)202320222021
Total adversely classified loans$56,650$46,998$61,013
  Performing adversely classified loans$45,266$40,876$34,494
  Non-accrual loan summary:
    Commercial real estate$5,369$3,355$22,870
    Commercial and industrial4,2627301,542
    Commercial construction—2941,045
    Residential mortgages1,5261,532794
    Home equity257211246
    Consumer——25
  Total non-performing loans$11,414$6,122$26,522
Total Loans$3,567,631$3,180,518$2,920,684
Loans 60-89 days past due and still accruing to total loans— %0.04 %— %
Non-performing loans to total loans0.32 %0.19 %0.91 %
Non-performing assets to total assets0.26 %0.14 %0.60 %
Allowance for credit losses for loans$58,995$52,640$47,704
Allowance for credit losses for loans to non-performing loans516.87 %859.85 %179.87 %
Allowance for credit losses for loans to total loans1.65 %1.66 %1.63 %

Non-accrual loans that were not adversely classified amounted to $30 thousand and $3 thousand at December 31, 2023 and December 31, 2021, respectively. At December 31, 2022, there were no non-accrual loans that were not adversely classified.

Loans which are evaluated to be of weaker credit quality are classified as adverse and placed on the Company's "watch asset list" and reviewed on a more frequent basis by management. Adversely classified loans may be performing in accordance with their original terms or past due in respect to principal or interest and therefore additionally classified as non-performing loans.

Adversely classified loans as a percentage of total loans outstanding at December 31, 2023 increased compared to low levels at December 31, 2022, however the December 31, 2023 level was also considered low by historical comparisons.

The increase in non-accrual loans from December 31, 2022 to December 31, 2023 was attributable primarily to one commercial loan relationship with a net interestbook value of $4.8 million. The relationship consists of a $1.4 million commercial real estate loan and a $3.4 million commercial and industrial loan. At December 31, 2023, the relationship was individually evaluated and had a specific reserve allocation of $2.5 million.

The Company had no OREO at December 31, 2023, December 31, 2022 or December 31, 2021, and therefore non-performing loans were the only component of non-performing assets at those periods.

ACL for Loans

There have been no material changes to the Company's ACL for loans methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure since December 31, 2022. See item (h) "Credit Risk Management and ACL for Loans Methodology" contained in Note 1, "Summary of Significant Accounting Policies" of this Form 10-K, for additional information on the Company's loan accounting policies, Credit Risk monitoring, and ACL methodology.

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The following table sets forth the allocation of the Company's ACL among the categories of loans, the percentage of ACL allocated by category of loans to the total ACL, and the percentage of loans in each category to total loans for the periods ending on the respective dates indicated:
 December 31,
 202320222021
(Dollars in thousands)ACL Allocation% of ACL Allocation% of Total LoansACL Allocation% of ACL Allocation% of Total LoansACL Allocation% of ACL Allocation% of Total Loans
Commercial real estate$38,074 65 %58 %$36,564 69 %61 %$31,847 67 %58 %
Commercial and industrial11,089 19 %12 %8,896 17 %13 %9,574 20 %14 %
Commercial construction6,787 11 %16 %3,961 8 %13 %4,090 8 %14 %
SBA PPP— — %— %— — %— %— — %2 %
Residential mortgages2,152 4 %11 %2,255 4 %10 %1,405 3 %9 %
Home equity579 1 %3 %633 1 %3 %465 1 %3 %
Consumer314 — %— %331 1 %— %323 1 %— %
Total$58,995 100 %100 %$52,640 100 %100 %$47,704 100 %100 %

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The following table summarizes the activity in the ACL for loans for the periods indicated:
 Years Ended December 31,
(Dollars in thousands)20232022202120202019
Beginning balance$52,640$47,704$44,565$33,614$33,849
Day one CECL adjustment——6,560——
Provision charged to operations6,4605,17554312,4991,180
Recoveries on charged-off loans:
Commercial real estate——39——
Commercial and industrial497242139265734
Commercial construction1—105——
SBA PPP—————
Residential mortgages—————
Home equity121171459
Consumer171993635
      Total recovered$527$272$363$346$778
Charged-off loans:
Commercial real estate—2501,825——
Commercial and industrial5962102,4775612,069
Commercial construction———1,300—
SBA PPP—————
Residential mortgages—————
Home equity—————
Consumer36512533124
      Total charged-off$632$511$4,327$1,894$2,193
Net loans charged-off$105$239$3,964$1,548$1,415
Ending balance$58,995$52,640$47,704$44,565$33,614
Average loans outstanding$3,328,729$3,035,012$2,969,371$2,984,100$2,430,912
Net charge-offs to average loans— %0.01 %0.13 %0.05 %0.06 %
Recoveries to charge-offs83.39 %53.23 %8.39 %18.27 %35.48 %
Net loans charged-off to allowance0.18 %0.45 %8.31 %3.47 %4.21 %

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 $7.1 million as of December 31, 2023 and $4.3 million at December 31, 2022. The provision for unfunded commitments amounted to $2.8 million compared to $625 thousand for the years ended December 31, 2023 and December 31, 2022, respectively. The increase in the provision for unfunded commitments resulted primarily from growth in the Company's off-balance sheet commercial construction and commercial real estate commitments.

Based on the foregoing, management believes that the Company's ACL for loans and reserve for unfunded commitments is adequate as of December 31, 2023.
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Deposits

As of December 31, 2023, total deposits amounted to $3.98 billion, a decrease of $58.3 million, or 1%, compared to December 31, 2022. Total deposits represented 89% of total assets at December 31, 2023, and 91% at December 31, 2022.

The following table sets forth the deposit balances by certain categories as of the dates indicated and the percentage of each category to total deposits:
 December 31, 2023December 31, 2022December 31, 2021
(Dollars in thousands)AmountPercentAmountPercentAmountPercent
Non-interest checking$1,070,104 27 %$1,361,588 34 %$1,364,258 34 %
Interest-bearing checking697,632 18 %678,715 17 %743,587 19 %
Savings285,770 7 %326,666 8 %310,244 8 %
Money markets1,402,939 35 %1,381,645 34 %1,355,701 34 %
CDs521,076 13 %287,192 7 %206,449 5 %
Deposits$3,977,521 100 %$4,035,806 100 %$3,980,239 100 %

During 2023, the Company experienced a shift in deposit mix as funds moved primarily from non-interest checking accounts to higher yielding certificates of deposit accounts.

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, with an equal and reciprocal balance deposited to the Company through the network. The Company’s total customer deposit balances reflect the 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. Additional capacity to utilize these enhanced FDIC insured products exceeds the Company's total deposits balance. The Company's balances in these reciprocal products were $835.0 million, $589.7 million, and $546.7 million at December 31, 2023, December 31, 2022, and December 31, 2021, respectively. Savings accounts are not eligible for this program.

The following table shows the scheduled maturities of CDs greater than $250,000:
(Dollars in thousands)December 31, 2023December 31, 2022
Due in three months or less$49,545 $12,696 
Due in greater than three months through six months82,034 17,092 
Due in greater than six months through twelve months86,622 46,423 
Due in greater than twelve months7,086 23,223 
Total CDs greater than $250,000$225,287 $99,434 

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The table below sets forth a comparison of the Company's average deposits, and average rates paid for the periods indicated, as well as the percentage of each deposit category to total average deposits. The annualized average rate on total deposits reflects both interest-bearing and non-interest-bearing deposits.
 Year ended December 31,
 202320222021
(Dollars in thousands)Average
Balance		Average
Rate		Average
Balance		Average
Rate		Average
Balance		Average
Rate
Non-interest checking$1,233,908 — %$1,422,618 — %$1,341,633 — %
Interest checking685,347 0.38 %696,639 0.07 %651,985 0.03 %
Savings301,172 0.16 %336,881 0.05 %293,868 0.04 %
Money market1,417,613 1.96 %1,348,254 0.25 %1,303,170 0.09 %
Total interest-bearing non-term deposits2,404,132 1.29 %2,381,774 0.17 %2,249,023 0.07 %
CDs415,840 3.23 %221,050 0.73 %224,627 0.76 %
Total customer deposits4,053,880 1.09 %4,025,442 0.14 %3,815,283 0.09 %
Brokered deposits— — %— — %45,617 1.46 %
Total$4,053,880 1.09 %$4,025,442 0.14 %$3,860,900 0.10 %

Borrowed Funds
At December 31, 2023 and December 31, 2022, borrowed funds amounted to $25.8 million and $3.2 million, respectively, and were comprised of advances from the FRB, FHLB and NH BFA.

The table below shows the comparison of the Company's average borrowed funds and average rates paid for the periods indicated:
 Year ended December 31,
 202320222021
(Dollars in thousands)Average
Balance		Average
Cost		Average
Balance		Average
Cost		Average
Balance		Average
Cost
FHLB advances$3,548 2.65 %$3,266 1.59 %$7,632 0.79 %
FRB advances534 3.39 %— — %— — %
Other borrowed funds1,008 0.13 %20 — %— — %
Total borrowed funds$5,090 2.23 %$3,286 1.58 %$7,632 0.79 %

In the table above, "Other borrowings" represent term NH BFA advances or advances from correspondent banks, advanced as part of our annual test of these external funding facilities.

Subordinated Debt

The Company had outstanding subordinated debt, net of deferred issuance costs, of $59.5 million at December 31, 2023, and $59.2 million at December 31, 2022. The subordinated notes are due in 2030 and have a fixed rate of 5.25% through July 15, 2025, at which point the notes become callable and floating through maturity. The subordinated notes qualify as Tier 2 capital at the holding company of the bank for regulatory purposes.

Shareholders' Equity

Total shareholders' equity amounted to $329.1 million at December 31, 2023, compared to $282.3 million at December 31, 2022, an increase of $46.9 million, or 17%. The increase was due primarily to an increase in retained earnings of $26.8 million, consisting primarily of $38.1 million in net income less 9.7 million in dividends, net of reinvestment, and resultsa decrease in the accumulated other comprehensive loss of operations. In addition, if the$16.4 million resulting from lower market interest rates paidand the sale of $84.8 million in debt securities in the second quarter of 2023.

For the years ended December 31, 2023 and December 31, 2022, the Company declared cash dividends of $11.2 million and
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$9.9 million, respectively, and shareholders utilized the dividend reinvestment portion of the Company's dividend reinvestment and direct stock purchase plan to purchase aggregate shares of the Company's common stock amounting to 50,443 shares and 40,640 shares, totaling $1.5 million and $1.4 million, respectively.

Derivatives and Hedging

Derivatives designated as hedging instruments

During the year ended December 31, 2023, the Company entered into three pay fixed, receive float, interest rate swap agreements all with a 2-year term. Under these interest rate swap agreements, the Company pays a weighted average fixed interest rate of 4.68% and receives the Secured Overnight Financing Rate. At December 31, 2023, the notional value of interest rate swap agreements designated as fair value hedges amounted to $100.0 million and the fair value of these interest rate swap agreements, carried on interest-bearingthe Company's Consolidated Balance Sheets a liability, was $760 thousand at December 31, 2023.

Derivatives not subject to hedge accounting

The notional value of back-to-back interest-rate swaps with customers and counterparties amounted to $7.5 million at December 31, 2023 and $7.8 million at December 31, 2022. The fair value of assets and corresponding liabilities increaseassociated with these swaps and carried on the Company's Consolidated Balance Sheets was $630 thousand at December 31, 2023, compared to $782 thousand at December 31, 2022.

Risk Participation Agreements

The notional value of RPAs sold amounted to $46.9 million at December 31, 2023 and $24.7 million at December 31, 2022. The fair value of RPAs, carried on the Company's Consolidated Balance Sheets as a faster rate or magnitude thanliability, was $65 thousand at December 31, 2023 and $73 thousand at December 31, 2022.

Liquidity

Liquidity is the interest rates received onability to meet cash needs arising from, among other things, fluctuations in loans, investments, deposits, and other investments, the Company’s net interest income, and therefore earnings, could be adversely affected.  Interest rate risk is reviewed in more detail under the heading Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” below.

borrowings. Liquidity management is the coordination of activities so that cash needs are anticipated and met readily and efficiently. LiquidityThe Company's liquidity policies are set and monitored by the Company's Board. The duties and responsibilities related to asset-liability management matters are also covered by the Board. The Company's asset-liability objectives are to engage in sound balance sheet management strategies, maintain liquidity, provide and enhance access to a diverse and stable source of funds, provide competitively priced and attractive products to customers and conduct funding at a low-cost relative to current market conditions. Funds gathered are used to support current commitments, to fund earning asset growth, and to take advantage of selected leverage opportunities.

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, FRB and brokered deposits. At December 31, 2023, the Bank had the capacity to borrow additional funds from the FHLB and FRB of up to approximately $860.0 million and $320.0 million, respectively.

Management believes that the Company has adequate liquidity to meet its obligations. However, if general economic conditions 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

The principal cash requirement of the Company is the payment of interest on subordinated debt and the payment of dividends on our common stock. The Company's Board may approve cash dividends on a quarterly basis after careful analysis and consideration of various factors, including our capital position, economic conditions, growth rates, earnings performance and projections as well as strategic initiatives and related regulatory capital requirements.

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The Company's primary source of cash is dividends paid by the Bank, which are limited to the Bank's net income for the current year plus its retained net income for the prior two years.

The Company is subject to various regulatory capital requirements administered by the federal banking agencies. The Company's capital policies and capital levels are monitored internally on a quarterly basis and capital planning is reviewed further belowat least annually by the Board.

Failure to meet minimum capital requirements can initiate or result in this Item 7 undercertain mandatory and possible additional discretionary supervisory actions by regulators, which if undertaken, could have a material adverse effect on the heading "Liquidity."

Federal banking agencies requireCompany's consolidated financial condition. At December 31, 2023, the capital levels of both the Company and the Bank to meetcomplied with all applicable minimum capital requirements. At December 31, 2017,requirements of the Federal Reserve Board and the FDIC, respectively. Additionally, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC; however, future unanticipated charges againstFDIC.

The Company's total capital or changesand tier 1 capital to risk-weighted assets amounted to 13.12% and 10.34%, respectively, at December 31, 2023, compared to 13.49% and 10.56%, respectively, at December 31, 2022. The decrease in regulatory requirements such aseach ratio was due primarily to strong commercial loan growth, partially offset by an increase in retained earnings, over the phase-in requirements under Basel III, could impact those regulatoryrespective periods.

Tier 1 capital designations. Forto average assets amounted to 8.74% at December 31, 2023, compared to 8.10% at December 31, 2022. The increase was driven primarily by the increase in retained earnings noted above, partially offset by an increase in average assets.

See also Note 12, "Shareholders' Equity," to the Company's consolidated financial statements, contained in Item 8 of this Form 10-K below, for additional information regarding the current capital requirements applicable to the Company and the Bank and their respective capital levels at December 31, 2017, and changes to2023. For additional information on the regulatoryCompany's capital framework,planning, see the section within Item 1, “Business,” entitled "Capital Resources" and the sections "Capital Requirements" and "Capital Requirements under Basel III' within "Supervision and Regulation" and Note 10, "Stockholders' Equity” to the consolidated financial statements contained in Item 8 "Financial Statements1, "Business," of this Form 10-K.

Contractual Obligations and Supplementary Data."Commitments


ChangesThe Company is required to make future cash payments under various contractual obligations. The following table summarizes the contractual cash obligations at December 31, 2023:
 Payments Due by Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Contractual cash obligations:     
CDs$521,076 $494,320 $26,718 $38 $— 
FHLB borrowings2,830 — — — 2,830 
Other borrowings22,938 20,000 270 — 2,668 
Subordinated debt60,000 — — — 60,000 
Supplemental retirement plans1,387 276 992 119 — 
Operating lease obligations39,049 1,450 5,876 14,426 17,297 
Total contractual obligations$647,280 $516,046 $33,856 $14,583 $82,795 

The Company is also party to financial instruments with off-balance sheet risk in government regulation or oversight could affectthe normal course of business to meet the financing needs of its customers. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in substantialthe particular classes of financial instruments.

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The following table summarizes the contractual commitments at December 31, 2023:
 Commitment Expiration — By Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Other Commitments:     
Unadvanced loans and lines$1,421,809 $840,491 $468,068 $111,664 $1,586 
Commitments to originate loans41,326 41,326 — — — 
Letters of credit15,610 13,338 2,232 40 — 
Commitments to sell loans200 200 — — — 
Customer related interest-rate swaps notional amount(1)
7,524 — — 4,144 3,380 
Risk participation agreement notional amount46,910 — — — 46,910 
Total commitments$1,533,379 $895,555 $470,300 $115,848 $51,876 
 _______________________________________________
(1)    Offsetting positions to these interest-rate swaps are entered into with a counterparty. Notional principal amounts are not actually exchanged.

Wealth Management

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

Wealth assets under management amounted to $1.08 billion at December 31, 2023. The increase of $186.3 million, or 21%, compared to December 31, 2022 was due primarily to net asset growth from new and expanded client relationships and an executive order calling for theincrease in market values.

Wealth assets under administration amounted to review various U.S. financial laws$242.3 million at December 31, 2023 an increase of $43.8 million, or 22%, compared to December 31, 2022, resulting primarily from an increase in market values.

Impact of Inflation and regulations. Changing Prices
The full scopeCompany's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the current administration's legislative agenda is not yet fully known, but it may include certain deregulatory measures for the banking industry, including the structure and powers of the CFPB and other areas under the Dodd-Frank Act,Company are monetary in addition to extensive corporate tax reform signed in December 2017. Accordingly, it is difficult to anticipate the continued impact that this expansive legislation, if or when fully enacted, will have on the Company, its customers and the financial industry generally. The impact could include, but is not limited to, subjecting the Company to additional operating, governance, and compliance costs, potentially influencing the Company's business decisions, or causing potential loss of revenue due tonature. Management believes the impact of inflation on financial results depends upon the changing regulatory structureCompany's ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the banking industrysame direction, or at the same magnitude, as a whole.

Compliance risk includes the threatprices of fines, civil money penalties, lawsuitsother goods and restricted growth opportunities resulting from violations and/or non-conformance with laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards.  The Company maintains a Compliance Management Program (the "CMP") designed to meet regulatory and legislative requirements.  The CMP provides a framework for tracking and implementing regulatory changes, monitoring the effectiveness of policies and procedures, conducting compliance risk assessments, and educating employees in matters relating to regulatory compliance.  The Audit Committee of the Board of Directors oversees the effectiveness of the CMP.

Operational risk includes the threat of loss from inadequate or failed internal processes, people, systems or external events, due to, among other things: fraud or error; the inability to deliver products or services; failure to maintain a competitive position; lack of, or insufficient information security, cyber-security or physical security; inadequate procedures or controls followed by third-party service providers; or violations of ethical standards. In addition to intensive and ongoing employee training, and employee and customer awareness campaigns, controlsservices. As discussed previously, management seeks to manage operational risk include, but are not limited to, technology administration, information security, third-party management,the relationship between interest rate-sensitive assets and disaster recovery and business continuity planning. The Banking Technology Steering Committee of the Board of Directors oversees the information security program, monitors the results of third-party testing and risk assessments, and responses to breaches of customer data, among other technology, security and business continuity related functions.

The Company's technology administration includes policies and guidelines for the design, procurement, installation, management and acceptable use of hardware, software and network devices. The Company's technology project standards are

designed to provide risk based oversight, coordinate and communicate ideas, and to prioritize and manage project implementation in a manner consistent with corporate objectives.

The Company has implemented layered security approaches for all delivery channels to mitigate rising cyber-security risks. Management utilizes a combination of third-party information security assessments, key technologies and ongoing internal evaluations to provide a level of protection of non-public personal information, to continually monitor and attempt to safeguard information on its operating systems and those of third-party service providers, and to quickly detect Distributed Denial of
Service attacks.  The Company also utilizes firewall technology and a combination of software and third-party monitoring to detect intrusion, guard against unauthorized cyber access, and continuously identify and prevent computer viruses on the Company's information systems. To minimize debit card losses, the Company works with a third-party provider to establish parameters for allowable transaction activity, monitor transactions, and alert customers of potential fraudulent activity. 

The Company has a third-party risk management program designed to provide a mechanism to enable management to determine what risk, if any, a particular vendor or customer exposes the Company to, and to rate and mitigate that risk by properly performing initial and ongoing due diligence when selecting or maintaining relationships with critical third-party providers and customers who in turn provide financial services or products to their own customers.

The Company's Disaster Recovery and Business Continuity Program consists of the information and procedures required to enable a rapid recovery from an occurrence that would disable the Company's operations for an extended period, due to circumstances such as: loss of personnel; loss of data and/or loss of facilities, under various scenarios, including unintentional, malicious or criminal intentions; or loss of access to, or the physical destruction or damage of, facilities, infrastructure or systems. The plan, which is reviewed annually, establishes responsibility for assessing a disruption of business, contains alternative strategies for the continuance of critical business functions during an emergency situation, assigns responsibility for restoring services, and sets priorities by which critical services will be restored.  A bank-owned and maintained secondary data center location provides the Company back-up network processing capabilities and flexibility to relocate key operational personnel if needed.

The Company has developed Incident Response Policy and Proceduresliabilities in order to guide its actionsprotect against wide net interest income fluctuations, including those resulting from inflation.

Various information shown elsewhere in respondingthis annual report will assist in the understanding of how well the Company is positioned to realreact to changing interest rates and suspectedinflationary trends. In particular, additional information security incidents. This includes unlawful, unauthorized, or unacceptable actions that involve a computer system or a computer network such as Distributed Denialrelated to the net interest margin sensitivity analysis is contained in Item 7A of Service attacks, Corporate Account Takeover schemes, or an event that has potentially compromised customers' non-public personal information. Additionally, an event that disrupts onethis Form 10-K below and other maturity and repricing information of the Bank's service channels, whether as a resultCompany's interest rate-sensitive assets and liabilities is contained in this Item 7, "Management's Discussion and Analysis of a security incident or not, is also considered an incident requiring a responseFinancial Condition and Results of Operations" of this Form 10-K under the heading "Financial Condition" in this program. The reaction to an incident aims to reduce potential damage and loss and to protect and restore confidence through timely communication and the restoration of normal operating conditions for computers, services and information.report.


Any system of controls or contingency plan, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls and procedures will be met. Any breakdown in the integrity of these information systems, infrastructure, or cyber-security measures, or the Company's inability to identify, respond and correct such breakdown, could result in a loss of customer business, expose customers' personal information to unauthorized parties, damage the Company's reputation, subject the Company to increased costs and additional regulatory scrutiny, and expose the Company to civil litigation and possible financial liability, any of which could have a material adverse effect on the Company's business, financial condition and results of operations.

In addition to the risks discussed above, numerous other factors that could adversely affect the Company’s reputation, its future results of operations and financial condition are addressed in Item 1A, "Risk Factors."  This Opportunities and Risk discussion should be read in conjunction with Item 1A.

Accounting Policies/Critical Accounting Estimates


The Company’sCompany's significant accounting policies are described in Note 1, "Summary of Significant Accounting Policies," to the consolidated financial statements contained in Item 8, "Financial Statements and Supplementary Data.Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company’sCompany's reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. The three most significant areas in which management applies critical assumptions and estimates includeare: the areas described further below.estimates of the allowance for credit losses for loans, and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.

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AllowanceACL for Loan LossesLoans
 
The allowanceCECL methodology requires early recognition of credit losses using a lifetime credit loss measurement approach that takes into consideration reasonable and supportable forecasts. The ACL for loan losses is an estimate of probable credit risk inherent in the loan portfolio as of the specified balance sheet dates.  The allowance for loan lossesloans is established through a provision for loancredit losses, recorded as a direct charge to earnings. LoanThe ACL for loans is a valuation account that is deducted from the amortized cost to present the net amount of the loan portfolio expected to be collected. Credit losses are charged against the allowanceACL for loans when management believes that the collectability of the loanamortized cost of the loan's principal balance is unlikely. Recoveries on loans previously charged-off are credited to the allowance.  The Company maintainsACL for loans, generally at the allowance attime cash is received on a level that it deems adequate to absorb all reasonably anticipated probable losses from specifically known and other credit risks associated with the portfolio. charged-off account.

Arriving at an appropriate level of allowanceACL for loan lossesloans involves a high degree of management judgment.
judgement. The Company uses a systematic methodologyunderlying assumptions, estimates and assessments used to measureestimate the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology makes use of specific reservesACL for loans individually evaluatedreflects the Company’s best estimate of model assumptions and deemed impaired,forecasted conditions at that time. Changes in such estimates can significantly affect the ACL for loans and general reservesthe provision for larger groups of homogeneous loans, which are collectively evaluated relying on a combination of qualitative and quantitative factors that may affect credit quality of the pool.
Management believes that the Company's allowance for loan losses is adequate to absorb probable losses from specifically known and other probable credit risks associated with the portfolio as of the balance sheet dates reflected in this annual report.  While management uses available information to recognize losses on loans, future additions to the allowance may be necessary.losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowanceCompany's ACL for loan losses.  Such agencies may requireloans. It is possible and likely that the Company to recognize additions to the allowance based on judgmentswill experience credit losses that are different from thosethe current estimates.

The Company uses a systematic methodology to measure the amount of management.estimated credit losses. The methodology applies general reserves for larger groups of homogeneous loans segmented by loan type and specific reserves for loans individually evaluated.

Management’sIn making its assessment ofon the adequacy of the allowancegeneral reserves of ACL for loans, management considers several quantitative and qualitative factors from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts, including: the expected duration of the loans segments, the trends in risk classification of individual loans; individual review of larger and higher risk problem assets; the level of delinquent, non-performing, and individually evaluated loans; the level of hardship loan losses is contained undermodifications; foreclosure activity; net charge-offs; commercial concentrations by industry, property type and real estate location; the headings "Credit Risk," "Asset Quality,"growth and "Allowance for Loan Losses," containedcomposition of the loan portfolio; as well as trends in the "Financial Condition" sectiongeneral levels of this Item 7.these indicators. In addition, management monitors expansion in the Company's geographic market area, the experience level of lenders and any changes in underwriting criteria, the strength of the local and national economy, including general conditions in the multi-family, commercial real estate and development and construction markets in the Company's local region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. Management also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as management deems necessary, acknowledging that it can take time for economic results to work through the loan portfolio with charge-offs often occurring years after the economic downturn.

Impairment ReviewFor loans individually evaluated, the Company generally requires an internal evaluation or independent appraisal of Investmentthe collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations.

Reserve for unfunded commitments

The reserve for unfunded commitments is included in the line item "Accrued expenses and 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.

ACL for Available-for-Sale Securities

There are inherent risks associated with the Company’sCompany's investment activities that could adversely impact the fair market value and the ultimate collectability of the Company’sCompany's investments. Management regularly reviewsThe Company primarily invests in debt securities. At December 31, 2023, the portfolio forCompany also held immaterial amounts of equity securities withand FHLB stock.

The Company measures expected credit losses on available-for-sale securities based upon the unrealized losses to determine if anygain or loss position of the unrealized losses are OTTI.  The determination of OTTI involves a high degree of judgment. While management uses available information to measure OTTI at the balance sheet date, future write-downs may be necessary based on extended duration of current unrealized losses, changing market conditions, or circumstances surrounding individual issuers.
If an investment is deemed to havesecurity. For available-for-sale debt securities in an unrealized loss that is OTTI,position, the Company is requiredevaluates qualitative criteria to write-down the investment. For debt securities, OTTI is generally recognized through a charge to earnings as of the balance sheet date, while non-OTTI unrealized losses are recognized in other comprehensive income. Unrealized losses on debt securities are deemed OTTI if 1)determine any expected loss unless the Company intends to sell, the security, 2)or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference
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between the security’s amortized cost basis and its fair value as a write-down of the investment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include among other considerations (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, before recovery,(2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or 3) a credit loss existsissuers, and (4) structure of the security. If the Company does not expect to recover the entire amortized cost. For debt securities that have a credit loss, any portioncost basis of the losssecurity, an allowance for credit losses for available-for-sale securities would be recorded, with a related charge to other factors is recorded in other comprehensive income. Once written-down,earnings, limited by the previous charge may not be recovered through earnings until sale or maturity, if in excess of its new cost basis.  Any OTTI charges, depending upon the magnitudeamount of the charges, could have a material adverse effect onfair value of the Company’s financial condition and results of operations.

Based on this impairment review, management determined that there were no securities carried in the Company’s investment securities portfolio at December 31, 2017 that were deemed other-than-temporarily impaired.security less its amortized cost.
 
Management’s assessment of impairment of the unrealized losses on debt securities in the investment portfolio is contained in Note 2, "Investment Securities," to the consolidated financial statements in Item 8 below.
At December 31, 2017 the Company did not hold any equity investments. See accounting pronouncements not yet adopted by the Company under "Recent Accounting Pronouncements" in Item (t) below in Note 1, "Summary of Significant Accounting Policies" to the consolidated financial statements in Item 8 below, for treatment of unrealized losses on equities beginning in 2018.

Impairment ReviewContractual Obligations and Commitments

The Company is required to make future cash payments under various contractual obligations. The following table summarizes the contractual cash obligations at December 31, 2023:
 Payments Due by Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Contractual cash obligations:     
CDs$521,076 $494,320 $26,718 $38 $— 
FHLB borrowings2,830 — — — 2,830 
Other borrowings22,938 20,000 270 — 2,668 
Subordinated debt60,000 — — — 60,000 
Supplemental retirement plans1,387 276 992 119 — 
Operating lease obligations39,049 1,450 5,876 14,426 17,297 
Total contractual obligations$647,280 $516,046 $33,856 $14,583 $82,795 

The Company is also party to financial instruments with off-balance sheet risk in the normal course of Goodwill
In accordance with GAAP,business to meet the Company does not amortize goodwill and instead, at least annually, evaluates whether the carrying valuefinancing needs of goodwill has become impaired. Impairmentits customers. The instruments involve, to varying degrees, elements of goodwill may occur when the estimated fair valuecredit risk in excess of the Company is less than its recorded book value. A determination that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a resulting charge to operations.

The annual impairment test begins with a qualitative assessment of whether it is "more likely than not" that the reporting unit's fair value is less than its carrying amount. The assessment is performed at the reporting unit level.  If an entity concludes it is not "more likely than not" that the fair value of a reporting unit is less than its carrying amount it need not perform a two-step impairment test. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.

Management's qualitative assessment takes into consideration macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and share price. Based on this assessment, the Company determined that it is not "more likely than not" that the Company's fair value is less than its carrying amount and therefore goodwill was not considered to be impaired at December 31, 2017.

If the Company's qualitative assessment concluded that it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, it must perform the two-step impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized, if any. The first step of the goodwill impairment test compares the estimated fair value of the reporting unit with its carrying amount, or the book value of the reporting unit, including goodwill.  If the estimated fair value of the reporting unit equals or exceeds its book value, goodwill is considered not impaired, and the second step of the impairment test is unnecessary. 
The second step, if necessary, measures the amount of goodwill impairment loss to be recognized.  The reporting unit must determine fair values for all assets and liabilities, excluding goodwill.  The net of the assigned fair value of assets and liabilities is then compared to the book value of the reporting unit, and any excess book value becomes the implied fair value of goodwill.  If the carrying amount of the goodwill exceeds the newly calculated implied fair value of that goodwill, an impairment loss is recognized in the amount required to write downConsolidated Balance Sheets. The contractual amounts of these instruments reflect the goodwill toextent of involvement the implied fair value.Company has in the particular classes of financial instruments.


59

Financial Condition

Total assets increased $291.3 million, or 12%, sinceThe following table summarizes the contractual commitments at December 31, 2016,2023:
 Commitment Expiration — By Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Other Commitments:     
Unadvanced loans and lines$1,421,809 $840,491 $468,068 $111,664 $1,586 
Commitments to originate loans41,326 41,326 — — — 
Letters of credit15,610 13,338 2,232 40 — 
Commitments to sell loans200 200 — — — 
Customer related interest-rate swaps notional amount(1)
7,524 — — 4,144 3,380 
Risk participation agreement notional amount46,910 — — — 46,910 
Total commitments$1,533,379 $895,555 $470,300 $115,848 $51,876 
 _______________________________________________
(1)    Offsetting positions to $2.82these interest-rate swaps are entered into with a counterparty. Notional principal amounts are not actually exchanged.

Wealth Management

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

Wealth assets under management amounted to $1.08 billion at December 31, 2017.2023. The balance sheet composition and changes since December 31, 2016 are discussed below.

Cash and cash equivalents

Cash and cash equivalents is comprisedincrease of cash on hand and cash items due from banks, interest-earning deposits (deposit accounts, excess reserve cash balances, money markets, and money market mutual fund accounts) and federal funds ("fed funds") sold. Cash and cash equivalents amounted to 2% of total assets at both December 31, 2017 and December 31, 2016. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net deposit flows, borrowing and loan inflows and outflows, investment purchases and maturities, calls and sales proceeds, and the immediate liquidity needs of the Company. 

Investments

At December 31, 2017, the fair value of the investment portfolio increased $30.4$186.3 million, or 8%21%, compared to December 31, 2016,2022 was due primarily to net asset growth from debt security purchases, partially offset by the sale of equity securities. Significant changesnew and expanded client relationships and an increase in the portfolio composition are discussed below. market values.


The investment portfolio represented 14% of totalWealth assets at December 31, 2017 and 15% of total assets at December 31, 2016.  Debt securities comprised the majority of the fair value of the portfolio and represented 100% of total investments at December 31, 2017 and 97% of total investments at December 31, 2016, respectively. The equity portfolio was liquidated during 2017 in orderunder administration amounted to reduce the potential impact from market changes on earnings due to new accounting rules in effect

January 1, 2018. At December 31, 2017 and 2016, all investments were classified as available-for-sale and were carried at fair market value.

The following table summarizes investments at the dates indicated:
  December 31,
  2017 2016 2015
(Dollars in thousands) Amount Percent Amount Percent Amount Percent
Federal agency obligations(1)
 $51,717
 12.8% $75,069
 20.0% $78,825
 26.3%
Residential federal agency MBS(1)
 140,154
 34.6% 93,353
 24.9% 74,863
 24.9%
Commercial federal agency MBS(1)
 66,500
 16.4% 70,278
 18.7% 23,545
 7.8%
Municipal securities 134,346
 33.2% 111,803
 29.8% 98,511
 32.8%
Corporate bonds 11,542
 2.8% 10,695
 2.9% 10,206
 3.4%
Certificates of deposits (2)
 947
 0.2% 949
 0.3% 2,751
 0.9%
Total debt securities 405,206
 100.0% 362,147
 96.6% 288,701
 96.1%
Equity investments —
 —% 12,643
 3.4% 11,657
 3.9%
Total investment securities, at fair value $405,206
 100.0% $374,790
 100.0% $300,358
 100.0%
(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.  
(2) Certificates of deposits ("CDs") represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.

Included in the residential and commercial federal agency MBS categories were collateralized mortgage obligations (“CMOs”) issued by U.S. agencies totaling $171.7 million, $107.0 million and $44.3$242.3 million at December 31, 2017, 20162023 an increase of $43.8 million, or 22%, compared to December 31, 2022, resulting primarily from an increase in market values.

Impact of Inflation and 2015, respectively.Changing Prices

In 2017,The Company's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Company purchased $208.3 million, primarily debt securities, comparedare monetary in nature. Management believes the impact of inflation on financial results depends upon the Company's ability to purchases of $116.0 millionreact to changes in 2016. The increase was due to Company growth, higher market yieldsinterest rates and a debt portfolio restructure intended to increase future income.

The Company had principal pay downs, calls and maturities totaling $32.6 million duringby such reaction, reduce the year ended December 31, 2017. In addition, management sold securities with an amortized cost of approximately $145.5 million realizing net gainsinflationary impact on sales of $716 thousand during the year ended December 31, 2017. The gainsperformance. Interest rates do not necessarily move in the period were predominatelysame direction, or at the same magnitude, as the prices of other goods and services. As discussed previously, management seeks to manage the relationship between interest rate-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from the liquidation of the equity portfolio, largely offset by losses realized from a debt security portfolio restructuring.inflation.


Net unrealized gainsVarious information shown elsewhere in this annual report will assist in the investment portfolio amounted to $507 thousand at December 31, 2017 compared to net unrealized lossesunderstanding of $1.2 million at December 31, 2016.  The Company attributes the increase in net unrealized gains from December 31, 2016 primarily to the debt portfolio restructuring noted above, which mainly replaced lower yielding debt securities with higher yielding ones, partially offset by the liquidation of the equity portfolio in 2017. Unrealized gains or losses will only be recognized in the statements of income if the investments are sold. However, should an investment be deemed "other-than-temporarily impaired,"how well the Company is requiredpositioned to write-downreact to changing interest rates and inflationary trends. In particular, additional information related to the fair valuenet interest margin sensitivity analysis is contained in Item 7A of this Form 10-K below and other maturity and repricing information of the investment.   See "Impairment Review of Securities" under the heading "Accounting Policies/Critical Accounting Estimates" aboveCompany's interest rate-sensitive assets and liabilities is contained in this Item 7, for additional information regarding"Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-K under the heading "Financial Condition" in this report.

Accounting Policies/Critical Accounting Estimates

The Company's significant accounting for OTTI.
See also Note 2, "Investment Securities" and Note 15, "Fair Value Measurements" to the consolidated financial statements containedpolicies are described in Item 8 below for further information regarding the Company's unrealized gains and losses on debt and equity securities, including information about investments in an unrealized loss position for which an OTTI has or has not been recognized, and investments pledged as collateral, as well as the Company's fair value measurements for available-for-sale securities.


The contractual maturity distribution as of December 31, 2017 of the debt securities above with the weighted average tax equivalent yield for each category is set forth below:
  Under 1 Year >1 – 5 Years >5 – 10 Years Over 10 Years
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
At amortized cost:                
Federal agency obligations $10,995
 1.51% $40,774
 1.96% $—
 —% $—
 —%
Residential federal agency MBS 160
 2.19% 677
 3.54% 14,987
 2.19% 125,230
 2.61%
Commercial federal agency MBS —
 —% 14,818
 2.22% 51,959
 2.52% —
 —%
Municipal securities 7,184
 3.96% 17,773
 2.64% 63,898
 2.90% 43,748
 2.86%
Corporate bonds 756
 1.69% 7,239
 2.48% 3,551
 2.90% —
 —%
Certificates of Deposit —
 —% 950
 2.13% —
 —% —
 —%
Total debt securities $19,095
 2.45% $82,231
 2.22% $134,395
 2.68% $168,978
 2.68%
                 
At fair value:                
Total debt securities $19,159
   $82,255
   $134,959
   $168,833
  

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 fair value of debt securities above are callable securities, comprised of municipal securities and corporate bonds totaling $75.7 million, which can be redeemed by the issuer prior to the maturity presented above.  Management considers these factors when evaluating the interest rate risk in the Company’s asset-liability management program.

Federal Home Loan Bank Stock

The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB; this stock is classified as a restricted investment and carried at cost which management believes approximates fair value.  The Company’s investment in FHLB capital stock amounted to $5.2 million and $2.1 million at December 31, 2017 and December 31, 2016, respectively. 

See Note 1, "Summary of Significant Accounting Policies," Item (e) "Restricted Investments" to the Company’s consolidated financial statements, contained in Item 8 below for further information regarding the Company’s investment in FHLB stock.


Loans
Total loans represented 81% of total assets at December 31, 2017 and 80% of total assets at December 31, 2016. Total loans increased $247.2 million, or 12%, for the year ended December 31, 2017 compared to December 31, 2016.  The mix of loans within the portfolio remained relatively unchanged with commercial loans amounting to approximately 87% of gross loans at December 31, 2017, reflecting a continued focus on commercial loan growth.

This discussion should be read in conjunction with the material presented in Item 1, "Business", under the heading "Lending Products."

The following table sets forth the loan balances by certain loan categories at the dates indicated and the percentage of each category to gross loans. 

  December 31,
  2017 2016 2015 2014 2013
(Dollars in thousands) Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
Commercial real estate $1,201,351
 52.9% $1,038,082
 51.3% $936,921
 50.3% $862,747
 51.6% $820,299
 53.8%
Commercial & industrial 498,802
 21.9% 490,799
 24.2% 458,553
 24.7% 402,994
 24.1% 357,056
 23.4%
Commercial construction 274,905
 12.1% 213,447
 10.5% 202,993
 10.9% 168,044
 10.0% 132,507
 8.6%
Total commercial loans 1,975,058
 86.9% 1,742,328
 86.0% 1,598,467
 85.9% 1,433,785
 85.7% 1,309,862
 85.8%
Residential mortgages 195,492
 8.6% 180,560
 8.9% 169,188
 9.1% 149,959
 8.9% 132,721
 8.7%
Home equity loans and lines 91,706
 4.0% 91,065
 4.5% 83,373
 4.4% 80,018
 4.8% 74,354
 4.9%
Consumer 10,293
 0.5% 10,845
 0.6% 10,747
 0.6% 10,708
 0.6% 8,643
 0.6%
Total retail loans 297,491
 13.1% 282,470
 14.0% 263,308
 14.1% 240,685
 14.3% 215,718
 14.2%
Gross loans 2,272,549
 100.0% 2,024,798
 100.0% 1,861,775
 100.0% 1,674,470
 100.0% 1,525,580
 100.0%
Deferred fees, net (2,645)  
 (2,069)  
 (1,813)  
 (1,866)  
 (1,524)  
Total loans 2,269,904
  
 2,022,729
  
 1,859,962
  
 1,672,604
  
 1,524,056
  
Allowance for loan losses (32,915)  
 (31,342)  
 (29,008)  
 (27,121)  
 (26,967)  
Net loans $2,236,989
  
 $1,991,387
  
 $1,830,954
  
 $1,645,483
  
 $1,497,089
  
As of December 31, 2017, commercial real estate loans increased $163.3 million, or 16%, compared to December 31, 2016.  Commercial real estate loans have generally comprised approximately 50% of the loan portfolio and are typically secured by a variety of owner-use and non-owner occupied (investor) commercial and industrial property types including one-to-four and multi-family apartment buildings, office, industrial or mixed-use facilities, strip shopping centers or other commercial properties and are generally guaranteed by the principals of the borrower.
Commercial and industrial loans increased $8.0 million, or 2%, for the year ended December 31, 2017 compared to December 31, 2016.
Commercial construction loans increased by $61.5 million, or 29%, for the year ended December 31, 2017 since December 31, 2016.  Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property and loans for the purchase and improvement of raw land.
Retail loan balances increased by $15.0 million, or 5%, for the year ended December 31, 2017 since December 31, 2016. The increase over the same period in the prior year was primarily within residential secured 1-4 family mortgage loans.
At December 31, 2017, commercial loan balances participated out to various banks amounted to $70.7 million, compared to $62.3 million at December 31, 2016.  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 $91.6 million and $85.2 million at December 31, 2017 and 2016, respectively.  In each case, the participating bank funds a percentage of the loan commitment and takes on the related pro-rata risk. The rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently.

Refer to Note 3, "Loans," to the consolidated financial statements contained in Item 8, below, for information"Financial Statements and Supplementary Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on related party loans, loans serviced for otherssuch judgment and loans pledged as collateral.

The following table sets forth the scheduled maturities of commercial real estate, commercial and industrial and commercial construction loansin some cases may contribute to volatility in the Company’s portfolio at December 31, 2017.Company's reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. The table also sets forthmost significant areas in which management applies critical assumptions and estimates are: the dollar amountestimates of the allowance for credit losses for loans, which are scheduled to mature after one year which have fixed or adjustable rates.


and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.
60
(Dollars in thousands) 
Commercial
real estate
 
Commercial &
industrial
 
Commercial
construction
Amounts due(1):
  
  
  
One year or less, and demand notes $55,368
 $244,485
 $104,905
After one year through five years 219,941
 148,518
 66,976
Beyond five years 926,042
 105,799
 103,024
  $1,201,351
 $498,802
 $274,905
       
Interest rate terms on amounts due after one year:  
  
  
Fixed $32,113
 $116,368
 $13,619
Adjustable $1,113,870
 $137,949
 $156,381
ACL for Loans
 
(1) Scheduled contractual maturities may not reflectThe CECL methodology requires early recognition of credit losses using a lifetime credit loss measurement approach that takes into consideration reasonable and supportable forecasts. The ACL for loans is established through a provision for credit losses, recorded as a direct charge to earnings. The ACL for loans is a valuation account that is deducted from the actual maturities of loans.  The average maturity of loans may be shorter than their contractual terms principally dueamortized cost to prepayments and demand features.

