UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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



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

For the quarterly period ended ~~September 30, 2017~~March 31, 2019

Commission File Number: 001-33912

Enterprise Bancorp, Inc.

(Exact name of registrant as specified in its charter)



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

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

(978) 459-9000

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes oNo

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, 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). xYes oNo

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



Large accelerated filer o		Accelerated filer x
Non-accelerated filer o	Smaller reporting company o
	Emerging growth company o

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o ¨Yes xNo

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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $0.01 par value per share	EBTC	NASDAQ Global Market

As of ~~November~~May 1, ~~2017~~2019, there were ~~11,597,683~~11,794,979 shares of the issuer's common stock ~~outstanding- Par Value~~outstanding, par value $0.01 per share.

ENTERPRISE BANCORP, INC.

INDEX



		Page Number
	Cover Page	1

	Index	2
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements (unaudited)	3
	Consolidated Balance Sheets - ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018	3
	Consolidated Statements of Income - Three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	4
	Consolidated Statements of Comprehensive Income - Three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	5
	Consolidated Statement of Changes in ~~Stockholders’~~Stockholders' Equity - ~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2019 and 2018	6
	Consolidated Statements of Cash Flows - ~~Nine~~Three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016~~2018	7
	Notes to Unaudited Consolidated Interim Financial Statements	8
Item 2	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	3936
Item 3	Quantitative and Qualitative Disclosures About Market Risk	6255
Item 4	Controls and Procedures	6355

	PART II - OTHER INFORMATION

Item 1	Legal Proceedings	6456
Item 1A	Risk Factors	6456
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6456
Item 3	Defaults Upon Senior Securities	6456
Item 4	Mine Safety Disclosures	6456
Item 5	Other Information	6456
Item 6	Exhibits	6557
	Signature page	6658

Table of Contents

PART I-FINANCIAL INFORMATION


Item 1 -	Financial Statements

ENTERPRISE BANCORP, INC.

Consolidated Balance Sheets

(Unaudited)

(Dollars in thousands) September 30,
2017 December 31,
2016
Assets

Cash and cash equivalents:

Cash and due from banks $ 35,920
$ 33,047
Interest-earning deposits 14,771
17,428
Total cash and cash equivalents 50,691
50,475
Investment securities at fair value 385,942
374,790
Federal Home Loan Bank stock 7,225
2,094
Loans held for sale 876
1,569
Loans, less allowance for loan losses of $33,184 at September 30, 2017 and $31,342 at December 31, 2016 2,169,189
1,991,387
Premises and equipment, net 36,260
33,540
Accrued interest receivable 10,088
8,792
Deferred income taxes, net 15,889
17,020
Bank-owned life insurance 29,292
28,765
Prepaid income taxes 906
1,344
Prepaid expenses and other assets 13,458
10,837
Goodwill 5,656
5,656
Total assets $ 2,725,472
$ 2,526,269
Liabilities and Stockholders' Equity

Liabilities

Deposits $ 2,302,673
$ 2,268,921
Borrowed funds 149,255
10,671
Subordinated debt 14,844
14,834
Accrued expenses and other liabilities 26,540
16,794
Accrued interest payable 273
263
Total liabilities 2,493,585
2,311,483
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; 11,599,266 shares issued and outstanding at September 30, 2017 and 11,475,742 shares issued and outstanding at December 31, 2016 116
115
Additional paid-in-capital 87,492
85,421
Retained earnings 141,992
130,008
Accumulated other comprehensive income (loss) 2,287
(758 )
Total stockholders' equity 231,887
214,786
Total liabilities and stockholders' equity $ 2,725,472
$ 2,526,269



(Dollars in thousands)	March 31, 2019		December 31, 2018
Assets
Cash and cash equivalents:
Cash and due from banks	$	35,715	$	43,865
Interest-earning deposits	99,547		19,255
Total cash and cash equivalents	135,262		63,120
Investments:
Debt securities at fair value	458,765		431,473
Equity securities at fair value	2,049		1,448
Total investment securities at fair value	460,814		432,921
Federal Home Loan Bank ("FHLB") stock	1,491		5,357
Loans held for sale	332		701
Loans, less allowance for loan losses of $33,729 at March 31, 2019 and $33,849 at December 31, 2018	2,350,908		2,353,657
Premises and equipment, net	38,446		37,588
Lease right-of-use asset	18,851		—
Accrued interest receivable	12,619		11,462
Deferred income taxes, net	10,632		11,747
Bank-owned life insurance	30,300		30,138
Prepaid income taxes	—		732
Prepaid expenses and other assets	8,470		11,279
Goodwill	5,656		5,656
Total assets	$	3,073,781	$	2,964,358
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Customer deposits	$	2,725,667	$	2,507,999
Brokered deposits	30,499		56,783
Total deposits	2,756,166		2,564,782
Borrowed funds	488		100,492
Subordinated debt	14,863		14,860
Lease liability	17,871		—
Accrued expenses and other liabilities	16,431		27,948
Income taxes payable	809		—
Accrued interest payable	1,092		979
Total liabilities	2,807,720		2,709,061
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; 11,798,114 shares issued and outstanding at March 31, 2019 and 11,708,218 shares issued and outstanding at December 31, 2018	118		117
Additional paid-in capital	92,089		91,281
Retained earnings	172,004		165,183
Accumulated other comprehensive income (loss)	1,850		(1,284		)
Total stockholders' equity	266,061		255,297
Total liabilities and stockholders' equity	$	3,073,781	$	2,964,358

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

Table of Contents

ENTERPRISE BANCORP, INC.

Consolidated Statements of Income

(Unaudited)


	Three months ended September 30,					Nine months ended September 30,				Three months ended March 31,
(Dollars in thousands, except per share data)	2017			2016		2017		2016		2019			2018
Interest and dividend income:
Loans and loans held for sale	$	24,892		$	21,466	$	70,544	$	63,379	$	29,616		$	26,150
Investment securities	2,017			1,629		5,901		4,720		3,222			2,487
Other interest-earning assets	136			96		302		189		459			134
Total interest and dividend income	27,045			23,191		76,747		68,288		33,297			28,771
Interest expense:
Deposits	1,509			1,138		4,117		3,325		4,706			2,236
Borrowed funds	169			2		422		79		279			292
Subordinated debt	233			234		692		695		228			228
Total interest expense	1,911			1,374		5,231		4,099		5,213			2,756
Net interest income	25,134			21,817		71,516		64,189		28,084			26,015
Provision for loan losses	1,225			1,386		1,630		2,503		(400		)	1,600
Net interest income after provision for loan losses	23,909			20,431		69,886		61,686		28,484			24,415
Non-interest income:
Investment advisory fees	1,311			1,162		3,803		3,593
Wealth management fees										1,299			1,408
Deposit and interchange fees	1,527			1,272		4,389		3,790		1,564			1,489
Income on bank-owned life insurance, net	174			182		527		564		162			168
Net gains (losses) on sales of investment securities	(284		)	546		485		611
Net (losses) gains on sales of investment securities										(1		)	1
Net gains on sales of loans	88			198		359		392		36			84
Other income	628			588		1,954		1,786		776			641
Total non-interest income	3,444			3,948		11,517		10,736		3,836			3,791
Non-interest expense:
Salaries and employee benefits	12,177			10,948		36,661		32,458		13,471			12,108
Occupancy and equipment expenses	1,993			1,859		5,877		5,453		2,212			2,157
Technology and telecommunications expenses	1,601			1,577		4,789		4,548		1,726			1,553
Advertising and public relations expenses	597			591		2,013		2,087		715			720
Audit, legal and other professional fees	381			409		1,058		1,241		423			507
Deposit insurance premiums	371			347		1,130		997		351			500
Supplies and postage expenses	248			241		726		728		224			232
Other operating expenses	1,465			1,442		4,753		4,313		1,728			1,670
Total non-interest expense	18,833			17,414		57,007		51,825		20,850			19,447
Income before income taxes	8,520			6,965		24,396		20,597		11,470			8,759
Provision for income taxes	3,014			2,251		7,723		6,799		2,774			1,934
Net income	$	5,506		$	4,714	$	16,673	$	13,798	$	8,696		$	6,825

Basic earnings per share	$	0.48		$	0.41	$	1.44	$	1.28	$	0.74		$	0.59
Diluted earnings per share	$	0.47		$	0.41	$	1.43	$	1.27	$	0.74		$	0.58

Basic weighted average common shares outstanding	11,589,039			11,430,134		11,557,054		10,801,278		11,730,482			11,628,587
Diluted weighted average common shares outstanding	11,669,159			11,498,990		11,640,373		10,869,405		11,783,405			11,700,854

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

Table of Contents

ENTERPRISE BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)


	Three months ended September 30,						Nine months ended September 30,						Three months ended March 31,
(Dollars in thousands)	2017			2016			2017			2016			2019			2018
Net income	$	5,506		$	4,714		$	16,673		$	13,798		$	8,696		$	6,825
Other comprehensive income (loss), net of taxes:
Gross unrealized holding gains (losses) on investments arising during the period	(1,180		)	(558		)	5,251			6,522			4,040			(8,069		)
Income tax (expense) benefit	431			213			(1,885		)	(2,416		)	(907		)	1,805
Net unrealized holding gains (losses), net of tax	(749		)	(345		)	3,366			4,106			3,133			(6,264		)
Less: Reclassification adjustment for net gains (losses) included in net income
Net realized gains (losses) on sales of securities during the period	(284		)	546			485			611
Income tax (expense) benefit	112			(196		)	(164		)	(220		)
Reclassification adjustment for gains (losses) realized, net of tax	(172		)	350			321			391
Less: reclassification adjustment for net (losses) gains included in net income
Net realized (losses) gains on sales of securities during the period													(1		)	1
Income tax benefit (expense)													—			(1		)
Reclassification adjustment for (losses) gains realized, net of tax													(1		)	—

Total other comprehensive income (loss), net	(577		)	(695		)	3,045			3,715			3,134			(6,264		)
Comprehensive income	$	4,929		$	4,019		$	19,718		$	17,513		$	11,830		$	561

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

Table of Contents

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders' Equity

(Unaudited)

(Dollars in thousands)
Common
Stock

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
Comprehensive
(Loss)/Income

Total
Stockholders'
Equity
Balance at December 31, 2016 $ 115
$ 85,421
$ 130,008
$ (758 ) $ 214,786
Net income 16,673
16,673
Cumulative effect adjustment for adoption of new accounting pronouncement 13
(13 ) —
Other comprehensive income, net 3,045
3,045
Common stock dividend paid ($0.405 per share) (4,676 ) (4,676 )
Common stock issued under dividend reinvestment plan —
1,118
1,118
Common stock issued other —
61
61
Stock-based compensation, net 1
1,366
1,367
Repurchases for tax withholdings on options and restricted stock awards, net of proceeds from exercise of stock options —
(487 ) (487 )
Balance at September 30, 2017 $ 116
$ 87,492
$ 141,992
$ 2,287
$ 231,887



	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
(Dollars in thousands)	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
Balance at December 31, 2017	11,609,853		$	116	$	88,205		$	143,073		$	416		$	231,810
Net income								6,825						6,825
Other comprehensive (loss), net											(6,264		)	(6,264		)
Common stock dividend paid ($0.145 per share)								(1,686		)				(1,686		)
Common stock issued under dividend reinvestment plan	12,765		—		397									397
Common stock issued, other	1,138		—		38									38
Stock-based compensation	51,488		1		590									591
Net settlement for employee taxes on restricted stock and options	(7,561	)	—		(286		)							(286		)
Stock options exercised, net	15,231		—		215									215
Balance at March 31, 2018	11,682,914		$	117	$	89,159		$	148,212		$	(5,848	)	$	231,640