Credit Risk
Inherent inpresent the lending process is the risk of loss due to customer non-payment, or "credit risk." The Company's commercial lending focus may entail significant additional credit risks compared to long-term financing on existing, owner-occupied residential real estate.  The Company seeks to lessen its credit risk exposure by managing its loan portfolio to avoid concentration by industry, relationship size and source of repayment, and through sound underwriting practices and the risk management function; however, management recognizes that loan losses will occur and that thenet amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio expected to be collected. Credit losses are charged against the ACL for loans when management believes that the collectability of the amortized cost of the loan's principal balance is unlikely. Recoveries on loans previously charged-off are credited to the ACL for loans, generally at the time cash is received on a charged-off account.

Arriving at an appropriate level of ACL for loans involves a high degree of management judgement. The underlying assumptions, estimates and economic conditions.assessments used to estimate the ACL for loans reflects the Company’s best estimate of model assumptions and forecasted conditions at that time. Changes in such estimates can significantly affect the ACL for loans and the provision for credit losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL for loans. It is possible and likely that the Company will experience credit losses that are different from the current estimates.

The credit risk management function focuses onCompany uses a wide varietysystematic methodology to measure the amount of factors, including, among others, current and expected economic conditions, the real estate market, the financial condition of borrowers, the ability of borrowers to adapt to changing conditions or circumstances affecting their business and the continuity of borrowers’ management teams.  Early detection of credit issues is critical to minimizeestimated credit losses. Accordingly,The methodology applies general reserves for larger groups of homogeneous loans segmented by loan type and specific reserves for loans individually evaluated.

In making its assessment on the adequacy of the general reserves of ACL for loans, management regularly monitors theseconsiders several quantitative and qualitative factors among others, through ongoing credit reviews byfrom internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts, including: the Credit Department, an external loan review service, reviews by membersexpected duration of senior management, as well as reviews by the Loan Committee andloans segments, the Board of Directors. This review includes the assessment of internal credit quality indicators such as thetrends in risk classification of individual loans,loans; individual review of larger and higher risk problem assets, delinquent loans andassets; the level of delinquent, non-performing, loans, impaired and restructured loans,individually evaluated loans; the level of hardship loan modifications; foreclosure activity,activity; net charge-offs andcharge-offs; commercial concentrations by industry, and property type and by real estate location,location; the growth and composition of the loan portfolio; as well as trends in the general levels of these indicators and the growth and composition of the loan portfolio.indicators. In addition, management monitors expansion in the Company's geographic market areas,area, the experience level of lenders and any changes in underwriting criteria, and the strength of the local and national economy, including general conditions in the multi-family, commercial real estate and development and construction markets in the Company's local region.region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. Management also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as management deems necessary, acknowledging that it can take time for economic results to work through the loan portfolio with charge-offs often occurring years after the economic downturn.

For loans individually evaluated, the Company generally requires an internal evaluation or independent appraisal of the collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations.

Reserve for unfunded commitments

The reserve for unfunded commitments is included in the line item "Accrued expenses and 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.

ACL for Available-for-Sale Securities

There are inherent risks associated with the Company's loan risk rating system classifies loans depending on risk of loss characteristics. The classifications range from "substantially risk free" forinvestment activities that could adversely impact 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, to the regulatory problem-asset classifications of “criticized,” for loans that may need additional monitoring,fair value and the ultimate collectability of the Company's investments. The Company primarily invests in debt securities. At December 31, 2023, the Company also held immaterial amounts of equity securities and FHLB stock.

The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is 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 by management. Loans classified as "substandard" include those characterized by the distinct possibilitylikely than not that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as "doubtful" have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, on the basis of currently existing facts,

conditions, and values, highly questionable and improbable.  Loans classified as "loss" are generally considered uncollectible at present, although long termbe required to sell before recovery of part or allthe amortized cost. In the latter two circumstances, the Company recognizes the entire difference
61
between the security’s amortized cost basis and its fair value as a specific loss reserve or charge-off. Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof.

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans and the classified portions are credit downgraded to onewrite-down of the adversely classified categories noted above. Accrual of interest on loans is generally discontinued wheninvestment balance with a loan becomes contractually past due, with respectcharge to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days or when, in the judgment of management, the collectability of both principal and interest is reasonably assured.  Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company.
Impaired loans are individually significant loans forearnings. Otherwise, management’s analysis considers various factors, which management considers it probable that not all amounts due (principal and interest) will be collected in accordance with the original contractual terms.  The majority of impaired loans are included within the non-accrual balances; however, not every loan on non-accrual status has been designated as impaired. Impaired loans include loans that have been modified in a troubled debt restructuring ("TDR"), see "Troubled debt restructurings" below. Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR.

Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.  Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms.
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 Bank grants the borrower a concession on the terms, that would not otherwise be considered.  Typically, such concessions may consist of 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 included in the impaired loan category and as such, these loans are individually reviewed and evaluated.

Impaired loans are individually evaluated for credit loss and a specific allowance reserve is assigned for the amount of the estimated probable credit loss. When a loan is deemed to be impaired, management estimates the probable credit loss by comparing the loan’s carrying value against either 1)among other considerations (1) the present value of the expected future cash flows discounted atexpected to be collected compared to the loan’s effective interest rate; 2)amortized cost of the loan’s observable market price;security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or 3)issuers, and (4) structure of the expected realizablesecurity. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses for available-for-sale securities would be recorded, with a related charge to earnings, limited by the amount of the fair value of the collateral, in the case of collateral dependent loans.  Impaired loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.

An impaired or TDR loan classification will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition. Consistent with the criteria for returning non-accrual loans to accrual status, the borrower must demonstrate the ability to continue to service the loan in accordance with the original or modified terms and, in the judgment of management, the collectability of the remaining balances, both principal and interest, are reasonably assured. In the case of TDR loans having had a modified interest rate, that rate must be at, or greater than, a market rate for a similar credit at the time of modification for an upgrade to be considered.

Real estate acquired by the Company through foreclosure proceedings, or the acceptance of a deed in lieu of foreclosure, is classified as Other Real Estate Owned ("OREO"). When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of any unamortized deferred fees, or the estimated fair value of the property acquired,security 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. Any loan balance in excess of the estimated realizable fair value on the date of transfer is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.its amortized cost.
 

Non-performing assets are comprised of non-accrual loans, deposit account overdrafts that are more than 90 days past due and OREO.  The designation of a loan or other asset as non-performing does not necessarily indicate that loan principal and interest will ultimately be uncollectible.  However, management recognizes the greater risk characteristics of these assets and therefore considers the potential risk of loss on assets included in this category in evaluating the adequacy of the allowance for loan losses.  The level of delinquent and non-performing assets is largely a function of economic conditions and the overall banking environment and the individual business circumstances of borrowers. Despite prudent loan underwriting, adverse changes within the Company’s market area, or deterioration in local, regional or national economic conditions, could negatively impact the Company’s level of non-performing assets in the future.

Asset Quality

At December 31, 2017 and December 31, 2016, the Company had adversely classified loans (loans carrying "substandard," "doubtful" or "loss" classifications) amounting to $26.4 million and $34.3 million, respectively. Total adversely classified loans amounted to 1.16% of total loans at December 31, 2017, as compared to 1.70% at December 2016.

Adversely classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become non-performing loans amounted to $17.4 million at December 31, 2017 and $25.1 million December 31, 2016.  The remaining balances of adversely classified loans were non-accrual loans, amounting to $9.0 million and $9.3 million at December 31, 2017 and December 31, 2016, respectively.  Non-accrual loans that were not adversely classified amounted to $21 thousand and $220 thousand at December 31, 2017 and December 31, 2016, respectively, and primarily represented the guaranteed portions of non-performing SBA loans.

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:
  December 31,
(Dollars in thousands) 2017 2016 2015 2014 2013
Non-accrual loan summary:          
Commercial real estate $6,751
 $4,876
 $8,506
 $9,714
 $10,561
Commercial and industrial 1,294
 3,174
 4,323
 5,950
 5,743
Commercial construction 193
 519
 335
 447
 1,118
Residential mortgages 262
 289
 366
 763
 633
Home equity loans and lines 463
 616
 288
 245
 281
Consumer 34
 —
 19
 16
 7
  Total non-accrual loans 8,997
 9,474
 13,837
 17,135
 18,343
Overdrafts > 90 days past due 35
 11
 8
 1
 3
  Total non-performing loans 9,032
 9,485
 13,845
 17,136
 18,346
OREO —
 —
 —
 861
 114
Total non-performing assets $9,032
 $9,485
 $13,845
 $17,997
 $18,460
           
Total Loans $2,269,904
 $2,022,729
 $1,859,962
 $1,672,604
 $1,524,056
Accruing TDR loans not included above $17,356
 $22,418
 $10,053
 $11,943
 $11,438
Delinquent loans 60-89 days past due and still accruing $1,026
 $940
 $2,021
 $1,707
 $2,638
Loans 60-89 days past due and still accruing to total loans 0.05% 0.05% 0.11% 0.10% 0.17%
Adversely classified loans to total loans 1.16% 1.70% 1.33% 1.70% 1.83%
Non-performing loans to total loans 0.40% 0.47% 0.74% 1.02% 1.20%
Non-performing assets to total assets 0.32% 0.38% 0.61% 0.89% 1.00%
Allowance for loan losses 32,915
 31,342
 29,008
 27,121
 26,967
Allowance for loan losses to non-performing loans 364.43% 330.44% 209.52% 158.27% 146.99%
Allowance for loan losses to total loans 1.45% 1.55% 1.56% 1.62% 1.77%


Total impaired loans amounted to $26.3 million and $31.8 million at December 31, 2017 and December 31, 2016, respectively.  Total accruing impaired loans amounted to $17.4 million and $22.4 million at December 31, 2017 and December 31, 2016, respectively, while non-accrual impaired loans amounted to $8.9 million and $9.4 million as of December 31, 2017 and December 31, 2016, respectively.

In management’s opinion, the majority of impaired loan balances at December 31, 2017 and 2016, were supported by expected future cash flows or, for those collateral dependent loans, the net realizable value of the underlying collateral.  Based on management’s assessment at December 31, 2017, impaired loans totaling $22.2 million required no specific reserves and impaired loans totaling $4.1 million required specific reserve allocations of $1.4 million.  At December 31, 2016, impaired loans totaling $25.7 million required no specific reserves and impaired loans totaling $6.1 million required specific reserve allocations of $2.6 million.  Management closely monitors these relationships for collateral or credit deterioration.

Total TDR loans included in the impaired loan amounts above, as of December 31, 2017 and December 31, 2016, were $20.3 million and $27.0 million, respectively. TDR loans on accrual status amounted to $17.4 million and $22.4 million at December 31, 2017 and December 31, 2016, respectively. TDR loans included in non-performing loans amounted to $2.9 million and $4.6 million at December 31, 2017 and December 31, 2016, respectively. The Company continues to work with customers, particularly commercial relationships, 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 future prospects of the borrower.

The Company carried no OREO at December 31, 2017 or December 31, 2016. There were no additions, sales or writedowns on OREO during 2017 or 2016.

Allowance for Loan Losses

The allowance for loan losses is an estimate of probable credit risk inherent in the loan portfolio as of the specified balance sheet dates.  On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated probable credit losses. The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated probable losses from specifically known and other credit risks associated with the portfolio.

Except for loans specifically identified as impaired, as discussed above, the estimate is a two-tiered approach that allocates loan loss reserves to "regulatory problem asset" loans by classified credit rating and to non-classified loans by credit type.  The general loss allocations take into account quantitative historic loss experience, qualitative factors, as well as regulatory guidance and industry data.  The allowance for loan losses is established through a provision for loan losses, which is a direct charge to earnings.  Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely.  Recoveries on loans previously charged-off are credited to the allowance.

In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio. Management closely monitors the credit quality of individual delinquent and non-performing relationships, the levels of impaired and adversely classified loans, net charge-offs, the growth and composition of the loan portfolio, expansion in geographic market area, the experience level of lenders and any changes in underwriting criteria, and the strength of the local and national economy, among other factors. 

The level of delinquent and non-performing assets is largely a function of economic conditions and the overall banking environment and the individual business circumstances of borrowers.  Despite prudent loan underwriting, adverse changes within the Company’s market area, or deterioration in local, regional or national economic conditions, could negatively impact Management's estimate of probable credit losses.
Management continues to closely monitor the necessary allowance levels, including specific reserves. The allowance for loan losses to total loans ratio was 1.45% at December 31, 2017 compared to 1.55% at December 31, 2016.  In general, the credit quality of the loan portfolio is improving, as indicated by low charge-offs and non-performing statistics, however, individual loan downgrades to adversely classified and impaired loans, which have continued to occur due to individual business circumstances, have contributed to a more gradual decline in the allowance to total loans ratio. Management believes that the loan portfolio continued to experience a level of credit stabilization during the 2017 period. However, management believes that local and regional commercial markets, despite low unemployment results, are being negatively impacted by economic conditions and results such as low GDP growth, marginal real income growth, risk from continued low interest rates, high

commercial real estate valuations, and a historically long expansion, which in turn will have a lagging impact on the general credit profile of the portfolio and individual commercial relationships.

Based on the foregoing, as well as management's judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the headings "Credit Risk" and "Asset Quality," management believes that the Company's allowance for loan losses is adequate to absorb probable losses from specifically known and other probable credit risks associated with the portfolio as of December 31, 2017.

The following table summarizes the activity in the allowance for loan losses for the periods indicated:
  Years Ended December 31,
(Dollars in thousands) 2017 2016 2015 2014 2013
Balance at beginning of year $31,342
 $29,008
 $27,121
 $26,967
 $24,254
           
Provision charged to operations 1,430
 2,993
 3,267
 1,395
 3,279
Recoveries on charged-off loans:          
Commercial real estate 193
 20
 74
 21
 96
Commercial and industrial 550
 681
 279
 616
 80
Commercial construction —
 —
 25
 66
 78
Residential mortgages —
 —
 —
 —
 128
Home equity loans and lines 4
 3
 15
 1
 21
Consumer 8
 5
 16
 31
 12
      Total recovered $755
 $709
 $409
 $735
 $415
Charged-off loans:          
Commercial real estate 178
 328
 133
 345
 206
Commercial and industrial 348
 980
 1,571
 1,363
 670
Commercial construction —
 5
 —
 134
 —
Residential mortgages —
 —
 —
 46
 36
Home equity loans and lines —
 6
 —
 27
 44
Consumer 86
 49
 85
 61
 25
      Total charged-off $612
 $1,368
 $1,789
 $1,976
 $981
           
Net loans (recovered) charged-off $(143) $659
 $1,380
 $1,241
 $566
           
Balance at December 31 $32,915
 $31,342
 $29,008
 $27,121
 $26,967
           
           
Average loans outstanding $2,130,048
 $1,919,826
 $1,740,962
 $1,586,062
 $1,438,556
Net loans (recovered) charged-off to average loans (0.01)% 0.03% 0.08% 0.08% 0.04%
           
Recoveries to charge-offs 123.37 % 51.83% 22.86% 37.20% 42.30%
Net loans (recovered) charged-off to allowance (0.43)% 2.10% 4.76% 4.58% 2.10%



The following table sets forth the allocation of the Company’s allowance for loan losses among the categories of loans and the percentage of loans in each category to gross loans for the periods ending on the respective dates indicated:

  December 31,
  2017 2016 2015 2014 2013
(Dollars in thousands) 
Allowance
allocation
 
Loan
category
as % of
gross
loans
 
Allowance
allocation
 
Loan
category
as % of
gross
loans
 
Allowance
allocation
 
Loan
category
as % of
gross
loans
 
Allowance
allocation
 
Loan
category
as % of
gross
loans
 
Allowance
allocation
 
Loan
category
as % of
gross
loans
Comm’l real estate $17,545
 52.9% $14,902
 51.3% $13,514
 50.3% $12,664
 51.6% $13,174
 53.8%
Comm’l industrial 9,669
 21.9% 11,204
 24.2% 9,758
 24.7% 9,245
 24.1% 8,365
 23.4%
Comm’l constr. 3,947
 12.1% 3,406
 10.5% 3,905
 10.9% 3,384
 10.0% 3,493
 8.6%
Resid: mortg, cnstr and HELOCs 1,512
 12.6% 1,594
 13.4% 1,601
 13.5% 1,597
 13.7% 1,710
 13.6%
Consumer 242
 0.5% 236
 0.6% 230
 0.6% 231
 0.6% 225
 0.6%
Total $32,915
 100.0% $31,342
 100.0% $29,008
 100.0% $27,121
 100.0% $26,967
 100.0%

The allocation of the allowance for loan losses above reflects management’s judgment of the relative risks of the various categories of the Company’s loan portfolio. This allocation should not be considered an indication of the future amounts or types of possible loan charge-offs.

See Note 4, "Allowance for Loan Losses" to the Company's consolidated financial statements, contained in Item 8, for further information regarding credit quality and the allowance for loan losses.

Bank Owned Life Insurance ("BOLI")

The Company has purchased BOLI as an investment vehicle, utilizing the earnings on BOLI to offset the cost of the Company’s benefit plans. The cash surrender value of BOLI was $29.5 million and $28.8 million at December 31, 2017 and 2016, respectively.

Further information regarding the Company’s BOLI can be found in Item (k) in Note 1, "Summary of Significant Accounting Policies," and information on the Company's retirement benefit plans is contained in Note 11, "Employee Benefit Plans," both of which are located in the notes to the Company's consolidated financial statements in Item 8 below.

Deposits

Total deposits amounted to $2.44 billion as of December 31, 2017, an increase of $172.4 million, or 8%, compared to December 31, 2016. Total deposits as a percentage of total assets were 87% at December 31, 2017 and 90% at December 31, 2016. As of December 31, 2017, customer deposits (deposits, excluding brokered deposits) amounted to $2.29 billion an increase of $84.3 million, or 4%, since December 31, 2016. During the year, the increase in customer deposits was primarily due to increases in checking account balances (mainly non-interest bearing accounts), partially offset by decreases in money market account balances.



The following table sets forth deposit balances by certain categories at the dates indicated and the percentage of each deposit category to total deposits.
  December 31, 2017 December 31, 2016 December 31, 2015
(Dollars in thousands) Amount 
% of
Total
 Amount 
% of
Total
 Amount 
% of
Total
Non-interest bearing demand deposits $705,846
 28.9% $646,115
 28.5% $570,589
 28.3%
Interest-bearing checking 391,111
 16.0% 372,696
 16.4% 313,674
 15.5%
Total checking 1,096,957
 44.9% 1,018,811
 44.9% 884,263
 43.8%
             
Savings 193,385
 7.9% 178,637
 7.9% 167,304
 8.3%
Money markets 807,931
 33.1% 844,216
 37.2% 692,114
 34.3%
Total savings/money markets 1,001,316
 41.0% 1,022,853
 45.1% 859,418
 42.6%
             
Certificates of deposit (CDs) 195,599
 8.0% 167,895
 7.4% 167,697
 8.3%
Total customer deposits 2,293,872
 93.9% 2,209,559
 97.4% 1,911,378
 94.7%
             
Brokered deposits(1)
 147,490
 6.1% 59,362
 2.6% 106,770
 5.3%
             
Total deposits $2,441,362
 100.0% $2,268,921
 100.0% $2,018,148
 100.0%
(1) Brokered CDs $250,000 and under.

Total customer deposits include reciprocal money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Company offered programs which allow for enhanced FDIC insurance. Essentially, the equivalent of the original customers' deposited funds comes back to the Company as customer deposits within the appropriate category under total deposits on the consolidated balance sheet. The Company's balances in these reciprocal products were $249.6 million, $281.6 million and $206.5 million at December 31, 2017, December 31, 2016 and December 31, 2015, respectively.

Increases in customer deposits during the year were attributed to sales and marketing efforts, product capabilities and market expansion. Checking deposits, a strong source of low-cost funding for the Company, increased $78.1 million, or 8%, through December 31, 2017 compared to December 31, 2016. CD balances increased $27.7 million, or 17%, through December 31, 2017. CD rates increased during the 2017 period, contributing to the higher CD balances at year end. During the same period, savings and money market account balances decreased by $21.5 million, or 2%, at December 31, 2017 compared to December 31, 2016, due to decreases in money market balances. 

The following table shows the scheduled maturities of certificates of deposits greater than $250,000.

(Dollars in thousands) December 31, 2017 December 31, 2016
Due in three months or less $8,043
 $16,063
Due in greater than three months through six months 10,399
 6,888
Due in greater than six months through twelve months 11,159
 8,282
Due in greater than twelve months 15,553
 11,082
Total certificates of deposit $45,154
 $42,315


The table below sets forth a comparison of the Company’s average deposits and average rates paid for the periods indicated, as well as the percentage of each deposit category to total average deposits.  The annualized average rate on total deposits reflects both interest-bearing and non-interest bearing deposits.
  Year ended December 31,
  2017 2016 2015
(Dollars in thousands) 
Average
Balance
 
Avg
Rate
 
% of
Total
 
Average
Balance
 
Avg
Rate
 
% of
Total
 
Average
Balance
 
Avg
Rate
 
% of
Total
Non-interest demand $697,247
 —% 29.8% $632,950
 —% 29.5% $535,583
 —% 28.0%
        

          
Interest checking 357,252
 0.14% 15.3% 324,820
 0.09% 15.2% 283,579
 0.07% 14.9%
Savings 195,465
 0.15% 8.3% 181,453
 0.13% 8.5% 166,358
 0.12% 8.7%
Money market 827,867
 0.32% 35.4% 758,944
 0.27% 35.4% 639,800
 0.27% 33.5%
Total interest-bearing non-term deposits 1,380,584
 0.25% 59.0% 1,265,217
 0.20% 59.1% 1,089,737
 0.20% 57.1%
                

  
Certificates of deposit 170,427
 0.84% 7.3% 169,213
 0.68% 7.9% 171,213
 0.59% 9.0%
                   
Total non-brokered deposits 2,248,258
 0.22% 96.1% 2,067,380
 0.18% 96.5% 1,796,533
 0.18% 94.1%
                   
Brokered deposits 91,522
 1.22% 3.9% 75,395
 1.06% 3.5% 112,930
 0.81% 5.9%
                   
Total $2,339,780
 0.26% 100.0% $2,142,775
 0.21% 100.0% $1,909,463
 0.21% 100.0%

Wholesale Funding

Wholesale funding, which includes brokered deposits and borrowed funds, amounted to $236.5 million at December 31, 2017, compared to $70.0 million at December 31, 2016, an increase of $166.5 million. Wholesale funding has increased as loan growth exceeded customer deposit growth for 2017.

From time to time, management utilizes brokered deposits as cost effective wholesale funding sources to support continued loan growth and as part of the Company's asset-liability management strategy to protect against rising rates. Brokered deposits may be comprised of non-reciprocal overnight money market deposits and selected term CDs gathered from nationwide bank networks or from large money center banks; however, at December 31, 2017, December 31, 2016 and December 31, 2015, brokered deposits were comprised only of brokered CDs. As of December 31, 2017, brokered CDs had increased $88.1 million since the prior year end. Brokered CDs outstanding at December 31, 2017 had a weighted average remaining life of less than six months.

Borrowed Funds and Subordinated Debt
Borrowed funds, comprised of FHLB borrowings and other borrowings, amounted to $89.0 million at December 31, 2017, compared to $10.7 million at December 31, 2016, increasing $78.3 million, as loan growth outpaced deposit growth for 2017.

The Company’s primary borrowing source is the FHLB, but the Company may choose to borrow from other established business partners. Outstanding borrowings from the FHLB may be comprised of overnight or short-term borrowings and term advances linked to outstanding commercial loans under various community reinvestment programs of the FHLB. At December 31, 2017 and 2016, borrowed funds consisted of FHLB borrowings only.

FHLB borrowings at December 31, 2017 consisted of $39.0 million in overnight borrowings, with a weighted average rate of 1.59%, and short-term borrowings of $50.0 million, with a weighted average rate of 1.50%, that matured in January 2018.

Maximum FHLB and other borrowings outstanding at any month end during 2017, 2016, and 2015 were $149.3 million, $43.7 million and $53.7 million, respectively. 

The table below shows the comparison of the Company’s average borrowed funds and average rates paid for the periods indicated.
  Year ended December 31,
  20172016 2015
(Dollars in thousands) 
Average
Balance
 
Average
Cost
 
Average
Balance
 Average
Cost		 
Average
Balance
 Average
Cost
FHLB advances $49,546
 1.19% $14,551
 0.55% $10,731
 0.36%
Other borrowed funds —
 —% 107
 0.61% 36
 0.61%
Total borrowed funds $49,546
 1.19% $14,658
 0.55% $10,767
 0.36%
The category "Other borrowed funds" represents overnight advances from the FRB or borrowings from correspondent banks.

At December 31, 2017, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $415 million and capacity to borrow from the FRB Discount Window of approximately $120 million.
The Company also carried subordinated debt of $14.8 million (net of deferred issuance costs) at both December 31, 2017 and December 31, 2016, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the "Notes") issued in January 2015, in a private placement to an accredited investor.

See Note 7, "Borrowed Funds and Subordinated Debt" to the Company's consolidated financial statements, contained in Item 8, for further information regarding the Company's borrowed funds and subordinated debt.

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 policies are set and monitored by the Company's Board of Directors. The duties and responsibilities related to asset-liability management matters are also covered by the Board of Directors. The Company's asset-liability objectives are to engage in sound balance sheet management strategies, maintain liquidity, provide and enhance access to a diverse and stable source of funds, provide competitively priced and attractive products to customers and conduct funding at a low cost relative to current market conditions. Funds gathered are used to support current commitments, to fund earning asset growth, and to take advantage of selected leverage opportunities.

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.

At December 31, 2017, the Company's wholesale funding sources primarily included borrowing capacity at the FHLB and brokered deposits. In addition, the Company maintains fed fund purchase arrangements with correspondent banks and has access to the FRB Discount Window.

Management believes that the Company has adequate liquidity to meet its obligations. However if, as a result of general economic conditions or other events, these sources of external funding 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.

The Company has in the past also increased capital and liquidity by offering shares of the Company's common stock for sale to its existing stockholders and new investors and through the issuance of subordinated debt.

For additional information on the Company's capital planning, see the section entitled "Capital Resources" contained in Item 1, "Business."


Capital Adequacy

The Company is subject to various regulatory capital requirements administered by the federal banking agencies.  The Company's capital policies and capital levels are monitored on a quarterly basis and capital planning is reviewed at least annually by the Company's Board of Directors.

Failure to meet minimum capital requirements can initiate or result in certain mandatory and possible additional discretionary supervisory actions by regulators, which if undertaken, could have a material adverse effect on the Company’s consolidated financial condition.  At December 31, 2017, the capital levels of both the Company and the Bank complied with all applicable minimum capital requirements of the Federal Reserve Board and the FDIC, respectively. Additionally, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.

For additional information regarding the capital requirements applicable to the Company and the Bank and their respective capital levels at December 31, 2017, see the section entitled "Capital Resources" and "Capital Requirements" under the heading "Supervision and Regulation" contained in Item 1, "Business" and Note 10, "Stockholders’ Equity," to the Company's consolidated financial statements contained in Item 8.

Contractual Obligations and Commitments

The Company is required to make future cash payments under various contractual obligations. The following table summarizes the contractual cash obligations at December 31, 2017. 2023:
 Payments Due by Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Contractual cash obligations:     
CDs$521,076 $494,320 $26,718 $38 $— 
FHLB borrowings2,830 — — — 2,830 
Other borrowings22,938 20,000 270 — 2,668 
Subordinated debt60,000 — — — 60,000 
Supplemental retirement plans1,387 276 992 119 — 
Operating lease obligations39,049 1,450 5,876 14,426 17,297 
Total contractual obligations$647,280 $516,046 $33,856 $14,583 $82,795 
  Payments Due By Period
(Dollars in thousands) Total 
With-in
1 Year
 
>1 – 3
Years
 
>3 – 5
Years
 
After 5
Years
Contractual Cash Obligations:  
  
  
  
  
Certificates of deposit $343,089
 $240,995

$88,833

$12,206

$1,055
FHLB borrowings 89,000
 89,000
 —
 —
 —
Subordinated debt 15,000
 —
 —
 —
 15,000
Supplemental retirement plans 3,043
 276
 552
 552
 1,663
Operating lease obligations 15,686
 1,609
 2,528
 2,264
 9,285
Vendor contracts 8,129
 4,991
 2,665
 473
 —
Total contractual obligations $473,947
 $336,871
 $94,578
 $15,495
 $27,003

For additional information on CDs, see Note 6, "Deposits" and for FHLB Borrowings and Subordinated Debt see Note 7, "Borrowed Funds and Subordinated Debt." For additional information on supplemental retirement plans see Note 11, "Employee Benefit Plans." For additional information on operating lease obligations see Note 5, "Premises and Equipment." These notes are contained in Item 8, "Financial Statements and Supplementary Data" below in this Form 10-K.


The Company is also party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in the particular classes of financial instruments.


59
The following table summarizes the contractual commitments at December 31, 2017.2023:
 Commitment Expiration — By Period
(Dollars in thousands)TotalWith-in
1 Year
>1 – 5
Years
>5 – 15
Years
After 15
Years
Other Commitments:     
Unadvanced loans and lines$1,421,809 $840,491 $468,068 $111,664 $1,586 
Commitments to originate loans41,326 41,326 — — — 
Letters of credit15,610 13,338 2,232 40 — 
Commitments to sell loans200 200 — — — 
Customer related interest-rate swaps notional amount(1)
7,524 — — 4,144 3,380 
Risk participation agreement notional amount46,910 — — — 46,910 
Total commitments$1,533,379 $895,555 $470,300 $115,848 $51,876 
  Commitment Expiration — By Period
(Dollars in thousands) Total 
With-in
1 Year
 
>1 – 3
Years
 
>3 – 5
Years
 
After 5
Years
Other Commitments:  
  
  
  
  
Unadvanced loans and lines $767,896
 $479,476
 $174,267
 $27,739
 $86,414
Commitments to originate loans 13,830
 13,830
 —
 —
 —
Letters of credit 21,576
 14,112
 1,027
 6,437
 —
Commitments to originate loans for sale 2,078
 2,078
 —
 —
 —
Commitments to sell loans 2,286
 2,286
 —
 —
 —
Customer related interest-rate swaps notional amount (1)
 14,719
 —
 —
 2,366
 12,353
Total commitments $822,385
 $511,782
 $175,294
 $36,542
 $98,767
 _______________________________________________
(1)    Offsetting positions to these interest rateinterest-rate swaps offered to commercial loan customers are entered into with a counterparty. Notional principal amounts are not actually exchanged.


For additional information on unadvanced loans and lines, commitments to originate loans, letters of credit and commitments to originate loans for sale or to sell loans see Note 9, "Commitments, Contingencies and Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk." For additional information on customer related interest rate swaps see Note 8, "Derivatives and Hedging Activities." These notes are contained in Item 8, "Financial Statements and Supplementary Data" below in this Form 10-K.

Assets UnderWealth Management

TotalWealth assets under management includes total assets, loans serviced for others and investmentwealth assets under management. Loans serviced for others and investment assets under managementadministration are not carried as assets on the Company's consolidated balance sheet, and as such, total assets under management is not a financial measurement recognized under GAAP, however management believes its disclosure provides information useful in understanding the trends in total assets under management.

sheets. The Company provides a wide range of investment advisory and wealth management services, including investment management, brokerage, annuities, trust, and investment management (together, "investment advisory services").  Also included in the investment401(k) administration.

Wealth assets under management total are customers' commercial sweep arrangements that are invested in third-party money market mutual funds.

Investment assets under management, which are reflectedamounted to $1.08 billion at fair market value, increased $119.6 million for the year ended December 31, 2017, or 16%, since December 31, 2016 and increased $166.62023. The increase of $186.3 million, or 25%, since December 31, 2015. 

Total assets under management increased $419.0 million for the year ended December 31, 2017, or 13%, since December 31, 2016 and $716.4 million, or 24% since December 31, 2015.

 The following table sets forth the value of total assets under management and its components at the dates indicated.
  December 31,
(Dollars in thousands) 2017 2016 2015
Total assets $2,817,564
 $2,526,269
 $2,285,531
Loans serviced for others 89,059
 80,996
 71,272
Investment assets under management 844,977
 725,338
 678,377
Total assets under management $3,751,600
 $3,332,603
 $3,035,180


Results of Operations

COMPARISON OF YEARS ENDED DECEMBER 31, 2017 AND 2016

Unless otherwise indicated, the reported results are for the year ended December 31, 2017 with the "same period," the "comparable year" and "prior year" being the year ended December 31, 2016. Average yields are presented on a tax equivalent basis.
Net Income

The Company's net income for the year ended December 31, 2017 amounted to $19.4 million, an increase of $642 thousand compared to the year ended December 31, 2016.  Diluted earnings per share for 2017 were $1.66 for the year ended December 31, 2017, as compared to $1.70 for the year ended December 31, 2016. Impacting the Company's 2017 results was a tax expense adjustment of approximately $4.8 million to the Bank's net deferred tax assets because of the recently enacted new federal tax bill. Diluted earnings per share for the year ended December 31, 2017 includes the full year dilutive impact of the Company's equity offering issued on June 23, 2016.
Net Interest Income

The Company’s net interest income for the year ended December 31, 2017 amounted to $97.5 million, an increase of $10.7 million, or 12%21%, compared to the year ended December 31, 2016.  The increase in net interest income over the comparable year2022 was due primarily to revenue generatednet asset growth from loan growth.new and expanded client relationships and an increase in market values.


Net Interest Margin

The Company's margin was 3.97% for the year ended Wealth assets under administration amounted to $242.3 million at December 31, 20172023 an increase of $43.8 million, or 22%, compared to 3.94% for the year ended December 31, 2016. Margin was 4.05% for the three months ended December 31, 2017 and 4.03% for the three months ended September 30, 2017. Contributing to the2022, resulting primarily from an increase in marginmarket values.

Impact of Inflation and Changing Prices
The Company's asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the fourth quarter of 2017 was slightly higher than normal non-accrual interest income recognized from loan payoffs, as well asCompany are monetary in nature. Management believes the positive impact of recent interest rate increasesinflation on loan yields.


Rate/Volume Analysis

The following table sets forthfinancial results depends upon the extentCompany's ability to whichreact to changes in interest rates and changesby such reaction, reduce the inflationary impact on performance. Interest rates do not necessarily move in the average balancessame direction, or at the same magnitude, as the prices of interest-earningother goods and services. As discussed previously, management seeks to manage the relationship between interest rate-sensitive assets and interest-bearing liabilities have affected interest income and expense during the years ended December 31, 2017 and 2016.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributablein order to (1) volume (change in average portfolio balance multiplied by prior year average rate); (2) interest rate (change in average interest rate multiplied by prior year average balance); and (3) rate and volume (the remaining difference).

  December 31,
  2017 vs 2016 2016 vs 2015
    Increase (Decrease) due to   Increase (Decrease) due to
(Dollars in thousands) 
Net
Change
 Volume Rate 
Rate/
Volume
 
Net
Change
 Volume Rate 
Rate/
Volume
Interest Income  
  
  
  
  
  
  
  
Loans and loans held for sale $11,169
 $9,572
 $1,429
 $168
 $7,444
 $8,148
 $(393) $(311)
Investment securities 1,405
 1,594
 32
 (221) 1,294
 1,639
 77
 (422)
Other interest-earning assets (1)
 143
 (85) 327
 (99) 106
 70
 25
 11
Total from interest-earning assets 12,717
 11,081
 1,788
 (152) 8,844
 9,857
 (291) (722)
                 
Interest Expense  
  
  
  
  
  
  
  
Interest checking, savings, and money market 877
 231
 633
 13
 441
 351
 —
 90
Certificates of deposit 286
 8
 271
 7
 129
 (11) 154
 (14)
Brokered CDs 318
 171
 120
 27
 (124) (304) 282
 (102)
Borrowed funds 509
 192
 94
 223
 43
 14
 20
 9
Subordinated debt (3) 1
 (5) 1
 (143) (55) (92) 4
Total on interest-bearing funding 1,987
 603

1,113

271

346

(5)
364

(13)
                 
Change in net interest income $10,730
 $10,478
 $675
 $(423) $8,498
 $9,862
 $(655) $(709)
____________________
(1) Other interest-earning assets includes interest-earning deposits, fed funds sold, and dividends on FHLB Stock.

The table on the following page presents the Company’s average balances,protect against wide net interest income fluctuations, including those resulting from inflation.

Various information shown elsewhere in this annual report will assist in the understanding of how well the Company is positioned to react to changing interest rates and average rates for the years ended December 31, 2017, 2016 and 2015.


  Average Balances, Interest and Average Yields
  Year ended December 31, 2017 Year ended December 31, 2016 Year ended December 31, 2015
(Dollars in thousands) 
Average
Balance
 Interest 
Average
Yield(1)
 
Average
Balance
 Interest 
Average
Yield (1)
 
Average
Balance
 Interest 
Average
Yield(1)
Assets:  
  
  
  
  
  
  
  
  
Loans and loans held for sale (2)
 $2,130,752
 $96,559
 4.59% $1,921,299
 $85,390
 4.50% $1,742,017
 $77,946
 4.52%
Investment securities (3)
 379,324
 8,045
 2.70% 320,057
 6,640
 2.69% 258,441
 5,346
 2.66%
Other interest-earning assets (4)
 30,225
 428
 1.42% 43,096
 285
 0.66% 30,966
 179
 0.58%
Total interest-earning assets 2,540,301
 105,032
 4.27% 2,284,452
 92,315
 4.18% 2,031,424
 83,471
 4.23%
Other assets 107,729
  
  
 104,686
  
  
 93,184
  
  
Total assets $2,648,030
  
  
 $2,389,138
  
  
 $2,124,608
  
  
                   
Liabilities and stockholders’ equity:  
  
  
  
  
  
  
  
  
Interest checking, savings and money market $1,380,584
 3,448
 0.25% $1,265,217
 2,571
 0.20% $1,089,737
 2,130
 0.20%
Certificates of deposit 170,427
 1,433
 0.84% 169,213
 1,147
 0.68% 171,213
 1,018
 0.59%
Brokered CDs 91,522
 1,114
 1.22% 75,395
 796
 1.06% 112,930
 920
 0.81%
Borrowed funds 49,546
 590
 1.19% 14,658
 81
 0.55% 10,767
 38
 0.36%
Subordinated debt(5)
 14,840
 925
 6.23% 14,828
 928
 6.26% 15,631
 1,071
 6.85%
Total interest-bearing funding 1,706,919
 7,510
 0.44% 1,539,311
 5,523
 0.36% 1,400,278
 5,177
 0.37%
                   
Net interest rate spread  
  
 3.83%  
  
 3.82%  
  
 3.86%
                   
Demand deposits 697,247
 —
 

 632,950
 —
 —
 535,583
 —
 —
Total deposits, borrowed funds and subordinated debt 2,404,166
 7,510
 0.31% 2,172,261
 5,523
 0.25% 1,935,861
 5,177
 0.27%
Other liabilities 17,919
  
  
 15,896
  
  
 14,998
  
  
Total liabilities 2,422,085
  
  
 2,188,157
  
  
 1,950,859
  
  
                   
Stockholders’ equity 225,945
  
  
 200,981
  
  
 173,749
  
  
                   
Total liabilities and stockholders’ equity $2,648,030
  
  
 $2,389,138
  
  
 $2,124,608
  
  
                   
Net interest income  
 $97,522
  
  
 $86,792
  
  
 $78,294
  
Net interest margin (tax equivalent)  
  
 3.97%  
  
 3.94%  
  
 3.97%
(1)
Average yields are presented on a tax equivalent basis. The tax equivalent effect associated with loans and investments, which was not included in the interest amount above, was $3.4 million, $3.1 million, and $2.4 million for the years ended December 31, 2017, 2016 and 2015, respectively.
(2)Average loans and loans held for sale include non-accrual loans, and are net of average deferred loan fees.
(3)Average investments are presented at average amortized cost.
(4)Other interest-earning assets includes interest-earning deposits, fed funds sold, and FHLB stock.
(5)
The subordinated debt issued in January 2015 and outstanding at December 31, 2017, 2016 and 2015 is net of average deferred debt issuance costs.


Interest and Dividend Income

For the year ended December 31, 2017, total interest and dividend income amounted to $105.0 million, an increase of $12.7 million, or 14%, comparedinflationary trends. In particular, additional information related to the prior year. The increase resulted primarily from an increasenet interest margin sensitivity analysis is contained in Item 7A of $255.9 million, or 11%, in the average balance of interest-earning assets, mainly loans,this Form 10-K below and to a lesser extent a 9 basis point increase in the average tax equivalent yield.

Interest income on loansother maturity and loans held for sale, which accounts for the majority of interest income, amounted to $96.6 million, an increase of $11.2 million, or 13%, over the comparable period, due primarily to loan growth, and to a lesser extent an increase in average loans and loans held for sale yields. The average balances of loan and loans held for sale increased $209.5 million, or 11%, for the year ended December 31, 2017 compared to the same period in 2016, and average yields increased 9 basis points, primarily due to higher interest rates in the period.

Income on investment securities amounted to $8.0 million, an increase of $1.4 million, or 21%, compared to the same period in 2016. This increase primarily resulted from an increase of $59.3 million, or 19%, in the average balance of investment securities.

Income on other interest-earning assets amounted to $428 thousand, an increase of $143 thousand, or 50%, compared to the same period in 2016. This increase was primarily due to an increase of 76 basis points in the average yield on other interest-earning assets due mainly to an increase in the fed funds rate from the prior period, partially offset by a decrease of $12.9 million, or 30%, in the average balance of other interest-earning assets.
Interest Expense

For the year ended December 31, 2017, total interest expense amounted to $7.5 million, an increase of $2.0 million, or 36%, compared to the prior period.  The increase in total interest expense was due to increases in both average rates and average balances. The increase in average rates resulted from higher cost of funds in the current year, primarily interest-bearing funding which increased 8 basis points over the same period in the prior year. At the same time, the average balance of interest-bearing funding increased $167.6 million, or 11% over the same period.

Interest expense on interest checking, savings and money market accounts amounted to $3.4 million, an increase of $877 thousand, or 34%, compared to the prior year due primarily to an increase in average rates of 5 basis points, and to a lesser extent an increase in average balances of $115.4 million, or 9%.

Interest expense on CDs amounted to $1.4 million, an increase of $286 thousand, or 25%, compared to the prior period due primarily to an increase of 16 basis points in average rates.

Interest expense on brokered CDs amounted to $1.1 million, an increase of $318 thousand, or 40%, over the comparable period, due to increases in both the average balances of $16.1 million, or 21%, and average rates of 16 basis points.

Interest expense on borrowed funds amounted to $590 thousand, an increase of $509 thousand due to increases in both average balances and average rates. Average balances increased $34.9 million, and average rates increased 64 basis points compared to prior period. Average rates increased due mainly to increases in the fed funds rate since the prior period.

The average balance of non-interest bearing demand deposits increased $64.3 million, or 10%, as compared to the same period in 2016. Non-interest bearing demand deposits are an important componentrepricing information of the Company's core funding strategy. This non-interest bearing funding source represented 30%interest rate-sensitive assets and liabilities is contained in this Item 7, "Management's Discussion and Analysis of total average deposit balances for the years ended December 31, 2017Financial Condition and 2016, respectively.


Provision for Loan Losses
The provision for loan losses amounted to $1.4 million and $3.0 million for the years ended December 31, 2017 and 2016, respectively, a decreaseResults of $1.6 million compared to 2016. The decrease in the provision in 2017 was due primarily to generally improved credit quality metrics and underlying collateral values, partially offset by increased loan growth compared to the prior year. In determining the provision to the allowance for loan losses, management takes into consideration the levelOperations" of loan growth and an estimate of credit risk, which includes such items as adversely classified and non-performing loans, the estimated specific reserves needed for impaired loans, the level of net charge-offs, and the estimated impact of current economic conditions on credit quality. The provision reflects management’s estimate of the loan loss allowance necessary to support the level of credit risk inherent in the portfolio during the period.

See "Credit Risk," "Asset Quality," and "Allowance for Loan Losses"this Form 10-K under the heading "Financial Condition,"Condition" in this Item 7 above, for further information regarding the provision for loan losses. report.


Non-Interest Income

Accounting Policies/Critical Accounting Estimates
Non-interest income for the year ended December 31, 2017 amounted to $15.7 million, an increase of $1.2 million, or 9%, compared to 2016. The significant changes are discussed below.


The following table sets forth the componentsCompany's significant accounting policies are described in Note 1, "Summary of non-interest income and the related changes for the periods indicated.

  Year Ended December 31,
(Dollars in thousands) 2017 2016 Change % Change
Investment advisory fees $5,149
 $4,774
 $375

8 %
Deposit and interchange fees 6,011
 5,124
 887

17 %
Income on bank-owned life insurance, net 701
 747
 (46)
(6)%
Net gains on sales of investment securities 716
 802
 (86)
(11)%
Net gains on sales of loans 460
 601
 (141)
(23)%
Other income 2,637
 2,393
 244

10 %
Total non-interest income $15,674
 $14,441
 $1,233
 9 %

Investment advisory fees increased due primarily to growth from new business and market appreciation.

Deposit and interchange fees increased due primarily to increases in business checking fees and to a lesser extent debit card interchange fees. Deposit and interchange fees include servicing fees received on customer deposit accounts and income derived from debit card and ATM interchanges.

Net gains on sales of loans decreased due to a lower volume of activity in the current year.



Non-Interest Expense

Non-interest expense for the year ended December 31, 2017 amounted to $76.1 million, an increase of $5.8 million, or 8%, comparedSignificant Accounting Policies," to the prior period in 2016. The significant changes are discussed below:

The following table sets forth the components of non-interest expense and the related changes for the periods indicated.
  Year Ended December 31,
(Dollars in thousands) 2017 2016 Change % Change
Salaries and employee benefits $48,379
 $43,886
 $4,493
 10 %
Occupancy and equipment expenses 7,960
 7,362
 598
 8 %
Technology and telecommunications expenses 6,372
 6,080
 292
 5 %
Advertising and public relations expenses 2,855
 2,833
 22
 1 %
Audit, legal and other professional fees 1,565
 1,721
 (156) (9)%
Deposit insurance premiums 1,535
 1,387
 148
 11 %
Supplies and postage expenses 999
 965
 34
 4 %
Other operating expenses 6,480
 6,094
 386
 6 %
Total non-interest expense $76,145
 $70,328
 $5,817
 8 %

Salaries and employee benefits increased primarily to support the Company's strategic growth and market expansion initiatives since the prior year.

Occupancy and equipment expenses increased mainly due to investments in our facilities, including new branches, the overall branch network, and operations buildings.

Technology and telecommunications expense increased primarily as a result of investments in our network infrastructure and security, improvements in our service capabilities and enhancements in business continuity.

Audit, legal and other professional fees decreased due primarily to reductions in audit and related fees compared to the same period in 2016.

Deposit insurance premiums increased due primarily to changes in the FDIC's assessment methodology in late 2016, which applied to all banks, and the Company's growth.

Income Tax Expense
The effective tax rate for the year ended December 31, 2017 was 45.6% and for the year ended December 31, 2016 was 32.8%. Impacting the 2017 tax rate was a tax expense of approximately $4.8 million to reduce the value of the Company's net deferred tax assets, as a result of the lower federal corporate tax rate under the new federal tax bill enacted in December 2017. Additionally, the implementation of a new accounting pronouncement in the first quarter of 2017 related to stock-based compensation reduced tax expense by approximately $922 thousand for the year endedDecember 31, 2017. Refer to Note 13, "Income Taxes" to the Company's consolidated financial statements contained in Item 8, for additional information about"Financial Statements and Supplementary Data," of this Form 10-K. In applying these accounting policies, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized. Certain of the critical accounting estimates are more dependent on such judgment and in some cases may contribute to volatility in the Company's tax positions.reported financial performance should the assumptions and estimates used be incorrect or change over time due to changes in circumstances. The most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for credit losses for loans, and available-for-sale securities, the reserve for unfunded commitments and the impairment review of goodwill.

60
ResultsACL for Loans
The CECL methodology requires early recognition of Operations

COMPARISON OF YEARS ENDED DECEMBER 31, 2016 AND 2015

Unless otherwise indicated,credit losses using a lifetime credit loss measurement approach that takes into consideration reasonable and supportable forecasts. The ACL for loans is established through a provision for credit losses, recorded as a direct charge to earnings. The ACL for loans is a valuation account that is deducted from the reported resultsamortized cost to present the net amount of the loan portfolio expected to be collected. Credit losses are charged against the ACL for loans when management believes that the year ended December 31, 2016 withcollectability of the “comparable year” or “prior year” beingamortized cost of the year ended December 31, 2015. Average yieldsloan's principal balance is unlikely. Recoveries on loans previously charged-off are presentedcredited to the ACL for loans, generally at the time cash is received on a tax equivalent basis.charged-off account.

Net IncomeArriving at an appropriate level of ACL for loans involves a high degree of management judgement. The underlying assumptions, estimates and assessments used to estimate the ACL for loans reflects the Company’s best estimate of model assumptions and forecasted conditions at that time. Changes in such estimates can significantly affect the ACL for loans and the provision for credit losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company's ACL for loans. It is possible and likely that the Company will experience credit losses that are different from the current estimates.


The Company earned net income in 2016uses a systematic methodology to measure the amount of $18.8 million compared to $16.1 millionestimated credit losses. The methodology applies general reserves for 2015, an increaselarger groups of 16%.  Diluted earnings per sharehomogeneous loans segmented by loan type and specific reserves for 2016 was $1.70 compared to $1.55 forloans individually evaluated.

In making its assessment on the prior year, which represented an increase of 10%. In 2016, earnings per share includes the dilutive effect from June 23rd to December 31stadequacy of the outstanding shares issuedgeneral reserves of ACL for loans, management considers several quantitative and qualitative factors from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts, including: the expected duration of the loans segments, the trends in risk classification of individual loans; individual review of larger and higher risk problem assets; the level of delinquent, non-performing, and individually evaluated loans; the level of hardship loan modifications; foreclosure activity; net charge-offs; commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; as well as trends in the Company’s 2016 equity offering.general levels of these indicators. In addition, management monitors expansion in the Company's geographic market area, the experience level of lenders and any changes in underwriting criteria, the strength of the local and national economy, including general conditions in the multi-family, commercial real estate and development and construction markets in the Company's local region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. Management also performs a qualitative assessment beyond model estimates and applies qualitative adjustments as management deems necessary, acknowledging that it can take time for economic results to work through the loan portfolio with charge-offs often occurring years after the economic downturn.

Net Interest IncomeFor loans individually evaluated, the Company generally requires an internal evaluation or independent appraisal of the collateral supporting the loan. However, these assessment methods are only an estimate of the value of the collateral at the time the assessment is made and involve estimates and assumptions. An error in fact, estimate or judgment could adversely affect the reliability of the valuation. Furthermore, changes in those estimates due to the economic environment and events occurring after the initial assessment, may cause the value of the collateral to differ significantly from the initial valuations.


Reserve for unfunded commitments

The reserve for unfunded commitments is included in the line item "Accrued expenses and other liabilities" on the Company’s net interest incomeConsolidated Balance Sheets. The estimate of credit loss incorporates assumptions for both the year ended December 31, 2016 was $86.8 million compared to $78.3 million for the year ended December 31, 2015, an increaselikelihood and amount of $8.5 million, or 11%.  The increase in net interest incomefunding over the comparable year was due primarily to revenue generated from loan growth.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.


Net Interest MarginACL for Available-for-Sale Securities


The Company's margin was 3.94% for the year ended December 31, 2016 compared to 3.97% for the prior year. Margin was 3.86% for the quarter ended December 31, 2016, which is consistent with the quarterly margin at September 30, 2016.

Interest and Dividend Income

Total interest and dividend income for the year ended December 31, 2016 was $92.3 million, an increase of $8.8 million, or 11%, from the prior year. The increase resulted primarily from growth of $253.0 million, or 12%, in the average balance of interest earning-assets for the year ended December 31, 2016, partially offset by a 5 basis point decline in the average tax equivalent yield on interest-earning assets.

Interest income on loans and loans held for sale, which accounted for the majority of interest income, increased $7.4 million, or 10%, compared to the prior period, due primarily to loan growth partially offset by a decline in loan yields. Average loan and loans held for sale balances increased $179.3 million, or 10%, compared to the prior year, and amounted to $1.92 billion for the year ended December 31, 2016, while the average yield on loans declined 2 basis points compared to the prior period and amounted to 4.5% for the year ended December 31, 2016.

Income on investment securities amounted to $6.6 million, an increase of $1.3 million, or 24%, compared to the same period in 2015. This increase resulted from an increase in the average balance of investment securities by $61.6 million, or 24%, and to a lesser extent increased investment yields of 3 basis points.

Income on other interest-earning assets amounted to $285 thousand, an increase of $106 thousand, or 59%, compared to the same period in 2015. This increase resulted from a $12.1 million, or 39%, increase in the average balances and to a lesser extent an 8 basis point increase in the average yield.

Interest Expense

Total interest expense amounted to $5.5 million, an increase of $346 thousand, or 7%, compared to the prior year.  The increase was due primarily to increases in the average balances of interest checking, savings and money market accounts, partially offset by lower interest expenseThere are inherent risks associated with the Company's subordinated debt.

Interest expense on interest checking, savings and money market accounts increased $441 thousand, or 21%, primarily due to increases ininvestment activities that could adversely impact the average balances by $175.5 million or 16%, over the prior year.

Interest expense on CDs amounted to $1.1 million, an increase of $129 thousand, or 13%, over the comparable period. The increase was due primarily to an increase in the average rate of 9 basis points.

Interest expense on brokered CDs amounted to $796 thousand, a decrease of $124 thousand, or 13%, over the comparable period, primarily due to a decrease in the average balance, partially offset by an increase in the average rate. The average balance decreased $37.5 million, or 33%, while the average rate increased 25 basis points. Changes in both the average balances and average rates are due to the maturities of lower yielding shorter-term brokered CDs.

Interest expense on borrowed funds amounted to $81 thousand, an increase of $43 thousand due to increases in both the average balancesfair value and the average rate.ultimate collectability of the Company's investments. The average balance increased $3.9 million,Company primarily invests in debt securities. At December 31, 2023, the Company also held immaterial amounts of equity securities and FHLB stock.

The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or 36%,loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference
61
between the security’s amortized cost basis and the average rate increased 19 basis points.

Interest expense on subordinated debt amounted to $928 thousand, a decrease of $143 thousand, or 13%, over the same period in 2015. The average rate declined to 6.26% from 6.85% in the comparable periodits fair value as a resultwrite-down of the lower rate oninvestment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include among other considerations (1) the Notes issued in January 2015. The average balances decreased $803 thousand due to the timingpresent value of the issuance of the Notes versus the redemption in full in March 2015 of the $10.8 million of outstanding Debt.

The average balance of non-interest bearing demand deposits increased $97.4 million, or 18%,cash flows expected to $633.0 million at December 31, 2016. The average balance of these accounts represented 30% and 28% of total average deposits for the years ended December 31, 2016 and 2015, respectively. Non-interest bearing demand deposits are an important component of the Bank’s core funding strategy.

Provision for Loan Losses
The provision for loan losses was $3.0 million and $3.3 million for the years ended December 31, 2016 and 2015, respectively. The decrease in the provision in 2016 was due primarily to a lower level of loan growth with generally improving credit quality metricsbe collected compared to the prior year. In determiningamortized cost of the provisionsecurity, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, and (4) structure of the security. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for loancredit losses management takes into considerationfor available-for-sale securities would be recorded, with a related charge to earnings, limited by the level of loan growth and an estimate of credit risk, which includes such items as adversely classified and non-performing loans, the estimated specific reserves needed for impaired loans, the level of net charge-offs, and the estimated impact of current economic conditions on credit quality. The provision reflects management’s estimateamount of the loan loss allowance necessary to support the level of credit risk inherent in the portfolio during the period.

See “Credit Risk," "Asset Quality,” and “Allowance for Loan Losses” under the heading, “Financial Condition,” in this Item 7 above, for further information regarding the provision for loan losses. 

Non-Interest Income

Non-interest income for the year ended December 31, 2016 decreased $526 thousand, or 4%, compared to 2015. The significant changes are discussed below.

The following table sets forth the components of non-interest income and the related changes for the periods indicated.

  Year Ended December 31,
(Dollars in thousands) 2016 2015 Change % Change
Investment advisory fees $4,774
 $4,750
 $24
 1 %
Deposit and interchange fees 5,124
 4,879
 245
 5 %
Income on bank-owned life insurance, net 747
 553
 194
 35 %
Net gains on sales of investment securities 802
 1,828
 (1,026) (56)%
Net gains on sales of loans 601
 492
 109
 22 %
Other income 2,393
 2,465
 (72) (3)%
Total non-interest income $14,441
 $14,967
 $(526) (4)%

Deposit and interchange fees increased due primarily to increased interchange fee income. Deposit and interchange fees include servicing fees received on customer deposit accounts and debit card and ATM interchange income.

Income on bank-owned life insurance increased due primarily to the purchase of additional BOLI investments mid-year 2015.

Net gains on sales of investment securities are typically driven by market or strategic opportunities.

Net gains on sales of loans increased due to a higher volume of activity in the current year.

The decrease in the other income category compared to the prior year was due primarily to the activity in the prior year of gains on the sales of OREO and gains on life insurance, partially offset by the net loss on a Company's subsidiary related to the redemptionfair value of the Trust Preferred Securities in 2015.

Non-Interest Expense

Non-interest expense for the year ended December 31, 2016 increased $4.6 million, or 7%, compared to 2015. The significant changes are discussed below.

The following table sets forth the components of non-interest expense and the related changes for the periods indicated.security less its amortized cost.
 
  Year Ended December 31,
(Dollars in thousands) 2016 2015 Change % Change
Salaries and employee benefits $43,886
 $40,285
 $3,601
 9 %
Occupancy and equipment expenses 7,362
 7,308
 54
 1 %
Technology and telecommunications expenses 6,080
 5,710
 370
 6 %
Advertising and public relations expenses 2,833
 2,719
 114
 4 %
Audit, legal and other professional fees 1,721
 1,657
 64
 4 %
Deposit insurance premiums 1,387
 1,214
 173
 14 %
Supplies and postage expenses 965
 988
 (23) (2)%
Other operating expenses 6,094
 5,851
 243
 4 %
Total non-interest expense $70,328
 $65,732
 $4,596
 7 %

Salaries and employee benefits increased to support the Company's strategic growth and market expansion initiatives since the prior year.Impairment Review of Goodwill
 
TechnologyIn accordance with GAAP, the Company does not amortize goodwill and telecommunications expense increased primarily asinstead, at least annually, evaluates whether the carrying value of goodwill has become impaired. A determination that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a result of investments to support our strategic growth, network infrastructure and security, improve our service capabilities and enhance business continuity.

Advertising and public relations expenses increased due primarily to the timing of corporate community events, partially offset by lower costs in general advertising expenses in 2016.

Deposit insurance premiums increased due primarily to a change in the FDIC assessment methodology in 2016, which applied to all banks, and the Company's growth.

Other non-interest expenses increased to support the Company's growth initiatives, primarily in deposit product service costs and outsourced expenses. In addition, 2016 included increased costs for check/card losses, partially offset by lower OREO and loan work-out expenses. The prior year was also impacted by prepayment fees associated with the redemption of the Trust Preferred Securities.

Income Tax Expense

The effective tax rate for the year ended December 31, 2016 was 32.8% and for the year ended December 31, 2015 was 33.4%. Refer to Note 13, "Income Taxes"resulting charge to the Company's consolidated financial statements, contained in Item 8, for additional information aboutConsolidated Statement of Income. Goodwill is evaluated at the reporting unit level. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company's taxes.only reportable operating segment.

The Company has the option to perform either (i) a qualitative assessment of whether it is "more likely than not" that the reporting unit's fair value is less than its book value, or (ii) a quantitative assessment.

1.Management's qualitative assessment would take into consideration, among other items, macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and share price. Based on the qualitative assessment, if the Company were to conclude: (a) it is "more likely than not" that the fair value of a reporting unit exceeds its book value, goodwill is deemed not impaired, or (b) it is "more likely than not" that the fair value of a reporting unit is less than its book value, a quantitative goodwill analysis must be performed.
2.The Company may elect to forgo the qualitative assessment and perform the quantitative analysis even if management does not believe that is "more likely than not" that goodwill is impaired. The quantitative goodwill analysis compares the fair value of the reporting unit with its book value, including goodwill. If the fair value of the reporting unit equals or exceeds its book value, goodwill is deemed not impaired. If the book value of the reporting unit exceeds its fair value, a goodwill impairment loss is recognized for the difference between these amounts, not exceeding the goodwill carrying amount.



At December 31, 2023, based on the Company's qualitative analysis, goodwill was deemed not to be impaired.

Recent Accounting Pronouncements


See Note 1, "Summary of Significant Accounting Policies"Policies," Item (t)(w) "Recent Accounting Pronouncements," to the Company's consolidated financial statements, contained in Item 8 under the heading "Recent Accounting Pronouncements"of this Form 10-K below, for information regarding recent accounting pronouncements.


Impact of InflationItem 7A.Quantitative and Changing PricesQualitative Disclosures About Market Risk
The Company’s asset and liability structure is substantially different from that of an industrial company in that virtually all assets and liabilities of the Company are monetary in nature.  Management believes the impact of inflation on financial results depends upon the Company’s ability to react to changes in interest rates and by such reaction, reduce the inflationary impact on performance.  Interest rates do not necessarily move in the same direction, or at the same magnitude, as the prices of other goods and services.  As discussed previously, management seeks to manage the relationship between interest-sensitive assets and liabilities in order to protect against wide net interest income fluctuations, including those resulting from inflation.
Various information shown elsewhere in this annual report will assist in the understanding of how well the Company is positioned to react to changing interest rates and inflationary trends.  In particular, additional information related to the margin sensitivity analysis is contained in Item 7A below and other maturity and repricing information of the Company’s interest-sensitive assets and liabilities is contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" under the heading "Financial Condition" in this report.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk

Interest Margin Sensitivity Analysis
 
The Company's primary market risk is interest rateinterest-rate risk. Oversight of interest rateinterest-rate risk management is the responsibility of the Board. Annually, the Board reviews and approves the Company's asset-liability management policy, which provides management with guidelines for controlling interest rateinterest-rate risk, as measured through net interest income sensitivity to changes in interest rates, within certain tolerance levels. The Board also establishes and monitors guidelines for the Company's liquidity, capital ratios and asset-liability management.

The Company's asset-liability management strategies and guidelines are reported to the Board on a periodic basis. These strategies and guidelines are revised based on changes in interest rateinterest-rate levels, general economic conditions, competition in the marketplace, the current interest rateinterest-rate risk position of the Company, anticipated growth and other factors.

One of the principal factors in maintaining planned levels of net interest income is the ability to design effective strategies to manage the impact of interest rate changes on future net interest income. Quarterly, management completes a net interest income sensitivity analysis and reports the results to the Board. This analysis includes a simulation of the Company's net interest income under various interest rate scenarios.interest-rate scenarios and assumes no future growth (i.e., static balance sheet). Variations in the interest rateinterest-rate environment affect numerous factors, including prepayment speeds, reinvestment rates, maturities of investments (due to call provisions), ability to attract deposits and other funding, and interest rates on various asset and liability accounts.

62
UnderResults of this analysis are also impacted by changes in liquidity, such as fluctuations in the Company's current balance sheet position,balances of short-term investments and overnight borrowings.

The Company can be subject to net interest margin compression depending on the economic environment, the shape of the yield curve and a mismatch in timing for yield changes on interest-earning assets and interest-bearing liabilities. Generally, the Company's margin generally performs slightly better over time in a rising rate environment, while it generally decreases in a declining rate environment and when the yield curve is flattening or inverted. The Company can be subject to margin compression depending on the economic environment and the shape of the yield curve. 

In a flattening yield curve scenario, net interest margin compression occurs as the spread between the cost of funding and the yield on interest earninginterest-earning assets narrows. Under this scenario, the degree of net interest margin compression is highly dependent on the Company's ability to fund asset growth through lower cost deposits. However, if the curve is flattening, while short-term rates are rising, the adverse impact on margin may be somewhat delayed, as increases in the Prime Rate willprime lending rate may initially result in the Company's asset yields re-pricing more quickly than funding costs.

In an inverted yield curve situation, shorter-term rates exceed longer-term rates, and the impact on margin is similar but more adverse than the flat curve scenario. Again, however,However, the extent of the impact on margin is highly dependent on the Company's balance sheet mix.

In a declining rate environment, net interest margin compression will eventually occur aswhen the yield on interest earninginterest-earning assets decreases more rapidly than decreases in funding costs. The primary causes would be the impact of interest rate decreases (including

decreases in the Prime Rate)prime lending rate) on adjustable rateadjustable-rate loans and the fact that decreases in deposit rates may be limited or lag decreases in the Prime Rate. prime lending rate.


At December 31, 2017, management continues to consider the Company's primary interest rate risk exposure to be margin compression that may result from changes in interest rates and/or changes in the mix of the Company's balance sheet components.  This would include the mix of fixed versus variable rate loans and investments on the asset side, and higher cost versus lower cost deposits and overnight borrowings versus term borrowings and certificates of deposit on the liability side. Refer to the heading “Results"Results of Operations”Operations" contained within Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations," of this Form 10-K for further discussion of margin.


The following table below summarizes the projected cumulativeresults from the Company’s net interest income for a 24-month period as of December 31, 2017simulation model and compares the percent changes comparedchange in net interest income to the rates unchanged scenario, assuming parallel yield curve shiftsa static balance sheet for a 24-month period at December 31, 2023, 2022 and gradual interest rate changes applied during2021.

As shown in the period. Nettable, the Company's net interest income isat December 31, 2023 within the rising rate scenarios was projected to decrease in the first 24 months compared to an increase slightly over a 24 month period if rates rise 200 basis points,at December 31, 2022 and increase further if rates rise 400 basis points. This is2021, primarily due to a shift in deposit composition from non-interest-bearing account balances into interest-bearing account balances that have a higher level of interest rate sensitivity as well as a decrease in the impactCompany’s net short-term liquidity, which is defined as interest-earning deposits in banks less short-term wholesale borrowings.

Additionally, in the 200 basis point declining rate scenario noted, the percent decrease in net interest income was lower compared to the results at December 31, 2022. At December 31, 2023, deposit yields increased above the lower levels experienced at December 31, 2022 when deposit yields were closer to zero. The increase in deposit yields since December 31, 2022 results in an increased level of recentdeposit rate increases on adjustabledeclines in the 200 basis point declining rate loans.scenario, which improved net interest income sensitivity results, compared to the prior year period.

(Dollars in thousands, except for percentage data)December 31,
2023		December 31,
2022		December 31,
2021
Net short-term liquidity$(6,619)$227,472$397,525
Changes in interest ratesPercentage ChangePercentage ChangePercentage Change
Rates Rise 400 Basis Points(3.11)%1.20 %9.73 %
Rates Rise 200 Basis Points(1.60)%0.45 %5.37 %
Rates Unchanged— %— %— %
Rates Decline 200 Basis Points(0.54)%(5.34)%(9.54)%
63
  December 31, 2017
(Dollars in thousands) Net interest income Percentage Change
Changes in interest rates  
  
Rates Rise 400 Basis Points $218,453
 1.42%
Rates Rise 200 Basis Points 216,575
 0.55%
Rates Unchanged 215,396
 —

Item 8.Financial Statements and Supplementary Data
Item 8.Financial Statements and Supplementary Data
 
Index to Consolidated Financial Statements
 
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Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
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64
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
As of December 31, 
(Dollars in thousands) December 31,
2017		 December 31,
2016
(Dollars in thousands, except per share data)(Dollars in thousands, except per share data)20232022
Assets  
  
Assets 
Cash and cash equivalents:  
  
Cash and cash equivalents: 
Cash and due from banks $40,310
 $33,047
Interest-earning deposits 14,496
 17,428
Interest-earning deposits with banks
Total cash and cash equivalents 54,806
 50,475
Investment securities at fair value 405,206
 374,790
Total cash and cash equivalents
Total cash and cash equivalents
Investments:
Debt securities at fair value (amortized cost of $763,981 and $940,227, respectively)
Debt securities at fair value (amortized cost of $763,981 and $940,227, respectively)
Debt securities at fair value (amortized cost of $763,981 and $940,227, respectively)
Equity securities at fair value
Total investment securities at fair value
Federal Home Loan Bank stock 5,215
 2,094
Loans held for sale 208
 1,569
Loans, less allowance for loan losses of $32,915 at December 31, 2017 and $31,342 at December 31, 2016 2,236,989
 1,991,387
Loans:
Total loans
Total loans
Total loans
Allowance for credit losses
Net loans
Premises and equipment, net 37,022
 33,540
Lease right-of-use asset
Accrued interest receivable 10,614
 8,792
Deferred income taxes, net 10,751
 17,020
Bank-owned life insurance 29,466
 28,765
Prepaid income taxes 1,301
 1,344
Prepaid expenses and other assets 20,330
 10,837
Goodwill 5,656
 5,656
Total assets $2,817,564
 $2,526,269
Liabilities and Stockholders’ Equity  
  
Liabilities and Shareholders' EquityLiabilities and Shareholders' Equity 
Liabilities  
  
Liabilities 
Deposits $2,441,362
 $2,268,921
Deposits
Deposits
Borrowed funds
Borrowed funds
Borrowed funds 89,000
 10,671
Subordinated debt 14,847
 14,834
Lease liability
Accrued expenses and other liabilities 40,067
 16,794
Accrued interest payable 478
 263
Total liabilities 2,585,754
 2,311,483
Commitments and Contingencies 

 

Commitments and Contingencies
Stockholders’ 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; 11,609,853 shares issued and outstanding at December 31, 2017 and 11,475,742 shares issued and outstanding at December 31, 2016 116
 115
Shareholders' EquityShareholders' 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; 12,272,674 and 12,133,516 shares issued and outstanding, respectively
Additional paid-in capital 88,205
 85,421
Retained earnings 143,073
 130,008
Accumulated other comprehensive income (loss) 416
 (758)
Total stockholders’ equity 231,810
 214,786
Total liabilities and stockholders’ equity $2,817,564
 $2,526,269
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity





See accompanying notes to consolidated financial statements.


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ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Years Ended December 31, 
(Dollars in thousands, except per share data)202320222021
Interest and dividend income:   
Loans and loans held for sale$172,535 $135,934 $133,208 
Investment securities18,575 18,965 15,143 
Other interest-earning assets9,943 6,014 682 
Total interest and dividend income201,053 160,913 149,033 
Interest expense:   
Deposits44,389 5,711 3,922 
Borrowed funds113 52 60 
Subordinated debt3,467 3,352 3,495 
Total interest expense47,969 9,115 7,477 
Net interest income153,084 151,798 141,556 
Provision for credit losses9,249 5,800 1,770 
Net interest income after provision for credit losses143,835 145,998 139,786 
Non-interest income:   
Wealth management fees6,730 6,533 6,787 
Deposit and interchange fees8,475 8,196 6,971 
Income on bank-owned life insurance, net1,264 1,202 821 
Net (losses) gains on sales of debt securities(2,419)(1,973)128 
Net gains on sales of loans34 30 833 
Net gain on sale of OREO— — 1,126 
Net gain on sale of insurance commissions— 2,034 — 
Loss on termination of swaps— — (1,847)
Gain (loss) on equity securities666 (514)246 
Other income2,859 2,954 3,042 
Total non-interest income17,609 18,462 18,107 
Non-interest expense:   
Salaries and employee benefits72,283 72,120 66,633 
Occupancy and equipment expenses9,722 9,299 9,650 
Technology and telecommunications expenses10,656 10,735 10,574 
Advertising and public relations expenses2,786 2,758 2,373 
Audit, legal and other professional fees2,945 2,949 2,347 
Deposit insurance premiums2,712 1,783 1,910 
Supplies and postage expenses998 912 819 
Loss on extinguishment of subordinated debt— — 713 
Other operating expenses8,097 7,758 7,116 
Total non-interest expense110,199 108,314 102,135 
Income before income taxes51,245 56,146 55,758 
Provision for income taxes13,187 13,430 13,587 
Net income$38,058 $42,716 $42,171 
Basic earnings per share$3.11 $3.53 $3.51 
Diluted earnings per share$3.11 $3.52 $3.50 
Basic weighted average common shares outstanding12,223,626 12,103,033 12,005,838 
Diluted weighted average common shares outstanding12,244,036 12,149,777 12,051,293 
(Dollars in thousands, except per share data) 2017 2016 2015
Interest and dividend income:  
  
  
Loans and loans held for sale $96,559
 $85,390
 $77,946
Investment securities 8,045
 6,640
 5,346
Other interest-earning assets 428
 285
 179
Total interest and dividend income 105,032
 92,315
 83,471
Interest expense:  
  
  
Deposits 5,995
 4,514
 4,068
Borrowed funds 590
 81
 38
Subordinated debt 925
 928
 1,071
Total interest expense 7,510
 5,523
 5,177
Net interest income 97,522
 86,792
 78,294
Provision for loan losses 1,430
 2,993
 3,267
Net interest income after provision for loan losses 96,092
 83,799
 75,027
Non-interest income:  
  
  
Investment advisory fees 5,149
 4,774
 4,750
Deposit and interchange fees 6,011
 5,124
 4,879
Income on bank-owned life insurance, net 701
 747
 553
Net gains on sales of investment securities 716
 802
 1,828
Net gains on sales of loans 460
 601
 492
Other income 2,637
 2,393
 2,465
Total non-interest income 15,674
 14,441
 14,967
Non-interest expense:  
  
  
Salaries and employee benefits 48,379
 43,886
 40,285
Occupancy and equipment expenses 7,960
 7,362
 7,308
Technology and telecommunications expenses 6,372
 6,080
 5,710
Advertising and public relations expenses 2,855
 2,833
 2,719
Audit, legal and other professional fees 1,565
 1,721
 1,657
Deposit insurance premiums 1,535
 1,387
 1,214
Supplies and postage expenses 999
 965
 988
Other operating expenses 6,480
 6,094
 5,851
Total non-interest expense 76,145
 70,328
 65,732
Income before income taxes 35,621
 27,912
 24,262
Provision for income taxes 16,228
 9,161
 8,114
Net income $19,393
 $18,751
 $16,148
       
Basic earnings per share $1.68
 $1.71
 $1.56
Diluted earnings per share $1.66
 $1.70
 $1.55
       
Basic weighted average common shares outstanding 11,568,430
 10,966,333
 10,323,016
Diluted weighted average common shares outstanding 11,651,763
 11,039,511
 10,389,934








See accompanying notes to consolidated financial statements.


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ENTERPRISE BANCORP, INC.
Consolidated Statements of Comprehensive Income
Years Ended December 31,



(Dollars in thousands)202320222021
Net income$38,058 $42,716 $42,171 
Other comprehensive income (loss), net of taxes:
Net change in fair value of debt securities16,444 (100,869)(19,554)
Net change in fair value of cash flow hedges— — 2,023 
Total other comprehensive income (loss), net16,444 (100,869)(17,531)
Total comprehensive income (loss), net$54,502 $(58,153)$24,640 



   
(Dollars in thousands) 2017 2016 2015
Net income $19,393
 $18,751
 $16,148
Other comprehensive income (loss), net of taxes:      
Gross unrealized holding gains (losses) on investments arising during the period 2,424
 (3,876) (518)
Income tax (expense) benefit (855) 1,357
 216
Net unrealized holding gains (losses), net of tax 1,569
 (2,519) (302)
Less: Reclassification adjustment for net gains included in net income      
Net realized gains on sales of securities during the period 716
 802
 1,828
Income tax expense (247) (289) (637)
Reclassification adjustment for gains realized, net of tax 469
 513
 1,191
       
Total other comprehensive income (loss), net 1,100

(3,032) (1,493)
Comprehensive income $20,493
 $15,719
 $14,655

























































See accompanying notes to consolidated financial statements.


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ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Stockholders’Shareholders' Equity
Years Ended December 31, 2017, 20162023, 2022 and 2015
2021
  Common Stock 
Additional
Paid-in
Capital
 Retained Earnings 
Accumulated Other
Comprehensive
Income/(Loss)
 
Total
Stockholders’ Equity
(Dollars in thousands, except share data) Shares Amount    
Balance at December 31, 2014 10,207,943
 $102
 $57,130
 $105,951
 $3,767
 $166,950
Net income 

 

 

 16,148
 

 16,148
Other comprehensive (loss), net 

 

 

 

 (1,493) (1,493)
Tax benefit from stock compensation 

 

 217
 

 

 217
Common stock dividend paid ($0.50 per share) 

 

 

 (5,158) 

 (5,158)
  Common stock issued under dividend reinvestment plan 58,529
 1
 1,276
 

 

 1,277
Common stock issued, other 7,674
 —
 171
     171
Stock-based compensation 65,015
 1
 1,783
 

 

 1,784
Stock options exercised, net 38,626
 —
 431
 

 

 431
Balance at December 31, 2015 10,377,787
 $104
 $61,008
 $116,941
 $2,274
 $180,327
Net income 

 

 

 18,751
 

 18,751
Other comprehensive (loss), net 

 

 

 

 (3,032) (3,032)
Tax benefit from stock compensation 

 

 789
 

 
 789
Common stock dividend paid ($0.52 per share) 

 

 

 (5,684) 

 (5,684)
Common stock issued under dividend reinvestment plan 53,516
 1
 1,380
 

 

 1,381
Common stock issued, under share offering, net and other 932,522
 9
 19,793
     19,802
Stock-based compensation 71,662
 1
 2,347
 

 

 2,348
Net settlement for employee taxes on restricted stock and options (12,744) —
 (442)     (442)
Stock options exercised, net 52,999
 —
 546
 

 

 546
Balance at December 31, 2016 11,475,742
 $115
 $85,421
 $130,008
 $(758) $214,786
Net income 

 

 

 19,393
 

 19,393
Cumulative effect adjustment for adoption of new accounting pronouncements 

 

 13
 (87) 74
 —
Other comprehensive income, net 

 

 

 

 1,100
 1,100
Common stock dividend paid ($0.54 per share) 

 

 

 (6,241) 

 (6,241)
Common stock issued under dividend reinvestment plan 44,752
 —
 1,494
 

 

 1,494
Common stock issued, other 2,798
 —
 96
     96
Stock-based compensation 58,037
 1
 1,757
 

 

 1,758
Net settlement for employee taxes on restricted stock and options (15,185) —
 (931)     (931)
Stock options exercised, net 43,709
 —
 355
 

 

 355
Balance at December 31, 2017 11,609,853
 $116
 $88,205
 $143,073
 $416
 $231,810
 Common StockAdditional
Paid-in
Capital		Retained EarningsAccumulated Other
Comprehensive
Income/(Loss)		Total
Shareholders’ Equity
(Dollars in thousands, except per share data)SharesAmount
Balance at December 31, 202011,937,795 $119 $97,137 $214,977 $22,193 $334,426 
Net income42,171 42,171 
Cumulative effect adjustment for CECL adoption(6,510)(6,510)
Other comprehensive loss, net(17,531)(17,531)
Common stock dividend declared ($0.74 per share)(8,877)(8,877)
Common stock issued under dividend reinvestment plan36,651 — 1,250 1,250 
Common stock issued, other1,766 — 59 59 
Stock-based compensation, net63,329 1 2,093 2,094 
Net settlement for employee taxes on restricted stock and options(10,029)— (346)(346)
Stock option exercised, net8,870 — 159 159 
Balance at December 31, 202112,038,382 $120 $100,352 $241,761 $4,662 $346,895 
Net income42,716 42,716 
Other comprehensive loss, net(100,869)(100,869)
Common stock dividend declared ($0.82 per share)(9,917)(9,917)
Common stock issued under dividend reinvestment plan40,640 — 1,396 1,396 
Common stock issued, other1,378 — 47 47 
Stock-based compensation, net59,338 1 2,313 2,314 
Net settlement for employee taxes on restricted stock and options(11,713)— (433)(433)
Stock options exercised, net5,491 — 118 118 
Balance at December 31, 202212,133,516 $121 $103,793 $274,560 $(96,207)$282,267 
Net income38,058 38,058 
Other comprehensive income, net16,444 16,444 
Common stock dividend declared ($0.92 per share)(11,238)(11,238)
Common stock issued under dividend reinvestment plan50,443 1 1,503 1,504 
Common stock issued, other1,474 — 44 44 
Stock-based compensation, net79,074 1 2,304 2,305 
Net settlement for employee taxes on restricted stock and options(9,229)— (447)(447)
Stock options exercised, net17,396 — 180 180 
Balance at December 31, 202312,272,674 $123 $107,377 $301,380 $(79,763)$329,117 

See accompanying notes to consolidated financial statements.


7868

ENTERPRISE BANCORP, INCINC.
Consolidated Statements of Cash Flows
Years Ended December 31,
(Dollars in thousands)202320222021
Cash flows from operating activities:   
Net income$38,058 $42,716 $42,171 
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses9,249 5,800 1,770 
Depreciation and amortization6,188 7,036 7,809 
Stock-based compensation expense2,269 2,316 2,060 
Income on bank-owned life insurance, net(1,264)(1,202)(821)
Net losses (gains) on sales of debt securities2,419 1,973 (128)
Net (gains) losses on equity securities(666)514 (246)
Mortgage loans originated for sale(2,247)(1,263)(29,123)
Proceeds from mortgage loans sold2,081 1,293 30,327 
Net gains on sales of loans(34)(30)(833)
Net gains on sales of OREO— — (1,126)
Loss on termination of swaps— — 1,847 
Changes in:
Net (increase) decrease in other assets(12,818)(11,322)9,324 
Net increase (decrease) in other liabilities13,922 169 (798)
Net cash provided by operating activities57,157 48,000 62,233 
Cash flows from investing activities:   
Proceeds from sales of debt securities84,779 69,620 3,059 
Purchase of debt securities— (145,868)(491,213)
Proceeds from maturities, calls and pay-downs of debt securities88,176 82,834 87,347 
Net purchases of equity securities(2,123)(2,998)(793)
Net purchases of FHLB capital stock(59)(179)(259)
Net (increase) decrease in loans(387,218)(260,073)146,812 
Additions to premises and equipment, net(6,019)(4,838)(4,187)
Proceeds from OREO sales— — 3,526 
Purchase of bank-owned life insurance— — (30,770)
Net cash used in investing activities(222,464)(261,502)(286,478)
Cash flows from financing activities:   
Net (decrease) increase in deposits(58,285)55,567 428,976 
Advancements from long-term borrowings22,957 302 5,085 
Repayments of long-term borrowings(405)(2,565)(4,380)
Repayment of subordinated debt— — (15,600)
Loss on extinguishment of subordinated debt— — 713 
Cash dividends paid, net of dividend reinvestment plan(9,734)(8,521)(7,627)
Proceeds from issuance of common stock44 47 59 
Net settlement for employee taxes on restricted stock and options(447)(433)(346)
Net proceeds from stock option exercises180 118 159 
Net cash (used in) provided by financing activities(45,690)44,515 407,039 
Net (decrease) increase in cash and cash equivalents(210,997)(168,987)182,794 
Cash and cash equivalents at beginning of year267,589 436,576 253,782 
Cash and cash equivalents at end of year$56,592 $267,589 $436,576 
(Dollars in thousands) 2017 2016 2015
Cash flows from operating activities:  
  
  
Net income $19,393
 $18,751
 $16,148
Adjustments to reconcile net income to net cash provided by operating activities:      
Provision for loan losses 1,430
 2,993
 3,267
Depreciation and amortization 7,028
 6,081
 5,603
Stock-based compensation expense 1,753
 2,380
 1,803
Income on bank-owned life insurance, net (701) (747) (553)
Net gains on life insurance —
 —
 (163)
Net gains on sales of investments (716) (802) (1,828)
Mortgage loans originated for sale (19,820) (28,873) (23,673)
Proceeds from mortgage loans sold 21,641
 29,614
 24,827
Net gains on sales of loans (460) (601) (492)
Net gains on sales of OREO —
 —
 (154)
Changes in:      
Decrease (increase) in other assets 6,026
 (2,174) 64
Increase in other liabilities 2,357
 701
 874
Net cash provided by operating activities 37,931
 27,323
 25,723
Cash flows from investing activities:  
  
  
Proceeds from sales of investment securities 133,736
 4,800
 25,115
Net (purchases) proceeds from FHLB capital stock (3,121) 956
 307
Proceeds from maturities, calls and pay-downs of investment securities 32,643
 30,930
 26,731
Purchase of investment securities (187,158) (118,255) (108,962)
Net increase in loans (247,032) (163,426) (188,738)
Additions to premises and equipment, net (8,211) (7,918) (3,938)
Proceeds from OREO sales and payments —
 —
 1,015
Proceeds from bank-owned life insurance —
 405
 —
Purchase of bank-owned life insurance —
 —
 (11,390)
Net cash used in investing activities (279,143) (252,508) (259,860)
Cash flows from financing activities:  
  
  
Net increase in deposits 172,441
 250,773
 249,602
Net increase (decrease) in borrowed funds 78,329
 (43,000) (5,229)
Repayment of subordinated debt —
 —
 (10,825)
Proceeds from the issuance of subordinated debt —
 —
 15,000
Cash dividends paid (6,241) (5,684) (5,158)
Proceeds from issuance of common stock, net of expenses 1,590
 21,183
 1,448
Net settlement for employee taxes on restricted stock and options (931) (442) —
Proceeds from stock option exercises 355
 546
 431
Tax benefit from stock-based compensation —
 789
 217
Net cash provided by financing activities 245,543
 224,165
 245,486
       
Net increase (decrease) in cash and cash equivalents 4,331
 (1,020) 11,349
Cash and cash equivalents at beginning of year 50,475
 51,495
 40,146
Cash and cash equivalents at end of year $54,806
 $50,475
 $51,495
       
Supplemental financial data:  
  
  
Cash Paid For: Interest $7,295
 $5,536
 $5,467
Cash Paid For: Income taxes $10,459
 $10,868
 $7,594
Supplemental schedule of non-cash activity:  
  
  
Net purchases (sales) of investment securities not yet settled $9,154
 $(301) $2,296
Bank owned life insurance proceeds not yet received —
 —
 403
Capital expenditures incurred not yet paid —
 —
 525




See accompanying notes to consolidated financial statements.


7969

ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements




(1)Summary of Significant Accounting Policies
(1)Summary of Significant Accounting Policies
 
(a) Organization of Holdingthe Company and Basis of Presentation
 
The accompanying consolidated financial statements of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our"), a Massachusetts corporation, 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’sCompany's operations are conducted through the Bank and its subsidiaries.
 
The Bank’sBank's subsidiaries include Enterprise Insurance Services, LLC and Enterprise Wealth Services, LLC, organized under the laws of the State of Delaware, for the purposes of engaging in insurance sales activities and offeringto offer non-deposit investment products and services, respectively.services. 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 securities investment activities that the Bank itself would be allowed to conduct under applicable laws.


In February 2023, the Bank organized the EBTC NMTC Investment Fund - CHC, LLC (the "NMTC Investment Fund") under the laws of the State of Delaware for the purpose of investing in a local NMTC project which provides federal tax incentives for investments in distressed communities. The NMTC are discussed in Note 15, " Income Taxes"

The Company's headquarters and the Bank's main office are located at 222 Merrimack Street in Lowell, Massachusetts. At December 31, 2017,2023, the Company had 24 full service branches27 full-service branch banking offices serving the Greater Merrimack ValleyNorthern Middlesex, Northern Essex and North Central regionsNorthern Worcester counties of Massachusetts and Southern New Hampshire (Southern Hillsborough and Southern Rockingham counties). counties in New Hampshire.

Through the Bank and its subsidiaries, the Company offers a range of commercial, residential and consumer loan products, deposit products and cash management services, as well as investment advisoryelectronic and digital banking options. The Company also provides a range of wealth management trust and insurance services. The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company’sCompany's only reportable operating segment.


The Federal Deposit Insurance Corporation (the "FDIC")FDIC and the Massachusetts Division of Banks (the "Division") have regulatory authority over the Bank. The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department. The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board. The Division also retains supervisory jurisdiction over the Company.
 