Balance at December 31, 2018	11,708,218		$	117	$	91,281		$	165,183		$	(1,284	)	$	255,297
Net income								8,696						8,696
Other comprehensive income, net											3,134			3,134
Common stock dividend paid ($0.16 per share)								(1,875		)				(1,875		)
Common stock issued under dividend reinvestment plan	9,341		—		298									298
Common stock issued, other	264		—		8									8
Stock-based compensation	62,523		1		598									599
Net settlement for employee taxes on restricted stock and options	(2,741	)	—		(240		)							(240		)
Stock options exercised, net	20,509		—		144									144
Balance at March 31, 2019	11,798,114		$	118	$	92,089		$	172,004		$	1,850		$	266,061

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

Table of Contents

ENTERPRISE BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)


	Nine months ended September 30,						Three months ended March 31,
(Dollars in thousands)	2017			2016			2019			2018
Cash flows from operating activities:
Net income	$	16,673		$	13,798		$	8,696		$	6,825
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,630			2,503			(400		)	1,600
Depreciation and amortization	5,250			4,387			1,476			1,740
Stock-based compensation expense	1,287			1,349			426			385
Income on bank-owned life insurance, net							(162		)	(168		)
Net losses (gains) on sales of investment securities							1			(1		)
Mortgage loans originated for sale	(16,033		)	(19,943		)	(1,443		)	(3,536		)
Proceeds from mortgage loans sold	17,085			19,873			1,848			3,828
Net gains on sales of loans	(359		)	(392		)	(36		)	(84		)
Net gains (losses) on sales of investments	(485		)	(611		)
Income on bank-owned life insurance, net	(527		)	(564		)
Net fair value (gain) loss on equity securities							(186		)	5
Changes in:
Decrease (increase) in other assets	1,342			(1,810		)
Increase in other liabilities	2,458			497
Increase in other assets							(902		)	(1,952		)
Decrease in other liabilities							(3,355		)	(2,415		)
Net cash provided by operating activities	28,321			19,087			5,963			6,227
Cash flows from investing activities:
Proceeds from sales of investment securities	65,114			4,729			3,648			12,705
Net (purchases) proceeds from FHLB capital stock	(5,131		)	1,166
Net proceeds from sales of FHLB capital stock							3,866			2,845
Proceeds from maturities, calls and pay-downs of investment securities	21,135			16,708			7,228			6,347
Purchase of investment securities	(91,890		)	(65,846		)	(39,203		)	(44,126		)
Net increase in loans	(179,432		)	(125,814		)
Net decrease (increase) in loans							2,894			(20,260		)
Additions to premises and equipment, net	(6,253		)	(7,033		)	(1,969		)	(1,371		)
Proceeds from bank-owned life insurance	—			405
Net cash used in investing activities	(196,457		)	(175,685		)	(23,536		)	(43,860		)
Cash flows from financing activities:
Net increase in deposits	33,752			203,461			191,384			130,027
Net increase (decrease) in borrowed funds	138,584			(53,000		)
Net decrease in borrowed funds							(100,004		)	(89,000		)
Cash dividends paid	(4,676		)	(4,196		)	(1,875		)	(1,686		)
Proceeds from issuance of common stock	1,179			20,816
Repurchases for tax withholdings on options and restricted stock awards, net of proceeds from exercise of stock options	(487		)	(47		)
Tax benefit from stock-based compensation	—			229
Proceeds from issuance of common stock, net of expenses							306			435
Net settlement for employee taxes on restricted stock and options							(240		)	(286		)
Proceeds from stock option exercises							144			215
Net cash provided by financing activities	168,352			167,263			89,715			39,705

Net increase in cash and cash equivalents	216			10,665			72,142			2,072
Cash and cash equivalents at beginning of period	50,475			51,495			63,120			54,806
Cash and cash equivalents at end of period	$	50,691		$	62,160		$	135,262		$	56,878

Supplemental financial data:
Cash Paid For: Interest	$	5,221		$	4,098
Cash Paid For: Income Taxes	$	7,825		$	8,021

Supplemental schedule of non-cash investing activity:
Net purchases of investment securities not yet settled	$	1,631		$	1,215

See accompanying notes to the unaudited consolidated interim financial statements.

Table of Contents

ENTERPRISE BANCORP, INC.

Notes to the Unaudited Consolidated Interim Financial Statements


(1)	Summary of Significant Accounting Policies

(a) Organization of ~~Holding~~the Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, ~~2016~~2018 audited consolidated financial statements and notes thereto contained in the ~~2016~~2018 Annual Report on Form 10-K of Enterprise Bancorp, Inc. as filed with the Securities and Exchange Commission (the "SEC") on March 13, 2019 (the "2018 Annual Report on Form 10-K").

The accompanying unaudited consolidated interim financial statements of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our"), a Massachusetts corporation, ~~as filed with the Securities and Exchange Commission (the "SEC") on~~ ~~March 14, 2017~~ ~~(the "2016~~ ~~Annual Report on Form 10-K"). The Company has not changed its accounting policies from those disclosed in its~~ ~~2016~~ ~~Annual Report on Form 10-K.~~

~~The Company's unaudited consolidated interim financial statements~~ include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries. The Company has not materially changed its accounting policies from those disclosed in its 2018 Annual Report on Form 10-K. See Item (f) "Recent Accounting Pronouncements" under the subheading "Accounting pronouncements adopted by the Company" below in this Note 1.

The Bank's subsidiaries ~~include~~ Enterprise Insurance Services, LLC and Enterprise ~~Investment~~Wealth Services, LLC, both organized under the laws of the State of Delaware, ~~for the purposes of engaging~~engage in insurance sales activities and ~~offering~~offer non-deposit investment products and services, respectively. 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.

The Company's headquarters and the Bank's main office are located at 222 Merrimack Street in Lowell, Massachusetts. At ~~September 30, 2017,~~March 31, 2019, the Company had 24 full service ~~branches~~branch banking offices serving the Greater Merrimack Valley, Nashoba Valley and North Central regions of Massachusetts and Southern New Hampshire (Southern Hillsborough and Rockingham counties). 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 advisory~~electronic and digital banking options, and insurance services. The Company also provides a range of wealth management, wealth services and trust services delivered via two channels, Enterprise Wealth Management and ~~insurance services.~~Enterprise Wealth Services. The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company's only reportable operating segment.