The accompanying audited consolidated financial statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP")GAAP and the instructions for SEC Form 10-K through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying audited consolidated financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation. All significant intercompany balances and transactions have been eliminated in the accompanying audited consolidated financial statements. Certain previous years' amounts in the audited consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation.


The Company has evaluated subsequent events and transactions from December 31, 20172023, through the filing date of this Annual Report on Form 10-K was filed with the SEC for potential recognition or disclosure as required by GAAP and determined that there were no material subsequent events requiring recognition or disclosure.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



(b) Uses of estimatesEstimates


In preparing the consolidated 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 datedates and income and expenses for the years 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 changechanges in the economic environment and other factors will be reflected in the consolidated
70
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
financial statements and results of operations in future periods. The three most significant areas in which management applies critical assumptions and estimates are the estimateestimates of the allowance for loancredit losses impairment review of investmentfor loans and available for sale securities, the reserve for unfunded commitments, and the impairment review of goodwill.goodwill, which are each discussed below.

(c) Cash and cash equivalentsCash Equivalents


Cash equivalents are defined as highly liquid investments with original maturities of three months or less, that are readily convertible to known amounts of cash and present insignificant risk of changes in value due to changes in interest rates. The Company's cash and cash equivalents ismay 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 fund accounts) and overnight and term federal funds ("fed funds") sold.sold to money center banks. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net depositcash flows borrowingfrom deposits, borrowings, loans and loan inflows and outflows, investment purchases and maturities, calls and sales proceeds,investments, and the immediate liquidity needs of the Company.


(d) Restricted Cash and Investments
Investments that are intended to be held for indefinite periods of time but which may not be held to maturity or on a long-term basis are considered to be "available-for-sale" and are carried at fair value.  Net unrealized appreciation and depreciation on investments available-for-sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss).  Included as available-for-sale are securities that are purchased in connection with the Company’s asset-liability risk management strategy and that may be sold in response to changes in interest rates, resultant prepayment risk and other related factors.  In instances where the Company has the positive intent to hold investment securities to maturity, investment securities will be classified as held-to-maturity and carried at amortized cost.  As of the balance sheet dates, all of the Company’s investment securities were classified as available-for-sale and carried at fair value.

There are inherent risks associated with the Company’s investment activities that could adversely impact the fair market value and the ultimate collectability of the Company’s investments.  Management regularly reviews the portfolio for securities with unrealized losses to determine if any of the unrealized losses are other-than-temporarily impaired ("OTTI").  The determination of OTTI involves a high degree of judgment. While management uses available information to measure OTTI at the balance sheet date, future write-downs may be necessary based on extended duration of current unrealized losses, changing market conditions, or circumstances surrounding individual issuers.
If an investment is deemed to have an unrealized loss that is OTTI, the Company is required to write-down the investment. For debt securities, OTTI is generally recognized through a charge to earnings as of the balance sheet date, while non-OTTI unrealized losses are recognized in other comprehensive income. Unrealized losses on debt securities are deemed OTTI if 1) the Company intends to sell the security, 2) it is more likely than not that the Company will be required to sell the security before recovery, or 3) a credit loss exists and the Company does not expect to recover the entire amortized cost. For debt securities that have a credit loss, any portion of the loss related to other factors is recorded in other comprehensive income. Once written-down, the previous charge on debt securities may not be recovered through earnings until sale or maturity, if in excess of its new cost basis.  Any OTTI charges, depending upon the magnitude of the charges, could have a material adverse effect on the Company’s financial condition and results of operations.

At December 31, 2017 the Company did not hold any equity investments. See "Accounting pronouncements not yet adopted by the Company" under "Recent Accounting Pronouncements" in Item (t) below in this Note 1 for treatment

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


of unrealized losses on equities beginning in 2018. See also Note 2, "Investment Securities," for further information on management's OTTI assessment.
Investment securities’ discounts are accreted and premiums are amortized over the period of estimated principal repayment using methods that approximate the interest method. Gains or losses on the sale of investment securities are recognized on the trade date on a specific identification basis. See "Accounting pronouncements adopted by the Company" within "Recent Accounting Pronouncements" in Item (t) below in this Note 1 for further information on the Company's amortization of premiums on callable debt securities.
(e) Restricted Investments


Certain of the Company's derivative agreements contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount. When the Company has pledged cash as collateral for this purpose,in relation to certain derivatives, the cash is carried as restricted cash within cash and cash equivalents."Interest-earning deposits with banks." See Note 8,9, "Derivatives and Hedging Activities"Activities," to the Company's consolidated financial statements of this Form 10-K below for more information about the Company's collateral related to its derivatives.

The Bank is also required by the FRB to maintain in reserves certain amounts of vault cash and/or deposits with the FRB. The average daily reserve requirement included in “Cash and Due from Banks” was approximately $7.6 million and $6.8 million, based on the two week computation periods encompassing December 31, 2017 and 2016, respectively.
As a member of the Federal Home Loan Bank of Boston ("FHLB"),FHLB, the Company is required to purchase certain levels of FHLB capital stock at par value in association with outstanding advances from the FHLB. From time-to-time, the FHLB may initiate the repurchase, at par value, of "excess" levels of its capital stock held by member banks. This stock is classified as a restricted investment and is carried at cost, which management believes approximates fair value. FHLB stock represents the only restricted investment held by the Company.


Management regularly reviews its holdings of FHLB stock for OTTI. Based on management’s periodic review,impairment, and as of December 31, 2023, the Company has not recorded any OTTI charges on this investment to date. If it was determined that no allowance for credit losses on FHLB stock was necessary.

(e) Investment Securities
Investments in debt securities that are intended to be held for indefinite periods of time, but which may not be held to maturity or on a long-term basis are considered to be "available-for-sale" and are carried at fair value.

Included as available-for-sale are debt securities that are purchased in connection with the Company's asset-liability risk management strategy and that may be sold in response to changes in interest rates, prepayment risk and other related factors. In instances where the Company has the positive intent to hold debt securities to maturity, these securities will be classified as held-to-maturity and carried at amortized cost. As of the balance sheet dates, all the Company's debt securities were classified as available-for-sale and carried at fair value.

Net unrealized appreciation and depreciation on debt securities available-for-sale, net of applicable income taxes, are recorded in the Company's Consolidated Statement of Comprehensive Income as a component of "Accumulated other comprehensive (loss) income." The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall. Due to the fixed rate nature of this portfolio, as market rates fall, the value of the portfolio rises, and as market rates rise, the value of the portfolio declines. The unrealized gains or losses on debt securities will also decline as the securities approach maturity.

The Company's equity securities are carried at fair value with changes in fair value recognized in the Company's Consolidated Income Statement as a component of "Other income." The net gains and losses on equity securities that will be recognized as a component of "Non-interest income" in the future will depend on the amount of dollars invested in equities, the magnitude of changes in equity markets and the amount of gains or losses realized through equity sales.
Investment securities' discounts are accreted and premiums are amortized over the period of estimated principal repayment using methods that approximate the interest method. Gains or losses on the sale of investment securities are recognized on the trade date on a specific identification basis.

71
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
ACL for Available-for-Sale Securities Methodology

In accordance with ASC "Financial Instruments—Credit Losses (Topic 326), the Company's expected credit losses on available-for-sale debt securities are presented as an allowance rather than as a write-down. The Company measures expected credit losses on available-for-sale securities based upon the unrealized gain or loss position of the security. For available-for-sale debt securities in an unrealized loss position, the Company evaluates qualitative criteria to determine any expected loss unless the Company intends to sell, or it is more likely than not that the Company will be required to sell before recovery of the amortized cost. In the latter two circumstances, the Company recognizes the entire difference between the security’s amortized cost basis and its fair value as a write-down of FHLB stock was required, impairment would be recognized throughthe investment balance with a charge to earnings. Otherwise, management’s analysis considers various factors, which include among other considerations (1) the present value of the cash flows expected to be collected compared to the amortized cost of the security, (2) duration and magnitude of the decline in value, (3) the financial condition of the issuer or issuers, and (4) structure of the security. If the Company does not expect to recover the entire amortized cost basis of the security, an allowance for credit losses for available-for-sale securities would be recorded, with a related charge to earnings, limited by the difference of the amortized cost of the security to its fair value. Subsequent measurements of the ACL for available-for-sale securities may result in a reversal the allowance for credit losses, not to exceed the amount initially recognized. In addition, the Company has elected to exclude accrued interest from the measurement of the allowance for credit losses for available-for-sale debt securities and to continue to write-off uncollectible accrued interest receivable by reversing interest income.


See Note 2, "Investment Securities,"At December 31, 2023, management performed its quarterly analysis of all securities with unrealized losses and determined that all were attributable to increases in market interest rates. Management concluded that no ACL for additional information on management's OTTI reviewavailable-for-sale securities was considered necessary as of investments.December 31, 2023 and anticipates they will mature or be called at par value. The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the Company will not be required to sell each security before the recovery of its amortized cost basis.

(f) Loans Held for Sale


Depending on the current interest rateinterest-rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable rateadjustable-rate residential mortgage loans which are eligible for sale in the secondary market or hold some or all of this residential loan production for the Company's portfolio. Mortgage loans are generally not pooled for sale, but instead sold on an individual basis. Enterprise may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans held for sale are carried at the lower of aggregate amortized cost or market value. Marketfair value on a separate line on the balance sheet. Fair value is based on comparable market prices for loans with similar rates and terms. When loans are sold, a gain or loss is recognized to the extent that the sales proceeds plus unamortized fees and costs exceed, or are less than, the carrying value of the loans. Gains and losses are determined using the specific identification method.


(g) Loans
 
Loans made by the Company to businesses, non-profits and professional practices include commercial real estate mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit. The Company also originates equipment lease financing for businesses. Loans made to individuals include conventional residential mortgage loans, home equity loans and lines, residential construction loans on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. Most loans granted by the Company are collateralized by real estate, equipment, or equipmentreceivables and/or are guaranteed by the principals of the borrower.  The ability and willingness of the

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


single family residential and consumer borrowers to honor their repayment commitments is generally dependent on the level of overall economic activity and real estate values within the borrowers’ geographic areas.  The ability and willingness of commercial real estate, commercial and construction loan borrowers to honor their repayment commitments is generally dependent on the health of the real estate sector in the borrowers’ geographic areas and the general economy, among other factors.
 
Loans are reported at the principal amount outstanding, net of deferred origination fees and costs. The aggregate amountamounts of overdrawn deposit accounts are reclassified as loan balances. Loan origination fees received, offset by direct loan origination costs, are deferred and amortized using the straight linestraight-line method over three years to five years for lines of credit and demand notes or over the life of the related loans using the level-yield method for all other types of loans. When loans are paid off, the unamortized fees and costs are recognized as an adjustment to interest income.


Certain of the Company's directors, officers, principal shareholders, and their associates are credit customers of the Company in the ordinary course of business. In addition, certain directors are also directors, trustees, officers or shareholders of corporations and non-profit entities or members of partnerships that are customers of the Bank and that enter into loan and other transactions
72
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
with the Bank in the ordinary course of business. All loans and commitments included in such transactions are on such terms, including interest rates, repayment terms and collateral, as those prevailing at the time for comparable transactions with persons who are not affiliated with the Bank and do not involve more than a normal risk of collectability or present other features unfavorable to the Bank.

From time to time, the Company participates with other banks in the financing of certain commercial projects. In each case in which the Company participates in a loan,order to qualify for sale accounting under GAAP, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks. Each participation is governed by individual participation agreements executed by the lead bank and the participants at loan origination. When thea participation qualifies as a sale under GAAP, the balances participated out to other institutions are not carried as assets on the Company's consolidated financial statements. When a participation does not qualify as a sale under GAAP, the loan is carried at gross principal outstanding and the balances participated out to other institutions are carried as secured borrowings on the Company's consolidated financial statements. The Company performs an independent credit analysis of each commitment and a review of the participating institution prior to participation in the loan, and an annual review thereafter of each participating institution. Loans originated by other banks in which the Company is the participating institution are carried in the loan portfolio at the Company's pro rata share of ownership. See also, "Commercial loans" under "Loan categories"Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently.

The Company seeks to lessen its credit risk exposure by managing its loan portfolio to avoid concentration by industry, relationship size and source of repayment, and through sound underwriting practices and the credit risk management function; however, management recognizes that credit losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

(h) Credit Risk Management and ACL for Loans Methodology

Inherent in Note 3, 'Loans" for further information aboutthe lending process is the risk of loss due to customer non-payment, or "credit risk." The Company's commercial lending focus may entail significant additional credit risks compared to long-term financing on existing, owner-occupied residential real estate. The credit risk management function focuses on a wide variety of factors and early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Company's participation loans.Credit Department, an external loan review service, reviews by members of senior management as well as reviews by the Board's Loan Committee and the Board. These reviews include the assessment of internal credit quality indicators such as, among others, the risk classification of loans, past due and non-accrual loans, loans individually evaluated or with hardship modifications, and the level of foreclosure activity.


(h) Allowance for Loan LossesCredit Risk Management


The allowanceCompany'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. The adverse classifications range from "special mention," for loans that may need additional monitoring, to the more severe classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations. Loans classified as "substandard" include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as "doubtful" have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, based on existing facts, conditions, and values, highly questionable and improbable. Loans classified as "loss" are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible. These "loss" loans would require a specific loss reserve or charge-off. Loans which are evaluated to be of weaker credit quality are classified as adverse and placed on the "watch asset list" and reviewed on a more frequent basis by management. Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as individually evaluated or restructured, or some combination thereof.

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans and the classified portions are credit downgraded to one of the adversely classified categories noted above. Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days or when, in the judgment of
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Notes to the Consolidated Financial Statements
management, the collectability of both principal and interest is reasonably assured. Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company.

Loans individually evaluated consist primarily of loans for which management considers it probable that not all amounts due (principals and interest) will be collected in accordance with the original contractual terms and, to a lesser extent, if applicable, loans that management deems as individually significant or with unique risk characteristics or for some other reason based on management’s judgement. Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms.

Effective on January 1, 2023, the Company adopted ASU 2022-02, "Financial Instruments—Credit Losses (Topic 326), Troubled Debt Restructurings and Vintage Disclosures," which eliminated the accounting guidance for TDRs and enhanced the disclosure requirements for loan lossesrestructurings made with borrowers experiencing financial difficulty. The adoption did not have a significant impact on the financial statements.

The Company continues to work with loan customers experiencing financial difficulty and may enter into loan modifications 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. An assessment of whether a borrower is an estimateexperiencing financial difficulty is made on the date of probablethe modification. Modifications made for borrowers experiencing financial difficulty may be concessions in the form of principal forgiveness, interest rate reductions, payment deferrals of principal, interest or both, or term extensions, or some combination thereof. When a debt has been previously modified, the Company considers the cumulative effect of modifications made within the prior twelve-month period before the current modification, when determining whether or not a delay in payment resulting from the current modification is insignificant.

Individually evaluated adversely classified loans will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition. Consistent with the criteria for returning non-accrual loans to accrual status, the borrower must demonstrate the ability to continue to service the loan in accordance with the original or modified terms and, in the judgment of management, the collectability of the remaining balances, both principal and interest, are reasonably assured.
A specific allowance is assigned to the loan for the amount of estimated credit risk inherentloss. Individually evaluated loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.

ACL for Loans Methodology

In accordance with ASC "Financial Instruments—Credit Losses (Topic 326)," the CECL methodology requires early recognition of credit losses using a lifetime credit loss measurement approach that also requires the consideration of reasonable and supportable forecasts in the estimate. The CECL methodology is applicable to the loan portfolio, measured at amortized cost. It also applies to off-balance sheet credit exposures such as unadvanced loan & line balances, commitments to originate loans, standby letters of credit, and other similar instruments, which are not unconditionally cancellable. Additionally, the Company has elected to continue to present the accrued interest receivable balance on loans separate from amortized costs, exclude accrued interest from the measurement of the specified balance sheet dates.  The allowance for loancredit losses for loans and to continue to write-off uncollectible accrued interest receivable by reversing interest income.

The ACL for loans is established through a provision for loancredit losses, recorded as a direct charge to earnings. LoanThe ACL for loans is a valuation account that is deducted from the amortized cost to present the net amount of the loan portfolio expected to be collected. Credit losses are charged against the allowanceACL for loans when management believes that the collectability of the loanamortized cost of a loan's principal balance is unlikely. Recoveries on loans previously charged-off are credited to the allowance.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated probable losses from specifically known and other credit risks associated with the portfolio.
The Company uses a systematic methodology to measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology uses a two-tiered approach that makes use of specific reservesACL for loans, individually evaluated and deemed impaired and general reserves for larger groups of homogeneous loans, which are collectively evaluated relyinggenerally at the time cash is received on a combinationcharged-off account.

Arriving at an appropriate level of qualitativeACL for loans involves a high degree of management judgement. The underlying assumptions, estimates and quantitative factors that may affect credit quality ofassessments used to estimate the pool.
On a quarterly basis,ACL for loans reflects the Company prepares anCompany’s best estimate of model assumptions and forecasted conditions at that time. Changes in such estimates can significantly affect the allowance necessary to cover estimated credit risk inherent in the portfolio as of the specified balance sheet dates.  The adequacy of the allowanceACL for loan losses is reviewed and evaluated on a regular basis by an internal management committeeloans and the full Board.
While management uses available information to recognize losses on loans, future additions to the allowance may be necessary.provision for credit losses. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowanceCompany's ACL for loan losses.loans. Such agencies may require the Company to recognize additions to the allowanceACL for loans based on judgments different from those of management. It is possible and likely that the Company will experience credit losses that are different from the current estimates and future additions to the ACL for loans may be necessary. 

See Note 4, "Allowance
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Notes to the Consolidated Financial Statements
On a quarterly basis, the Company makes an assessment to estimate the ACL for Loan Losses,"loans necessary to cover expected lifetime credit losses. The adequacy of the ACL for additional accounting policiesloans is reviewed and evaluated on a regular basis by an internal management committee, a sub-committee of the Company's Board of Directors (the "Board") and the full Board.

In making its assessment on the adequacy of the ACL for loans, management considers several quantitative and qualitative factors from internal and external sources relating to past events, current conditions, and reasonable and supportable forecasts.
The Company uses a systematic methodology to measure the amount of estimated loan losses. The methodology uses a two-tiered approach that applies general reserves for larger groups of homogeneous loans, segmented by loan type and specific reserves for loans individually evaluated.

Loans collectively evaluated

Management segments loans of similar risk characteristics using the Open Pool method by first calculating each segment's loss rate as net charge-offs over the expected average life of each segment, divided by the average loan balance over that same period. The historic loss factor is an average of the loss rate over a 5-year look-back period, which approximates the average age of charged-off loans. These historic loss factors are then adjusted up or down based on management's assessment of quantitative and qualitative factors. These key factors including quantitative facts about the loan portfolio such as: commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; trends in risk classification of individual loans and higher risk problem assets; the level of delinquent, non-performing, and individually evaluated loans; the level of hardship loan modifications; foreclosure activity; net charge-offs; as well as trends in the general levels of these indicators. In addition, management monitors qualitative factors such as: expansion in the Company's geographic market area; the experience level of lenders and any changes in underwriting criteria; Market conditions, including general conditions in the multi-family, commercial real estate and construction and development markets in the Company's local region as well as changes in current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. Management uses a two-year reasonable and supportable forecast, and for periods beyond the forecast period, reverts immediately to historical loss rates. Management weighs the current effect of each of these areas on each particular loan segment in determining the allowance allocation factors. Management must exercise significant judgment when evaluating the effect of these quantitative and qualitative factors on the amount of the ACL for loans as data may not be reasonably available or directly applicable to determine the precise impact of a factor on the collectability over the remaining average life. The methodology contemplates a range of acceptable levels for these factors due to the subjective nature of the factors and the qualitative considerations related to non-accrual, impaired and troubled debt restructuredthe credit risk in the portfolio.

Although there have been no material changes to the Company's ACL for loans methodology, underwriting practices, or credit risk management system used to estimate credit loss exposure since December 31, 2022, during the quarter ended September 30, 2023, the Company made a minor modification to its ACL estimation process used in the prior year. The Company streamlined its allowance estimation process to collectively evaluate all loans not individually evaluated as one cohort segmented by loan type. Previously, the Company separately evaluated non-classified loans and adversely classified loans. The change did not have a material impact on the ACL for loans at December 31, 2023.

Management recognizes that additional issues may also impact the estimate of expected credit losses to some degree. From time to time management will re-evaluate the qualitative factors, regulatory guidance, and industry data in use in order to consider the impact of other issues which, based on changing circumstances, may become more significant in the future.

Loans individually evaluated

For loans that are individually evaluated, as discussed above, management estimates the credit loss by comparing the loan's carrying value against either (i) the present value of the expected future cash flows discounted at the loan's effective interest-rate; (ii) the loan's observable market price; or (iii) the expected realizable fair value of the collateral, in the case of collateral dependent loans. A specific allowance is assigned to the allowanceloan for the amount of estimated credit loss. Individually evaluated loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan losses.is uncollectible.

Reserve for unfunded commitments

The reserve for unfunded commitments is included in the line item "Accrued expenses and other liabilities" on the Company’s Consolidated Balance Sheets. Management applies the CECL methodology to off-balance sheet commitments in a manner consistent with on-balance sheet loan loss rates. Additionally, the estimate of credit loss incorporates assumptions for both the
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Notes to the Consolidated Financial Statements
likelihood and amount of funding over the estimated life of the commitments. Management periodically reviews and updates its assumptions for estimated funding rates.

(i) Other Real Estate Owned
 
Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as Other Real Estate Owned ("OREO").OREO. When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell, establishing a new cost basis.basis and carried on the Consolidated Balance Sheet in the line item "Prepaid expenses and other assets." The estimated fair value is based on market appraisals and the Company’sCompany's internal analysis. Any loan balance in excess ofmore than the estimated realizable fair

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


value on the date of transfer is charged to the allowance for loancredit losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.
 
(j) Premises and Equipment

Land is carried at cost. PremisesAll other premises and equipment costs are stated at cost less accumulated depreciation and amortization. Depreciation or amortization is computed on a straight-line basis over the lesser of the estimated useful lives of the asset or the respective lease term (with(including renewal options reasonably assured renewal options)certain to be exercised) for leasehold improvements generally as follows:

Bank premises, land improvements and leasehold improvements10 to 39 years
Computer software and equipment3 to 5 years
Furniture, fixtures and equipment3 to 10 years

(k) Leases

The Company leases office space, space for ATM locations and certain branch locations under noncancellable operating leases, several of which have renewal options to extend lease terms. Upon commencement of a new lease, the Company will recognize a ROU asset and corresponding lease liability on the Consolidated Balance Sheet for all leases with terms longer than 12 months. The lease liability represents the present value of the future lease payments while the ROU asset represents the lease liability plus any lease prepayments and initial direct costs.

The Company’s operating lease agreements contain both lease and non-lease components (such as common area maintenance), which are generally accounted for separately. To calculate the lease liability, the Company uses its incremental borrowing rate as the discount rate to determine the net present value of the lease liability. In determining the term of a lease, the Company included option renewal periods that it considered reasonably certain to be exercised.

The Company recognizes lease expense on a straight-line basis in the "Occupancy and equipment expenses" line item within the non-interest expense section of the Consolidated Statement of Income.
(l) Bank Owned Life Insurance
 
The Company has purchased bank-owned life insurance ("BOLI')owns BOLI on certain current and former senior and executive officers.officers, utilizing the tax-exempt earnings on BOLI to offset the cost of the Company's benefit plans. The cash surrender value carriedof these policies is included as an asset on the consolidated balance sheets at December 31, 2017Consolidated Balance Sheet, and December 31, 2016 amounted to $29.5 million and $28.8 million, respectively. Thereany increases in cash surrender value are no associated surrender charges underrecorded as income on bank owned life insurance on the outstanding policies.Consolidated Statement of Income.


(l)(m) Impairment of Long-Lived Assets Other than Goodwill
 
The Company reviews long-lived assets, including premises, equipment, and equipment,lease right of use assets for impairment on an ongoing basis or whenever events or changes in business circumstances indicate that the remaining useful life may warrant revision or that the carrying amount of the long-lived asset may not be fully recoverable. If impairment is determined to exist, any related impairment loss is recognized through a charge to earnings. Impairment losses on assets disposed of, if any, are based on the estimated proceeds to be received, less cost of disposal.

(m)
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Notes to the Consolidated Financial Statements
(n) Goodwill
 
Goodwill is carried on the Company’sCompany's consolidated financial statements was $5.7 million at both December 31, 2017andDecember 31, 2016. This asset is related to the Company’sCompany's acquisition of two branch offices in July 2000.

In accordance with GAAP, the Company does not amortize goodwill and instead, at least annually, evaluates whether the carrying value of goodwill has become impaired. Impairment of the goodwill may occur when the estimated fair value of the Company is less than its recorded book value. A determination that goodwill has become impaired results in an immediate write-down of goodwill to its determined value with a resulting charge to operations.the Company's Consolidated Statement of Income. Goodwill is evaluated at the reporting unit level. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.


The annual impairment test begins withCompany has the option to perform either (i) a qualitative assessment of whether it is "more likely than not" that the reporting unit's fair value is less than its carrying amount. The assessment is performed at the reporting unit level.  If an entity concludes it is not "more likely than not" that the fairbook value, ofor (ii) a reporting unit is less than its carrying amount, it need not perform a two-step impairment test. In the case of the Company, the services offered through the Bank and subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.quantitative assessment.


1.Management's qualitative assessment takeswould take into consideration, among other items, macroeconomic conditions, industry and market considerations, cost or margin factors, financial performance and share price. Based on thisthe qualitative assessment, if the Company determined thatwere to conclude: a) it is not "more likely than not" that the Company's fair value of a reporting unit exceeds its book value, goodwill is less than its carrying amount and therefore goodwill was determineddeemed not to be impaired, at December 31, 2017.

If the Company's qualitative assessment concluded thator b) it is "more likely than not" that the fair value of a reporting unit is less than its carrying amount, itbook value, a quantitative goodwill analysis must be performed.

2.The Company may elect to forgo the qualitative assessment and perform the two-step impairment test to identify potentialquantitative analysis even if management believes that is "more likely than not" that goodwill impairment and measure the amount ofis not impaired. The quantitative goodwill impairment loss to be recognized, if any. The first step of the

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


goodwill impairment testanalysis compares the estimated fair value of the reporting unit with its carrying amount, or the book value, of the reporting unit, including goodwill. If the estimated fair value of the reporting unit equals or exceeds its book value, goodwill is considereddeemed not impaired, and the second step of the impairment test is unnecessary. 
The second step, if necessary, measures the amount of goodwill impairment loss to be recognized.  The reporting unit must determine fair values for all assets and liabilities, excluding goodwill.  The net of the assigned fair value of assets and liabilities is then compared toimpaired. If the book value of the reporting unit and any excess book value becomes the impliedexceeds its fair value, of goodwill.  If the carrying amount of thea goodwill exceeds the newly calculated implied fair value of that goodwill, an impairment loss is recognized infor the amount required to write downdifference between these amounts, not exceeding the goodwill tocarrying amount.

At December 31, 2023, based on the implied fair value. Company's quantitative analysis, goodwill was deemed not impaired.


(n) Investment(o) Wealth Assets Under Management and Administration
 
InvestmentWealth assets under management consistingconsist of assets managed through Enterprise Wealth Management and Enterprise Wealth ServicesServices. Wealth assets under administration consist of 401(k) plans, trust, and commercial sweep products, totaled $845.0 millioncustodial accounts. Wealth assets under management and $725.3 million at December 31, 2017 and 2016, respectively.  Fee income is recorded on an accrual basis and recognized over the period in which it is earned. Securities and other property held in a fiduciary or agency capacityadministration are not included in the consolidated balance sheetsConsolidated Balance Sheets because they are not assets of the Company.

(o)(p) Derivatives and Hedging
 
The Company recognizesrecords all derivatives as either assets or liabilities on its consolidatedthe balance sheet and measures those instruments at fair market value.

Interest-rate-lock commitments related to Asset derivatives are included in the origination of mortgage loans that will be soldline item "Prepaid expenses and other assets," and liability derivatives are considered derivative instruments.  The commitments to sell loans are also considered derivative instruments. The Company generally does not pool mortgage loans for sale, but instead, sellsincluded in the loans on an individual basis. To reduce the net interest rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest-rate lock commitment is quoted"Accrued expenses and other liabilities" line item on the origination of the loan. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices. At December 31, 2017 and 2016, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.Consolidated Balance Sheets.


The Company may use interest-rate-contract swaps as part of its interest-rate risk management strategy. Interest-rate- swap agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company did not have derivative fair value hedges or derivative cash flow hedges at December 31, 2017 or 2016.

The Company has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swap with a qualified commercial banking customer 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 transaction structure effectively minimizes the Bank’s net risk exposure resulting from such transactions. Customer-related credit risk is minimized by the cross collateralization of the loan and the interest-rate-swap agreement.

Back-to-Back Swaps are not speculative but rather, result from a service the Company provides to certain customers. Back-to-Back Swaps do not meet hedge accounting requirements and thereforefor changes in the fair value of derivatives depends on the intended use of the derivative. On the date the derivative instrument is entered into, the Company designates whether the derivative is part of a hedging relationship (i.e., cash flow or fair value hedge). The Company also assesses, both at the customer swapshedge’s inception and on an ongoing basis, whether the counterparty swaps,derivatives used in hedging transactions are highly effective in offsetting the changes in cash flows or fair values of hedged items.

Fair value hedges are considered a hedge of the exposure to changes in the fair value of an asset, liability or firm commitment attributable to a particular risk, such as interest rate risk. For derivatives designated and qualifying as fair value hedges, changes in the fair value are recognized in earnings.

Cash flow hedges are considered a hedge of the exposure to the variability in expected future cash flows, or other types of forecasted transactions. For derivatives designated and qualifying as cash flow hedges, changes in the fair value of derivative instruments that are highly effective are recorded in other comprehensive income (loss), net of tax and subsequently reclassified into earnings in the same period during which have an offsetting relationship, arethe hedged transaction affects earnings. Any hedge ineffectiveness is recognized directly in earnings. See Note 8, "Derivatives and Hedging Activities" for more information about the Company's derivatives.


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Notes to the Consolidated Financial Statements


For derivative instruments not designated as hedging instruments, such as back-to-back interest rate swaps and risk participation agreements, changes in fair value are recognized in earnings.
(p) Stock Based
See Note 9, "Derivatives and Hedging Activities," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information on the Company's derivative and hedging activities.
(q) Revenue Recognition

Interest and dividend income (primarily loan interest income from customers) are our primary sources of revenue and are outside of the scope of ASC 606, "Revenue from Contracts with Customers," and are accounted for under other ASC topics. The core principles of this standard require an entity to recognize revenue on the transfer of goods and services to customers as performance obligations are satisfied.

The primary areas of income for the Company within the scope of ASC 606 are wealth management fees and deposit and interchange fees which are components of non-interest income on the Company's Consolidated Statements of Income and are discussed below.

Wealth management fees consist of income generated through our wealth management services. Wealth management income is generated primarily by managing customers' financial assets. Revenue is recognized as our performance obligation is completed each month. Revenue earned through our wealth services platform is generated through a third-party arrangement to refer, manage and service customers. For new sales and referrals along with transactional type charges, the performance obligation is based on a point in time and the payment is received and revenue is recognized in the same month as the revenue generating activity. For managing and servicing customers, revenue is recognized when our performance obligation is completed each month.

Deposit and interchange fees are comprised of deposit account related charges and income generated from electronic payment interchanges. Deposit account charges consist of certain transactional analysis fees net of earning balance credits, monthly account service fees, and transactional fees such as overdraft fees. Analysis and monthly account services fees are recognized over the period the service is performed. For transactional fees, the performance obligation and the revenue are recognized at a point of time and payment is typically received as the service is rendered. Interchange income is generated primarily from retail debit card transactions processed through the card payment network. The performance obligation and the revenue are recognized when the service is performed.

The following non-interest income components are not subject to ASC 606: income on BOLI, net gains/losses on investment securities, and net gains on sales of loans, and are covered under other ASC topics. The remaining revenue items in non-interest income are not material.

(r) Stock-Based Compensation
 
The Company’sCompany currently has one active stock incentive plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended (the "2016 Plan"). The 2016 Plan permits the Board to grant, under various terms, both incentive and non-qualified stock options (for the purchase of newly issued shares of common stock), restricted stock, restricted stock units and stock appreciation rights to officers and other employees, and to non-employee directors and consultants. The 2016 Plan also allows for newly issued shares of common stock to be issued without restrictions to officers and other employees, and non-employee directors and consultants.

As of December 31, 2023, 370,680 common shares 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.

Under terms of the 2016 Plan, options exercised and restricted stock awards vested may be net settled to cover payment for option costs and employee tax obligations, resulting in shares of common stock being reacquired by the Company and returned to the pool of shares reserved for issuance under the incentive plans. In accordance with Massachusetts law, shares reacquired by the Company will be treated as authorized but unissued shares.

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 Board and Board Committee meetings. These shares are issued annually each January for Board meetings held in the previous year. Directors must make an irrevocable election to receive shares of common
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ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
stock in lieu of cash fees prior to December 31st of the preceding year. Directors are granted shares of common stock in lieu ofcash fees based on an average quarterly close price of the Company's common stock on the NASDAQ Global Market during the year.

From time to time, the Company issues shares to community members for consulting on regional advisory councils and grants shares of fully vested stock as employee anniversary awards. These shares vest immediately and the cost, which is based on the market price on the date of grant and deemed to be immaterial, is expensed in the period in which the services are rendered.

The Company's consolidated financial statements include stock-based compensation expense for the portion of stock option awards and stock awards for which the requisite service has been rendered during the period.period or the estimate of achieving certain predefined performance objectives. The compensation expense has been recorded based on the estimated grant-date fair value of the stock option awards with no adjustment for estimated forfeitures, or in the case of stock awards, the market value of the common stock on the date of grant. Prior to the adoption of ASU 2016-09 "Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting," in January 2017, forfeitures were estimated and netted against the expense. Upon adoption of this ASU, expenseExpense adjustments are made for actual forfeitures as they occur. See "Recent Accounting pronouncements" below in this Note 1, for further information related to the adoption of ASU 2016-09, including the change in recording excess tax benefits and deficiencies.


The Company will recognize the remaining estimated compensation expense for the portion of outstanding awards and compensation expense for any future awards, net of actual forfeitures, as the requisite service is rendered (i.e., on a straight-line basis over the remaining vesting period of each award) or as performance objectives are met. Stock awards that do not require future service ("vested awards") will be expensed immediately. Stock-based compensation also includes Directordirector stock compensation for stock awards and stock in lieu of cash fees, both included in other operating expenses, described in more detail inexpenses.

See Note 12,14, "Stock-Based Compensation.Compensation," to the Company's consolidated financial statements of this Form 10-K, contained below, for further information on the Company's stock incentive plans and terms of outstanding awards and the Company's stock-based compensation.

(q)(s) Income Taxes
 
The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and invarious states, within the statesdirectives of Massachusetts and New Hampshire.the respective enacted tax legislation. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax expense or benefit attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes in the period that includes the enactment date, which may be earlier than the effective date.

The Company’sCompany's policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law. The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company’sCompany's judgment changes regarding an uncertain tax position.


The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, due primarily to the impact of state tax expense, tax-exempt interest from certain investment securities, loans and BOLI.BOLI and the tax impact from equity compensation activity.


The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at December 31, 2017 or December 31, 2016.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2014 through 2017 tax years.

See Note 13, "Income Taxes," for further information about the Company'sDeferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement and tax basis of assets and liabilities, calculated using currently enacted tax rates. Management records net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including recent financial operations and projected future taxable income.

As of December 31, 2023, the impact of the Tax Cuts and Jobs Acts (the "newCompany had one investment in a local NMTC project which provides federal tax bill").incentives for investments in distressed communities. The investment is accounted for using the proportional amortization method and will be amortized over seven years, which represents the period that the tax credits and other tax benefits will be utilized.

(r)(t) Earnings per Share
 
Basic earnings per share are calculated by dividing net income available to common stockholdersshareholders by the weighted average number of common shares outstanding (including participating securities) during the year. The Company's only participating
79
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
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.



ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(s)(u) Reporting Comprehensive Income

Comprehensive income is defined as all changes to stockholder'sshareholders' equity except investments by and distributions to stockholders.shareholders. Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income. The Company’s onlyCompany's other comprehensive income component iscomponents are the net unrealized holding gains or losses on investments available-for-sale,changes in fair value of debt securities and cash flow hedges, both net of deferred income taxes. Pursuant to GAAP, the Company initially excludes thesethe unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when the securities are sold. circumstances warrant.

When debt securities are sold, the reclassification of realized gains and losses on available-for-sale securities are included on the Consolidated Statements of Income under the "non-interest"Non-interest income" subheading on the line item "net"Net gains (losses) on sales of investmentavailable-for-sale debt securities" and the related income tax expense is included in the line item "provision"Provision for income taxes."

For cash flow hedges of interest rate risk, the change in fair value will be reclassified in the same period during which the hedged transaction affects earnings, to either interest expense as interest is incurred on the Company's hedge liability, or to interest income as interest is earned on the Company's hedge asset. The reclassification of gain or loss on the derivatives are included on the Consolidated Statements of Income under "Interest income" or "Interest expense" line item and the related income tax expense is included in the line item "Provision for income taxes," both of which are also detailed, along with other information, in Note 11, "Comprehensive Income (Loss)," of this Form 10-K.

(v) Dividends

Neither the Company nor the Bank may declare or pay dividends on its stock if the effect thereof would cause shareholders' equity to be reduced below applicable regulatory capital requirements or if such declaration and payment would otherwise violate regulatory requirements.

As the principal asset of the Company, the Bank currently provides the only source of cash for the payment of dividends by the Company. Under Massachusetts law, trust companies such as the Bank may pay dividends only out of "net profits" and only to the extent that such payments will not impair the Bank's capital stock. Any dividend payment that would exceed the total of the Bank's net profits for the current year plus its retained net profits of the preceding two years would require the Massachusetts Division of Banks' approval. Applicable provisions of the FDIC Improvement Act also prohibit a bank from paying any dividends on its capital stock if the bank is in default on the Consolidated Statementspayment of Comprehensive Incomeany assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become "undercapitalized." Any restrictions, regulatory or otherwise, on the ability of the Bank to pay dividends to the Company may restrict the ability of the Company to pay dividends to the holders of its common stock.

The statutory term "net profits" essentially equates with the accounting term "net income" and is defined under the subheading "reclassification adjustment for net gains included in net income."Massachusetts banking statutes to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes.


(t)In addition, the Company maintains a dividend reinvestment and direct stock purchase plan which enables shareholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, shareholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums.

(w) Recent Accounting Pronouncements

Accounting pronouncements adopted by the Company

In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU" or "Update") No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting." The new standard was effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.

The Company adopted ASU No. 2016-09 in the first quarter of 2017. Several aspects of the accounting are simplified including, generally: a) income tax consequences; b) classification of awards as either equity or liabilities; c) accounting for forfeitures; and d) classification on the statement of cash flows. Upon adoption, the most significant impact of this amendment resulted from the prospective application of current excess tax benefits and deficiencies being recognized in income tax expense, which would previously have been recognized in additional paid-in capital, in the reporting period in which they occur. For the year ended December 31, 2017, this reduced the Company's provision for income taxes, increasing earnings by approximately $922 thousand. For the years ended December 31, 2016 and 2015, the Company recognized $789 thousand and $217 thousand, respectively, in additional paid-in-capital in this regard, which, if under the new ASU, would have been recognized as income tax benefit in the income statement. This amount, treated as discrete items in the period in which they occur, will vary from year to year as a function of the volume of share-based payments vested or exercised and the then current market price of the Company's stock in comparison to the compensation cost recognized in the consolidated financial statements.

Additionally upon adoption, the Company made a policy election to record forfeitures as they occur rather than make use of an estimate. Using a modified retrospective approach, the Company recorded an immaterial cumulative effect adjustment from retained earnings to additional paid-in-capital. The other provisions did not have a material impact on the Company's consolidated financial statements upon adoption.

For further information about the Company's adoption of this ASU see Note 12 "Stock-Based Compensation."

In March 2017,2023, the FASB issued ASU No. 2017-08, "Receivables-Nonrefundable Fees2023-02, "Investments — Equity Method and Other Costs (Subtopic 310-20)Joint Ventures (Topic 323): Premium Amortization on Purchases Callable Debt Securities." The amendments shorten the amortization period to the earliest call date for certain callable debt securities held at a premium. The accretion for securities held at a discount is not affected by this statement and remains unchanged. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective basis is required upon adoption. Early adoption is permitted. The Company early adopted this ASU in the fourth quarter of 2017. This adoption did not have a material impact on the Company's consolidated financial statements, results of operations or disclosures upon adoption.

In February 2018, the FASB issued ASU No. 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220)" The ASU eliminates the "stranded tax effects" associated with the new federal tax bill change in the federal corporate income tax rate on the valuation of deferred tax items related to unrealized gains/losses on availableAccounting

80
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


for sale securities. These strandedInvestments in Tax Credit Structures Using the Proportional Amortization Method." ASU 2023-02 permits reporting entities to elect to account for their tax effects,equity investments, regardless of the difference betweentax credit program from which the historicalincome tax ratecredits are received, using the proportional amortization method if certain conditions are met. The election can be made for each individual qualifying tax credit investment. Under the proportional amortization method, the initial cost of an investment is amortized in proportion to the amount of tax credits and other tax benefits received, with the amortization and tax credits recognized as a component of income tax expense. To qualify for the proportional amortization method, all of the following conditions must be met: (1) It is probable that the income tax credits allocated to the tax equity investor will be available; (2) The tax equity investor does not have the ability to exercise significant influence over the operating and financial policies of the underlying project; (3) Substantially all of the projected benefits are from income tax credits and other income tax benefits; (4) The tax equity investor's projected yield based solely on the cash flows from the income tax credits and other income tax benefits is positive; and (5) The tax equity investor is a limited liability investor in the limited liability entity for both legal and tax purposes, and the newly enacted tax rate,equity investor's liability is limited to its capital investment. Under the proportional amortization method, the investment shall be tested for impairment when events or changes in circumstances indicate that it is more likely than not that the carrying amount of the investment will not be reclassified from accumulated other comprehensive income to retained earnings. The amendmentrealized. An impairment loss shall be measured as the amount by which the carrying amount of an investment exceeds its fair value. A previously recognized impairment loss shall not be reversed. ASU 2023-02 is effective for all organizations forfiscal years, and interim periods within those fiscal years, beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted for reporting periods in which financial statements had not been issued.2023. The Company chosehas elected to early adopt forASU 2022-01 effective on January 1, 2023, applying the year ended December 31, 2017, withnew guidance to a cumulative effect adjustment to retained earningsnew investment in NMTC made in the first quarter of 2023, and accumulated other comprehensive. Thisthe adoption did not have a materialsignificant impact on the Company's consolidated financial statements, resultsstatements.

In March 2022, the FASB issued 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 operations or disclosures upon adoption.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. The Company adopted ASU 2022-01 effective on January 1, 2023 and the adoption did not have a significant impact on the 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 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. The Company adopted ASU 2022-02 effective on January 1, 2023, prospectively, and the adoption did not have a significant impact on the financial statements.

Accounting pronouncements not yet adopted by the Company (in order of effective date of implementation)

In May 2014,December 2023, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers2023-09, "Income Taxes (Topic 606)740): Improvements to Income Tax Disclosures.". This ASU requires public business entities, on an annual basis, to disclose specific categories in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold (if the effect of those reconciling items is intendedequal to create a single source of revenue guidance which is more principles basedor greater than current revenue guidance. The guidance affects any entity that either enters into contracts with customers to transfer goods or services, or enters into contracts for the transfer of non-financial assets, unless those contracts are within the scope of other standards. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral5 percent of the Effective Date" to amendamount computed by multiplying pretax income by the effective date ofapplicable statutory income tax rate). ASU 2014-09. The amendments in ASU 2014-09 are2023-09 is effective for annualfiscal years, and interim periods within those fiscal years beginning after December 15, 2017. Earlier2024, with early adoption was permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The FASB has since issued additional related ASUs amendments intended to clarify certain aspects and improve understanding of the implementation guidance of Topic 606 but do not change the core principles of the guidance in Topic 606. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements of Topic 606.

The Company has begun the implementation process and based on the fact that the largest portion of the Company's revenue, interest income and various loan fees, is specifically excluded from the scope of thispermitted. ASU and because the Company currently recognizes the majority of the remaining revenue sources in a manner that management believes is consistent with the new ASU, management believes that this new standard will not materially impact the Company's consolidated financial statements, results of operations or disclosures. The foregoing observations are subject to change as management completes the implementation of this ASU in the first quarter of 2018.

In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities," which updates certain aspects of recognition, measurement, presentation and disclosure of financial instruments.

Among other things, ASU No, 2016-01:
���Requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income;
Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and
Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

The FASB has since issued an additional related ASU amendment intended to clarify certain aspects and improve understanding of the implementation guidance in ASU No. 2016-01 but does not change the core principles of the original guidance. This ASU is effective for public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. This adoption2023-09 is not expected to have a material impact on the Company'sour consolidated financial statements, results of operations or disclosures upon adoption. As of December 31, 2017, the Company did not hold any equity securities; however the Company intends to invest in equity securities in 2018. The fair value changes that will be recognized in net income will depend on the amount of dollars invested and the magnitude of changes in equity market values.statements.




ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


In August 2016,November 2023, the FASB issued ASU No. 2016-15, "Statement of Cash flows2023-07, "Segment Reporting (Topic 230) - Classification of Certain Cash Receipts and Cash Payments.280): Improvements to Reportable Segment Disclosures." The amendments in this ASU are intended to reduce diversity in practice related to the presentation of eight specific cash flow issues.improve reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. For public business entities, that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Because this amendment primarily impacts the presentation and classification of information, the Company does not expect this ASU to have an impact on the Company's consolidated financial statements and results of operations. The Company is currently in the process of implementing this ASU for the first quarter of 2018.

In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash flows-Restricted Cash (Topic 230)." The amendments in this Update clarify the inclusion of restricted cash in the cash and cash equivalents beginning-of-period and end-of period reconciliation on the consolidated statement of cash flows. For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Because this amendment primarily impacts the presentation and classification of information, the Company does not expect this ASU to have an impact on the Company's consolidated financial statements and results of operations. The Company is currently in the process of implementing this ASU for the first quarter of 2018.

In March 2017, the FASB issued ASU No. 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." The amendments in this Update outline the presentation, classification and disclosure requirements for service cost and other components of net benefit costs. For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted. Because this amendment primarily impacts the presentation and classification of information, the Company does not expect this ASU to have an impact on the Company's consolidated financial statements and results of operations. The Company is currently in the process of adopting this ASU for the first quarter of 2018.

In May 2017, the FASB issued ASU No. 2017-09, "Compensation - Stock Compensation (Topic 718): Scope of Modification Accounting." The amendments in this Update apply to entities that change the terms of an outstanding share-based payment award. The amendments are intended to reduce diversity in practice as well as cost and complexity when applying guidance in Topic 718 to the modification of the terms and conditions of a share-based payment award. This ASU provides guidance on the three modifications to share-based payment awards and conditions that must be met in order to exempt an entity from modification accounting under Topic 718. The amendments in this Update apply prospectively to award modifications on or after the adoption date, and are effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not expect that adoption of the ASU will have a material impact on its consolidated financial statements, results of operations or disclosures. The Company is currently in the process of adopting this ASU for the first quarter of 2018.

In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)," which supersedes previous leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available.

2023. The Company is currently evaluating the effectsimpact of thisthe ASU on the Company'sCompany’s consolidated financial statements, results of operations and disclosures. Based onstatements.

In October 2023, the Company's evaluation to date, management believes the more significant implication of thisFASB issued ASU on the Company relates to operating leases of our facilities, mainly branch leases. As of December 31, 2017, the Company had leases on 17 of its locations, including branches and part of its main campus, and expects that upon adoption of this ASU the balance sheet will reflect both lease liabilities, equal2023-06, "Disclosure Improvements — Codification Amendments in Response to the present valueSEC’s Disclosure Update and Simplification Initiative." This ASU amends the ASC to incorporate certain disclosure requirements from SEC Release No. 33-10532—Disclosure Update and Simplification that was issued in 2018. The effective date for each amendment will be the date on which the SEC’s removal of lease payments, and right-of-use assets, equal to the lease liability plus payments made to lessorsthat related disclosure from Regulation S-X or

81
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


adjusted for prepaid or accrued rent and any initial direct cost incurred. In addition, the Company will recognize lease expense in the income statement on a straight-line basis similar to current operating leases. The straight-line expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right-of-use asset. Lease expense will be presented as a single line item in the operating expense section of the income statement. Management believes that lease expense under the new standard will generally approximate lease expense under current GAAP. The foregoing observations are subject to change as management completes their evaluation.

In June 2016, the FASB issuedRegulation S-K becomes effective, with early adoption prohibited. ASU No. 2016-13, "Financial Instruments- Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." The amendments in this ASU require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount2023-06 is not expected to be collected. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss and generally recognition of the full amount of credit losses was delayed until the loss was probable of occurring. The amendments in this ASU eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity’s current estimate of all expected credit losses.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP. However, the amendments in this Update require that credit losses be presented as an allowance rather than as a write-down. Unlike current GAAP, the ASU provides for reversals of credit losses in future period net income in situations where the estimate of loss declines.

An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption for fiscal years beginning after December 15, 2018 is permitted.

The Company has established an implementation committee and an enterprise-wide implementation plan for this ASU, which will consider the impact to operations, financial results, disclosures and controls. At present, the impact of the adoption of ASU No. 2016-13 on the Company's operations, financial results, disclosures and controls is unknown.

In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350)-Simplifying the Test for Goodwill Impairment." The main provision in this ASU eliminated Step 2 of the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An impairment charge would be recognized for the amount the carrying value exceeds the reporting unit's fair value as long as the amount recognized doesn't exceed the amount of goodwill allocated to the reporting unit. For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for impairment tests performed on testing dates after January 1, 2017. Goodwill carried on the Company's consolidated financial statements was $5.7 million at both December 31, 2017 and December 31, 2016. This asset is related to the Company's acquisition of two branch offices in July 2000. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on the Company'sour consolidated financial statements and results of operations.statements.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(2)Investment Securities
The amortized cost and fair values of investment securities at December 31, 2017 and 2016 are summarized as follows:
  2017
(Dollars in thousands) 
Amortized
cost
 
Unrealized
gains
 
Unrealized
losses
 Fair Value
Federal agency obligations(1)
 $51,769
 $30
 $82
 $51,717
Residential federal agency MBS(1)
 141,054
 71
 971
 140,154
Commercial federal agency MBS(1)
 66,777
 9
 286
 66,500
Municipal securities 132,603
 2,097
 354
 134,346
Corporate bonds 11,546
 63
 67
 11,542
Certificates of deposits (2)
 950
 —
 3
 947
Total investment securities, at fair value(3)
 $404,699
 $2,270
 $1,763
 $405,206
  2016
(Dollars in thousands) 
Amortized
cost
 
Unrealized
gains
 
Unrealized
losses
 Fair Value
Federal agency obligations(1)
 $74,682
 $432
 $45
 $75,069
Residential federal agency MBS(1)
 94,818
 96
 1,561
 93,353
Commercial federal agency MBS(1)
 71,993
 15
 1,730
 70,278
Municipal securities 112,401
 922
 1,520
 111,803
Corporate bonds 10,734
 51
 90
 10,695
Certificates of deposits (2)
 950
 —
 1
 949
Total debt securities 365,578
 1,516
 4,947
 362,147
Equity investments 10,413
 2,532
 302
 12,643
Total investment securities, at fair value $375,991
 $4,048
 $5,249
 $374,790
(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.
(2)Certificates of deposit ("CDs") represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.
(3)
As of December 31, 2017, all investments were debt securities and the Company did not hold any available-for-sale equity securities.

Included in the residential and commercial federal agency MBS category were collateralized mortgage obligations ("CMOs") issued by U.S. agencies with fair values totaling $171.7 million and $107.0 million at December 31, 2017 and 2016, respectively.

(2)Investment Securities

As of December 31, 2023, and 2022 , the dates reflectedinvestment portfolio was comprised primarily of debt securities, with a small portion of the investment portfolio invested in the tables above, allequity securities.

Debt Securities

All of the Company's investmentdebt securities were classified as available-for-sale and carried at fair value.
Net unrealized appreciation and depreciation on investments available-for-sale, netvalue as of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss). The net unrealized gain or lossthe dates specified in the Company'stables below. The amortized cost and fair values of debt security portfolio fluctuatessecurities at the dates specified are summarized as follows:
 2023
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,006 $— $28 $4,978 
U.S. treasury securities16,993 — 1,068 15,925 
Federal agency CMO396,665 33 61,947 334,751 
Federal agency MBS21,586 31 2,805 18,812 
Taxable municipal securities262,168 34 35,225 226,977 
Tax-exempt municipal securities45,548 156 285 45,419 
Corporate bonds4,058 — 92 3,966 
Subordinated corporate bonds11,957 — 1,672 10,285 
Total debt securities, at fair value$763,981 $254 $103,122 $661,113 
 2022
(Dollars in thousands)Amortized
Cost		Unrealized
Gains		Unrealized
Losses		Fair Value
Federal agency obligations$5,014 $— $37 $4,977 
U.S. treasury securities45,942 — 2,691 43,251 
Federal agency CMO474,777 3 67,798 406,982 
Federal agency MBS24,172 27 3,178 21,021 
Taxable municipal securities287,435 29 48,187 239,277 
Tax-exempt municipal securities84,457 66 870 83,653 
Corporate bonds6,480 — 186 6,294 
Subordinated corporate bonds11,950 — 1,303 10,647 
Total debt securities, at fair value$940,227 $125 $124,250 $816,102 
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 $3.1 million and $4.0 million at December 31, 2023 and December 31, 2022, respectively.

At December 31, 2023, management performed its quarterly analysis of all securities with unrealized losses and determined that the losses were attributable to significant increases in market interest rates riserates. Management concluded that no ACL for available-for-sale securities was necessary as of December 31, 2023 and fall.  Dueanticipates they will mature or be called at par value. The Company does not intend to sell these investments and has determined, based upon available evidence, that it is more likely than not that the predominantly fixed rate natureCompany will not be required to sell each security before the recovery of this portfolio, as market rates fall the value of the portfolio rises, and as market rates rise, the value of the portfolio declines. The unrealized gains or losses on debt securities will also decline as the securities approach maturity. Unrealized losses that are deemed OTTI are generally charged to earnings, as described further in Note 1, "Summary of Significant Accounting Policies," under Item (d) "Investments." Gains or losses will be recognized in the income statement if the securities are sold.its amortized cost basis.





82
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


The Company did not hold any available-for-sale equityfollowing tables summarize the duration of unrealized losses for debt securities at December 31, 2017.2023 and 2022: 

 2023
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$4,978 $28 $— $— $4,978 $28 1 
U.S. treasury securities— — 15,925 1,068 15,925 1,068 4 
Federal agency CMO8,810 18 311,221 61,929 320,031 61,947 86 
Federal agency MBS— — 17,114 2,805 17,114 2,805 10 
Taxable municipal securities1,993 316 223,949 34,909 225,942 35,225 251 
Tax-exempt municipal securities11,890 55 10,519 230 22,409 285 53 
Corporate bonds— — 3,966 92 3,966 92 18 
Subordinated corporate bonds— — 10,285 1,672 10,285 1,672 6 
Total temporarily impaired debt securities$27,671 $417 $592,979 $102,705 $620,650 $103,122 429 
The following tables summarize investments (debt and equity) having temporary impairment, due to the fair market values having declined below the amortized costs of the individual investments, and the period that the investments have been temporarily impaired at December 31, 2017 and 2016.
 2022
 Less than 12 months12 months or longerTotal
(Dollars in thousands)Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		Fair
Value		Unrealized
Losses		# of Holdings
Federal agency obligations$4,977 $37 $— $— $4,977 $37 1 
U.S. treasury securities2,878 109 40,373 2,582 43,251 2,691 6 
Federal agency CMO164,391 13,004 233,051 54,794 397,442 67,798 102 
Federal agency MBS9,923 797 9,165 2,381 19,088 3,178 11 
Taxable municipal securities93,345 10,411 144,903 37,776 238,248 48,187 273 
Tax-exempt municipal securities66,277 870 — — 66,277 870 112 
Corporate bonds6,294 186 — — 6,294 186 31 
Subordinated corporate bonds6,206 743 4,440 560 10,646 1,303 6 
Total temporarily impaired debt securities$354,291 $26,157 $431,932 $98,093 $786,223 $124,250 542 

  2017
  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
Federal agency obligations $34,344
 $82
 $—
 $—
 $34,344
 $82
 9
Residential federal agency MBS 109,308
 882
 2,015
 89
 111,323
 971
 30
Commercial federal agency MBS 35,859
 205
 5,190
 81
 41,049
 286
 11
Municipal securities 16,983
 129
 10,210
 225
 27,193
 354
 50
Corporate bonds 2,802
 23
 2,913
 44
 5,715
 67
 33
Certificates of deposits 947
 3
 —
 —
 947
 3
 4
Total temporarily impaired investment securities $200,243
 $1,324
 $20,328
 $439
 $220,571
 $1,763
 137

  2016
  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
Federal agency obligations $13,956
 $45
 $—
 $—
 $13,956
 $45
 3
Residential federal agency MBS 68,138
 1,236
 8,008
 325
 76,146
 1,561
 31
Commercial federal agency MBS 60,060
 1,730
 —
 —
 60,060
 1,730
 18
Municipal securities 60,436
 1,520
 —
 —
 60,436
 1,520
 107
Corporate bonds 5,729
 90
 —
 —
 5,729
 90
 37
Certificates of deposit 949
 1
 —
 —
 949
 1
 4
Equity investments 1,185
 20
 2,743
 282
 3,928
 302
 3
Total temporarily impaired investment securities $210,453
 $4,642
 $10,751
 $607
 $221,204
 $5,249
 203

During the years ended December 31, 2017 and 2016, the Company did not record any fair value impairment charges on its investments. Management regularly reviews the portfolio for securities with unrealized losses that are other-than-temporarily impaired. At December 31, 2017, management did not consider it debt securities to have OTTI and attributes the unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company.

The process for assessing investments for OTTI may vary depending on the type of security. In assessing the Company's investments in federal agency mortgage-backed securities and federal agency obligations, the contractual cash flows of these investments are guaranteed by the respective government sponsored enterprise (FHLMC, FNMA, FFCB, or FHLB) or wholly-owned government corporation (GNMA). Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company's investments. Management's assessment of other debt securities within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investments' materiality, and duration of the investments' unrealized loss position. In addition, the Company utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios, within prescribed guidelines set by management, and to provide assistance in assessing the credit risk of those portfolios. At December 31, 2017, the Company's corporate and municipal bond portfolios did not contain any securities below investment grade, as reported by major credit rating agencies. For equities and funds, management's assessment includes the severity of the declines, whether it is unlikely that the security or fund will completely recover

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


its unrealized loss within a reasonable time period and if the equity security or fund exhibits fundamental deterioration. The Company did not hold any equity securities at December 31, 2017.
As noted in the table above, a small portion of the portfolio was invested in CDs and was also in an unrealized loss position at December 31, 2017 due to market rates. The unrealized loss was not considered to be material and the securities are expected to mature at par value.

The contractual maturity distribution at December 31, 20172023 of total debt securities was as follows:
(Dollars in thousands)Amortized CostFair Value
Due in one year or less$30,657 $30,252 
Due after one, but within five years85,847 81,696 
Due after five, but within ten years252,508 217,720 
Due after ten years394,969 331,445 
Total debt securities$763,981 $661,113 
(Dollars in thousands) Amortized Cost Fair Value
Due in one year or less $19,095
 $19,159
Due after one, but within five years 82,231
 82,255
Due after five, but within ten years 134,395
 134,959
Due after ten years 168,978
 168,833
Total available-for-sale securities $404,699
 $405,206


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 debt securitiesthe table above are callable securities, comprised of municipal securities and corporate bonds, with amortized costs anda fair valuesvalue of $74.5$133.4 million, and $75.7 million, respectively, at December 31, 2017, which can be redeemed by the issuers prior to the maturity presented above. Management considers these factors when evaluating the interest rateinterest-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 (the "FRB").FRB. The fair value of debt securities pledged as collateral for these purposes was $383.1$650.8 million and $804.2 million at December 31, 20172023 and $361.2 million at December 31, 2016. 2022, respectively.
 
83
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Sales of investments, including pending trades based on trade date, if applicable,debt securities, for the years ended December 31, 2017, 2016,2023, 2022 and 20152021 are summarized as follows: 

(Dollars in thousands)202320222021
Amortized cost of debt securities sold(1)
$87,198 $71,593 $2,931 
Gross realized gains on sales— 1,061 128 
Gross realized losses on sales(2,419)(3,034)— 
Total proceeds from sales of debt securities$84,779 $69,620 $3,059 
(Dollars in thousands) 2017 2016 2015
Amortized cost of investments sold (1)
 $145,472
 $4,299
 $23,287
Gross realized gains on sales 3,411
 803
 1,990
Gross realized losses on sales (2,695) (1) (162)
Total proceeds from sales of investments $146,188
 $5,101
 $25,115

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


In 2017, the gross realized gains were primarily from equity sales, partially offset by losses predominately from a debt security portfolio restructuring. The proceeds from sales of investments were reinvested into the portfolio.

Tax-exempt interest earned on the municipal securities portfolio was $4.0amounted to $2.6 million for the year ended December 31, 2017, $3.62023, compared to $3.4 million for each of the yearyears ended December 31, 2016,2022 and $2.9 million for the year ended December 31, 2015.2021.


The average balance of tax-exempt investments was $111.6$64.1 million and $100.0$86.0 million for the years ended December 31, 20172023 and December 31, 2016,2022, respectively.

Equity Securities

At December 31, 2023, the Company held equity securities with a fair value of $7.1 million, which consisted of $4.4 million in management directed investments and $2.7 million in mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

At December 31, 2022, the Company held equity securities with a fair value of $4.3 million, which consisted of $2.9 million in management directed investments and $1.4 million in mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Gains and losses on equity securities for the years ended December 31, 2023 and 2022 are summarized as follows:
(Dollars in thousands)20232022
Net gains (losses) recognized during the period on equity securities$666 $(514)
Less: Net losses realized on equity securities sold during the period(5)(17)
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the end of the period$671 $(497)
 
See Item (d) "Investments," contained in Note 1, "Summary
84
Contents

ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


(3)    Loans

(3)Loans


The Company specializes in lending to business entities, non-profit organizations, professional practices and individuals. The Company’s primary lending focus is on the development of high quality commercial relationships achieved through active business development efforts, long-term relationships with established commercial developers, strong community involvement and focused marketing strategies.  Loans made to businesses include commercial mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit.  The Company also originates equipment lease financing for businesses. Loans made to individuals include conventional residential mortgage loans, home equity loans and lines, residential construction loans on owner-occupied primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company manages its loan portfolio to avoid concentration by industry, relationship size and source of repayment to lessen its credit risk exposure.Loan Portfolio Classifications

See Note 4, "Allowance for Loan Losses," for information on the Company's credit risk management, non-accrual, impaired and troubled debt restructured loans and the allowance for loan losses.


Major classifications of loans at amortized cost at the periods indicated were as follows:

(Dollars in thousands)December 31, 2023December 31, 2022
Commercial real estate$2,064,737 $1,921,410 
Commercial and industrial430,749 414,490 
Commercial construction585,113 424,049 
Total commercial loans3,080,599 2,759,949 
Residential mortgages393,142 332,632 
Home equity85,375 79,807 
Consumer8,515 8,130 
Total retail loans487,032 420,569 
Total loans3,567,631 3,180,518 
Allowance for credit losses(58,995)(52,640)
Net loans$3,508,636 $3,127,878 

(Dollars in thousands) December 31, 2017 December 31, 2016
Commercial real estate $1,201,351
 $1,038,082
Commercial and industrial 498,802
 490,799
Commercial construction 274,905
 213,447
Total commercial loans 1,975,058
 1,742,328
Residential mortgages 195,492
 180,560
Home equity loans and lines 91,706
 91,065
Consumer 10,293
 10,845
Total retail loans 297,491
 282,470
     
 Gross loans 2,272,549
 2,024,798
Deferred loan origination fees, net (2,645) (2,069)
Total loans 2,269,904
 2,022,729
Allowance for loan losses (32,915) (31,342)
Net loans $2,236,989
 $1,991,387
Net deferred loan origination fees, included in the amortized costs of loans reflected in the table above, amounted to $5.4 million at December 31, 2023 and $5.2 million at December 31, 2022.


Loan CategoriesAccrued interest receivable on loans amounted to $16.1 million and $13.1 million at December 31, 2023 and December 31, 2022, respectively, and was included in the "Accrued interest receivable" line item on the Company’s Consolidated Balance Sheets.


Commercial loans

Commercial real estate loans include loans secured by both owner-use and non-owner occupied real estate. These loans are typically secured by a variety of commercial and industrial property types, including one-to-four family and multi-family apartment buildings, office, industrial or mixed-use facilities, strip shopping centers or other commercial properties, and are generally guaranteed by the principals of the borrower. Commercial real estate loans generally have repayment periods of approximately fifteen to twenty-five years. Variable interest rate loans have a variety of adjustment terms and underlying interest rate indices, and are generally fixed for an initial period before periodic rate adjustments begin.

Commercial and industrial loans include seasonal revolving lines of credit, working capital loans, equipment financing (including equipment leases), and term loans. Also included in commercial and industrial loans are loans partially guaranteed by the U. S. Small Business Administration ("SBA"), and loans under various programs and agencies. Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories,

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


equipment, or receivables, and are generally guaranteed by the principals of the borrower. Variable rate loans and lines in this portfolio have interest rates that are periodically adjusted, with loans generally having fixed initial periods.  Commercial and industrial loans have average repayment periods of one to seven years.

Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowers. Construction lenders work to cultivate long-term relationships with established developers. The Company limits the amount of financing provided to any single developer for the construction of properties built on a speculative basis. Funds for construction projects are disbursed as pre-specified stages of construction are completed. Regular site inspections are performed, prior to advancing additional funds, at each construction phase, either by experienced construction lenders on staff or by independent outside inspection companies. Commercial construction loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms of one to three years.

From time to time, the Company participates with other banks in the financing of certain commercial projects. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently. In some cases, the Company may act as the lead lender, originating and servicing the loans, but participating out a portion of the funding to other banks. In other cases, the Company may participate in loans originated by other institutions. In each case, the participating bank funds a percentage of the loan commitment and takes on the related pro-rata risk. In each case in which the Company participates in a loan, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks. When the participation qualifies as a sale under GAAP, the balances participated out to other institutions are not carried as assets on the Company's consolidated financial statements. The Company performs an independent credit analysis of each commitment and a review of the participating institution prior to participation in the loan, and an annual review thereafter of each participating institution. Loans originated by other banks in which the Company is a participating institution are carried in the loan portfolio at the Company's pro-rata share of ownership. Loans originated by other banks in which the Company is a participating institutionownership and amounted to $91.6$126.6 million at December 31, 20172023 and $85.2$94.8 million at December 31, 2016.2022. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.


In addition, the Company participates in various community development loan funds in which local banks contribute to a loan pool which is independently managed. These loan pools make small dollar loans available to local businesses and start-ups that might otherwise not qualify for traditional small business loans directly from banks, with the potential risk spread among the participating banks. The goal of these partnerships with community development loan funds is to stimulate local economic development, create jobs, and help small businesses and entrepreneurs to become more viable, bankable and an integrated part of the local community.

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 credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.

Residential mortgage loans

Enterprise originates conventional mortgage loans on one-to-four family residential properties. These properties may serve as the borrower's primary residence, or as vacation homes or investment properties. Loan-to-value limits vary, generally from 75% for multi-family, owner-occupied properties, up to 97% for single family, owner-occupied properties, with mortgage insurance coverage required for loan-to-value ratios greater than 80% based on program parameters. In addition, financing is provided for the construction of owner-occupied primary and secondary residences. Residential mortgage loans may have terms of up to 30 years at either fixed or adjustable rates of interest. Fixed and adjustable rate residential mortgage loans are generally originated using secondary market underwriting and documentation standards.

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



Depending on the current interest rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable rate residential mortgage loans which are eligible for sale in the secondary market, or hold some or all of this residential loan production for the Company's portfolio. Mortgage loans are generally not pooled for sale, but instead sold on an individual basis. The Company may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans classified as held for sale are carried as a separate line item on the consolidated balance sheet.

Home equity loans and lines of credit

Home equity term loans have in the past been originated for one-to-four family residential properties with maximum original loan-to-value ratios generally up to 80% of the automated valuation or appraised value of the property securing the loan. Home equity loan payments consist of monthly principal and interest based on amortization ranging from three to fifteen years. The rates may be variable or fixed.

The Company originates home equity revolving lines of credit for one-to-four family residential properties with maximum original loan-to-value ratios generally up to 80% of the automated valuation or appraised value of the property securing the loan. Home equity lines generally have interest rates that adjust monthly based on changes in the Wall Street Journal Prime Rate, although minimum rates may be applicable. Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment schedule for home equity lines requires interest only payments for the first ten years of the lines. Generally at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year amortization schedule or, for eligible borrowers meeting certain requirements, the line availability may be extended for an additional interest only period.
Consumer loans

Consumer loans consist primarily of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities, and overdraft protection lines on checking accounts extended to individual customers. The aggregate amounts of overdrawn deposit accounts are reclassified as loan balances.

Related Party Loans


Certain of the Company's directors, officers, principal stockholders and their associates are credit customers of the Company in the ordinary course of business. In addition, certain directors are also directors, trustees, officers or stockholders of corporations and non-profit entities or members of partnerships that are customers of the Bank and that enter into loan and other transactions with the Bank in the ordinary course of business. All loans and commitments included in such transactions are on such terms, including interest rates, repayment terms and collateral, as those prevailing at the time for comparable transactions with persons who are not affiliated with the Bank and do not involve more than a normal risk of collectability or present other features unfavorable to the Bank.

As of December 31, 20172023 and 20162022 , the outstanding loan balances to directors, officers, principal stockholdersshareholders, and their associates were $33.9$31.4 million and $18.6$33.5 million,, respectively. All loans to these related parties were current and accruing atas of those dates. Unadvanced portions of lines of credit available to these individuals were $16.8$35.7 million and $9.8$12.5 million,, as of December 31, 20172023 and 2016,2022, respectively. During 2017,2023, new loans and net increases in loan balances or lines of credit under existing commitments of $30.2$1.5 million were made and principal paydownspay-downs of $7.9$19.7 million were received. During 2016,2022, new loans and net increases in loan balances or lines of credit under existing commitments of $2.3$5.2 million were made and principal paydownspay-downs of $1.9$11.4 million were received.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



Loans Servicedserviced for Othersothers


At December 31, 20172023 and 2016,2022, the Company was servicing residential mortgage loans owned by investors amounting to $18.4$7.7 million and $18.7$8.9 million,, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $70.7$69.8 million and $62.3$59.1 million at December 31, 20172023 and 2016,2022, respectively. See
85
ENTERPRISE BANCORP, INC.
Notes to the discussion above under the heading "Commercial loans" for further information regarding commercial participations.Consolidated Financial Statements

Loans Servingserving as Collateralcollateral


Loans designated as qualified collateral and pledged to the FHLB for borrowing capacity for the periods indicated are summarized below:
(Dollars in thousands)December 31, 2023December 31, 2022
Commercial real estate$495,831 $113,830 
Residential mortgages369,062 309,023 
Home equity35,540 39,724 
Total loans pledged to FHLB$900,433 $462,577 
(Dollars in thousands) December 31, 2017 December 31, 2016
Commercial real estate $224,703
 $247,664
Residential mortgages 187,524
 170,247
Home equity loans and lines 9,405
 12,340
Total loans pledged to FHLB $421,632
 $430,251


Tax-Exempt Interest


Tax-exempt interest earned on qualified commercial loans was $2.1$2.0 million for both the years ended December 31, 2017 and 2016 and $1.6 million for the year ended December 31, 2015, respectively.2023, $1.7 million for the year ended December 31, 2022 and $1.8 million for the year ended December 31, 2021. Average tax-exempt loan balances were $64.4$47.0 million and $63.9$63.9 million for the years ended December 31, 20172023 and 2016,2022, respectively.


(4)    Credit Risk Management and ACL for Loans
See item (h) "Credit Risk Management and ACL for Loans Methodology" contained in Note 15, "Fair Value Measurements," below1, "Summary of Significant Accounting Policies" of this Form 10-K, for further information regarding the Company's fair value measurements for loans, and Note 8, "Derivatives and Hedging Activities," below for information regarding interest-rate-swap agreements related to certain commercial loans.

For additional information on unadvanced loansthe Company's loan accounting policies, Credit Risk monitoring, and lines, commitments to originate loans, lettersACL methodology.




























86

(4)Allowance for Loan Losses
Inherent in the lending process is the risk of loss due to customer non-payment, or "credit risk." The Company's commercial lending focus may entail significant additional credit risks compared to long-term financing on existing, owner-occupied residential real estate.  The Company seeks to lessen its credit risk exposure by managing its loan portfolio to avoid concentration by industry, relationship size and source of repayment, and through sound underwriting practices and the credit risk management function; however, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio including, individual review of larger and higher risk problem assets, the level of delinquent loans and non-performing loans, impaired loans, the level of net charge-offs, and the growth and composition of the loan portfolio, as well as trends in the general levels of these indicators. In addition management monitors expansion in geographic market area, the experience level of lenders and any changes in underwriting criteria, the strength of local and national economy, including general conditions in the multi-family, commercial real estate and development and construction markets in the local region.


ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


Allowance for Probable Loan Losses Methodology

On a quarterlyThe following tables present the amortized cost basis management prepares an estimate of the allowance necessary to cover estimated probable credit losses. The Company uses a systematic methodology to measure the amount of estimatedCompany's loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses. The methodology makes use of specific reserves for loans individually evaluated and deemed impaired, and general reserves for larger groups of homogeneous loans, which are collectively evaluated relying on a combination of qualitative and quantitative factors that may affect credit quality of the pool.

Specific Reserves for loans individually evaluated for impairment

When a loan is deemed to be impaired, management estimates the credit lossrisk ratings within portfolio classifications, by comparing the loan's carrying value against either 1) the present value of the expected future cash flows discounted at the loan's effective interest rate; 2) the loan's observable market price;origination date, or 3) the expected realizable fair value of the collateral, in the case of collateral dependent loans. A specific allowance is assigned to the impaired loan for the amount of estimated credit loss. Impaired loans are charged-off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.

General Reserves for loans collectively evaluated for impairment

In assessing the general reserves management has segmented the portfolio for groups of loans with similar risk characteristics, by I. Non-classified loans, and II. Regulatory problem-asset segments. These groups are further subdivided by loan category or internal risk rating, respectively. The general loss allocation factors take into account the quantitative historic loss experience, qualitative or environmental factors such as those identified above, as well as regulatory guidance and industry data.

I.Non-classified loans by credit type:

Management has established the modified historic loss factor for non-classified loan segments by first calculating net charge-offs over a period of time, divided by the average loan balance over that same period. The time period utilized equates to the estimated loss emergence period for each loan segment. This average period may be changed from time to time to be reflective of the most appropriate corresponding conditions (market, economic, etc.). These historic loss factors are then adjusted up or down based on management’s assessment of current qualitative factors that are likely to cause estimated credit lossesrevolving status as of the evaluation date to differ from the segment’s historical loss experience. These key qualitative factors include the following broad categories:dates indicated:

Several key areas of expansion and growth, including geographic market, changes in lending staff, new or expanded product lines, changes in composition and portfolio concentrations;
Changes in the credit trend and current volume and severity of past due loans, non-accrual loans and the severity of adversely classified and impaired loans compared to historical levels; and
The current economic environment and conditions (local, state and national) and their general implications to each loan category.

Management weighs the current effect of each of these areas on each particular non-classified loan segment in determining the allowance allocation factors. Management must exercise significant judgment when evaluating the effect of these qualitative factors on the amount of the allowance for loan losses on the non-classified segments because data may not be reasonably available or directly applicable to determine the precise impact of a factor on the collectability of the loan portfolio as of the evaluation date. The methodology contemplates a range of acceptable levels for these factors due to the subjective nature of the factors and the qualitative considerations related to the inherent credit risk in the portfolio.

II.Regulatory problem-assets segments by credit rating:

For determining the reserve percentages for problem-loans, management has segmented the portfolio following the regulatory problem-asset segments by risk rating: Criticized; Substandard; Doubtful; or Loss, after excluding
Balance at December 31, 2023
Term Loans By Origination Year
(Dollars in thousands)20232022202120202019PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate
Pass$215,679 $371,606 $367,011 $201,621 $217,055 $641,034 $12,130 $107 $2,026,243 
Special mention31 15,782 — — 489 9,948 — — 26,250 
Substandard— 1,311 631 — 969 8,883 — 450 12,244 
Total commercial real estate215,710 388,699 367,642 201,621 218,513 659,865 12,130 557 2,064,737 
Current period charge-offs— — — — — — — — — 
Commercial and industrial
Pass73,608 51,990 45,278 24,778 23,724 44,609 156,465 3,402 423,854 
Special mention— — — 70 215 201 2,227 223 2,936 
Substandard— — 18 — 1 209 316 3,415 3,959 
Total commercial and industrial73,608 51,990 45,296 24,848 23,940 45,019 159,008 7,040 430,749 
Current period charge-offs15 248 — — 67 266 — — 596 
Commercial construction
Pass192,462 164,313 143,203 22,017 16,247 10,532 27,261 — 576,035 
Special mention— 7,905 — — 1,173 — — — 9,078 
Total commercial construction192,462 172,218 143,203 22,017 17,420 10,532 27,261 — 585,113 
Current period charge-offs— — — — — — — — — 
Residential mortgages
Pass82,848 107,222 69,979 46,674 19,205 65,311 — — 391,239 
Special mention— — — — — 109 — — 109 
Substandard— — 236 — 1,055 503 — — 1,794 
Total residential mortgages82,848 107,222 70,215 46,674 20,260 65,923 — — 393,142 
Current period charge-offs— — — — — — — — — 
Home equity
Pass1,203 775 561 444 317 1,738 79,421 636 85,095 
Substandard— — — — — 72 — 208 280 
Total home equity1,203 775 561 444 317 1,810 79,421 844 85,375 
Current period charge-offs— — — — — — — — — 
Consumer
Pass3,705 1,652 1,371 722 623 442 — — 8,515 
Total consumer3,705 1,652 1,371 722 623 442 — — 8,515 
Current period charge-offs35 — — — — 1 — — 36 
Total loans$569,536 $722,556 $628,288 $296,326 $281,073 $783,591 $277,820 $8,441 $3,567,631 
Total current period charge-offs$50 $248 $— $— $67 $267 $— $— $632 

87
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


Balance at December 31, 2022
Term Loans by Origination Year
(Dollars in thousands)20222021202020192018PriorRevolving LoansRevolving Loans Converted to TermTotal
Commercial real estate
Pass$391,515 $381,771 $204,125 $218,664 $114,175 $577,354 $1,347 $200 $1,889,151 
Special mention— — — 507 2,041 16,248 — — 18,796 
Substandard— 289 — 1,160 1,404 10,610 — — 13,463 
Total commercial real estate391,515 382,060 204,125 220,331 117,620 604,212 1,347 200 1,921,410 
Commercial and industrial
Pass59,824 53,059 33,027 29,293 13,364 43,724 171,670 3,235 407,196 
Special mention— — — 11 66 278 3,132 — 3,487 
Substandard— 19 — 8 138 325 2,964 353 3,807 
Total commercial and industrial59,824 53,078 33,027 29,312 13,568 44,327 177,766 3,588 414,490 
Commercial construction
Pass151,107 169,549 35,651 31,189 7,729 3,379 19,778 1,473 419,855 
Special mention— — — 3,900 — — — — 3,900 
Substandard— 294 — — — — — — 294 
Total commercial construction151,107 169,843 35,651 35,089 7,729 3,379 19,778 1,473 424,049 
Residential mortgages
Pass112,804 73,955 49,549 20,140 18,799 54,620 — — 329,867 
Special mention— — — — — 325 — — 325 
Substandard— — — 1,060 — 1,380 — — 2,440 
Total residential mortgages112,804 73,955 49,549 21,200 18,799 56,325 — — 332,632 
Home equity
Pass328 596 456 345 — 1,220 75,324 1,054 79,323 
Substandard— 273 — — — 211 — — 484 
Total home equity328 869 456 345 — 1,431 75,324 1,054 79,807 
Consumer
Pass3,144 1,852 1,063 1,045 606 420 — — 8,130 
Total consumer3,144 1,852 1,063 1,045 606 420 — — 8,130 
Total loans$718,722 $681,657 $323,871 $307,322 $158,322 $710,094 $274,215 $6,315 $3,180,518 
loans that are individually evaluated for impairment.
The modified historic loss factor for problem loan segments was determined by first tracking a sampling of these loans over a period of time, to determine the ultimate resolution. Those balances resulting in charge-offs were calculated as a percentage of the segment's loan balance and an average was calculated over that same period. This average period may be changed from time to time to be reflective of the most appropriate corresponding conditions (market, economic, etc.). These historic loss factors are then adjusted up or down based on management’s assessment of current qualitative factors that are likely to cause estimated credit losses as of the evaluation date to differ from the segment’s historical loss experience. Management also utilizes regulatory guidance and industry data in relation to the Company's own portfolio statistics as atotal amortized cost basis for assessing the reasonableness of the allocation factors for each class of regulatory problem-assets.

Management recognizes that additional issues may also impact the estimate of credit losses to some degree. From time to time management will re-evaluate the qualitative factors, regulatory guidance, and industry data in use in order to consider the impact of other issues which, based on changing circumstances, may become more significant in the future.

The balances of loans as of December 31, 2017 by segment and evaluation method are summarized as follows:
(Dollars in thousands) Loans individually evaluated for impairment Loans collectively evaluated for impairment Gross Loans
Commercial real estate $13,739
 $1,187,612
 $1,201,351
Commercial and industrial 10,096
 488,706
 498,802
Commercial construction 1,624
 273,281
 274,905
Residential mortgages 397
 195,095
 195,492
Home equity loans and lines 371
 91,335
 91,706
Consumer 35
 10,258
 10,293
Total gross loans $26,262
 $2,246,287
 $2,272,549

The balances of loans as of December 31, 2016 by segment and evaluation method are summarized as follows:
(Dollars in thousands) Loans individually evaluated for impairment Loans collectively evaluated for impairment Gross Loans
Commercial real estate $14,261
 $1,023,821
 $1,038,082
Commercial and industrial 13,372
 477,427
 490,799
Commercial construction 3,364
 210,083
 213,447
Residential mortgages 289
 180,271
 180,560
Home equity loans and lines 509
 90,556
 91,065
Consumer 1
 10,844
 10,845
Total loans $31,796
 $1,993,002
 $2,024,798

Credit Risk Management

As noted above, the credit risk management function focuses on a wide variety of factors and early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Credit Department, an external loan review service, reviews by members of senior management as well as reviews by the Loan Committee and the Board. This review includes the assessment of internal credit quality indicators such as, among others, the risk classification of adversely classified loans past dueamounted to $56.7 million, or 1.59% of total loans, at December 31, 2023, and non-accrual$47.0 million, or 1.48% of total loans, impaired and restructured loans, and the levelat December 31, 2022.















88


Contents
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


Credit Quality Indicators

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, to the regulatory problem-asset classifications of "criticized," for loans that may need additional monitoring, and 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 by management.
Loans classified as substandard include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. These loans are inadequately protected by the sound net worth and paying capacity of the borrower; repayment has become increasingly reliant on collateral liquidation or reliance on guaranties; credit weaknesses are well-defined; borrower cash flow is insufficient to meet the required debt service specified in the loan terms and to meet other obligations, such as trade debt and tax payments.

Loans classified as doubtful have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until more exact status may be determined.

Loans classified as loss are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible. These "loss" loans would require a specific loss reserve or charge-off.

Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof.

The following tables present the Company's credit risk profile for each class of loan in its portfolio by internally assigned adverse risk rating category as of the periods indicated.
  December 31, 2017
(Dollars in thousands) Adversely Classified Not Adversely Classified Gross Loans
 Substandard Doubtful Loss  
Commercial real estate $12,895
 $—
 $—
 $1,188,456
 $1,201,351
Commercial and industrial 9,915
 48
 1
 488,838
 498,802
Commercial construction 1,624
 —
 —
 273,281
 274,905
Residential mortgages 1,355
 —
 —
 194,137
 195,492
Home equity loans and lines 513
 —
 —
 91,193
 91,706
Consumer 52
 10
 —
 10,231
 10,293
Total gross loans $26,354
 $58
 $1
 $2,246,136
 $2,272,549


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



  December 31, 2016
(Dollars in thousands) Adversely Classified Not Adversely Classified Gross Loans
 Substandard Doubtful Loss  
Commercial real estate $16,003
 $—
 $—
 $1,022,079
 $1,038,082
Commercial and industrial 12,770
 99
 2
 477,928
 490,799
Commercial construction 3,364
 —
 —
 210,083
 213,447
Residential mortgages 1,414
 —
 —
 179,146
 180,560
Home equity loans and lines 666
 —
 —
 90,399
 91,065
Consumer 30
 —
 —
 10,815
 10,845
Total gross loans $34,247
 $99
 $2
 $1,990,450
 $2,024,798

Total adversely classified loans amounted to 1.16% of total loans at December 31, 2017, as compared to 1.70% at December 31, 2016.

Past due and non-accrual loans

Loans on which the accrual of interest has been discontinued are designated as non-accrual and the classified portions are credit downgraded to one of the adversely classified categories noted above. Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days and when, in the judgment of management, the collectability of both principal and interest is reasonably assured. Additionally, deposit accounts overdrawn for 90 or more days are included in the consumer non-accrual numbers below.


The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated:
Balance at December 31, 2023
(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$1,181 $774 $1,334 $3,289 $2,061,448 $2,064,737 
Commercial and industrial660 64 — 724 430,025 430,749 
Commercial construction— — — — 585,113 585,113 
Residential mortgages1,265 — 1,277 2,542 390,600 393,142 
Home equity53 — 97 150 85,225 85,375 
Consumer25 2 — 27 8,488 8,515 
Total loans$3,184 $840 $2,708 $6,732 $3,560,899 $3,567,631 
 Balance at December 31, 2017
Balance at December 31, 2022
Balance at December 31, 2022
Balance at December 31, 2022
(Dollars in thousands) 

Past Due 30-59 Days
 

Past Due 60-89 Days
 Past Due 90 Days or More Total Past Due Loans Current Loans Gross Loans Non-accrual Loans
Commercial real estate $4,200
 $69
 $3,569
 $7,838
 $1,193,513
 $1,201,351
 $6,751
Commercial real estate
Commercial real estate
Commercial and industrial
Commercial and industrial
Commercial and industrial 374
 527
 327
 1,228
 497,574
 498,802
 1,294
Commercial construction 2,526
 518
 —
 3,044
 271,861
 274,905
 193
Commercial construction
Commercial construction
Residential mortgages 1,931
 93
 89
 2,113
 193,379
 195,492
 262
Home equity loans and lines 491
 120
 12
 623
 91,083
 91,706
 463
Residential mortgages
Residential mortgages
Home equity
Home equity
Home equity
Consumer 51
 5
 45
 101
 10,192
 10,293
 69
Total gross loans $9,573
 $1,332
 $4,042
 $14,947
 $2,257,602
 $2,272,549
 $9,032
Consumer
Consumer
Total loans
Total loans
Total loans

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



ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


  Balance at December 31, 2016
(Dollars in thousands) 
Past Due
30-59 Days
 
Past Due
60-89 Days
 Past Due 90 Days or More Total Past Due Loans Current Loans Gross Loans Non-accrual Loans
Commercial real estate $5,993
 $923
 $1,399
 $8,315
 $1,029,767
 $1,038,082
 $4,876
Commercial and industrial 267
 4
 1,544
 1,815
 488,984
 490,799
 3,174
Commercial construction —
 —
 —
 —
 213,447
 213,447
 519
Residential mortgages 648
 —
 99
 747
 179,813
 180,560
 289
Home equity loans and lines 270
 —
 269
 539
 90,526
 91,065
 616
Consumer 94
 13
 11
 118
 10,727
 10,845
 11
Total gross loans $7,272
 $940
 $3,322
 $11,534
 $2,013,264
 $2,024,798
 $9,485

At December 31, 20172023 and December 31, 2016,2022, all loans past due 90 days or more were carried as non-accrual, however, not all non-accrual loans were 90 days or more past due in addition to those loanstheir payments. 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 shown instatus.
The following tables present the tables above.