The Federal Deposit Insurance Corporation (the "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 unaudited consolidated interim financial statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions for SEC Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim 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 unaudited consolidated interim 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. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.

The Company has evaluated subsequent events and transactions from ~~September 30, 2017~~March 31, 2019 through the date this Quarterly Report on Form 10-Q (this "Form 10-Q") 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.



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

(b) ~~Critical Accounting~~Uses of Estimates

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



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

circumstances. Changes in those estimates resulting from continuing ~~change~~changes in the economic environment and other factors will be reflected in the consolidated financial statements and results of operations in future periods.

As discussed in the Company's ~~2016~~2018 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates ~~are~~are: the estimates of the allowance for loan losses, impairment review of investment securities, and the impairment review of goodwill. Refer to Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements included in the Company's ~~2016~~2018 Annual Report on Form 10-K for accounting policies related to these significant estimates. The Company has not changed its significant accounting policies from those disclosed in its ~~2016~~2018 Annual Report on Form 10-K.

Certain of the Company's derivative agreements contain provisions ~~that require the Company~~for collateral to ~~post collateral~~be posted if the derivative exposure exceeds a threshold amount. When the Company has pledged cash as collateral for this purpose, the cash is carried as restricted cash within "Interest-earning Deposits." See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements below for more information about the Company's collateral related to its derivatives.

The Bank is also required by the Federal Reserve Bank of Boston ("FRB") to maintain in reserves certain amounts of vault cash and/or deposits with the FRB. The average daily cash balance on hand for reserve requirements included in "Cash and ~~cash equivalents.~~Due from Banks" was approximately $2.9 million, based on the two-week computation period encompassing March 31, 2019.

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 other-than-temporary-impairment ("OTTI"). Based on management's periodic review, the Company has not recorded any OTTI charges on this investment to date. If it was determined that a write-down of FHLB stock was required, impairment would be recognized through a charge to earnings.

See Note 2, "Investment Securities," to the Company's unaudited consolidated interim financial statements below for additional information on management's OTTI review.

(d) Revenue Recognition-Accounting Standard Codification ("ASC") Topic 606

While the majority of the Company's revenue is generated from contracts with customers, our primary sources of revenue, interest and dividend income (primarily loan interest income), are outside of the scope of ASC 606, "Revenue from Contracts with Customers-Topic 606," and are accounted for under other ASC topics. The core principles of this standard require an entity to recognize revenue to depict the transfer of goods and services to customers as performance obligations are satisfied.

The primary areas of income within the scope of ASC 606, which are also the first two lines of non-interest income on the Company's consolidated statements of income, are discussed below.

Wealth management fees consist of income generated through Enterprise Wealth Management and Enterprise Wealth Services. Enterprise Wealth Management income is primarily generated by managing customers' financial assets. Revenue is recognized as our performance obligation is completed each month. Enterprise Wealth Services revenue 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



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

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 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 bank-owned life insurance ("BOLI"), net gains/losses on sales of 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.

See also Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements in the Company's 2018 Annual Report on Form 10-K for additional accounting policies on revenue recognition related to income generated on investments, gains and losses on debt security sales, net gains on loans held for sale, and loans.

(e) Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in the states of Massachusetts and New Hampshire within the directives of 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~~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.

The Company'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'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 ~~bank-owned life insurance.~~BOLI and tax benefits from equity compensation deductions.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at ~~September 30, 2017~~March 31, 2019. The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the ~~2013~~2015 through ~~2016~~2018 tax years.



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

~~(e)~~(f) Recent Accounting Pronouncements

Accounting pronouncements adopted by the Company

In ~~March~~February 2016, the Financial Accounting Standards Board ~~(the "FASB"~~("FASB") issued Accounting Standards Update ("ASU" ~~or "Update"~~) No. ~~2016-09, "Compensation - Stock Compensation~~2016-02, "Leases (Topic ~~718): Improvement to Employee Share-Based Payment Accounting.~~842)," which supersedes previous leasing guidance in Topic 840. Under the new guidance, as amended, lessees are required to recognize lease (right-of-use or "ROU") assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The Company adopted and is applying the new lease standard ~~was effective for fiscal years beginning~~on leases existing on or after ~~December 15, 2016, including interim periods within those fiscal years.~~January 1, 2019.

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 ~~nine months ended September 30, 2017,~~Company, this reduced the Company's provision for income taxes, increasing earnings by approximately $832 thousand. For the year ended December 31, 2016, the Company recognized $789 thousand 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~~primarily impacted operating leases on our facilities, mainly branch leases, and 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,~~result the Company recorded, ~~an immaterial cumulative effect adjustment from retained earnings~~on its consolidated balance sheet a lease liability of $18.0 million and ROU asset of $19.0 million on January 1, 2019 related to ~~additional paid-in-capital.~~these leases. The ~~other provisions did not have a material impact on~~lease liability represents the ~~Company's consolidated financial statements upon adoption.~~

~~Accounting pronouncements not yet adopted by the Company (in order of effective date of implementation)~~

~~In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)."~~ This ASU is intended to create a single source of revenue guidance which is more principles based 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): Deferralpresent value of the ~~Effective Date" to amend~~future lease payments. The ROU asset includes the ~~effective date of ASU 2014-09. The amendments in ASU 2014-09 are effective for annual~~lease liability, lease prepayments and interim periods within fiscal years beginning after December 15, 2017. Earlier adoption is 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 is currently evaluating the potential impact of the ASU and its amendments on the Company's consolidated financial statements, results of operations, and disclosures and does not currently plan to early adopt. Based on the Company's initial review, and because the largest portion of the Company's revenue, interest income and various loan fees, are specifically excluded from the scope of this 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 their evaluation.

~~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, the new guidance:~~

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;indirect costs, less accrued lease liabilities.