Non-accrualamortized cost of non-accrual loans that were not adversely classified amounted to $21 thousand at December 31, 2017 and $220 thousand at December 31, 2016. These balances primarily represented the guaranteed portions of non-performing SBA loans. The majorityby portfolio classification as of the non-accrual loan balances were also carried as impaired loans duringdates indicated:
Balance at December 31, 2023
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate$5,369 $4,400 $969 $229 
Commercial and industrial4,262 736 3,526 2,658 
Commercial construction— — — — 
Residential mortgages1,526 1,526 — — 
Home equity257 257 — — 
Consumer— — — — 
Total loans$11,414 $6,919 $4,495 $2,887 
89
ENTERPRISE BANCORP, INC.
Notes to the periods noted, and are discussed further below.Consolidated Financial Statements

Balance at December 31, 2022
(Dollars in thousands)Total Non-accrual LoansNon-accrual Loans without a Specific ReserveNon-accrual Loans with a Specific ReserveRelated Specific
Reserve
Commercial real estate$3,355 $2,317 $1,038 $298 
Commercial and industrial730 348 382 382 
Commercial construction294 294 — — 
Residential mortgages1,532 1,532 — — 
Home equity211 211 — — 
Consumer— — — — 
Total loans$6,122 $4,702 $1,420 $680 

The ratio of non-accrual loans to total loans amounted to 0.40%0.32% and 0.47%0.19% at December 31, 20172023 and December 31, 2016,2022, respectively.

The Company's obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion. At December 31, 2017,2023 and December 31, 2022, additional funding commitments for non-accrual loans on non-accrual status totaled $25 thousand.were not material.


The reduction in interest income for the years ended December 31, associated with non-accruing loans is summarized as follows:
(Dollars in thousands)202320222021
Income that would have been recognized if non-accrual loans had been on accrual$1,285 $1,083 $2,028 
Less income recognized191 1,050 633 
Reduction in interest income$1,094 $33 $1,395 
(Dollars in thousands) 2017 2016 2015
Income in accordance with original loan terms $1,906
 $1,585
 $1,052
Less income recognized 990
 722
 426
Reduction in interest income $916
 $863
 $626


Collateral dependent loans
Impairedloans

The total recorded investment in collateral dependent loans amounted to $13.7 million at December 31, 2023 compared to $25.2 million at December 31, 2022. Total accruing collateral dependent loans amounted to $2.4 million, while non-accrual collateral dependent loans amounted to $11.3 million as of December 31, 2023. As of December 31, 2022, total accruing collateral dependent loans amounted to $19.5 million while non-accrual collateral dependent loans amounted to $5.7 million.
Impaired
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 individually significantadversely classified loans. These loans for which management considers it probable that not all amounts due (principal and interest) willmay be collected in accordance with the original contractual terms. The majority of impairedaccruing or on non-accrual status. Collateral dependent loans are included withincarried at the non-accrual balances; however, not everylower of the recorded investment in the loan on non-accrual status has been designatedor the estimated fair value. Underlying collateral will vary by type of loan, as impaired. Impaireddiscussed below.

Commercial real estate loans include loans that have been modified in a troubled debt restructuring ("TDR"), see "Troubled debt restructurings" below. Impairedsecured by both owner and non-owner occupied (investor) real estate. These loans are individually evaluatedtypically secured by a variety of commercial, residential investment, and exclude large groupsindustrial property types, including one-to-four and multi-family apartment buildings, office, industrial, or mixed-use facilities, strip shopping centers, or other commercial properties.

Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of smaller-balance homogeneousthe loan or secured by inventories, equipment, or receivables.

Commercial construction loans such asinclude the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by underlying real estate collateral.

Residential mortgage loans and consumerhome equity lines may be secured by one-to-four family residential properties serving as the borrower's primary residence, or as vacation homes or investment properties.

Consumer loans which are collectively evaluated for impairment,consist primarily of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities, and loans that are measured at fair value, unlessoverdraft protection lines on checking accounts.
90
ENTERPRISE BANCORP, INC.
Notes to the loan is amended in a TDR.Consolidated Financial Statements

Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.individual evaluation. Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. An impaired or TDR loan classification will be considered for upgrade based on the borrower's sustained performance

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


over time and their improving financial condition. Consistent with the criteria for returning non-accrual loans to accrual status, the borrower must demonstrate the ability to continue to service the loan in accordance with the original or modified terms and, in the judgment of management, the collectability of the remaining balances, both principal and interest, are reasonably assured. In the case of TDR loans having had a modified interest rate, that rate must be at, or greater than, a market rate for a similar credit at the time of modification for an upgrade to be considered.

Impaired loans are individually evaluated for credit loss and a specific allowance reserve is assigned for the amount of the estimated probable credit loss.  Refer to heading “Allowance for probable loan losses methodology” contained within this Note 4 for further discussion of management’s methodology used to estimate specific reserves for impaired loans.

The carrying value of impaired loans amounted to $26.3 million and $31.8 million at December 31, 2017 and December 31, 2016, respectively.  Total accruing impaired loans amounted to $17.4 million and $22.4 million at December 31, 2017 and December 31, 2016, respectively, while non-accrual impaired loans amounted to $8.9 million and $9.4 million as of December 31, 2017 and December 31, 2016, respectively. 


The following tables set forthpresent the recorded investment in impairedcollateral dependent individually evaluated loans and the related specific allowance allocatedby portfolio allocation as of the dates indicated:
Balance at December 31, 2023
(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$8,703 $7,148 $6,180 $968 $229 
Commercial and industrial6,804 4,332 950 3,382 2,526 
Commercial construction— — — — — 
Residential mortgages2,117 1,902 1,902 — — 
Home equity359 281 281 — — 
Consumer— — — — — 
Total$17,983 $13,663 $9,313 $4,350 $2,755 
 Balance at December 31, 2017
Balance at December 31, 2022Balance at December 31, 2022
(Dollars in thousands) Unpaid contractual principal balance Total recorded investment in impaired loans Recorded investment with no allowance Recorded investment with allowance Related specific allowance(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 $15,132
 $13,739
 $12,850
 $889
 $59
Commercial and industrial 10,458
 10,096
 7,053
 3,043
 1,284
Commercial construction 1,678
 1,624
 1,624
 —
 —
Residential mortgages 511
 397
 262
 135
 5
Home equity loans and lines 543
 371
 371
 —
 —
Residential mortgages
Residential mortgages
Home equity
Consumer 36
 35
 —
 35
 35
Total $28,358
 $26,262
 $22,160
 $4,102
 $1,383



  Balance at December 31, 2016
(Dollars in thousands) Unpaid contractual principal balance Total recorded investment in impaired loans Recorded investment with no allowance Recorded investment with allowance Related specific allowance
Commercial real estate $16,010
 $14,261
 $12,444
 $1,817
 $370
Commercial and industrial 14,291
 13,372
 9,366
 4,006
 2,222
Commercial construction 3,408
 3,364
 3,051
 313
 28
Residential mortgages 388
 289
 289
 —
 —
Home equity loans and lines 665
 509
 509
 —
 —
Consumer 2
 1
 —
 1
 1
Total $34,764
 $31,796
 $25,659
 $6,137
 $2,621



ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


The following table presents the average recorded investment in impaired loans and the related interest recognized during the year ends indicated:
  December 31, 2017 December 31, 2016 December 31, 2015
(Dollars in thousands) Average recorded investment
Interest income (loss) recognized Average recorded investment Interest income (loss) recognized Average recorded investment Interest income recognized
Commercial real estate $14,473
 $363
 $12,988
 $332
 $13,827
 $196
Commercial and industrial 12,272
 370
 9,790
 223
 9,372
 97
Commercial construction 1,818
 92
 3,137
 150
 2,202
 83
Residential mortgages 320
 2
 301
 —
 449
 —
Home equity loans and lines 482
 (1) 356
 (4) 174
 1
Consumer 25
 (1) 14
 —
 45
 —
Total $29,390
 $825
 $26,586
 $701
 $26,069
 $377

All payments received on impaired loans in non-accrual status are applied to principal. Interest income that was not recognized on loans that were deemed impaired as of December 31, 2017, 2016 and 2015, amounted to $890 thousand, $858 thousand, and $688 thousand, respectively. At December 31, 2017, additional funding commitments for impaired loans totaled $416 thousand. The Company's obligation to fulfill the additional funding commitments on impairedindividually evaluated loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion. At December 31, 2023 and December 31, 2022, additional funding commitments for individually evaluated collateral dependent loans were not material.


Troubled debt restructuringsLoan modifications to borrowers experiencing financial difficulty


Loans are designated as a TDR when, as partThe following table presents the amortized cost basis of an agreementloan modifications made to modifyborrowers experiencing financial difficulty by type of concession granted during the original contractual termsperiod indicated:
Twelve months ended
December 31, 2023
(Dollars in thousands)Payment Deferrals% of Loan Class Total
Commercial real estate$270 0.01 %
Commercial and industrial177 0.04 %
Residential mortgages31 0.01 %
Total$478 0.01 %


The following table presents the financial effect of loan modifications made to borrowers experiencing financial difficulty during the loan as a resultperiod indicated:
91
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Twelve months ended
December 31, 2023
Weighted Average Payment Deferrals
Commercial real estate0.5 years
Commercial and industrial0.5 years
Residential mortgages0.5 years

The Company closely monitors the performance of the borrower, the Bank grants the borrower a concession on the terms, that would not otherwise be considered.  Typically, such concessions may consist of 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 byfor borrowers experiencing financial difficulty to understand the effectiveness of its modification efforts. The following table presents the performance status of loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty, at the period indicated.
Balance at December 31, 2023
(Dollars in thousands)Current30-59 Days
Past Due		60-89 Days
Past Due		Past Due 90 Days or MoreTotal Past
Due
Commercial real estate$— $— $270 $— $270 
Commercial and industrial143 — 34 — 34 
Commercial construction— — — — — 
Residential mortgages31 — — — — 
Home equity— — — — — 
Consumer— — — — — 
Total$174 $— $304 $— $304 

During the year ended December 31, 2023, there were no subsequent defaults on loans that had been modified within the preceding twelve months for borrowers experiencing financial difficulty, and at December 31, 2023, additional funding commitments to borrowers experiencing financial difficulty who were party to a loan modification were immaterial.

Prior Period TDR Disclosures

Prior to adopting the new accounting standard on loan modifications, the Company accounted for modifications of loans to identifyborrowers experiencing financial difficulty as TDRs, when the modification resulted in a concession and specific reserves were charged to the ACL if a TDR has occurred. TDR loans are included in the impaired loan category and, as such, these loans are individually reviewed and evaluated and a specific reserve is assignednecessary for the amount of the estimated probable credit loss. The following discussion reflects loans that were considered TDRs prior to January 1, 2023. For further information on the Company's TDR accounting policies, see Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements contained in the 2022 Form 10-K. 


Total TDR loans included in the impaired loan balances above, as of amounted to $8.4 million at December 31, 2017 and 2022. At December 31, 2016, were $20.3 million and $27.0 million, respectively.2022, TDR loans on accrual status amounted to $17.4$6.0 million, and$22.4 million at December 31, 2017 and December 31, 2016, respectively. TDR loans included in non-performingnon-accrual loans amounted to $2.9 million and $4.6 million at December 31, 2017 and December 31, 2016, respectively.  $2.4 million.

The Company continues to work with customers particularly commercial relationships, 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 future prospects of the borrower.


At December 31, 2017,2022, additional funding commitments for TDR loans totaled $391 thousand.were not material. The Company's obligation to fulfill the additional funding commitments on TDR loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.


92
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


The following table presents the number and balance of loans modified as TDRs, by portfolio classification, during the periods indicated:
December 31, 2022
(Dollars in thousands)Number of RestructuringsPre-modification Outstanding Recorded InvestmentPost-modification Outstanding Recorded Investment
Commercial real estate6 $3,342 $2,563 
Commercial and industrial2 225 246 
Total8 $3,567 $2,809 

There were no subsequent charge-offs of new TDRs noted in the table above during the year ended December 31, 2022.

Interest payments received on non-accruing 2022 TDR loans which were applied to principal and not recognized as interest income were not material.

Payment defaults by portfolio classification, during the year indicated, on loans modified as TDRs within the preceding twelve months are detailed below:
December 31, 2022
(Dollars in thousands)Number of TDRs that DefaultedPost-modification Outstanding Recorded Investment
Commercial real estate3 $1,044 
Total3 $1,044 

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

December 31, 2022
(Dollars in thousands)
Number of
Restructurings
Amount
Temporary interest-only payment plan3 $138 
Other payment concessions5 2,671 
Total8 $2,809 
Allowance for credit losses associated with TDR loans listed above$298 

  December 31, 2017 December 31, 2016
(Dollars in thousands) 
Number of
restructurings
 Amount 
Number of
restructurings
 Amount
Loan advances with adequate collateral —
 $—
 8
 $10,533
Extended maturity date 1
 175
 4
 548
Temporary payment reduction and payment re-amortization of remaining principal over extended term 6
 790
 —
 —
Temporary interest-only payment plan 4
 191
 7
 1,697
  Total 11
 $1,156
 19
 $12,778
Amount of specific reserves included in the allowance for loan losses associated with TDRs listed above   $155
   $1,418
ACL for loans and provision for credit loss activity


Loans modified as TDRsThe following table presents changes in the provision for credit losses on loans and unfunded commitments during the yearyears ended December 31 2017as indicated:
(Dollars in thousands)202320222021
Provision for credit losses on loans$6,460 $5,175 $543 
Provision for unfunded commitments2,789 625 1,227 
Total provision for credit losses$9,249 $5,800 $1,770 

The ACL for loans amounted to $59.0 million and $52.6 million at December 31, 2023 and December 31, 2016 are detailed below.2022, respectively. The ACL for loans to total loans ratio was 1.65% and 1.66% at December 31, 2023 and December 31, 2022, respectively.

93
  December 31, 2017 December 31, 2016
(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 3
 $696
 $674
 8
 $6,212
 $7,534
Commercial and industrial 6
 386
 346
 11
 5,231
 5,244
Commercial construction —
 —
 —
 —
 —
 —
Residential mortgages 1
 136
 135
 —
 —
 —
Home equity loans and lines —
 —
 —
 —
 —
 —
Consumer 1
 1
 1
 —
 —
 —
Total 11
 $1,219
 $1,156
 19
 $11,443
 $12,778

There were no subsequent charge-offs associated with the new TDRs noted in the table above during both 2017 and 2016.

Interest payments received on non-accruing 2017 and 2016 TDR loans which were applied to principal and not recognized as interest income were not material.
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements




Payment defaults duringChanges in the allowance for credit losses for the years ended December 31, 20172023, 2022 and 2021 are summarized as follows:
(Dollars in thousands)202320222021
Balance at beginning of year$52,640 $47,704 $44,565 
CECL adjustment upon adoption— — 6,560 
Provision6,460 5,175 543 
Recoveries527 272 363 
Less: Charge-offs632 511 4,327 
Balance at end of year$58,995 $52,640 $47,704 
The following tables present changes in the ACL for loans by portfolio classification, during the periods presented below:
(Dollars in thousands)Commercial Real EstateCommercial and IndustrialCommercial ConstructionResidential MortgageHome EquityConsumerTotal
Beginning Balance at December 31, 2022$36,564 $8,896 $3,961 $2,255 $633 $331 $52,640 
Provision for credit losses for loans1,510 2,292 2,825 (103)(66)2 6,460 
Recoveries— 497 1 — 12 17 527 
Less: Charge-offs— 596 — — — 36 632 
Ending Balance at December 31, 2023$38,074 $11,089 $6,787 $2,152 $579 $314 $58,995 
(Dollars in thousands)Commercial Real EstateCommercial and IndustrialCommercial ConstructionResidential MortgageHome EquityConsumerTotal
Beginning Balance at December 31, 2021$31,847 $9,574 $4,090 $1,405 $465 $323 $47,704 
Provision for credit losses for loans4,967 (710)(129)850 157 40 5,175 
Recoveries— 242 — — 11 19 272 
Less: Charge-offs250 210 — — — 51 511 
Ending Balance at December 31, 2022$36,564 $8,896 $3,961 $2,255 $633 $331 $52,640 

Reserve for unfunded commitments

The Company’s reserve for unfunded commitments amounted to $7.1 million as of December 31, 2016 on loans modified as TDRs within the preceding twelve months are detailed below.2023 and $4.3 million at December 31, 2022.
  December 31, 2017 December 31, 2016
(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 —
 $—
 1
 $148
Commercial and industrial 2
 20
 —
 —
Commercial construction —
 —
 —
 —
Residential mortgages —
 —
 —
 —
Home equity loans and lines —
 —
 —
 —
Consumer —
 —
 —
 —
Total 2
 $20
 1
 $148



Other Real Estate Owned ("OREO")real estate owned


The Company carried no OREO at December 31, 20172023 or December 31, 2016. There2022. During the years ended December 31, 2023, and 2022, there were no additions to or sales or write downs onof OREO. During the year ended December 31, 2021, there was one addition to OREO, during 2017 or 2016. Therewhich was subsequently sold in the same year. For the years ended December 31, 2023, 2022 and 2021, there were $154 thousand gains on OREO sales and no subsequent write downs during 2015.write-downs of OREO.


At December 31, 2017,2023, the Company had $1.2 million in 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 with carrying amounts totaling $101 thousand compared with $200 thousandjurisdictions. The Company had no such loans at December 31, 2016.2022.

Allowance for Loan Loss Activity

The allowance for loan losses is established through a provision for loan losses, a direct charge to earnings. Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely. Recoveries on loans previously charged-off are credited to the allowance.

The allowance for loan losses amounted to $32.9 million at December 31, 2017, compared to $31.3 million at December 31, 2016. For the years ended December 31, 2017 and 2016, the provision for loan losses amounted to $1.4 million and $3.0 million, respectively. The decrease in the provision for 2017 was due primarily to generally improved credit quality metrics and underlying collateral values, partially offset by increased loan growth compared to the prior year.
The allowance for loan losses to total loans ratio was 1.45% at December 31, 2017, compared to 1.55% at December 31, 2016. Based on management’s judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the heading "Credit Quality Indicators," management believes that the Company’s allowance for loan losses is adequate to absorb probable losses from specifically known and other probable credit risks associated with the portfolio as of December 31, 2017.



94
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


(5) Premises and Equipment
Changes in the allowance for loan losses for the years ended December 31, are summarized as follows:
(Dollars in thousands) 2017 2016 2015
Balance at beginning of year $31,342
 $29,008
 $27,121
Provision 1,430
 2,993
 3,267
Recoveries 755
 709
 409
Less: Charge-offs 612
 1,368
 1,789
Balance at end of year $32,915
 $31,342
 $29,008

Changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2017, are presented below:
(Dollars in thousands) Cmml Real Estate Cmml and Industrial Cmml Constr Resid. Mortgage Home Equity Cnsmr Total
Beginning Balance, December 31, 2016 $14,902
 $11,204
 $3,406
 $960
 $634
 $236
 $31,342
Provision 2,628
 (1,737) 541
 (56) (30) 84
 1,430
Recoveries 193
 550
 —
 —
 4
 8
 755
Less: Charge-offs 178
 348
 —
 —
 —
 86
 612
Ending Balance, December 31, 2017 $17,545
 $9,669
 $3,947

$904

$608

$242

$32,915
               
Ending allowance balance:            
Allocated to loans individually evaluated for impairment $59
 $1,284
 $—
 $5
 $—
 $35
 $1,383
Allocated to loans collectively evaluated for impairment $17,486
 $8,385
 $3,947
 $899
 $608
 $207
 $31,532

Changes in the allowance for loan losses by portfolio segment for the year ended December 31, 2016, are presented below:
(Dollars in thousands) Cmml Real Estate Cmml and Industrial Cmml Constr Resid. Mortgage Home Equity Cnsmr Total
Beginning Balance, December 31, 2015 $13,514
 $9,758
 $3,905
 $1,061
 $540
 $230
 $29,008
Provision 1,696
 1,745
 (494) (101) 97
 50
 2,993
Recoveries 20
 681
 —
 —
 3
 5
 709
Less: Charge-offs 328
 980
 5
 —
 6
 49
 1,368
Ending Balance, December 31, 2016 $14,902
 $11,204
 $3,406
 $960
 $634
 $236
 $31,342
               
Ending allowance balance:            
Allocated to loans individually evaluated for impairment $370
 $2,222
 $28
 $—
 $—
 $1
 $2,621
Allocated to loans collectively evaluated for impairment $14,532
 $8,982
 $3,378
 $960
 $634
 $235
 $28,721


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(5)
Premises and Equipment


Premises and equipment at December 31, 2023, and 2022, are summarized as follows:

(Dollars in thousands)20232022
Land and land improvements$9,090 $9,090 
Bank premises and leasehold improvements57,899 56,266 
Computer software and equipment18,636 15,636 
Furniture, fixtures, and equipment26,362 25,118 
Total premises and equipment, before accumulated depreciation111,987 106,110 
Less accumulated depreciation(67,056)(61,882)
Total premises and equipment, net of accumulated depreciation$44,931 $44,228 

(Dollars in thousands) 2017 2016
Land $5,488
 $5,201
Bank premises and leasehold improvements 42,525
 37,390
Computer software and equipment 9,303
 9,250
Furniture, fixtures and equipment 20,347
 18,243
Total premises and equipment, before accumulated depreciation 77,663
 70,084
     
Less accumulated depreciation (40,641) (36,544)
Total premises and equipment, net of accumulated depreciation $37,022
 $33,540
Total depreciation expense related to premises and equipment amounted to $4.7$5.3 million, $4.4 million and $4.3 million for both of the years ended December 31, 2017, 20162023, 2022, and 2015, respectively.
Total rent expense$6.2 million for the yearsyear ended December 31, 2017, 20162021.

(6)    Leases

For the Company, material leases consist of operating leases on our facilities, mainly branch leases; leases 12-months or less and 2015 amounted to $1.4 million, $1.3 million and $1.2 million, respectively.immaterial equipment leases have been excluded.

As of December 31, 2023, the Company had 16 active 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 or purchase options at specified periods mutually agreeable tosale.

Lease expenses for the parties.  In February 2017, the Company purchased, at fair market value, a property which was previously a leased branch location, the location remains an active full service banking branch.

Atyears ended December 31, 2017, minimum lease payments for these operating leases were as follows:
(Dollars in thousands) 
Payable in: 
2018$1,609
20191,392
20201,136
20211,133
20221,131
Thereafter9,285
Total minimum lease payments$15,686
The Company currently collects rent through leases for a small portion of the overall square-footage within its Lowell, MA campus headquarters2023, and at one of its branch locations. Rental income was $133 thousand2022 amounted to $1.6 million, respectively, and $1.5 million for the year ended December 31, 2017, $159 thousand2021. Variable lease costs and short-term lease expenses included in lease expense during this period were immaterial.

The weighted average remaining lease term for the year endedoperating leases at December 31, 20162023 and $153 thousand for the year ended2022 was 28.4 years and 29.4 years, respectively. The weighted average discount rate was 3.55% and 3.51% at December 31, 2015.2023 and 2022, respectively.


At December 31, 2023, the remaining undiscounted cash flows by year of these lease liabilities were as follows:
(Dollars in thousands)Operating Leases
2024$1,450 
20251,457 
20261,468 
20271,474 
20281,477 
Thereafter31,723 
Total lease payments$39,049 
Less: Imputed interest14,608 
Total lease liability$24,441 


95
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


(7)Deposits
(6)Deposits
 
Deposits at December 31, are summarized as follows:
(Dollars in thousands)20232022
Non-interest checking$1,070,104 $1,361,588 
Interest-bearing checking697,632 678,715 
Savings285,770 326,666 
Money market1,402,939 1,381,645 
CDs $250,000 or less295,789 187,758 
CDs greater than $250,000225,287 99,434 
Deposits$3,977,521 $4,035,806 

(Dollars in thousands) 2017 2016
Non-interest bearing demand deposits $705,846
 $646,115
Interest-bearing checking 391,111
 372,696
Savings 193,385
 178,637
Money market 807,931
 844,216
Certificates of deposit $250,000 or less 150,445
 125,580
Certificates of deposit more than $250,000 45,154
 42,315
Total customer deposits 2,293,872
 2,209,559
Brokered deposits (1)
 147,490
 59,362
Total deposits $2,441,362

$2,268,921
(1) Brokered CDs $250,000All of the Company's deposits outstanding, at both December 31, 2023 and under.

Total2022, were customer deposits, (deposits, excludingand the Company had no brokered deposits)deposits at either December 31, 2023 or 2022. Customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result ofdue to our customers electing to participate in Company offered programs which allow for fullthird-party enhanced FDIC deposit insurance. Essentially,Under this enhanced deposit insurance program, the equivalent of the customers' original deposited funds comes back to the Company as customer depositsand are carried within the appropriate category under total deposits on the consolidated balance sheet.deposits. The Company's balances in these reciprocal products were $249.6$835.0 million and $281.6$589.7 million at December 31, 20172023 and December 31, 2016,2022, respectively.


The aggregate amountamounts of overdrawn deposits that have been reclassified as loan balances were $359$498 thousand and $558$490 thousand at December 31, 20172023 and 2016,2022, respectively.
 
The following table showspresents the scheduled maturities of certificates of deposit (including brokered deposits with weighted average remaining lives of less than 6 months at December 31, 2017 and approximately 1.5 yearsCDs as of December 31, 2016):of the years indicated: 
(Dollars in thousands)20232022
Due in less than twelve months$494,320 $227,658 
Due in over one year through two years23,737 51,392 
Due in over two years through three years2,431 6,919 
Due in over three years through four years371 400 
Due in over four years through five years179 619 
Due in over five years38 204 
Total CDs$521,076 $287,192 

(8)Borrowed Funds and Subordinated Debt
(Dollars in thousands) December 31, 2017 December 31, 2016
Due in less than twelve months $240,995
 $136,695
Due in over one year through two years 60,692
 38,344
Due in over two years through three years 28,141
 32,652
Due in over three years through four years 6,592
 8,525
Due in over four years through five years 5,614
 5,721
Due in over five years 1,055
 5,320
Total certificates of deposit $343,089
 $227,257
See Note 15, "Fair Value Measurements," below for further information regarding the Company's fair value measurements for deposits.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(7)Borrowed Funds and Subordinated Debt

Borrowed funds and subordinated debt outstanding at December 31, for the years indicated are summarized as follows:
 202320222021
(Dollars in thousands)AmountAverage
Rate		AmountAverage
Rate		AmountAverage
Rate
FHLB advances$2,830 1.71 %$2,913 1.71 %$5,479 1.07 %
FRB advances20,000 4.84 %— — %— — %
Other borrowings2,938 0.40 %303 — %— — %
Total borrowed funds$25,768 3.99 %$3,216 1.55 %$5,479 1.07 %
Subordinated debt$59,498 5.84 %$59,182 5.66 %$58,979 5.54 %
  2017 2016 2015
(Dollars in thousands) Amount 
Average
Rate
 Amount 
Average
Rate
 Amount 
Average
Rate
FHLB borrowings $89,000
 1.54% $10,671
 0.80% $40,671
 0.51%
Other borrowings —
 —% —
 —% 13,000
 0.60%
Total borrowed funds $89,000
 1.54% $10,671
 0.80% $53,671
 0.53%
Subordinated debt 14,847
 6.23% 14,834
 6.26% 14,822
 6.16%
Total borrowed funds and subordinated debt $103,847
 2.21% $25,505
 3.98% $68,493
 1.75%


FHLB borrowingsThe Company's borrowed funds at December 31, 2017 consisted2023, 2022 and 2021 were comprised of $39.0 millionovernight or short-term advances from the FRB through the BTFP, term advances related to specific lending projects under the FHLB's community development and affordable housing programs as well as borrowed funds from the NH BFA borrowing under a New Hampshire community development program. NH BFA advances are categorized as "Other borrowings" in overnight borrowings,the tables below.
96
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
At December 31, 2023, 2022 and 2021, the contractual maturity distribution of borrowed funds with athe weighted average rate of 1.59%, and short-term borrowings of $50.0 million, with a weighted average rate of 1.50%, that matured in January 2018.cost for each category is set forth below:

202320222021
(Dollars in thousands)BalanceRateBalanceRateBalanceRate
Within 12 months$20,000 4.84 %$— — %$2,485 0.29 %
Between 1 and 5 years270 — %— — %— — %
Over 5 years5,498 1.09 %3,216 1.55 %2,994 1.70 %

Maximum FHLB and other borrowings outstanding at any month endmonth-end period during 2017, 2016,2023 was $25.8 million, $4.2 million for 2022 and 2015 were $149.3$8.6 million $43.7 million, and $53.7 million, respectively.for 2021.


The following table summarizes the average balance and average cost of borrowed funds for the years indicated.indicated:
 Year ended December 31, Year ended December 31,
 2017 2016 2015 202320222021
(Dollars in thousands) 
Average
Balance
 
Average
Cost
 
Average
Balance
 
Average
Cost
 
Average
Balance
 
Average
Cost
(Dollars in thousands)Average
Balance		Average
Cost		Average
Balance		Average
Cost		Average
Balance		Average
Cost
FHLB advances $49,546
 1.19% $14,551
 0.55% $10,731
 0.36%FHLB advances$3,548 2.65 2.65 %$3,266 1.59 1.59 %$7,632 0.79 0.79 %
FRB advances
FRB advances
FRB advances534 3.39 %— — %— — %
Other borrowings —
 —% 107
 0.61% 36
 0.61%Other borrowings1,008 0.13 0.13 %20 — — %— — — %
Total borrowed funds $49,546
 1.19% $14,658
 0.55% $10,767
 0.36%Total borrowed funds$5,090 2.23 2.23 %$3,286 1.58 1.58 %$7,632 0.79 0.79 %
 
The Company’s primary borrowing source is the FHLB, but the Company may choose to borrow from other established business partners.  "Other borrowings" represents overnight advances from the FRB or federal funds purchased from correspondent banks.

As a member of the FHLB, the Bank has the potential capacity to borrow an amount up to the value of its discounted qualified collateral. Borrowings from the FHLB are secured by certain securities from the Company’sCompany's investment portfolio not otherwise pledged and certain residential and commercial real estate loans. At December 31, 2017,2023, based on qualifying collateral less outstanding advances, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $415.0 million.$860.0 million. In addition, based on qualifying corporate and municipal bond collateral, the Bank had the capacity to borrow funds from the FRB Discount Window up to approximately $120.0$320.0 million at December 31, 2017.2023. The Bank also has pre-approved borrowing arrangements with large correspondent banks in order to provide overnight and short-term borrowing capacity.
See Note 2, "Investments," and Note 3, "Loans" above to these consolidated financial statements for further information regarding securities and loans pledged for borrowed funds.


The Company also carriedhad outstanding subordinated debt, of $14.8 million (netnet of deferred issuance costs)costs, of $59.5 million, and $59.2 million at December 31, 2017 December 31, 20162023, and December 31, 2015, which consisted2022, respectively. The debt consists of $15.0 millionfixed-to-floating rate notes due in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the "Notes"), issued in January 2015, in a private placement to an accredited investor.2030 and callable at the Company's option on or after July 15, 2025. The Notessubordinated notes are intended to qualify as Tier 2 capital for regulatory purposes, mature on January 30, 2030 (the "Maturity Date") and are callable by the Company, subject to regulatory approval, at a premium beginning January 30, 2020, and at par beginning January 30, 2025. purposes.

The Notessubordinated notes pay interest at a fixed rate of 6.00%5.25% per annum through January 30,July 15, 2025, and beginning on January 31, 2025 through the Maturity Date, or any early redemption date, the

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


interest rate on the Notes will adjust monthly at an interest rate of 3.90% plus 30-day LIBOR.after which floating quarterly rates apply. Original debt issuance costs were $190 thousand$1.2 million and have been netted against the subordinated debt on the consolidated balance sheet in accordance with accounting guidance. These costs are being amortized to interest expense over the life of the Notes.subordinated notes.

97
In 2015,
ENTERPRISE BANCORP, INC.
Notes to the Company usedConsolidated Financial Statements
(9)Derivatives and Hedging Activities

The tables below present a portionsummary of the proceeds fromCompany's derivative financial instruments, notional amounts and fair values for the $15.0 million in Notes, to redeem the $10.8 million junior subordinated debt previously held by the Company.periods presented:    

As of December 31, 2023
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)(2)
Liability Notional Amount
Liability Derivatives(1)(2)
Derivatives designated as hedging instruments
Interest-rate contracts - pay fixed, receive floating$— $— $100,000 $760 
Total cash flow hedge interest-rate swaps$— $— $100,000 $760 
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,524 $630 
Interest-rate contracts - pay fixed, receive floating7,524 630 — — 
Risk participation agreements sold— — 46,910 65 
Total derivatives not subject to hedge accounting$7,524 $630 $54,434 $695 
See Note 15, "Fair Value Measurements," below for further information regarding the Company's fair value measurements for borrowed funds and subordinated debt.

As of December 31, 2022
(Dollars in thousands)Asset Notional Amount
Asset Derivatives(1)(2)
Liability Notional Amount
Liability Derivatives(1)(2)
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed$— $— $7,777 $782 
Interest-rate contracts - pay fixed, receive floating7,777 782 — — 
Risk participation agreements sold— — 24,660 73 
Total back-to-back interest-rate swaps$7,777 $782 $32,437 $855 

(8)Derivatives and Hedging Activities

Interest-rate lock commitments(1)    Accrued interest balances 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 generally does not pool mortgage loans for sale, but instead sells the loans on an individual basis. To reduce the netCompany’s interest rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest-rate lock commitment is quoted on the origination of the loan. The Company estimatesswaps are not included in the fair values above and are immaterial.
(2)    The assets and liabilities related to the pay fixed, receive floating interest-rate contracts are subject to a master netting agreement and are presented net in the Consolidated Balance Sheet.
Derivatives designated as hedging instruments

Fair value of these derivatives based on current secondary mortgage market prices. At December 31, 2017 and 2016, the estimatedhedges

Derivatives designated as fair value hedges are utilized to mitigate the risk of the Company'sadverse interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

The Company may use interest-rate contract swaps as part of its interest-rate risk management strategy. Interest-rate swap agreements are entered into as hedges against future interest rate fluctuations on specifically identified assets or liabilities. The Company did not have derivativeCompany's fair value hedges or derivative cash floware used to manage its exposure to changes in the fair value of hedged items caused by changes in interest rates.

During the year ended December 31, 2023, the Company entered into three pay fixed, receive float, interest rate swap agreements all with a 2-year term. As of December 31, 2023, these interest rate swap agreements had a combined notional value of $100.0 million. Each interest rate swap agreement was designated as a fair value hedge and involves the net settlement of receiving floating-rate payments from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

The table below presents the carrying amount of hedged items and cumulative fair value hedging basis adjustments for the periods presented. There were no fair value hedges outstanding at December 31, 20172022.
As of December 31, 2023
(Dollars in thousands)Balance Sheet Location of Hedged ItemCarrying Amount of Hedged AssetsCumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets
Interest-rate contracts - loansLoans$100,755 $755 
98
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The table below presents the gains (losses) from interest rate derivatives accounted for as fair value hedges and 2016.the related hedged items.


(Dollars in thousands)Affected Income Statement Line ItemDecember 31, 2023
Derivatives designated as fair value hedges:
Fair value adjustments on derivativesNet interest income$(760)
Fair value adjustments on hedged instrumentNet interest income755 
Total$(5)

Derivatives not subject to hedge accounting

Interest-rate Contracts

The Company has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swap with a qualified commercial banking customercustomers 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 transaction structure effectively minimizes the Bank's net risk exposure resulting from such transactions. Customer-related credit risk is minimized by the cross collateralizationEach Back-to-Back swap consists of the loantwo interest-rate swaps (a customer swap and theoffsetting counterparty swap) and amounted to a total number of four interest-rate swap agreement.

As detailed in Note 1 "Summary of Significant Accounting Policies," under Item (o) "Derivatives," Back-to-Back Swaps are not speculative but rather, result from a service the Company provides to certain commercial customers. Back-to-Back swaps do not meet hedge accounting requirementsoutstanding at December 31, 2023 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.December 31, 2022. As a result of this offsetting relationship, there were no net gains or losses recognized in income on Back-to-Back Swapsswaps during the years ended December 31, 2017,2023, 2022, or 2021.

Interest-rate swaps with the counterparty are subject to master netting agreements, while interest-rate swaps with customers are not. At December 31, 2016 or December 31, 2015.

Each Back-to-Back swap transaction consists of two interest-rate2023, all the back-to-back swaps (a customer swapwith the counterparty were in asset positions and offsetting counterparty swap) and amounted to a total number of six and four interest-rate swaps outstanding at December 31, 2017 and December 31, 2016, respectively,2022, all the back-to-back swaps with an aggregate notional amountthe counterparty were in liability positions, therefore there was no netting reflected in the Company's Consolidated Balance Sheets as of $29.4 million and $26.7 million on thosethe respective dates.

Asset derivatives are included inRisk Participation Agreements

The Company enters into RPAs for which the line item prepaid expenses and other assets and liability derivatives are included in the accrued expenses and other liabilities line item on the consolidated balance sheets, respectively.


ENTERPRISE BANCORP, INC
NotesCompany has assumed credit risk for customers' performance under interest-rate swap agreements related to the Consolidated Financial Statementscustomers' commercial loan and receives fee income commensurate with the risk assumed. The RPAs and the customers' loan are secured by the same collateral.



Credit Risk
The table below presents the fair value and classification of the Company’s derivative financial instruments for the periods presented:
  As of December 31, 2017 As of December 31, 2016
(Dollars in thousands)  Asset Derivatives Liability Derivatives  Asset Derivatives Liability Derivatives
Interest-rate contracts - pay floating, received fixed $25
 $568
 $—
 $610
Interest-rate contracts - pay fixed, receive floating 543
 —
 610
 —
Total interest rate swaps $568
 $568
 $610
 $610


By using derivative financial instruments, the Company exposes itself to counterparty-creditcounterparty 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-ratedhighly rated counterparties that management believes to be creditworthy. The counterparty was rated A / A2 by S&P and Moody’s, respectively, at December 31, 2017. Additionally, counterparty interest-rate swaps contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount.


The Company had two active interest-rate swap institutional counterparties which were rated A and A+ by S&P Global Ratings, respectively, and both of which were rated A2 by Moody's Investor Services at December 31, 2023. When the Company has credit risk exposure, amounting to $543 thousand and $610 thousand at December 31, 2017 and December 31, 2016 respectively, relating to interest-rate swaps with counterparties. The Company held cash collateral of $480 thousand at December 31, 2017, and none at December 31, 2016. Collateral heldis posted by the Companycounterparty. Collateral posted by counterparties is restricted and not considered an asset of the Company. ThereforeCompany, therefore, it is not carried on the Company's consolidated balance sheet.Consolidated Balance Sheets. If the Company posts collateral, the restricted cash is carried on the Company's Consolidated Balance Sheets.


Interest-rateThe Company has minimum collateral posting thresholds with certain of its derivative counterparties and as of December 31, 2023, the Company had no credit risk exposure relating to interest-rate swaps with counterparties compared to $782 thousand in credit risk exposure at December 31, 2022. At December 31, 2023, cash collateral posted by the counterparty are subjectCompany amounted to master netting agreements. The table below presents$570 thousand while counterparties posted cash collateral of $590 thousand. At December 31, 2022, the Company's asset derivative positions and the potential effectCompany posted no collateral in connection with these agreements while counterparties posted cash collateral of those netting arrangements on its financial position, as of the periods presented. Interest-rate swaps with customers are not subject to master netting agreements and therefore are not included in the table below.

$27 thousand.
99
  As of December 31, 2017
(Dollars in thousands) Gross Amounts of Recognized Asset Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets Presented in the Statement of Financial Position
Asset Derivatives      
Interest-rate contracts - pay fixed, receive floating $568
 $25
 $543

  As of December 31, 2016
(Dollars in thousands) Gross Amounts of Recognized Assets Gross Amounts Offset in the Statement of Financial Position Net Amounts of Assets Presented in the Statement of Financial Position
Asset Derivatives      
Interest-rate contracts - pay fixed, receive floating $610
 $—
 $610


Table of Contents
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


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.


The Company also participates in loans originated by third-party banks, whereAs of December 31, 2023, the originating bank utilizesfair value of derivatives related to these agreements was at a back-to-back interest-rate swap structure; however, the Company is not a partynet liability position of $130 thousand, which excludes any adjustment for nonperformance risk.

Other Derivative Related Activity

Interest-rate lock commitments related to the swap agreements. Underorigination of mortgage loans that will be sold are considered derivative instruments. The commitments to sell loans are also considered derivative instruments. At December 31, 2023 and December 31, 2022, 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 the percentageestimated fair value of the Company's participation in the underlying loan appliedinterest-rate lock commitments and commitments to the originating bank's swap loss. At December 31, 2017 and December 31, 2016, the Company had two such participationsell these mortgage loans and management considers the risk of material swap-loss exposure to be unlikely based on the borrower's financial and collateral strength.were deemed immaterial.


See Note 9, "Commitments,
(10)Commitments, Contingencies and Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk" for additional information on the Company's commitments and contingencies.

(9)Commitments, Contingencies and Financial Instruments with Off-Balance Sheet Risk and Concentrations of Credit Risk


The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to originate loans, letters of credit, and unadvanced portions of loans and lines of credit.


The instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.Consolidated Balance Sheets. The contractual amounts of these instruments reflect the extent of involvement the Company has in the particular classes of financial instruments.


The Company’sCompany's exposure to credit loss in the event of nonperformance by the other party to the financial instrument for loan commitments and letters of credit is represented by the contractual amounts of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.


Financial instruments with off-balance sheet credit risk at December 31, 20172023 and 20162022 are as follows:

(Dollars in thousands)20232022
Commitments to originate loans$41,326 $27,148 
Commitments to originate residential mortgages loans for sale— 170 
Commitments to sell residential mortgage loans200 170 
Letters of credit15,610 25,081 
Unadvanced portions of commercial real estate loans87,943 43,938 
Unadvanced portions of commercial loans and lines633,702 629,531 
Unadvanced portions of construction loans (commercial & residential)540,269 409,803 
Unadvanced portions of home equity lines156,216 146,558 
Unadvanced portions of consumer loans3,679 4,059 
(Dollars in thousands) 2017 2016
Commitments to originate loans $13,830
 $37,753
Commitments to originate residential mortgages loans for sale 2,078
 1,946
Commitments to sell residential mortgage loans 2,286
 3,115
Letters of credit 21,576
 21,497
Unadvanced portions of commercial real estate loans 26,947
 56,952
Unadvanced portions of commercial loans and lines 432,731
 399,833
Unadvanced portions of construction loans (commercial & residential) 209,916
 151,757
Unadvanced portions of home equity lines 94,012
 82,884
Unadvanced portions of consumer loans 4,290
 3,043


Commitments to originate loans are agreements to lend to a customer provided there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee by the customer. Since some of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Company evaluates each customer’scustomer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Company upon extension of credit, is based on management’s credit evaluation of the borrower. 


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



The Company originates residential mortgage loans intended for sale under agreements to sell such loans on an individual loan basis and may retain or sell the servicing when selling the loans. Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales.

100
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party.third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.


Unadvanced portions of loans and lines of credit represent credit extended to customers but not yet drawn upon and are secured or guaranteed under preexisting loan agreements and credit evaluations having taken into consideration the full commitment amount.


See also Note 8,9, "Derivatives and Hedging Activities"Activities," and Note 1, "Summary of Significant Accounting Policies," under Item (p), "Derivatives," to the Company's consolidated financial statements of this Form 10-K, contained above, for information on the Company's interest-rate lock commitments,
interest-rate swaps, and participation in loans originated by third-party banks with potential contingent liabilities.


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 and 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 consolidated financial condition or results of operations of the Company.