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

~~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 notesSee Note 5, "Leases," to the Company's unaudited consolidated interim financial ~~statements.~~

~~The new guidance is effective~~statements, contained below, for ~~public companies for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years.~~

~~The Company is currently evaluating~~further information regarding the ~~effects of this ASU~~Company's operating leases and associated expenses which are included in occupancy and equipment expenses on the Company's consolidated ~~financial statements, results~~statement of operations and disclosures. Based on the Company's evaluation to date, management believes the more significant implications upon adoption of this ASU will be the potential recognition of changes in fair value of the Company's equity portfolio in net income. Under current GAAP, net unrealized appreciation or depreciation on the equity portfolio, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income. The net unrealized gain or loss on equity securities will fluctuate based on changes in the market value of the mutual funds and individual securities held in the portfolio. For the nine months ended September 30, 2017, other comprehensive losses, net of taxes, generated from the equity portfolio amounted to $670 thousand, compared to a gain of $178 thousand generated for the nine months ended September 30, 2016. Any potential future changes in fair value of the equity portfolio recognized in net income will depend on the amount of dollars invested in the portfolio and the potential magnitude of changes in equity market values. The foregoing observations are subject to change as management completes their evaluation.

In August ~~2016,~~2017, the FASB issued ASU No. ~~2016-15, "Statement~~2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." The objective of ~~Cash flows (Topic 230) - Classification~~the ASU is to better align hedge accounting with an organization's risk management activities in the financial statements. In addition, the ASU simplifies the application of ~~Certain Cash Receipts and Cash Payments."~~hedge accounting guidance in areas where practice issues exist. The amendments expand the strategies that qualify for hedge accounting, change how many hedging relationships are ~~intended to reduce diversity~~presented in ~~practice related to~~ the ~~presentation~~financial statements and simplify the application of ~~eight specific~~hedge accounting in certain situations, reducing the operational complexities associated with certain existing strategies. New or modified disclosures are required, primarily for fair value and cash flow ~~issues.~~hedges. For public business entities, ~~that are SEC filers, such as~~ the ~~Company, the amendments in this Update are~~ASU was effective for fiscal years beginning after December 15, ~~2017, including interim periods within those fiscal years. Because this amendment primarily impacts the presentation~~2018, 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.~~

~~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 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.

~~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.

~~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 currently does not ~~expect~~hold any instruments that meet hedge accounting requirements and therefore the adoption of ~~the~~this ASU, ~~will~~in January 2019, did not have ~~a material~~an impact on ~~its~~the Company's unaudited consolidated interim financial statements, results of operations or ~~disclosures.~~disclosures, however, the Company may utilize hedging strategies in the future.

In ~~February 2016,~~June 2018, the FASB issued ASU No. ~~2016-02, "Leases~~2018-07, "Compensation-Stock-Based Compensation (Topic ~~842),~~718): Improvements to Nonemployee Shared-Based Payment Accounting." The amendments in the ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees except for share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract. Additionally, Topic 718 has been updated for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which ~~supersedes previous leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets~~share-based payment awards vest 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~~



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

~~classification affecting~~ the pattern of ~~expense~~cost recognition over that period). The amendments in ~~the income statement. The new standard is~~this update were effective for public business entities for fiscal years beginning after December 15, 2018, including interim periods within ~~those~~that fiscal ~~years. A modified retrospective transition approach~~year. From time to time, the Company issues shares to community members for consulting on regional advisory councils. These shares vest immediately and the cost, which is ~~required for lessees for capital~~based on the market price on the date of grant and ~~operating leases existing at, or entered into after, the beginning of the earliest comparative period presented~~deemed to be immaterial, is expensed in the ~~consolidated financial statements, with certain practical expedients available.~~

~~The Company is currently evaluating~~period in which the effects of this ASU on the Company's consolidated financial statements, results of operations and disclosures. Based on the Company's evaluation to date, management believes the more significant implication of this ASU on the Company relates to operating leases of our facilities, mainly branch leases. As of September 30, 2017, the Company had leases on 17 of its locations, including branches and part of its main campus, and expects that uponservices are rendered. The adoption of this ASU the balance sheet will reflect both lease liabilities, equal to the present value of lease payments, and right-of-use assets, equal to the lease liability plus payments made to lessors adjusted for prepaid or accrued rent and any initial direct cost incurred. In addition, the Company will recognize lease expensestandard 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 March 2017, the FASB issued ASU No. 2017-08, "Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased 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~~January 2019 did 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 has assessed the impact of this ASU and does not expect that it will have a material impact on the Company's unaudited consolidated interim financial statements, results of operations ~~and disclosures upon adoption.~~or disclosures.

Accounting pronouncements not yet adopted by the Company (in order of effective date of implementation)

In June 2016, the FASB issued 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 amount 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~~entity's current estimate of all expected credit ~~losses.~~losses (commonly known as "CECL").

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~~ASU 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~~ASU 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~~ASU 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.

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

beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption for fiscal years beginning after December 15, 2018 is permitted.

In April 2018, banking regulators issued a proposed revision to their capital rules that addresses the regulatory capital treatment of credit loss allowances under the CECL methodology and, if enacted as proposed, would allow banking organizations to phase in the day-one regulatory capital effects of CECL adoption over three years.

The Company has established a project committee and an implementation plan for this ASU. The impact of the adoption of ASU No. 2016-13 on the Company's operations, financial results, disclosures, and controls is under evaluation.

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~~does not 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~~ASU 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~~Company's consolidated financial statements was $5.7 million at both ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018. 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. ~~2017-01~~2017-04 to have a material impact on the Company's consolidated financial statements and results of operations.

In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in this ASU modify the disclosure requirements primarily related to level 3 fair value measurements of the fair value hierarchy. This amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. Because this ASU primarily relates to disclosure requirements, the Company does not expect the adoption of ASU No. 2018-13 to have a material impact on the Company's consolidated financial statements and results of operations.

In August 2018, the FASB issued ASU No. 2018-15, "Intangibles-Goodwill and Other- Internal-use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." The major provision in the amendments in this ASU require an entity to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract in accordance with current GAAP for internal-use software and expense these costs over the term of the hosting arrangement. Additionally, these capitalized implementation costs are required to be reviewed for impairment in accordance with current GAAP for internal-use software. This amendment is effective for fiscal years beginning after December 15, 2019 and interim periods within those fiscal years. Early adoption is permitted. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company does not expect the adoption of ASU No. 2018-15 to have a material impact on the Company's consolidated financial statements and results of operations.

In August 2018, the FASB issued ASU No. 2018-14, "Compensation-Retirement Benefits-Defined Benefit Plans-General (Subtopic 715-20) -Disclosure Framework-Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in this ASU modify the disclosure requirements on defined benefit plans including requiring disclosures about significant gains and losses related to changes in the benefit obligation. This amendment is effective for fiscal years ending after December 15, 2020. Early adoption is permitted. Because this ASU primarily relates to disclosure requirements and the balances of the benefit plans impacted by this ASU are immaterial to the Company, the adoption of ASU No. 2018-14 will not have a material impact on the Company's consolidated financial statements and results of operations.

(2) Investment Securities

As of March 31, 2019, and December 31, 2018, the investment portfolio was primarily comprised of debt securities, with a small portion of the portfolio invested in equity securities.

See also item (c), "Restricted Cash and Investments," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's unaudited consolidated interim financial statements, contained above, for further information regarding the Company's FHLB stock. See Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial



~~(2)~~ Table of Contents	~~Investment Securities~~ ENTERPRISE BANCORP, INC. Notes to the Unaudited Consolidated Interim Financial Statements

statements, contained below, for further information regarding the Company's fair value measurements for investment securities.

Debt Securities

The amortized cost and ~~carrying~~fair values of ~~investment~~debt securities at the dates specified are summarized as follows:

September 30, 2017
(Dollars in thousands)
Amortized
cost

Unrealized
gains

Unrealized
losses
Fair Value
Federal agency obligations ⁽¹⁾
$ 74,763
$ 355
$ 46
$ 75,072
Residential federal agency MBS ⁽¹⁾
101,241
260
543
100,958
Commercial federal agency MBS⁽¹⁾
65,009
105
318
64,796
Municipal securities 127,275
2,654
167
129,762
Corporate bonds 11,278

111

33

11,356
Certificates of deposits ⁽²⁾
950
2
—
952
Total debt securities 380,516
3,487
1,107
382,896
Equity investments 1,861
1,187
2
3,046
Total investment securities, at fair value $ 382,377
$ 4,674
$ 1,109
$ 385,942



	March 31, 2019
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations⁽¹⁾	$	7,996	$	—	$	8	$	7,988
Residential federal agency MBS⁽¹⁾	169,682		713		2,009		168,386
Commercial federal agency MBS⁽¹⁾	113,638		1,278		247		114,669
Municipal securities	150,141		2,725		197		152,669
Corporate bonds	14,003		156		54		14,105
Certificate of deposits⁽²⁾("CDs")	950		—		2		948
Total debt securities, at fair value	$	456,410	$	4,872	$	2,517	$	458,765


	December 31, 2016								December 31, 2018
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value		Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations⁽¹⁾	$	74,682	$	432	$	45	$	75,069	$	7,994	$	—	$	19	$	7,975
Residential federal agency MBS⁽¹⁾	94,818		96		1,561		93,353		174,701		633		2,608		172,726
Commercial federal agency MBS⁽¹⁾	71,993		15		1,730		70,278		93,800		609		430		93,979
Municipal securities	112,401		922		1,520		111,803		141,747		1,122		826		142,043
Corporate bonds	10,734		51		90		10,695		13,967		24		185		13,806
Certificates of deposits ⁽²⁾	950		—		1		949		950		—		6		944
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
Total debt securities, at fair value									$	433,159	$	2,388	$	4,074	$	431,473


⁽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")~~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~~mortgage-backed securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. agencies with fair values totaling ~~$110.2~~$259.3 million and ~~$107.0~~$242.8 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively.



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

~~At September 30, 2017, the equity portfolio was comprised of investments~~ Included in ~~individual common stock of financial services entities.~~municipal securities were tax exempt municipal securities with fair values totaling $106.3 million and $107.3 million at March 31, 2019 and December 31, 2018, respectively.

As of the dates reflected in the tables above, all of the ~~Company’s investment~~Company's debt securities were classified as available-for-sale and carried at fair value.

Net unrealized appreciation and depreciation on ~~investments~~debt securities available-for-sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss).

The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall. Due to the ~~predominantly~~ 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. Unrealized ~~gains~~losses on debt securities that are deemed OTTI are generally charged to earnings, as described further in Note 1, "Summary of Significant Accounting Policies," under Item (e), "Investments," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K. Gains or losses will be recognized in the income statement if the securities are sold. However, if an unrealized loss on a debt security portfolio is deemed to be other than temporary, the credit loss portion is charged to earnings and the noncredit portion is recognized in accumulated other comprehensive income (loss).

The net unrealized gain or loss on equity securities will fluctuate based on changes in the market value of the mutual funds and individual securities held in the portfolio. Unrealized gains or losses will be recognized in the statements of income if the securities are sold. However, if an unrealized loss on an equity security is deemed to be other than temporary prior to a sale, the loss is charged to earnings.



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

The following tables summarize ~~investments (debt and equity) having temporary impairment,~~debt securities with unrealized losses, due to the fair ~~market~~ values having declined below the amortized costs of the individual investments, ~~and~~by the ~~period that the investments have been temporarily impaired~~duration of their continuous unrealized loss positions at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016.~~2018.