(10)Stockholders’ Equity

(11)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):
Year ended December 31, 2023Year ended December 31, 2022
(Dollars in thousands)Pre-TaxTax (Expense) BenefitAfter Tax AmountPre-TaxTax BenefitAfter Tax Amount
Change in fair value of debt securities$18,838 $(4,279)$14,559 $(132,005)$29,782 $(102,223)
Less: net security (losses) gains reclassified into non-interest income(2,419)534 (1,885)(1,973)619 (1,354)
Net change in fair value of debt securities21,257 (4,813)16,444 (130,032)29,163 (100,869)
Total other comprehensive income (loss), net$21,257 $(4,813)$16,444 $(130,032)$29,163 $(100,869)

Information on the Company's accumulated other comprehensive loss, net of tax, is comprised of the following components as of the periods indicated:
Year ended December 31, 2023Year ended December 31, 2022
(Dollars in thousands)Unrealized Gains (Losses) on Debt SecuritiesTotalUnrealized Gains (Losses) on Debt SecuritiesTotal
Accumulated other comprehensive (loss) income - beginning balance$(96,207)$(96,207)$4,662 $4,662 
Total other comprehensive income (loss), net16,444 16,444 (100,869)(100,869)
Accumulated other comprehensive loss - ending balance$(79,763)$(79,763)$(96,207)$(96,207)

(12)Shareholders' Equity

Shares Authorized and Share Issuance


The Company’sCompany's authorized capital is divided into common stock and preferred stock. At the Company's annual meeting of shareholders held on May 2, 2017, shareholders voted to amend the Company's Restated Articles of Organization to increase the number of shares of common stock that the Company is authorized to issue from 20,000,000 shares to 40,000,000 shares. The Company is authorized to issue 1,000,00040,000,000 shares of preferred stock.
common stock, with a par value of $0.01 per share, and as of December 31, 2023 had 12,272,674 shares issued and outstanding. Holders of common stock are entitled to one vote per share and are entitled to receive dividends if, as and when declared by the Board. Dividend and liquidation rights of the common stock may be subject to the rights of any outstanding preferred stock. The Company is also authorized to issue 1,000,000 shares of preferred stock, with a par value of

101
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
$0.01 per share. No preferred stock has been issued as of the date of this Form 10-K.

The Company has a shareholdersshareholders' rights plan,plan. Under the terms of which were extended in January 2018. Under this extended plan, each share of common stock includes a right to purchase under certain circumstances one one-hundredth of a share of the Company’sCompany's Series A Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $122.50 per one one-hundredth of a preferred share, subject to adjustment, or, in certain circumstances, to receive cash, property, shares of common stock or other securities of the Company. The rights are not presently exercisable and remain attached to the shares of common stock until the occurrence of certain triggering events that would ordinarily be associated with an unsolicited acquisition or attempted acquisition of 10% or more of the Company’sCompany's outstanding shares of common stock. The rights have no voting or dividend privileges, and unless and until they become exercisable, have no dilutive effect on the earnings of the Company. The rights will expire, unless earlier redeemed, exchanged, or otherwise rescinded by the Company, on January 13, 2028. 


The Company's stock incentive plans permit the Board to grant, under various terms, stock options (for the purchase of newly issued shares of common stock), common stock, restricted stock awards, restricted stock units and stock appreciation rights to officers and other employees, non-employee directors and consultants.

The Company issues stock options and restricted stock awards See Note 14, "Stock-Based Compensation," to officers and other employees and restricted stock awards and stock compensation in lieu of cash fees to non-employee directors. The restricted stock awards allow for the non-forfeitable receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding. The unvested restricted stock awards are the Company's only participating securities and are included in shares outstanding. Unvested participating restricted awards amounted to 117,219 shares and 141,580 shares asconsolidated financial statements of December 31, 2017 and December 31, 2016, respectively. See Item (r) "Earnings per Share,"this Form 10-K, contained in Note 1, "Summary of Significant Accounting Policies,"

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


for additional information regarding unvested participating restricted awards and the Company's earnings per share calculation.

Upon vesting, restricted stock awards may be net share-settled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the Company. Chapter 156D of the Massachusetts General Laws, a statue known as the Massachusetts Business Corporation Act, which applies to Massachusetts corporations such as the Company, eliminates the concept of "treasury stock" and provides that shares a Massachusetts company reacquires will be treated as authorized but unissued shares.

See Note 12, "Stock-Based Compensation," below, for additional information regarding the Company's stock incentive plans.


The Company's stock incentive plans also allow for newly issued shares of common stock to be issued without restrictions to officers and other employees, non-employee directors and consultants. From time to time, the Company issues shares to community members for consulting on regional advisory councils and grants shares of fully vested stock as employee anniversary awards. These shares vest immediately and the cost, which is deemed to be immaterial, is expensed in the period in which the services are rendered and is based on the market price on the date of grant.

In addition to shares issued to employees, non-employee directors, and community members for consulting on regional advisory councils, and shares issued through equity offerings (see "Capital Raised and Capital Adequacy Requirements" below), the Company maintains a dividend reinvestment and direct stock purchase plan ("DRSPP") for stockholders and new investors to reinvest or purchase additional shares of common stock directly from the Company. See "Dividends" below for further information about the DRSPP.

Capital Raised and Capital Adequacy Requirements


Capital planning by the Company and the Bank considers current needs and anticipated future growth.  Historically, the primary sources of capital for the Company and the Bank have been common stock issuances and proceeds from the issuance of subordinated debt. Ongoing sources of capital include the retention of earnings, less dividends paid, proceeds from the exercise of employee stock options and proceeds from purchases of shares pursuant to the Company’s dividend reinvestment planDRSPP. Additional sources of capital for the Company and directthe Bank have been proceeds from the issuance of common stock purchase plan (together,and proceeds from the "DRSPP").issuance of subordinated debt. The Company believes its current capital is adequate to support ongoing operations.

In the second quarter of 2016, the Company completed a combined shareholder subscription rights offering and supplemental community offering (the "Offering"), at an offering price of $21.50 per share, under its $40 million shelf registration statement (Reg No. 333-190017). The Company issued 930,232 shares of common stock and received gross proceeds of $20.0 million ($19.7 million, net of offering costs). The Company contributed the net proceeds to the Bank to support future asset growth and for general corporate purposes. See Note 14, "Earnings Per Share," for further information regarding the impact of the offering on EPS.

Since January 1, 2015, the Company has been subject to increasing capital ratios, with a phase-in period that extends to January 2019, as a result of regulation adopted by the federal bank regulatory agencies known as the "Basel III Rules."


Management believes, as of December 31, 2017,2023, that the Company and the Bank met all capital adequacy requirements to which they were subject. As of December 31, 20172023 and December 31, 2016,2022, the Company met the definition of "well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well-capitalized" under the prompt corrective action regulations of Basel III and the FDIC.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



The Company's and the Bank's actual capital amounts and ratios are presented as of December 31, 20172023 and December 31, 20162022 in the tables below:
 Actual
Minimum Capital
for Capital
Adequacy
Purposes(1)
Minimum Capital
to be
Well-Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2023      
The Company      
Total Capital to risk-weighted assets$511,692 13.12 %$312,035 8.00 %N/AN/A
Tier 1 Capital to risk-weighted assets403,224 10.34 %234,026 6.00 %N/AN/A
Tier 1 Capital to average assets (or Leverage Ratio)403,224 8.74 %184,471 4.00 %N/AN/A
Common Equity Tier 1 Capital to risk-weighted assets403,224 10.34 %175,520 4.50 %N/AN/A
The Bank      
Total Capital to risk-weighted assets$510,645 13.09 %$312,035 8.00 %$390,044 10.00 %
Tier 1 Capital to risk-weighted assets461,675 11.84 %234,026 6.00 %312,035 8.00 %
Tier 1 Capital to average assets (or Leverage Ratio)461,675 10.01 %184,471 4.00 %230,589 5.00 %
Common Equity Tier 1 Capital to risk-weighted assets461,675 11.84 %175,520 4.50 %253,528 6.50 %
102
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
 Actual
Minimum Capital
for Capital
Adequacy
Purposes(1)
Minimum Capital
to be
Well-Capitalized(2)
(Dollars in thousands)AmountRatioAmountRatioAmountRatio
As of December 31, 2022      
The Company      
Total Capital to risk-weighted assets$476,307 13.49 %$282,567 8.00 %N/AN/A
Tier 1 Capital to risk-weighted assets372,817 10.56 %211,926 6.00 %N/AN/A
Tier 1 Capital to average assets (or Leverage Ratio)372,817 8.10 %184,194 4.00 %N/AN/A
Common Equity Tier 1 Capital to risk-weighted assets372,817 10.56 %158,944 4.50 %N/AN/A
The Bank      
Total Capital to risk-weighted assets$475,668 13.47 %$282,567 8.00 %$353,209 10.00 %
Tier 1 Capital to risk-weighted assets431,359 12.21 %211,926 6.00 %282,567 8.00 %
Tier 1 Capital to average assets (or Leverage Ratio)431,359 9.37 %184,194 4.00 %230,243 5.00 %
Common Equity Tier 1 Capital to risk-weighted assets431,359 12.21 %158,944 4.50 %229,586 6.50 %

(1)    Before application of the capital conservation buffer of 2.50%. 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.

  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, 2017  
  
  
  
  
  
The Company  
  
  
  
  
  
Total Capital (to risk weighted assets) $270,826
 11.21% $193,327
 8.00% N/A N/A
Tier 1 Capital (to risk weighted assets) 225,738
 9.34% 144,995
 6.00% N/A N/A
Tier 1 Capital (to average assets) or Leverage Ratio 225,738
 8.22% 109,838
 4.00% N/A N/A
Common equity tier 1 capital (to risk-weighted assets) 225,738
 9.34% 108,747
 4.50% N/A N/A
             
The Bank
 

 

 

 

 

 
Total Capital (to risk weighted assets)
$270,150

11.18%
$193,301

8.00%
$241,626

10.00%
Tier 1 Capital (to risk weighted assets)
239,910

9.93%
144,976

6.00%
193,301

8.00%
Tier 1 Capital (to average assets) or Leverage Ratio
239,910

8.74%
109,837

4.00%
137,296

5.00%
Common equity tier 1 capital (to risk-weighted assets) 239,910
 9.93% 108,732
 4.50% 157,057
 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, 2016  
  
  
  
  
  
The Company  
  
  
  
  
  
Total Capital (to risk weighted assets) $252,552
 11.79% $171,337
 8.00% N/A
 N/A
Tier 1 Capital (to risk weighted assets) 209,887
 9.80% 128,503
 6.00% N/A
 N/A
Tier 1 Capital (to average assets) or Leverage Ratio 209,887
 8.34% 100,628
 4.00% N/A
 N/A
Common equity tier 1 capital (to risk-weighted assets) 209,887
 9.80% 96,377
 4.50% N/A
 N/A
             
The Bank  
  
  
  
  
  
Total Capital (to risk weighted assets) $250,893
 11.71% $171,332
 8.00% $214,166
 10.00%
Tier 1 Capital (to risk weighted assets) 223,062
 10.42% 128,499
 6.00% 171,332
 8.00%
Tier 1 Capital (to average assets) or Leverage Ratio 223,062
 8.87% 100,627
 4.00% 125,784
 5.00%
Common equity tier 1 capital (to risk-weighted assets) 223,062
 10.42% 96,374
 4.50% 139,208
 6.50%
(1)
Before application of the capital conservation buffer of 1.25%as of December 31, 2017and0.625% as of December 31, 2016, see discussion below.
(2)For the BankThe Company is subject to qualify as “well-capitalized," it must maintain at least the minimum ratios listed.  This prompt corrective action framework requirement does not apply to the Company.
Under the Basel III Rules, capital ratio requirements, for all banking organizations increased andwhich include a "capital conservation buffer,"buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. The capital conservation buffer requirement began to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. If a banking organization

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


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, would exceedexceeded the Basel III risk-based capital requirement with fullthe capital conservation buffer as of December 31, 2017.2023.

For further information on the Basel III requirements see the “Supervision and Regulation” contained in Item 1, “Business” in this Form 10-K.


The Basel III minimum capital ratio requirements as applicable to the Company and the Bank in 2019 afterwith the full phase-in periodcapital conservation buffer are summarized in the table below:
Basel III Minimum for Capital Adequacy PurposesBasel III Additional Capital Conservation BufferBasel III "Adequate" Ratio with Capital Conservation Buffer
Total Capital to RWA8.00%2.50%10.50%
Tier 1 Capital to RWA6.00%2.50%8.50%
Tier 1 Capital to AA, or Leverage Ratio4.00%N/A4.00%
Common equity tier 1 capital to RWA4.50%2.50%7.00%
  Basel III Minimum for Capital Adequacy Purposes Basel III Additional Capital Conservation Buffer Basel III "Adequate" Ratio with Capital Conservation Buffer
Total Capital (to risk weighted assets) 8.00% 2.50% 10.50%
Tier 1 Capital (to risk weighted assets) 6.00% 2.50% 8.50%
Tier 1 Capital (to average assets) or Leverage Ratio 4.00% —% 4.00%
Common equity tier 1 capital (to risk-weighted assets) 4.50% 2.50% 7.00%


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’sCompany'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’sCompany's assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Company’sCompany's capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.


Dividends

NeitherSee also "Supervision and Regulation," contained in Item 1, "Business," of this Form 10-K for further information on the Company nor the Bank may declare or pay dividends on its stock if the effect thereof would cause stockholders’ equity to be reduced below applicable regulatoryCompany's Basel III and capital requirements or if such declaration and payment would otherwise violate regulatory requirements.

103
As the principal asset
Table of the Company, the Bank currently provides the only source of cash for the payment of dividends by the Company.  Under Massachusetts law, trust companies such as the Bank may pay dividends only out of "net profits" and only to the extent that such payments will not impair the Bank’s capital stock.  Any dividend payment that would exceed the total of the Bank’s net profits for the current year plus its retained net profits of the preceding two years would require the Massachusetts Division of Banks' approval. Applicable provisions of the FDIC Improvement Act also prohibits a bank from paying any dividends on its capital stock if the bank is in default on the payment of any assessment to the FDIC or if the payment of dividends would otherwise cause the bank to become undercapitalized.  Any restrictions, regulatory or otherwise, on the ability of the Bank to pay dividends to the Company may restrict the ability of the Company to pay dividends to the holders of its common stock.

The statutory term "net profits" essentially equates with the accounting term "net income" and is defined under the Massachusetts banking statutes to mean the remainder of all earnings from current operations plus actual recoveries on loans and investments and other assets after deducting from such total all current operating expenses, actual losses, accrued dividends on any preferred stock and all federal and state taxes.

The Company maintains a DRSPP which enables stockholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company’s common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, stockholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums.


Contents
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


Dividends

For the year ended December 31, 2017,2023, the Company declared and paid $6.2$11.2 million in cash dividends. Stockholdersdividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of 44,75250,443 shares of the Company's common stock totaling $1.5 million. The direct purchase component of the DRSPP was used by stockholders to purchase 2,014 shares of the Company's common stock totaling $70 thousand duringDuring the year ended December 31, 2017.

In 2016,2022, the Company declared and paid $5.7$9.9 million in cash dividends. Stockholdersdividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase 53,516 shares of the Company’s common stock totaling $1.4 million. The direct purchase component of the DRSPP was used by stockholders to purchase 1,56240,640 shares of the Company's common stock totaling $38 thousand during the year ended December 31, 2016.

$1.4 million. In 2015,2021, the Company declared and paid $5.2$8.9 million in cash dividends. Stockholdersdividends and shareholders utilized the dividend reinvestment portion of the DRSPP to purchase 58,529 shares of the Company’s common stock totaling $1.3 million. The direct purchase component of the DRSPP was used by stockholders to purchase 6,70036,651 shares of the Company's common stock totaling $150 thousand during$1.3 million. See "Shares Authorized and Share Issuance" above in this Note 12 of this Form 10-K for more information on the year ended December 31, 2015.DRSPP, including the direct stock purchase component of the plan.


(11)Employee Benefit Plans
401(k) Defined Contribution Plan(13)Employee Benefit Plans
 
Defined Contribution Plans
The Company has a 401(k) defined contribution employee benefit plan. The 401(k) plan allows eligible employees to contribute a percentage of their earnings to the plan. A portion of the employeean employee's contribution, as determined by the Compensation and Human Resources Committee of the Board of Directors, is matched by the Company. In 2017, 2016During the years ended December 31, 2023, 2022 and 2015,2021 the Company’sCompany's percentage match was 60%70% up to the first 6% contributed by the employee.
 
All eligible employees, at least 18 years of age and completing 1 hour of service, may participate in the 401(k) plan. Effective during the fourth quarter of 2017, vestingVesting for the Company’sCompany's 401(k) retirement plan matching contribution is based on years of service with participants becoming 25% vested on the anniversary of their hire date and each subsequent year until they are 100% vestingvested following four years of service. Unvested amounts not distributabledistributed to an employee following termination of employment are used to offset plan expenses and the Company's matching contributions.


The Company’sCompany's expense for the 401(k) plan match was $965 thousand, $938 thousand$2.1 million, $1.9 million, and $859 thousand,$1.7 million, respectively, for the years ended December 31, 2017, 2016,2023, 2022 and 2015.2021, respectively.

Additionally, the Company maintains the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan. The plan is unfunded and is maintained for the purpose of providing deferred compensation to a certain group of management employees. Total expenses for the deferred compensation plan were $315 thousand and $787 thousand for the years ended December 31, 2023 and 2022, respectively.

Supplemental Employee Retirement Plan ("SERP")


The Company has salary continuation agreements with two of its current executive officers and one former executive officer. These salary continuation agreements provide for predetermined fixed-cash supplemental retirement benefits to be provided for a period of 20 years after each individual reaches a defined “benefit"benefit age.”" The individuals covered under the SERP have reached the defined benefit age and are receiving payments under the plan.SERP. Additionally, the Company has not recognized service costs in the current or prior year as each officer had previously attained their individually defined benefit age and was fully vested under the plan.SERP.
 
This non-qualified plan represents 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 benefit obligation," which is equal to the present value of the benefits to be provided to the employee or any beneficiary. Because the Company’sCompany's benefit obligations provide for predetermined fixed-cash payments, the Company does not have any unrecognized costs to be included as a component of accumulated other comprehensive income.


The amounts charged to expense for this planthe SERP are included in the table below. The Company anticipates accruing an additional $104$58 thousand to the SERP for the year ending December 31, 2018.2024.


104
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


The following table provides a reconciliation of the changes in the supplemental retirement benefit obligation and the net periodic benefit cost for the years ended December 31:
(Dollars in thousands)202320222021
Reconciliation of benefit obligation:   
Benefit obligation at beginning of year$1,420 $1,708 $1,923 
Net periodic benefit cost:
Interest cost69 74 61 
Actuarial gain(21)(86)— 
Net periodic benefit costs$48 $(12)$61 
Benefits paid(276)(276)(276)
Benefit obligation at end of year$1,192 $1,420 $1,708 
Funded status:   
Accrued liability as of December 31$(1,192)$(1,420)$(1,708)
Discount rate used for benefit obligation(1)
5.25 %4.75 %3.25 %

(1)Management utilizes the Moody's 20-year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates. The impact of the discount rate change is reflected as the actuarial gain or loss.
(Dollars in thousands) 2017 2016 2015
Reconciliation of benefit obligation:  
  
  
Benefit obligation at beginning of year $2,502
 $2,654
 $2,844
Net periodic benefit cost:      
Interest cost 110
 124
 133
Actuarial loss (gain) 36
 —
 (47)
Net periodic benefit costs $146
 $124
 $86
       
Benefits paid (276) (276) (276)
Benefit obligation at end of year $2,372
 $2,502
 $2,654
       
Funded status:  
  
  
Accrued liability as of December 31 $(2,372) $(2,502) $(2,654)
       
Discount rate used for benefit obligation(1)
 4.50% 4.75% 4.75%

(1)Management utilizes the Moody’s 20 year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates.  The impact of the discount rate change is reflected as the actuarial gain or loss.

 BenefitsSERP benefits expected to be paid in each of the next five years and in the aggregate five years thereafter: 
(Dollars in thousands)Payments
2024$276 
2025276 
2026276 
2027275 
2028165 
2029-2033119 
(Dollars in thousands) 
2018$276
2019276
2020276
2021276
2022276
2023-20271,380


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 BOLI. See Item (k) “Bank(l), "Bank Owned Life Insurance”Insurance," in Note 1, “Summary"Summary of Significant Accounting Policies,”" to the Company's consolidated financial statements of this Form 10-K, contained above, for further information regarding BOLI.
 
These arrangements provide a death benefit to the officer's designated beneficiaries that extend to postretirementpost-retirement periods for some of the supplemental life insurance plans. The Company has recognized a liability for these future postretirementpost-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 postretirementpost-retirement benefit obligation," which is the present value of the post-retirement benefits associated with this arrangement.
 

105
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


The following table provides a reconciliation of the changes in the post-retirement supplemental life insurance plan obligation and the net periodic benefit cost for the years ended December 31:
(Dollars in thousands)202320222021
Reconciliation of benefit obligation:   
Benefit obligation at beginning of year$2,358$2,620$2,631
Net periodic benefit cost:
Service cost(29)(26)(23)
Interest cost11510583
Actuarial gain(167)(341)(71)
Total net period cost$(81)$(262)$(11)
Benefit obligation at end of year$2,277$2,358$2,620
Funded status:   
Accrued liability as of December 31$(2,277)$(2,358)$(2,620)
Discount rate used for benefit obligation(1)
5.25 %4.75 %3.25 %

(1)    Management utilizes the Moody's 20-year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates. The impact of the discount rate change is reflected as the actuarial gain or loss. 
(Dollars in thousands) 2017 2016 2015
Reconciliation of benefit obligation:  
  
  
Benefit obligation at beginning of year $1,895
 $1,792
 $1,723
Net periodic benefit cost:      
Service cost (11) (9) (56)
Interest cost 91
 88
 86
Actuarial loss 57
 24
 39
Total net period cost $137
 $103
 $69
       
Benefit obligation at end of year $2,032
 $1,895
 $1,792
       
Funded status:  
  
  
Accrued liability as of December 31 $(2,032) $(1,895) $(1,792)
       
Discount rate used for benefit obligation(1)
 4.50% 4.75% 4.75%

 (1)Management utilizes the Moody’s 20 year AA corporate bond rates to establish the reasonableness of the discount rate used. The Company reviews and periodically updates the discount rate to reflect changes in bond market rates.  The impact of the discount rate change is reflected as the actuarial gain or loss. 

The amounts charged to expense for the postretirement cost ofsupplemental life insurance for split dollar insurance coverage are included in the table above. The Company anticipates accruing an additional $178$105 thousand to the plan for the year ending December 31, 2018.2024.

See Note 12, "Stock-Based Compensation" below, for additional information regarding employee benefits offered in the form of stock options and stock awards.

(14)Stock-Based Compensation
(12)Stock-Based Compensation
 
The Company currently has two individualone active stock incentive plans: the 2009 plan,plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended in 2015, and the 2016 plan. The plans permit the Board of Directors to grant, under various terms, both incentive and non-qualified stock options (for the purchase of newly issued shares of common stock), restricted stock, restricted stock units and stock appreciation rights to officers and other employees, directors and consultants. Option exercises and restricted stock vesting may be net settled to cover option costs and employee tax obligations under the terms of the respective plan. These plans also allow for newly issued shares of common stock to be issued without restrictions to officers and other employees, directors and consultants.  As of December 31, 2017, an aggregate of 465,198 shares remain available for future grants under the plans.amended.

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.
Total stock-based compensation expense was $1.8$2.3 million, for the yearyears ended December 31, 2017, $2.42023, and 2022, respectively, and $2.1 million for the year ended December 31, 2016, and $1.8 million for the year ended December 31, 2015.2021. The total tax benefit recognized related to the stock-based compensation expense was $716$637 thousand,, $972 $651 thousand, and $720$579 thousand for the years ended 2017, 2016December 31, 2023, 2022 and 2015,2021, respectively.

In 2017, with the adoption of ASU 2016-09, related to employee share-based payment accounting, a tax benefit of approximately $922 thousand,Tax benefits associated with employee exercises and vesting of stock compensation was recorded as a reduction of the Company's income tax expense. Prior to 2017, the related tax benefits were recorded to additional paid-in-capital, and had no impact on the Company's income statements. Those tax benefits amounted to $789

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


$108 thousand, $147 thousand and $217$85 thousand for the years ended December 31, 20162023, 2022, and 2015,2021, respectively. For further information regarding the implementation of this update refer to Note 1, "Summary of Significant Accounting Policies," Item (t), "Recent Accounting Pronouncements" above.


Stock Option Awards


OptionsStock options granted generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards. Vested options are only exercisable while the employee remains employed with the Bank and for a limited time thereafter.  For all awards, if a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any stock options granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.
Under the terms of the plans, stock options may not be granted at less than 100% of the fair market value of the shares on the date of grant and may not have a term of more than ten10 years.  Any shares of common stock reserved for issuance pursuant to options granted under the plans that are returned to the Company unexercised shall remain available for issuance under such plan, while the plan is effective. For participants owning 10% or more of the Company’s outstanding common stock (of which there are currently none), incentive stock options may not be granted at less than 110% of the fair market value of the shares on the date of grant and may not have an expiration term of more than five years.
 
The Company utilizes the Black-Scholes option valuation model in order to determine the per share grant date fair value of stock option grants.

106
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company issued no stock options during the year ended December 31, 2023. The table below provides a summary of the stock options granted, including the weighted average fair value, the fair value as a percentage of the market value of the underlying stock at the date of grant and the average assumptions used in the model for the years indicated.indicated: 
Stock Option Awards20222021
Stock options granted17,06017,580
Term in years1010
Weighted average assumptions used in the fair value model:  
Expected volatility44 %44 %
Expected dividend yield3.05 %3.01 %
Expected life in years6.56.5
Risk-free interest rate2.20 %1.28 %
Weighted average market price on date of grants$38.57$32.73
Per share weighted average fair value$14.40$11.95
Fair value as a percentage of market value at grant date37 %36 %
Stock Option Awards 2017 2016 2015
Options granted 15,009
 31,047
 27,376
Term in years 10.0
 10.0
 10.0
Weighted average assumptions used in the fair value model:  
  
  
Expected volatility 40% 42% 47%
Expected dividend yield 2.09% 3.02% 2.90%
Expected life in years 7.0
 7.0
 7.0
Risk-free interest rate 2.35% 1.91% 1.95%
Weighted average market price on date of grants $30.46
 $21.91
 $21.03
Per share weighted average fair value $11.34
 $7.91
 $8.51
Fair value as a percentage of market value at grant date 37% 36% 40%

The expected volatility is the anticipated variability in the Company’sCompany's share price over the expected life of the stock option and is based on the Company's historical volatility.
 
The expected dividend yield is the Company’sCompany's projected dividends based on historical annualized dividend yield to coincide with volatility divided by its share price at the date of grant.

The expected life represents the period of time that the stock option is expected to be outstanding. The Company utilized the simplified method, and under this method,which the expected term equals the vesting term plus the contractual term divided by 2.two.

The risk-free interest rate is based on the U.S. Department of the Treasury rate in effect at the time of grant for a period equivalent to the expected life of the stock option.



ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


Stock option transactions during the year ended December 31, 20172023 are summarized as follows:
(Dollars in thousands, except per share data)OptionsWeighted Average Exercise
Price Per Share		Weighted Average Remaining Life in YearsAggregate
Intrinsic
Value
Outstanding December 31, 2022197,249 $26.33 4.4$1,824 
Granted— —   
Exercised33,998 17.87   
Forfeited/Expired712 33.91   
Outstanding December 31, 2023162,539 $28.07 4.2$824 
Vested and Exercisable at December 31, 2023126,161 $26.37 3.3$777 
 
(Dollars in thousands, except per share data) Options 
Weighted Average Exercise
Price Per Share
 Weighted Average Remaining Life in Years 
Aggregate
Intrinsic
Value
Outstanding December 31, 2016 259,779
 $17.38
 4.5 $5,243
Granted 15,009
 30.46
    
Exercised 74,339
 14.81
    
Forfeited/Expired 6,231
 19.85
    
Outstanding December 31, 2017 194,218
 $19.29
 5.0 $2,866
         
Vested and Exercisable at December 31, 2017 123,669
 $17.06
 3.4 $2,101
The aggregate intrinsic value in the table above represents the difference between the closing price of the Company’s common stock on December 31, 2017 and the exercise price, multiplied by the number of options.  If the closing price was less than the exercise price of the option, no intrinsic value was assigned to the grant.  At December 31, 2017, all of the vested and exercisable options were in-the money.  The intrinsic value of stock options vested and exercisable represents the total pretax intrinsic value that would have been received by the stock option holders had all in-the-money vested stock option holders exercised their options on December 31, 2017. The intrinsic value will change based on the fair market value2023. At December 31, 2023, 103,568 of the Company’s stock.vested and exercisable stock options were in-the money.


Cash received from stock option exercises was $355amounted to $180 thousand, $546$118 thousand, and $431$159 thousand in 2017, 2016 during the years ended December 31, 2023,2022 and 2015,2021, respectively. The total intrinsic value of stock options exercised was $1.6 million, $1.0 millionamounted to $563 thousand, $93 thousand and $396$173 thousand in 2017, 2016 during the years ended December 31, 2023, 2022 and 2015,2021, respectively. Cash paid by the Company for the net settlement of stock options to cover employee tax obligations was $386amounted to $153 thousand, $8 thousand and $158$16 thousand in 2017during the years ended December 31, 2023, 2022 and 2016,2021, respectively. In 2015,
107
ENTERPRISE BANCORP, INC.
Notes to the amount paid by the Company for the net settlement of options to cover employee tax obligations was immaterial.Consolidated Financial Statements

Stock option activity during the year ended December 31, 20172023 for unvested options are summarized as follows:

Unvested OptionsOptionsWeighted Average Grant Date Fair Value
Unvested December 31, 202256,257 $11.34 
Granted— — 
Vested19,879 10.24 
Forfeited— — 
Unvested December 31, 202336,378 $11.94 
Unvested Options Options Weighted Average Grant Date Fair Value
Unvested December 31, 2016 94,034
 $7.84
Granted 15,009
 11.34
Vested 33,693
 7.31
Forfeited 4,801
 8.30
Unvested December 31, 2017 70,549
 $8.81


The total fair value of stock options vested (based on grant date fair value) during the years ended December 31, 2017, December 31, 20162023, 2022 and December 31, 20152021, was $246$204 thousand, $237$186 thousand, and $359$171 thousand, respectivelyrespectively.


The Company adopted ASU 2016-09 in January 2017 and elected to record forfeitures as they occur. Prior to the adoption of this standard, accounting guidance required that the stock-based compensation expense recognized in earnings be based on the amount of awards ultimately expected to vest; therefore, a forfeiture assumption had to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differed from those estimates. In 2016 and 2015, the Company estimated forfeitures based on historical experience for the portion of the grant which had vested and/or grants already vested based on similarities in the type of options and employee group.

Compensation expense recognized in association with the stock option awards amounted to $204$175 thousand,, $267 $206 thousand and $318$187 thousand for the years ended 2017, 2016December 31, 2023, 2022 and 2015,2021, respectively. The total tax benefit recognized

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


related to the stock option expense was $83$49 thousand,, $109 $58 thousand, and $127$52 thousand for the years ended 2017, 2016,December 31, 2023, 2022 and 2015,2021, respectively.
 
As of December 31, 2017,2023, there was $339$202 thousand of unrecognized stock-based compensation expense related to non-vested stock options. That cost is expected to be recognized over the remaining weighted average vesting period of 2.31.8 years.
 
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 years indicated:

Restricted Stock Awards (number of underlying shares)202320222021
Two-year vesting9,915 8,823 8,109 
Four-year vesting32,719 22,147 24,307 
Performance-based vesting31,270 22,254 21,559 
Total restricted stock awards73,904 53,224 53,975 
Weighted average grant date fair value$32.04 $38.57 $32.73 
Restricted Stock Awards (no. of underlying shares) 2017 2016 2015
Two year vesting 6,944
 9,060
 7,276
Four year vesting 16,253
 18,298
 17,775
Performance-based vesting 25,623
 35,071
 30,262
Total restricted stock awards 48,820
 62,429
 55,313
       
Weighted average grant date fair value $30.46
 $21.90
 $21.03

If a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any shares of restricted stock granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.

The restricted stock awards allow for the non-forfeitable receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding.


Upon vesting, restricted stock awards may be net share-settledsettled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the Company. In 2017During the years ended December 31, 2023, 2022 and 2016,2021 the Company paid $545$294 thousand, $425 thousand and $284$330 thousand, respectively, to net settle the vesting of restricted stock awards to cover employee tax obligations. In 2015, the amount paid by the Company for the net settlement of options to cover employee tax obligations was immaterial.


Any shares that are returned to the Company prior to vesting or as payment for employee tax obligations upon vesting shall remain available for issuance under such plan, while the plan is still effective.







108
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements



The following table sets forth a summary of the activity for the Company’sCompany's restricted stock awards.awards:

Restricted
Stock		Weighted Average Grant Price Per Share
Unvested December 31, 2022106,658 $34.68 
Granted73,904 32.04 
Vested/released47,822 33.20 
Forfeited2,701 33.58 
Unvested December 31, 2023130,039 $33.75 
(Dollars in thousands, except per share data) 
Restricted
Stock
 Weighted Average Grant Price Per Share 
Weighted Average Remaining
Life In Years
 
Aggregate
Intrinsic
Value
Unvested December 31, 2016 141,580
 $20.73
 1.4 $5,318
Granted 48,820
 30.46
    
Vested/released 69,336
 20.07
    
Forfeited 3,845
 23.28
    
Unvested December 31, 2017 117,219
 $25.09
 1.4 $3,991

Stock-based compensation expense recognized in association with the restricted stock awards amounted to $1.3$1.9 million for both of the years ended December 31, 2023 and 2022, respectively and $1.6 million for the year ended December 31, 2017, $1.8 million for the year ended December 31, 2016, and $1.2 million for the year ended December 31, 2015.2021. The total tax benefit recognized related to restricted stock award compensation expense was $518$527 thousand, $746$522 thousand and $491$456 thousand for the years ended 2017, 2016,December 31, 2023, 2022 and 2015,2021, respectively.


As of December 31, 2017,2023, there remained $1.4$2.6 million of unrecognized compensation expense related to the restricted stock awards. That cost is expected to be recognized over the remaining weighted average vesting period of 2.12.3 years.

The total fair value of restricted stock awards vested (based on grant date fair value) during the years ended December 31, 2023, 2022 and 2021 was $1.6 million, $1.8 million and $1.7 million, respectively.

Stock in Lieu of Directors' Fees

In addition to the restricted stock awards discussed above, the non-employee members of the Company’sCompany's Board of Directors may opt to receive newly issued shares of the Company’sCompany's common in stock in lieu of cash compensation for attendance at Board and Board Committee meetings. Directors must make an irrevocable election to receiveThese shares are valued based on the Company's average quarterly close price and are issued in January of common stockthe following year.

Stock in lieu of cashdirectors' fees prior to December 31st of the preceding year.  Directors are granted shares of common stock in lieu of cash fees at a per share price which reflects the market value of the common stock on the first business day of the year.
Total directors' fee expense included in other operating expenses, amounted to $747was $218 thousand$661 thousand and $424 thousand for the yearsyear ended December 31, 2017, 2016 and 2015, respectively. Included in the 2017 expense was stock compensation of $281 thousand,2023, which represented 7,3267,224 shares issued to Directors in January 2018, at a fair market value price of $38.39 per share, which reflected2024, compared to $254 thousand for the fair value of the common stock on January 3, 2017. Included in the 2016 expense was stock compensation of $286 thousand,year ended December 31, 2022, which represented 12,9927,265 shares issued to Directors in January 2017, at a fair market value price of $22.04 per share, which reflected2023, and $252 thousand for the fair value of the common stock on January 4, 2016. Included in the 2015 expense was stock compensation of $254 thousand,year ended December 31, 2021, which represented 10,6577,375 shares issued to Directors in January 2016, at a fair market value price of $23.86 per share, which reflected the fair value of the common stock on January 2, 2015.2022. The total tax benefit recognized related to the expensestock in lieu of Director stock compensationdirectors' fees for meeting attendance was $115$61 thousand, $117 for the year ended December 31, 2023, and $71 thousand, and $102 thousand, for both of the years ended 2017, 2016December 31, 2022 and 2015, respectively.2021.

For further information regarding the Company's stock awards, see Note 10, "Stockholders' Equity," above under the caption "Shares authorized and share issuance."(15) Income Taxes


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(13)Income Taxes
 
The components of income tax expense for the years ended December 31, were calculated using the asset and liability method as follows:
(Dollars in thousands)202320222021
Current expense:   
Federal$10,424 $11,996 $10,786 
State4,763 4,606 3,771 
Total current expense15,187 16,602 14,557 
Deferred benefit:
Federal(1,425)(2,027)(945)
State(575)(1,145)(25)
Total deferred benefit(2,000)(3,172)(970)
Total income tax expense$13,187 $13,430 $13,587 



109
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
(Dollars in thousands) 2017 2016 2015
Current tax expense:  
  
  
Federal $8,222
 $8,178
 $6,808
State 2,271
 2,244
 1,712
Total current tax expense 10,493
 10,422
 8,520
Deferred tax (benefit)/ expense:      
Federal 5,646
 (984) (284)
State 89
 (277) (122)
Total deferred tax (benefit)/ expense 5,735
 (1,261) (406)
       
Total income tax expense $16,228
 $9,161
 $8,114
The provision for income taxes differs from the amount computed by applying the statutory U.S. federal income tax rate of 35%21% for 2017, 20162023, 2022 and 20152021 to income before taxes as follows: 
(Dollars in thousands)202320222021
Computed income tax expense at statutory rate$10,761$11,791$11,709
State income taxes, net of federal tax benefit3,3092,7342,959
Tax-exempt income, net of disallowance(758)(804)(832)
Bank-owned life insurance income, net(265)(252)(172)
Tax (benefit) expense from stock compensation(108)(147)(85)
New market tax credit(135)——
Other3831088
    Total income tax expense$13,187$13,430$13,587
Effective income tax rate25.7 %23.9 %24.4 %
(Dollars in thousands) 2017 2016 2015
Computed income tax expense at statutory rate $12,467
 $9,769
 $8,492
State income taxes, net of federal tax benefit 1,534
 1,279
 1,034
Tax-exempt income, net of disallowance (1,665) (1,559) (1,226)
Bank-owned life insurance income, net (245) (261) (251)
Impact of change in federal statutory rate on deferred tax assets 4,761
 —
 —
Tax benefit from stock compensation (922) —
 —
Other 298
 (67) 65
    Total income tax expense $16,228
 $9,161
 $8,114
       
Effective income tax rate 45.6% 32.8% 33.4%


The new federal tax bill enacted in December 2017 caused the Bank to revalue its net deferred tax assets based upon the lower rate at which they will be recovered. The value of the Company’s 2017 net deferred tax assets declined, due to the new lower federal tax rate, with the offset charged to Federal tax expense. This non-cash expense for the Company was approximately $4.8 million. The new federal tax bill will reduce the Bank’s federal tax rate in future periods, beginning in 2018, to 21% from its previous level of approximately 35%. Also in 2017, with the adoption of ASU 2016-09, related to employee share-based payment accounting, a tax benefit of approximately $922 thousand, associated with employee exercises and vesting of stock compensation, was recorded as a reduction of the Company's tax liability and income tax expense. Prior to 2017, the related tax benefits were recorded to additional paid-in-capital, and had no impact on the Company's income statements.


ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



At December 31, the tax effects of each type of income and expense item that give rise to deferred taxes are as follows:
(Dollars in thousands)20232022
Deferred tax asset:  
Allowance for credit losses$18,278 $15,822 
Depreciation3,524 3,270 
Net unrealized losses on equity securities51 53 
Net unrealized losses on debt securities23,105 27,918 
Supplemental employee retirement plans330 932 
Deferred compensation and benefits3,976 3,042 
Non-accrual interest1,608 1,425 
Stock-based compensation expense878 724 
Lease liability6,757 6,781 
Other6 1,049 
Total58,513 61,016 
Deferred tax liability:  
Goodwill1,564 1,571 
Deferred origination costs848 616 
Lease ROU asset6,862 6,781 
Other73 67 
Total9,347 9,035 
     Net deferred tax asset$49,166 $51,981 
(Dollars in thousands) 2017 2016
Deferred tax asset:  
  
Allowance for loan losses $9,252
 $12,753
Depreciation 1,831
 3,463
Net unrealized loss on investment securities —
 444
Other-than-temporary impairment on equity securities —
 22
Supplemental employee retirement plans 667
 1,018
Non-accrual interest 460
 1,145
Stock-based compensation expense 608
 1,019
Other 323
 390
Total 13,141
 20,254
     
Deferred tax liability:  
  
Goodwill 1,590
 2,301
Net unrealized gains on investments securities 90
 ��
Deferred origination costs 710
 933
Total 2,390
 3,234
     
     Net deferred tax asset $10,751
 $17,020

Deferred income taxes are recognized based on the expected future tax consequences of differences between the financial statement and tax basis of assets and liabilities, calculated using currently enacted tax rates. Management records net deferred tax assets to the extent we believe these assets will more likely than not be realized. In making this determination, we consider all available positive and negative evidence, including recent financial operations and projected future taxable income. Management believes based upon positive historical and expected future earnings that it is more likely than not the Company will generate sufficient taxable income to realize the deferred tax asset existing at December 31, 2017.2023. However, factors beyond management’smanagement's control, such as the general state of the economy, can affect future levels of taxable income and there can be no assurances that sufficient taxable income will be generated to fully realize the deferred tax assets in the future. 

The Company paid total estimated income taxes in 2017, 2016,during the years ended December 31, 2023, 2022 and 20152021 of $10.5$15.6 million,, $10.9 $17.0 million, and $7.6$12.3 million,, respectively.


110
ENTERPRISE BANCORP, INC.
Notes to the Consolidated Financial Statements
The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at December 31, 20172023, or December 31, 2016.2022. The Company is generally subject to examinations by taxing authorities for the prior three tax years.


The Company invests in qualified affordable housing projects as a limited partner. In 2017, the Company estimated approximately $71 thousandAs of Federal Low Income Housing tax credits to be recognized. In both 2016 and 2015, December 31, 2023,the Company recognized $71 thousand ofno Federal Low Income Housing tax credits. The Company anticipates that it will receive additionalThere are no remaining tax credits related to thethese Federal Low Income Housing Tax Credit program in the amount of $319 thousand which are expected to be realizedrealized. During the years ended December 31, 2022 and 2021, the Company recognized $36 thousand and $71 thousand in Federal Low Income Housing tax credits.

In March 2023, the Bank made an equity contribution to its wholly owned subsidiary, the NMTC Investment Fund, in order to invest in a local NMTC project. The Bank invested $3.7 million in the Investment Fund and anticipates receiving $4.8 million of federal tax credits over seven years. The investment is accounted for using the next 5 years.proportional amortization method and will be amortized over seven years, which represents the period that the tax credits and other tax benefits will be utilized. The investment is carried within the line "Prepaid expenses and other assets" on the Company's Consolidated Balance Sheet and the investment amortization expense and tax credits are presented on a net basis within the line "Provision for income taxes" on the Company's Consolidated Statements of Income. During the year ended December 31, 2023, the related amortization expense amounted to $478 thousand and the related tax credits amounted to $613 thousand.



ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements(16)Earnings per Share


(14)Earnings per Share


The table below presents the increase in average shares outstanding, using the treasury stock method, for the diluted earnings per share calculation for the years ended December 31st:indicated:
 2017 2016 2015 202320222021
Basic weighted average common shares outstanding 11,568,430
 10,966,333
 10,323,016
Dilutive shares 83,333
 73,178
 66,918
Diluted weighted average common shares outstanding 11,651,763
 11,039,511
 10,389,934
 
Basic and diluted weighted average common shares outstanding for the year ended December 31, 2017 include the full impact of the 930,232 shares of common stock issued in the Offering, while the respective weighted averages for the 2016 period was only affected by the Offering from the issue date of June 23, 2016 through period end.

There were 14,67861,425, 34,291 and 31,677 stock options outstanding at December 31, 2023, 2022 and 2021, respectively, that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for the yearyears ended December 31, 2017.2023, 2022 and 2021. These stock options, which were not dilutive at that date, may potentially dilute earnings per share in the future.