	September 30, 2017													March 31, 2019
	Less than 12 months				12 months or longer				Total					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	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings
Federal agency obligations	$	22,980	$	46	$	—	$	—	$	22,980	$	46	6	$	—	$	—	$	6,990	$	8	$	6,990	$	8	2
Residential federal agency MBS	57,917		401		7,454		142		65,371		543		23	2,519		11		98,056		1,998		100,575		2,009		22
Commercial federal agency MBS	41,007		318		—		—		41,007		318		9	1,009		1		18,848		246		19,857		247		6
Municipal securities	5,627		57		6,084		110		11,711		167		21	—		—		14,350		197		14,350		197		24
Corporate bonds	2,281		23		1,095		10		3,376		33		19	—		—		5,743		54		5,743		54		35
Equity investments	74		2		—		—		74		2		1
Total temporarily impaired investment securities⁽¹⁾	$	129,886	$	847	$	14,633	$	262	$	144,519	$	1,109	79
CDs														—		—		948		2		948		2		4
Total temporarily impaired debt securities														$	3,528	$	12	$	144,935	$	2,505	$	148,463	$	2,517	93


	December 31, 2016													December 31, 2018
	Less than 12 months				12 months or longer				Total					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	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings
Federal agency obligations	$	13,956	$	45	$	—	$	—	$	13,956	$	45	3	$	997	$	1	$	6,978	$	18	$	7,975	$	19	3
Residential federal agency MBS	68,138		1,236		8,008		325		76,146		1,561		31	26,147		597		81,158		2,011		107,305		2,608		25
Commercial federal agency MBS	60,060		1,730		—		—		60,060		1,730		18	3,258		11		18,717		419		21,975		430		9
Municipal securities	60,436		1,520		—		—		60,436		1,520		107	15,036		108		41,265		718		56,301		826		83
Corporate bonds	5,729		90		—		—		5,729		90		37	5,277		36		5,653		149		10,930		185		63
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
CDs														—		—		944		6		944		6		4
Total temporarily impaired debt securities														$	50,715	$	753	$	154,715	$	3,321	$	205,430	$	4,074	187


⁽¹⁾	~~The Company did not hold any Certificates of deposit that had unrealized losses as of September 30, 2017.~~

During the three months ended March 31, 2019 and 2018, the Company did not record any fair value impairment charges (Other than temporary impairment or "OTTI") on its investments in debt securities. At March 31, 2019, management did not consider any debt securities to have OTTI. Management regularly reviews the portfolio for debt securities with unrealized losses that are other-than-temporarily impaired. There have been no material changes to the Company's process for assessing investments for OTTI as reported in the 2018 Annual Report on Form 10-K. For more information about the Company's assessment for OTTI, see Note 2, "Investment Securities," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K.

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 March 31, 2019 and December 31, 2018, 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 March 31, 2019 of total debt securities was as follows:



(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	11,919	$	11,919
Due after one, but within five years	67,383		67,962
Due after five, but within ten years	175,158		177,764
Due after ten years	201,950		201,120
Total debt securities	$	456,410	$	458,765



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

During the nine months ended September 30, 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 September 30, 2017, management attributes the unrealized losses in the portfolio to increases in current market yields compared to the yields at the time the investments were purchased by the Company for debt securities and the impact of market value fluctuations on the equity portion of our portfolio. As of September 30, 2017, management did not consider its debt securities to be other-than-temporarily impaired because (1) the decline in market value is not attributable to a fundamental deterioration in quality of the securities or the issuers, and (2) the Company did not intend to sell, and it is more likely than not that it will not be required to, sell those investments prior to a market price recovery or maturity with recovery of the amortized cost. The unrealized losses in equity investments as of September 30, 2017 were not material.

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 September 30, 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 its unrealized loss within a reasonable time period and if the equity security or fund exhibits fundamental deterioration.

See "Financial Condition," in Item 2, "Management's Discussion and Analysis," under the heading "Investments" in this Form 10-Q for additional information about changes in the net unrealized gains (losses) on investments.

~~The contractual maturity distribution at~~ ~~September 30, 2017~~ ~~of total debt securities was as follows:~~

(Dollars in thousands) Amortized Cost Fair Value
Due in one year or less $ 16,217
$ 16,262
Due after one, but within five years 112,615
113,439
Due after five, but within ten years 117,552
118,680
Due after ten years 134,132
134,515
Total debt securities $ 380,516
$ 382,896

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~~table above are callable securities, comprised of municipal securities and corporate bonds, ~~totaling $68.1~~with a fair value of $83.9 million, which can be redeemed by the ~~issuer~~issuers prior to the maturity presented above. Management considers these factors when evaluating the ~~interest rate~~interest-rate risk in the Company's asset-liability management program.

From time to time, the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the ~~Federal Reserve Bank of Boston (the "FRB").~~FRB. The fair value of debt securities pledged as collateral for these purposes was ~~$374.4~~$456.3 million at ~~September 30, 2017.~~



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

March 31, 2019.

Sales of ~~investments,~~debt securities, including pending trades based on trade date, if applicable, for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016~~March 31, 2018 are summarized as follows:


	Three months ended September 30,					Nine months ended September 30,					Three months ended March 31,
(Dollars in thousands)	2017			2016		2017			2016		2019			2018
Amortized cost of investments sold ⁽¹⁾	$	60,834		$	2,354	$	70,202		$	4,118
Amortized cost of debt securities sold ⁽¹⁾											$	1,793		$	668
Gross realized gains on sales	1,350			546		2,225			611		2			3
Gross realized losses on sales	(1,634		)	—		(1,740		)	—		(3		)	(2		)
Total proceeds from sales of investments	$	60,550		$	2,900	$	70,687		$	4,729
Total proceeds from sales of debt securities											$	1,792		$	669


⁽¹⁾	Amortized cost of investments sold is determined on a specific identification basis.

Equity Securities

The ~~losses realized~~Company held equity securities with a fair value of $2.0 million as of March 31, 2019, compared to fair value of $1.4 million at December 31, 2018. At March 31, 2019, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a portion of the portfolio invested in individual common stock of entities in the ~~third quarter~~financial services industry. There were no sales of ~~2017 were predominately from a debt security portfolio restructuring, largely offset by gains~~equity securities in either the three months ended March 31, 2019 or March 31, 2018.

During the three months ended March 31, 2019, the fair value gain on equity ~~sales.~~

~~See Note 12, "Fair Value Measurements," below for further information regarding~~securities recorded in the Other Income line of the Company's consolidated statement of income was $186 thousand, while during the three months ended March 31, 2018, the recorded fair value ~~measurements for available-for-sale securities.~~loss was $5 thousand. The fair value changes of equity securities that will be recognized in net income in the future will depend on the amount of dollars invested in equities and the magnitude of changes in equity fair values.