See Note 10, "Stockholders' Equity," underThe Company issues stock options and restricted stock awards to officers and other employees and restricted stock awards and stock compensation in lieu of cash fees to non-employee directors. The restricted stock awards allow for the caption "Shares authorizednon-forfeitable receipt of dividends, and share issuance," for information regardingthe voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding. The unvested restricted stock awards are the Company's only participating securities and see Item (r) "Earnings per Share," containedare included in Note 1, "Summaryshares outstanding. Unvested participating restricted awards amounted to 130,039 shares and 106,658 shares as of Significant Accounting Policies," for additional information regarding the earnings per share calculation.December 31, 2023 and December 31, 2022, respectively.


(15)Fair Value Measurements
(17)    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 basis of the best information available under the circumstances.
 
111
ENTERPRISE BANCORP, INC.
Notes to the Consolidated 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: 
 December 31, 2017
December 31, 2023December 31, 2023
   Fair Value Measurements using: Fair Value Measurements Using:
(Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3)(Dollars in thousands)Fair Value(Level 1)(Level 2)(Level 3)
Assets measured on a recurring basis:  
  
  
  
Assets measured on a recurring basis: 
Debt securities $405,206
 $—
 $405,206
 $—
Equity securities
FHLB stock 5,215
 —
 —
 5,215
Interest-rate swaps 568
 —
 568
 —
Assets measured on a non-recurring basis:  
  
  
  
Assets measured on a non-recurring basis: 
Impaired loans (collateral dependent) 2,696
 —
 —
 2,696
Individually evaluated loans (collateral dependent)
        
Liabilities measured on a recurring basis:        
Liabilities measured on a recurring basis:
Liabilities measured on a recurring basis:
Interest-rate swaps $568
 $—
 $568
 $—
Interest-rate swaps
Interest-rate swaps
RPA sold
 

December 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$816,102 $— $816,102 $— 
Equity securities4,269 4,269 — — 
FHLB stock2,343 — 2,343 — 
Interest-rate swaps782 — 782 — 
Assets measured on a non-recurring basis:    
Individually evaluated loans (collateral dependent)$740 $— $— $740 
Liabilities measured on a recurring basis:
Interest-rate swaps$782 $— $782 $— 
RPA sold73 73 
ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


  December 31, 2016
    Fair Value Measurements using:
(Dollars in thousands) Fair Value (Level 1) (Level 2) (Level 3)
Assets measured on a recurring basis:  
  
  
  
Debt securities $362,147
 $—
 $362,147
 $—
Equity securities 12,643
 12,643
 —
 —
FHLB stock 2,094
 —
 —
 2,094
Interest-rate swaps 610
 —
 610
 —
Assets measured on a non-recurring basis:  
  
  
  
Impaired loans (collateral dependent) 3,481
 —
 —
 3,481
         
Liabilities measured on a recurring basis:        
Interest-rate swaps $610
 $—
 $610
 $—
The Company did not transfer any assets between the fair value measurement levels during the yearyears ended December 31, 20172023 or the year ended December 31, 2016.2022.


All of the Company's debt and equity securities that are considered “available-for-sale”"available-for-sale" and are carried at fair value. The debt security category above includesmay include federal agency obligations, U.S. treasury securities, commercial and residential federal agency MBS, municipal securities, corporate bonds, and certificates of deposits,CDs, as held at those dates. 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’sAssociation'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’sCompany's equity securities 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. As

112
ENTERPRISE BANCORP, INC.
Notes to the Company did not hold any available-for-sale equity securities.Consolidated Financial Statements

The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB; thisFHLB. 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 costFHLB par value which management believes approximates fair value; therefore, these securities are categorized as Level 32 measures.  See Note 1, "Summary

The fair values of Significant Accounting Policies," Item (e) "Restricted Investments,"derivative assets and liabilities, which are comprised of back-to-back swaps and risk participation agreements, represent a Level 2 measurement and are based on settlement values adjusted for further information regardingcredit risks and observable market interest-rate curves. The settlement values are determined using widely accepted valuation techniques including discounted cash flow analysis on the Company’sexpected cash flows of each derivative, reflecting the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest-rate curves. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. The change in value of derivative assets and liabilities attributable to credit risk was not significant during the reported periods.

The fair value assessment of FHLB capital stock.

Impairedindividually evaluated collateral dependent loan balances in the table above represent those collateral dependent impaired commercial loans where management has estimated the probable credit loss by comparing the loan’sloan's carrying value 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 impaired loans are categorized as Level 3 within the fair value hierarchy. A specific allowance is assigned to the collateral dependent impaired loan for the amount of management’smanagement's estimated probable credit loss. The specific allowances assigned to the collateral dependent impairedindividually evaluated loans amounted to $872$2.8 million at December 31, 2023 compared to $298 thousand at December 31, 2017 compared to $1.9 million at December 31, 2016.2022.
The fair values for the interest-rate swap assets and liabilities represent a FASB Level 2 measurement and are based on settlement values adjusted for credit risks and observable market interest rate curves. The settlement values are based

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


on discounted cash flow analysis, a widely accepted valuation technique, reflecting the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. The change in value of interest-rate swap assets and liabilities attributable to credit risk was not significant during the reported periods. Refer also to Note 8, “Derivatives and Hedging Activities,” 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.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 sheetConsolidated Balance Sheet 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 sheetConsolidated Balance Sheets at December 31, 20172023 and December 31, 20162022 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 generally does not pool mortgage loans for sale, but instead sells the loans on an individual basis. To reduce the net interest rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest-rate lock commitment is quoted on the origination of the loan. 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’sCompany's derivative instruments are deemed to be FASB Level 2 measurements. At December 31, 20172023 and December 31, 2016,2022, the estimated fair value of the Company’sCompany'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 recurring and 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 December 31, 2017.2023 and December 31, 2022: 
Fair Value
(Dollars in thousands)December 31, 2023December 31, 2022Valuation TechniqueUnobservable InputUnobservable Input Value or Range
Assets measured on a non-recurring basis:
Individually evaluated loans (collateral dependent)$1,595 $740 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.




113
(Dollars in thousands)Fair ValueValuation TechniqueUnobservable InputUnobservable Input Value or Range
Assets measured on a recurring basis:
  FHLB stock$5,215FHLB stated par valueN/AN/A
Assets measured on a non-recurring basis:
  Impaired loans (collateral dependent)$2,696Appraisal of collateral
Appraisal adjustments (1)
5% - 50%
ENTERPRISE BANCORP, INC.
(1)Appraisals may be adjusted by management for qualitative factors such as economic conditions and estimated liquidation expenses.

Notes to the Consolidated Financial Statements
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 sheet,Consolidated Balance Sheet, 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 sheet.Consolidated Balance Sheet. 

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements



The carrying values, estimated fair values and placement in the fair value hierarchy of the Company’s consolidatedCompany's financial instruments for which fair value is only disclosed but not recognized on the consolidated balance sheetConsolidated Balance Sheets at the dates indicated are summarized as follows:
December 31, 2023
 Fair Value Measurement
(Dollars in thousands)Carrying
Amount		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
Loans held for sale$200 $201 $— $201 $— 
Loans, net3,508,636 3,353,968 — $— 3,353,968 
Financial liabilities:  
CDs521,076 518,928 — 518,928 — 
Borrowed funds25,768 24,081 — 24,081 — 
Subordinated debt59,498 55,572 — 55,572 — 
 December 31, 2017
December 31, 2022December 31, 2022
   Fair value measurement Fair Value Measurement
(Dollars in thousands) 
Carrying
Amount
 Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs(Dollars in thousands)Carrying
Amount		Fair ValueLevel 1 InputsLevel 2 InputsLevel 3 Inputs
Financial assets:  
  
      
Loans held for sale $208
 $208
 $—
 $208
 $—
Loans, net
Loans, net
Loans, net 2,236,989
 2,236,169
 —
 —
 2,236,169
Financial liabilities:  
  
      
Certificates of deposit (including brokered) 343,089
 341,765
 —
 341,765
 —
CDs
CDs
CDs
Borrowed funds
Borrowed funds
Borrowed funds 89,000
 88,996
 —
 88,996
 —
Subordinated debt 14,847
 14,208
 —
 —
 14,208


  December 31, 2016
    Fair value measurement
(Dollars in thousands) 
Carrying
Amount
 Fair Value Level 1 Inputs Level 2 Inputs Level 3 Inputs
Financial assets:  
  
      
Loans held for sale $1,569
 $1,569
 $—
 $1,569
 $—
Loans, net 1,991,387
 1,997,887
 —
 —
 1,997,887
Financial liabilities:  
  
      
Certificates of deposit (including brokered) 227,257
 226,536
 —
 226,536
 —
Borrowed funds 10,671
 10,670
 —
 10,670
 —
Subordinated debt 14,834
 14,011
 —
 —
 14,011


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 considered to be classified within Level 1 of their 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.

114
When determining fair values noted in the tables above, in cases where quoted fair values are not available, fair values are based upon estimates using various valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates
Loans held for sale: Loans held for sale are recordedat the lower of aggregate amortized cost or market value. The fair value is based on comparable market prices for loans with similar rates and terms.


Contents
ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


(18)Supplemental Cash Flow Information
Loans:
The fair value of loans was determined using discountedsupplemental cash flow analysis, using interest rates currently being offered byinformation for the Company.  The incremental credit risk for adversely classified loans was consideredyears indicated is as follows:    
(Dollars in thousands)202320222021
Supplemental financial data:
Cash paid for: interest$45,296 $8,647 $7,880 
Cash paid for: estimated income taxes15,610 16,983 12,335 
Cash paid for: lease liability1,412 1,380 1,251 
Supplemental schedule of non-cash activity:
Transfer from loans to other real estate owned— — 2,400 
ROU lease assets: operating leases(1)
611 31 6,608 

(1)Represents net new ROU lease assets added in the determinationperiods indicated.

(19)Condensed Parent Company Only Financial Statements

Balance Sheets
 December 31,
(Dollars in thousands, except per share data)20232022
Assets  
Cash$2,089 $1,929 
Investment in subsidiaries387,978 340,966 
Other assets— — 
Total assets$390,067 $342,895 
Liabilities and Shareholders' Equity  
Liabilities
Subordinated debt$59,498 $59,182 
Accrued interest payable1,444 1,444 
Other liabilities8 2 
Total liabilities60,950 60,628 
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; 12,272,674 and 12,133,516 shares issued, respectively123 121 
Additional paid-in capital107,377 103,793 
Retained earnings301,380 274,560 
Accumulated other comprehensive income(79,763)(96,207)
Total shareholders' equity329,117 282,267 
Total liabilities and shareholders' equity$390,067 $342,895 

115
Financial liabilities: The fair values of certificates of deposit and borrowings were estimated using discounted cash flow analysis using rates offered by the Bank or advance rates offered by the FHLB on December 31, 2017 and December 31, 2016 for similar instruments.  The fair value of subordinated debt was estimated using discounted cash flow analysis using a market rate of interest at December 31, 2017 and December 31, 2016.
Limitations:  The estimates of fair value of financial instruments were based on information available at December 31, 2017 and December 31, 2016 and are not indicative of the fair market value of those instruments as of the date of this Annual Report on Form 10-K.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. The fair value of the Company's time deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.
Because no active market exists for a portion of the Company’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates were based on existing on and off-balance sheet financial instruments without an attempt to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments, including premises and equipment and foreclosed real estate, if any.
In addition, the tax ramifications related to the realization of the unrealized appreciation and depreciation can have a significant effect on fair value estimates and have not been considered in any of the estimates.  Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

Contents

ENTERPRISE BANCORP, INCINC.
Notes to the Consolidated Financial Statements


(16)Parent Company Only Financial Statements
Balance Sheets
  December 31,
(Dollars in thousands) 2017 2016
Assets  
  
Cash $345
 $497
Investment in subsidiaries 245,982
 227,960
Other assets 411
 1,243
Total assets $246,738
 $229,700
Liabilities and Stockholders’ Equity  
  
Liabilities    
Subordinated debt $14,847
 $14,834
Accrued interest payable 78
 78
Other liabilities 3
 2
Total liabilities 14,928
 14,914
Stockholders' 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; 11,609,853 shares issued and outstanding at December 31, 2017 and 11,475,742 shares issued and outstanding at December 31, 2016 116
 115
Additional paid-in capital 88,205
 85,421
Retained earnings 143,073
 130,008
Accumulated other comprehensive income (loss) 416
 (758)
Total stockholders’ equity 231,810
 214,786
Total liabilities and stockholders’ equity $246,738
 $229,700

Statements of Income
 For the years ended December 31,
(Dollars in thousands)202320222021
Equity in undistributed net income of subsidiaries$30,315 $36,701 $22,985 
Dividends distributed by subsidiaries10,200 8,900 22,350 
Total income40,515 45,601 45,335 
Interest expense3,467 3,352 3,495 
Other operating expenses347 270 891 
Total operating expenses3,814 3,622 4,386 
Income before income taxes36,701 41,979 40,949 
Benefit from income taxes(1,357)(737)(1,222)
Net income$38,058 $42,716 $42,171 
  For the years ended December 31,
(Dollars in thousands) 2017 2016 2015
Equity in undistributed net income of subsidiaries $16,922
 $19,313
 $17,277
Dividends distributed by subsidiaries 3,000
 150
 —
Loss distributed by divested subsidiary —
 —
 (210)
Other income —
 —
 17
Total income 19,922
 19,463
 17,084
Interest expense 925
 928
 1,071
Other operating expenses 245
 194
 500
Total operating expenses 1,170
 1,122
 1,571
Income before income taxes 18,752
 18,341
 15,513
Benefit from income taxes (641) (410) (635)
Net income $19,393
 $18,751
 $16,148

ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


Parent Company Only Financial Statements
Statements of Cash Flows

 For the years ended December 31,
(Dollars in thousands)202320222021
Cash flows from operating activities:   
Net income$38,058 $42,716 $42,171 
Adjustments to reconcile net income to net cash provided by operating activities:   
Equity in undistributed net income of subsidiaries(30,315)(36,701)(22,985)
Payment from subsidiary bank for stock compensation expense2,305 2,315 2,094 
Changes in:
Net decrease (increase) in other assets(253)205 66 
Net increase (decrease) in other liabilities322 202 (25)
Net cash provided by operating activities10,117 8,737 21,321 
Cash flows from investing activities:
Investment in subsidiary— — — 
Net cash used in investing activities— — — 
Cash flows from financing activities:   
Repayment of subordinated debt— — (14,887)
Proceeds from the issuance of subordinated debt— — — 
Cash dividends paid, net of dividend reinvestment plan(9,734)(8,521)(7,627)
Proceeds from issuance of common stock44 47 59 
Net settlement for employee tax withholding on restricted stock and options(447)(433)(346)
Net proceeds from exercise of stock options180 118 159 
Net cash (used in) provided by financing activities(9,957)(8,789)(22,642)
Net (decrease) increase in cash and cash equivalents160 (52)(1,321)
Cash at beginning of year1,929 1,981 3,302 
Cash at end of year$2,089 $1,929 $1,981 
  For the years ended December 31,
(Dollars in thousands) 2017 2016 2015
Cash flows from operating activities:  
  
  
Net income $19,393
 $18,751
 $16,148
Adjustments to reconcile net income to net cash provided by operating activities:  
  
  
Equity in undistributed net income of subsidiaries (16,922) (19,313) (17,277)
Payment from subsidiary bank for stock compensation expense 1,758
 2,348
 1,791
Changes in:      
Decrease (increase) in other assets 832
 (697) (36)
Decrease in other liabilities 14
 9
 (482)
Net cash provided by operating activities 5,075
 1,098
 144
Cash flows from investing activities:      
Investment in subsidiary(1)
 —
 (19,730) 781
Net cash (provided by) used in investing activities —
 (19,730) 781
Cash flows from financing activities:  
  
  
Repayment of subordinated debt(2)
 —
 —
 (10,825)
Proceeds from the issuance of subordinated debt(2)
 —
 —
 15,000
Cash dividends paid (6,241) (5,684) (5,158)
Proceeds from issuance of common stock, net of expenses 1,590
 21,183
 1,448
Net settlement for employee tax withholdings on restrict stock and options (931) (442) —
Proceeds from exercise of stock options 355
 546
 431
Tax benefit from stock-based compensation —
 789
 217
Net cash (used in) provided by financing activities (5,227) 16,392
 1,113
Net (decrease) increase in cash and cash equivalents (152) (2,240) 2,038
Cash and cash equivalents, beginning of year 497
 2,737
 699
Cash and cash equivalents, end of year $345
 $497
 $2,737
(1)The outflow in investment in subsidiary in 2016 reflects the Company's investment in the Bank from the Offering. See Note 10 "Stockholders' Equity," above, for further information.
(2)See Note 7, "Borrowed Funds and Subordinated Debt," above, for further information regarding changes in the Company's subordinated debt.

The Parent Company’sCompany's Statements of Comprehensive Income and Statements of Changes in Stockholders’Shareholders' Equity are identical to the Consolidated Statements of Comprehensive Income and the Consolidated Statements of Changes in Stockholders’Shareholders' Equity and therefore are not presented here.



116
ENTERPRISE BANCORP, INC
Notes to the Consolidated Financial Statements


(17)Quarterly Results of Operations (Unaudited)
  2017
(Dollars in thousands, except share data) 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Interest and dividend income $24,364
 $25,338
 $27,045
 $28,285
Interest expense 1,517
 1,803
 1,911
 2,279
Net interest income 22,847
 23,535
 25,134
 26,006
Provision for loan losses 125
 280
 1,225
 (200)
Net interest income after provision for loan losses 22,722
 23,255
 23,909
 26,206
Non-interest income 3,594
 3,710
 3,728
 3,926
Net gains (losses) on sales of investment securities 540
 229
 (284) 231
Non-interest expense 19,420
 18,754
 18,833
 19,138
Income before income taxes 7,436
 8,440
 8,520
 11,225
Provision for income taxes 1,864
 2,845
 3,014
 8,505
Net income $5,572
 $5,595
 $5,506
 $2,720
         
Basic earnings per share $0.48
 $0.48
 $0.48
 $0.23
Diluted earnings per share $0.48
 $0.48
 $0.47
 $0.23

  2016
(Dollars in thousands, except share data) 
First
Quarter
 
Second
Quarter
 
Third
Quarter
 
Fourth
Quarter
Interest and dividend income $22,465
 $22,632
 $23,191
 $24,027
Interest expense 1,382
 1,343
 1,374
 1,424
Net interest income 21,083
 21,289
 21,817
 22,603
Provision for loan losses 850
 267
 1,386
 490
Net interest income after provision for loan losses 20,233
 21,022
 20,431
 22,113
Non-interest income 3,204
 3,519
 3,402
 3,514
Net gains on sales of investment securities 2
 63
 546
 191
Non-interest expense 16,869
 17,542
 17,414
 18,503
Income before income taxes 6,570
 7,062
 6,965
 7,315
Provision for income taxes 2,257
 2,291
 2,251
 2,362
Net income $4,313
 $4,771
 $4,714
 $4,953
         
Basic earnings per share $0.41
 $0.45
 $0.41
 $0.43
Diluted earnings per share $0.41
 $0.45
 $0.41
 $0.43








REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the StockholdersShareholders and the Board of Directors of Enterprise Bancorp, Inc.

Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Enterprise Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, changes in stockholders'shareholders’ equity and cash flows for each of the twothree years in the period ended December 31, 2017,2023, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20172023 and 2016,2022, and the results of its operations and its cash flows for each of the twothree years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company'sCompany’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 13, 20188, 2024, expressed an unqualified opinion on the effectiveness of the Company'sCompany’s internal control over financial reporting.

Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.

Allowance for Credit Losses for Loans
As described in Notes 1 and 4 of the consolidated financial statements, the Company’s allowance for credit losses for loans totaled $59.0 million as of December 31, 2023. The general reserve for larger groups of homogeneous loans collectively evaluated is evaluated on a pool basis. The Company has segmented the loan portfolio for groups of loans with similar risk characteristics by 1) loan type for pass-rated loans and 2) by internal risk rating for adversely classified loans not individually evaluated. The general reserve is comprised of a quantitative reserve based on the Company’s historical loss experience, a qualitative reserve based on management’s evaluation of several judgmental qualitative or environmental factors, andeconomic forecasts over the estimated life of the loan pools. The qualitative or environmental factors used by the Company include considerations such as commercial concentrations by industry, property type and real estate location; the growth and composition of the loan portfolio; trends in risk classification of individual loans and higher risk problem assets; the level of delinquent loans and non-performing loans; individually evaluated and restructured loans; the level of foreclosure activity; net charge-offs; and trends in the general levels of these indicators. In addition, the Company monitors expansion in the geographic market area; the experience level of lenders and any changes in underwriting criteria; and general conditionsand development markets in the Company's local region as well as changes in the current and forecasted economic conditions, such as changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates and other relevant economic factors. The Company generally uses a two-year reasonable and supportable
117
forecast, and for periods beyond the forecast period, reverts to historical loss rates. The evaluation and measurement of the qualitative or environmental and economic forecasts requires management to apply a high degree of judgment and involves assumptions that are sensitive to change, for which future adjustments to the allowance may be necessary.

We identified the qualitative component of the general reserve for loans collectively evaluated in the allowance for credit losses for loans as a critical audit matter because auditing the underlying qualitative or environmental factors and economic forecasts used in establishing the general reserve involved a high degree of auditor judgment given the high degree of subjectivity exercised by management.

Our audit procedures related to management’s evaluation and establishment of the qualitative component of the general reserve for loans collectively evaluated in the allowance for credit losses for loans included the following, among others:
•We obtained an understanding of the relevant controls related to the qualitative or environmental factors and economic forecasts applied to the general reserve for loans collectively evaluated in the allowance for credit losses for loans and tested such controls for design and operating effectiveness, including controls over management’s establishment, review and approval of the qualitative or environmental factors and economic forecasts, including the data used in determining the qualitative or environmental factors and economic forecasts.
•We tested management’s process and significant judgments in the evaluation and establishment of the qualitative or environmental factors and economic forecasts used in the general reserve for loans collectively evaluated in the allowance for credit losses for loans, which included:
◦Validating the source of information used by management by comparing to the relevant internal or external information from which it was derived, as well as testing the completeness and accuracy of the source data used by management.
◦Evaluating the reasonableness of management’s judgments related to the qualitative or environmental factors and the correlation to potential losses by evaluating the adjustments in terms of magnitude and directional consistency based on the data utilized in the determination of the qualitative or environmental factors.
◦Evaluating the reasonableness of management’s indicators of current and forecasted economic factors, which include changes in gross domestic product, the unemployment rate and new jobs created, real estate values, commercial vacancy rates, recession risk estimates, among others, by comparing these forecasts to external and internal information sources.

/s/ RSM US LLP
 
We have served as the Company's auditor since 2015.
 
Boston, Massachusetts
March 13, 20188, 2024




118
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



The Board of Directors and Stockholders
Enterprise Bancorp, Inc.:

We have audited the accompanying consolidated balance sheet of Enterprise Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity, and cash flows for the year in the period ended December 31, 2015. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Enterprise Bancorp, Inc. and its subsidiaries as of December 31, 2015, and the results of their operations and their cash flows for the year in the period ended December 31, 2015, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company’s internal control over financial reporting as of December 31, 2015, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 15, 2016, expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.


/s/ KPMG LLP


Boston, Massachusetts
March 15, 2016





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
ON INTERNAL CONTROL OVER FINANCIAL REPORTING
To the StockholdersShareholders and the Board of Directors of Enterprise Bancorp, Inc.

Opinion on the Internal Control overOver Financial Reporting
We have audited Enterprise Bancorp, Inc.'s’s (the Company) internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control -— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20172023 and 2016,2022, the related consolidated statements of income, comprehensive income, changes in stockholders'shareholders’ equity, and cash flows for each of the twothree years in the period ended December 31, 2017,2023, and the related notes to the consolidated financial statements (collectively, the financial statements) of the Company and our report dated March 13, 20188, 2024, expressed an unqualified opinion.

Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control overOver Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ RSM US LLP
 
Boston, Massachusetts
March 13, 20188, 2024
119


Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9.Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
 
None.



Item 9A.Controls and Procedures
Item 9A.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’sSEC's rules and forms.
 
The Company carried out an evaluation as of the end of the period covered by this Form 10-K, under the supervision and with the participation of the Company’sCompany's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’sCompany's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company’sCompany's principal executive officer and principal financial officer concluded that the Company’sCompany's disclosure controls and procedures are effective as of December 31, 2017.2023.
 
Management’sManagement's Report on Internal Control Over Financial Reporting
 
The Company’sCompany's management is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’sCompany's internal control system was designed to provide reasonable assurance to the Company’sCompany's management and Board regarding the preparation and fair presentation of published financial statements. All internal control systems, however, no matter how well designed, have inherent limitations and may not prevent or detect misstatement. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
The Company’sCompany's management assessed the effectiveness of the Company’sCompany's internal control over financial reporting as of December 31, 2017.2023. In making this assessment, it used the 2013 criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in "Internal Control-Integrated Framework." Based on management’smanagement's assessment, the Company believes that, as of December 31, 2017,2023, the Company’sCompany's internal control over financial reporting is effective based on these criteria.
 
The Company’sCompany's independent registered public accounting firm has issued a report on the effectiveness of the Company’sCompany's internal control over financial reporting, which appears on page 137119 of this report.Form 10-K.
 
Changes in Internal Control Over Financial Reporting
 
There hashave been no changesignificant changes in the Company’sCompany's internal control over financial reporting that has occurred during the Company’sCompany's most recent fiscal quarter (i.e., the three months ended December 31, 2017)2023) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

Item 9B.Other Information
 
Item 9B.Other Information
During the three months ended December 31, 2023, none of the directors or officers of the Company adopted or terminated a "Rule 10b5-1 trading arrangement" or a "non-Rule 10b5-1 trading arrangement," as each term is defined in Item 408 of Regulation S-K.
None.
Item 9C.     Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.

Not applicable.

Part III
 
Items 10, 11, 12, 13 and 14.


The information required in Items 10, 11, 12, 13 and 14 of this partPart III of this Form 10-K is incorporated herein by reference to the Company’sCompany's definitive proxy statement for its annual meeting of stockholdersshareholders to be held on May 1, 2018,7, 2024, which it expects to
120
file with the SEC within 120 days of the end of the fiscal year covered by this report.Form 10-K. For additional information on availability of the Company’sCompany's corporate governance guidelines, see the section titled "Company Website," contained in Item 1, "Business," toof this report.Form 10-K.


Part IV
 
Item 15.Exhibits, Financial Statement Schedules
Item 15.Exhibits, Financial Statement Schedules
 
(a)The following documents are filed as part of this annual report:
(a)The following documents are filed as part of this annual report:
 
(1)Financial Statements

(1)    Financial Statements

See Index to Consolidated Financial Statements contained in Item 8 of this Form 10-K above.


(2)Financial Statement Schedules

(2)    Financial Statement Schedules

None (information included in consolidated financial statements)


(3)Exhibits

(3)    Exhibits

Exhibit No. and 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).

3.1.1    Amended and Restated Articles of Organization of the Company, as amended as of June 4, 2013, incorporated by reference to Exhibit 3.1 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 Restated Articles of Organization of the Company, as amended January 5, 2018, and incorporated by reference to the Company's Current Report on Form 8-K filed January 11, 2018 (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 Exhibit 3.1 to the Company's Current Report on Form 8-K filed May 18, 2017 (File No. 001-33912).

3.2
Amended and Restated Bylaws of the Company, as amended as of January 15, 2013, incorporated by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K filed on January 22, 2013 (File No. 001-33912).



4.1
Renewal Rights Agreement dated as of December 11, 2007 by and between the Company and Computershare Trust Company, N.A., as Rights Agent, including Terms of Series A Junior Participating Preferred Stock, Summary of Rights to Purchase Shares of Series A Junior Participating Preferred Stock, and Form of Rights Certificate attached as Exhibits A, B and C thereto, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on December 13, 2007 (File No. 001-33912).

3.1.3    Articles of Amendment to the Restated Articles of Organization of the Company, as amended January 5, 2018, incorporated by reference to Exhibit 3.1 to the Company's Current Report on Form 8-K filed January 11, 2018 (File No. 001-33912).

4.2
Amendment No. 1 to Renewal Rights Agreement dated as of January 5, 2018, and incorporated by reference to the Company's Current Report on Form 8-K dated January 11, 2018 (File No. 001-33912).



10.1
Enterprise Bancorp, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4 to the Company’s Registration Statement on Form S-8 (Reg. No. 333-136700), filed on August 17, 2006.

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).

10.2.1
Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.39.1 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).



4.1Renewal Rights Agreement dated as of December 11, 2007 by and between the Company and Computershare Trust Company, N.A., as Rights Agent, including Terms of Series A Junior Participating Preferred Stock, Summary of Rights to Purchase Shares of Series A Junior Participating Preferred Stock, and Form of Rights Certificate attached as Exhibits A, B and C thereto, incorporated by reference to Exhibit 4.5 to the Company’s Current Report on Form 8-K filed on December 13, 2007 (File No. 333-79135).

10.2.2
Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.39.2 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).



10.3.1
First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.1.1 to the Company’s Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).

4.2    Amendment No. 1 to Renewal Rights Agreement dated as of January 5, 2018, incorporated by reference to Exhibit 4.2 to the Company's Current Report on Form 8-K dated January 11, 2018 (File No. 001-33912).

10.3.2
First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company’s Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).



10.4.1
Change in Control/Noncompetition Agreement dated as of December 18, 2008 by and among the Company, the Bank and Stephen J. Irish, incorporated by reference to Exhibit 10.12 to the Company’s Form 10-K for the year ended December 31, 2008 (File No. 001-33912).

4.3    Description of the Company's Common Stock Registered under Section 12 of the Exchange Act of 1934, incorporated by reference to Exhibit 4.3 to the Company's Annual Report on Form 10-K for the year ended December 31, 2020 (File No. 001-33912).

10.4.2
Change in Control/Noncompetition Agreement dated as of December 21, 2010 by and among the Company, the Bank and James A. Marcotte, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 22, 2010 (File No. 001-33912).



10.5.1
Employment Agreement dated July 9, 2015 by and among the Company, the Bank and George L. Duncan incorporated by reference to Exhibit 10.1.1 to the Company’s Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).

4.4    Description of the Company's Preferred Share Purchase Rights Registered under Section 12 of the Exchange Act of 1934, incorporated by reference to Exhibit 4.4 to the Company's Annual Report on Form 10-K for the year ended December 31, 2019 (File No. 001-33912).

10.5.2
Employment Agreement dated July 9, 2015 by and among the Company, the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company’s Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).



10.5.3
Employment Agreement dated July 9, 2015 by and among the Company, the Bank and John P. Clancy, Jr. incorporated by reference to Exhibit 10.1.3 to the Company’s Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).

4.5    Indenture, dated as of July 7, 2020, by and between Enterprise Bancorp, Inc. and UMB Bank, National Association, as trustee, incorporated by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K, filed on July 7, 2020 (File No.001-33912).

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10.6.1
Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.40.1 to the Company’s Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).
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10.6.2
Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.40.2 to the Company’s Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).

4.6    Form of Fixed to Floating Rate Subordinated Note due July 15, 2030 (included as Exhibit A-2 to the Indenture incorporated by reference to Exhibit 4.5 hereto).

10.7
Enterprise Bank and Trust Company Supplemental Life Insurance Plan adopted April 5, 2006, incorporated by reference to Exhibit 10.52 to the Company’s Form 10-Q for the quarter ended September 30, 2006 (File No. 333-79135).



10.1    Enterprise Bancorp, Inc. Employee Stock Purchase Plan, incorporated by reference to Exhibit 4 to the Company's Registration Statement on Form S-8 filed on August 17, 2006 (Reg. No. 333-136700).

10.8.1
Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended on May 1, 2012 and June 16, 2015 incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended June 30, 2015 (File No. 001-33912).



10.8.2
Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, incorporated by reference to the annex to the Company’s Definitive Proxy Statement on Schedule 14A filed on March 31, 2016 (File No. 001-33912).

10.2.1    Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.39.1 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).

10.9.1
Specimen Nonqualified Stock Option Agreement under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on May 6, 2009 (File No. 001-33912).



10.9.2
Specimen Restricted Stock Agreement under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on May 6, 2009 (File No. 001-33912).

10.2.2    Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.39.2 to the Company’s Current Report on Form 8-K filed on July 20, 2005, as amended by Form 8-K/A filed on February 23, 2006 (File No. 333-79135).

10.9.3
Specimen Restricted Stock Agreement for grants of restricted stock to officers and directors under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q for the quarter ended March 31, 2010 (File No. 001-33912).



10.10.1
Form of Restricted Stock Agreement dated as of March 19, 2013 under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, by and between the Company and each of George L. Duncan, John P. Clancy, Richard W. Main, James A. Marcotte, and Stephen J. Irish incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 25, 2013 (File No. 001-33912).

10.3.1    First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.1.1 to the Company’s Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).

10.10.2
Form of Nonqualified Stock Option Agreement dated as of March 19, 2013 under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, by and between the Company and each of George L. Duncan, John P. Clancy, Richard W. Main, James A. Marcotte, and Stephen J. Irish incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 25, 2013 (File No. 001-33912).



10.11.1
Specimen Restricted Stock Agreement for grants of restricted stock to officers and directors under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 25, 2013 (File No. 001-33912).

10.3.2    First Amendment dated as of December 19, 2008 to Salary Continuation Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company's Current Report on Form 8-K filed on December 24, 2008 (File No. 001-33912).


10.11.2
Specimen Restricted Stock Agreement for grants of restricted stock to officers and directors under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2014 (File No. 001-33912).

10.4.1    Change in Control/Noncompetition Agreement dated as of December 18, 2008 by and among the Company, the Bank and Stephen J. Irish, incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K for the year ended December 31, 2008 (File No. 001-33912).

10.4.2     Change in Control/Noncompetition Agreement dated as of May 19, 2014 by and among the Company, the Bank and Joseph R. Lussier, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on June 20, 2019 (File No. 001-33912).

10.5.1    Employment Agreement dated July 9, 2015 by and among the Company, the Bank and George L. Duncan, incorporated by reference to Exhibit 10.1.1 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).

10.5.2    Employment Agreement dated July 9, 2015 by and among the Company, the Bank and Richard W. Main, incorporated by reference to Exhibit 10.1.2 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).

10.5.3    Employment Agreement dated July 9, 2015 by and among the Company, the Bank and John P. Clancy, Jr., incorporated by reference to Exhibit 10.1.3 to the Company's Current Report on Form 8-K filed on July 9, 2015 (File No. 001-33912).

10.6.1    Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and George L. Duncan, incorporated by reference to Exhibit 10.40.1 to the Company's Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).

10.6.2    Supplemental Life Insurance Agreement dated as of July 15, 2005 by and between the Bank and Richard W. Main, incorporated by reference to Exhibit 10.40.2 to the Company's Current Report on Form 8-K filed on July 20, 2005 (File No. 333-79135).

10.7.1    Enterprise Bank and Trust Company Supplemental Life Insurance Plan adopted April 5, 2006, incorporated by reference to Exhibit 10.52 to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2006 (File No. 333-79135).

10.8.1    Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended on May 1, 2012, June 16, 2015 and October 16, 2018, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on October 22, 2018 (File No. 001-33912).
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10.8.2    Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended on October 16, 2018, incorporated by reference to the Exhibit 10.2 to the Company's Current Report on Form 8-K filed on October 22, 2018 (File No. 001-33912).

10.8.3    Amendment No. 1 to the Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, dated January 19, 2021, incorporated by reference to the Exhibit 10.1 to the Company's Current Report on Form 8-K filed on May 6, 2021 (File No. 001-33912).

10.9.1    Specimen Nonqualified Stock Option Agreement dated as of March 19, 2013 under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 25, 2013 (File No. 001-33912).

10.9.2    Specimen Restricted Stock Agreement under Enterprise Bancorp, Inc. 2009 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 24, 2014 (File No. 001-33912).
    
10.12.1
Enterprise Bank and Trust Company 2015 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 23, 2015 (File No. 001-33912).

10.10.1    Specimen 2019 Nonqualified Stock Option Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.1 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).

10.12.2
Enterprise Bank and Trust Company 2016 Variable Compensation Incentive Plan incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 18, 2016 (File No. 001-33912).



10.12.3
Enterprise Bank and Trust Company 2017 Variable Compensation Incentive Plan incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 24, 2017 (File No. 001-33912).

10.10.2    Specimen 2019 Restricted Stock Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.2 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).

10.13
Enterprise Bancorp, Inc. Annual Executive Incentive Plan incorporated by reference to Appendix A of the Definitive Proxy Statement on Schedule 14A dated April 3, 2017, and filed on April 3, 2017 (File No. 001-33912)



10.14
Enterprise Bancorp, Inc. Dividend Reinvestment and Direct Stock Purchase Plan, incorporated by reference to the section of the Company’s Registration Statement on Form S-3 (Reg. No. 333-219879), filed on August 10, 2017, appearing under the heading “The Plan.”

10.10.3    Specimen 2019 Director Restricted Stock Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to exhibit 10.12.3 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).

10.15
Form of Subordinated Note Purchase Agreement dated January 30, 2015, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on February 3, 2015 (File No. 001-33912).



16.1
Letter of KPMG, LLP dated December 14, 2015, incorporated by reference to Exhibit 16.1 to the Company’s Current Report on Form 8-K filed on December 14, 2015 (File No. 001-33912).

10.10.4    Specimen Nonqualified Stock Option Agreement under Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 20, 2020 (File No. 001-33912).

21.0
Subsidiaries of the Registrant.



23.1
Consent of RSM US LLP.

10.11.1.1    Enterprise Bank and Trust Company 2020 Variable Compensation Inventive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on March 20, 2020 (File No. 001-33912).

23.2
Consent of KPMG LLP.



31.1
Certification of principal executive officer under Securities and Exchange Act Rule 13a—14(a).

10.11.1.2    Amendment to the Enterprise Bank and Trust Company 2020 Variable Compensation Incentive Plan, incorporated by reference to the Company's Current Report on Form 8-K filed on November 16, 2020 (File No. 001-33912).

31.2
Certification of principal financial officer under Securities and Exchange Act Rule 13a—14(a).



10.11.2    Enterprise Bank and Trust Company 2021 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on April 23, 2021 (File No. 001-33912).
32.0

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

10.11.4    Enterprise Bank and Trust Company 2023 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on March 24, 2023 (File No. 001-33912).

10.12    Enterprise Bancorp, Inc. Annual Executive Incentive Plan, incorporated by reference to Appendix A of the Company's Definitive Proxy Statement on Schedule 14A dated April 3, 2017, and filed on April 3, 2017 (File No. 001-33912).

10.13    Enterprise Bancorp, Inc. Dividend Reinvestment and Direct Stock Purchase Plan, incorporated by reference to the section of the Company's Registration Statement on Form S-3 filed on August 13, 2020 (Reg. No. 333-219879), appearing under the heading "The Plan."

10.14.1    Form of Subordinated Note Purchase Agreement dated January 30, 2015, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on February 3, 2015 (File No. 001-33912).

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Table of Contents
10.14.2    Form of Subordinated Note Purchase Agreement dated July 7, 2020, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed on July 7, 2020 (File No. 001-33912).

10.15.1    Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.17 to the Company's Annual Report on Form 10-K filed on March 13, 2019 (File No.001-33912).

10.15.2    First Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed on March 22, 2019 (File No.001-33912).

10.15.3    Second Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K filed on March 20, 2020 (File No.001-33912).

10.15.4    Third Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on April 23, 2021 (File no. 001-33912).

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

10.15.6    Fifth Addendum to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on March 24, 2023 (File no. 001-33912)

10.15.7    Amendment to the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan, incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on December 15, 2023 (File no. 001-33912)

21.0*Subsidiaries of the Registrant.

23.0*    Consent of RSM US LLP.

31.1*Certification of principal executive officer under Securities and Exchange Act Rule 13a—14(a).

31.2*Certification of principal financial officer under Securities and Exchange Act Rule 13a—14(a).

32.0*Certification of principal executive officer and principal financial officer under 18 U.S.C § 1350 furnished pursuant to Securities and Exchange Act Rule 13a—14(b).

97.0*Enterprise Bancorp, Inc. Incentive AwardRecoupment Policy.

101*    Interactive data files pursuant to Rule 405 of Regulation S-T: The following materials from Enterprise Bancorp, Inc.'s Annual Report on Form 10-K for the year ended December 31, 2023 were formatted in XBRL (eXtensible Business Reporting Language):
(i)    Consolidated Balance Sheets as of December 31, 20172023 and December 31, 2016,2022,
(ii)    Consolidated Statements of Income for the years ended December 31, 2017, 20162023,2022 and 2015,2021,
(iii)    Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 20162023, 2022 and 2015,2021,
(iv)    Consolidated Statements of Changes in Equity for the years ended December 31, 2017, 20162023,2022 and 2015,2021,
(v)    Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, and
(vi)    Notes to Consolidated Financial Statements.


(b)Exhibits required by Item 601 of Regulation S-K
104*The cover page from the Company's Quarterly Report on Form 10-K for the year ended December 31, 2023 has been formatted in Inline XBRL and contained in Exhibit 101.

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* Filed herewith

(b)Exhibits required by Item 601 of Regulation S-K
    
The exhibits listed above either have been previously filed and are incorporated herein by reference to the applicable prior filing or are filed herewith.
 
(c)Additional Financial Statement Schedules
(c)Additional Financial Statement Schedules
 
None    None.




Item 16.     Form 10-K Summary


Item 16.Form 10-K Summary

    None.
None




ENTERPRISE BANCORP, INC.


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) 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.
March 13, 20188, 2024By:/s/ James A. MarcotteJoseph R. Lussier
James A. MarcotteJoseph R. Lussier
Executive Vice President,
Chief Financial Officer and Treasurer



Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


/s/ George L. DuncanChairmanChairmanMarch 13, 20188, 2024
George L. Duncan
/s/ Kenneth S. AnsinDirectorDirectorMarch 13, 20188, 2024
Kenneth S. Ansin
/s/ Gino J. BaroniDirectorDirectorMarch 13, 20188, 2024
Gino J. Baroni
/s/ John P. Clancy, Jr.Director, Chief Executive OfficerMarch 13, 20188, 2024
John P. Clancy, Jr.
/s/ John R. ClementiDirectorDirectorMarch 13, 20188, 2024
John R. Clementi
/s/ James F. Conway, IIILead Director, Vice ChairmanMarch 13, 20188, 2024
James F. Conway, III
/s/ Carole A. CowanDirectorDirectorMarch 13, 20188, 2024
Carole A. Cowan
125
/s/ Normand E. DescheneDirectorDirectorMarch 13, 20188, 2024
Normand E. Deschene

/s/ John T. Grady, Jr.DirectorDirectorMarch 13, 20188, 2024
John T. Grady, Jr.
/s/ Mary Jane KingDirectorDirectorMarch 13, 20188, 2024
Mary Jane King
/s/ John A. KoutsosDirector, SecretaryDirectorMarch 13, 20188, 2024
John A. Koutsos
/s/ Joseph C. LernerDirectorDirectorMarch 13, 20188, 2024
Joseph C. Lerner
/s/ Shelagh E. MahoneyDirectorDirectorMarch 13, 20188, 2024
Shelagh E. Mahoney
/s/ Richard W. MainDirector, PresidentMarch 13, 20188, 2024
Richard W. Main
/s/Jacqueline F. MoloneyDirectorDirectorMarch 13, 20188, 2024
Jacqueline F. Moloney
/s/ Luis M. PedrosoDirectorMarch 13, 2018
Luis M. Pedroso
/s/ Michael T. PutzigerDirectorDirectorMarch 13, 20188, 2024
Michael T. Putziger
/s/ Carol L. ReidDirectorDirectorMarch 13, 20188, 2024
Carol L. Reid
/s/ Nickolas StavropoulosDirectorMarch 8, 2024
Nickolas Stavropoulos
/s/ Michael A. SpinelliJoseph R. LussierDirector, SecretaryMarch 13, 2018
Michael A. Spinelli
/s/ James A. MarcotteExecutive Vice President, ChiefMarch 13, 20188, 2024
James A. MarcotteJoseph R. LussierFinancial Officer and Treasurer
/s/ Michael K. SullivanAccounting DirectorController of the BankMarch 13, 20188, 2024
Michael K. Sullivan


144126