(3)	Loans

The Company specializes in lending to business entities, non-profit organizations, ~~professionals~~professional practices and individuals. The Company's primary lending focus is on the development of ~~high quality~~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, non-profits, and professional practices may 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, ~~and~~ relationship size and source of repayment to lessen its credit risk exposure. For additional information on the Company's lending products, see the heading "Lending Products" under Item 1, "Business," contained in the Company's 2018 Annual Report on Form 10-K.

See also Note 4, "Allowance for Loan Losses," to the Company's unaudited consolidated interim financial statements, contained below, 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~~ See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements, contained below, for information regarding interest-rate swap agreements related to certain commercial loans, atand see Note 13, "Fair Value Measurements," to the ~~periods indicated were as follows:~~

(Dollars in thousands) September 30,
2017 December 31,
2016
Commercial real estate $ 1,153,108
$ 1,038,082
Commercial and industrial 512,736
490,799
Commercial construction 245,453
213,447
Total commercial loans 1,911,297
1,742,328
Residential mortgages 194,375
180,560
Home equity loans and lines 89,044
91,065
Consumer 10,085
10,845
Total retail loans 293,504
282,470

Gross loans 2,204,801
2,024,798
Deferred loan origination fees, net (2,428 ) (2,069 )
Total loans 2,202,373
2,022,729
Allowance for loan losses (33,184 ) (31,342 )
Net loans $ 2,169,189
$ 1,991,387

Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for loans.

1615



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

Loan ~~Categories~~Portfolio Classifications

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



(Dollars in thousands)	March 31, 2019			December 31, 2018
Commercial real estate	$	1,292,047		$	1,303,879
Commercial and industrial	509,733			514,253
Commercial construction	244,978			234,430
Total commercial loans	2,046,758			2,052,562
Residential mortgages	233,129			231,501
Home equity loans and lines	97,798			96,116
Consumer	9,897			10,241
Total retail loans	340,824			337,858

Gross loans	2,387,582			2,390,420
Deferred loan origination fees, net	(2,945		)	(2,914		)
Total loans	2,384,637			2,387,506
Allowance for loan losses	(33,729		)	(33,849		)
Net loans	$	2,350,908		$	2,353,657

- 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 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, 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 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 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~~pro-rata share of ~~ownership. Loans originated by other banks in which the Company is a participating institution~~ownership and amounted to ~~$89.4~~$65.5 million at ~~September 30, 2017~~March 31, 2019 and ~~$85.2~~$63.5 million at December 31, ~~2016. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.~~

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 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~~



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

~~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.~~

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 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 amount of overdrawn deposit accounts are reclassified as loan balances.2018.

Loans serviced for others

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, the Company was servicing residential mortgage loans owned by investors amounting to $~~19.1~~17.1 million and $~~18.7~~17.2 million, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $~~67.7~~73.1 million and $~~62.3~~72.1 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. ~~See the discussion above under the heading "Commercial loans" for further information regarding commercial participations.~~

Loans serving as collateral

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

(Dollars in thousands) September 30,
2017 December 31,
2016
Commercial real estate $ 228,710
$ 247,664
Residential mortgages 181,309
170,247
Home equity 10,454
12,340
Total loans pledged to FHLB $ 420,473
$ 430,251



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

See Note 12, "Fair Value Measurements," below for further information regarding the Company's fair value measurements for loans, and Note 7, "Derivatives and Hedging Activities," below for information regarding interest-rate swap agreements related to certain commercial loans.



(Dollars in thousands)	March 31, 2019		December 31, 2018
Commercial real estate	$	299,896	$	311,024
Residential mortgages	220,827		220,815
Home equity	7,987		8,382
Total loans pledged to FHLB	$	528,710	$	540,221


~~(4)~~	~~Allowance for Loan Losses~~

(4)Allowance for Loan Losses

Allowance for probable loan losses methodology

On a quarterly 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 estimated 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~~pools of homogeneous loans, which are collectively evaluated relying on a combination of qualitative and quantitative factors that may affect credit quality of the ~~pool.~~

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in the 2016 Annual Report on Form 10-K. Refer to Note 4, "Allowance for Loan Losses," to the Company's consolidated financial statements contained in the ~~2016~~ Annual Report on Form 10-K for further discussion of management's methodology used to estimate a sufficient allowance for loan losses, the credit risk management function and adversely classified loan rating system.

~~The balances of loans as of~~ ~~September 30, 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 $ 15,133
$ 1,137,975
$ 1,153,108
Commercial and industrial 12,098
500,638
512,736
Commercial construction 1,615
243,838
245,453
Residential mortgages 403
193,972
194,375
Home equity loans and lines 378
88,666
89,044
Consumer 36
10,049
10,085
Total gross loans $ 29,663
$ 2,175,138
$ 2,204,801

~~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 gross loans $ 31,796
$ 1,993,002
$ 2,024,798

~~Credit quality indicators~~

Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors internal credit quality indicators such as the risk classification of individual loans, individual review of problem assets, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity, as well as trends in the general levels of these indicators. These credit quality indicators are discussed below.

1916



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

pool.

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the 2018 Annual Report on Form 10-K,

The balances of loans as of March 31, 2019 by portfolio classification 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	$	15,622	$	1,276,425	$	1,292,047
Commercial and industrial	11,643		498,090		509,733
Commercial construction	1,732		243,246		244,978
Residential mortgages	883		232,246		233,129
Home equity loans and lines	502		97,296		97,798
Consumer	15		9,882		9,897
Total gross loans	$	30,397	$	2,357,185	$	2,387,582

The balances of loans as of December 31, 2018 by portfolio classification 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	$	16,318	$	1,287,561	$	1,303,879
Commercial and industrial	12,053		502,200		514,253
Commercial construction	1,736		232,694		234,430
Residential mortgages	893		230,608		231,501
Home equity loans and lines	514		95,602		96,116
Consumer	16		10,225		10,241
Total gross loans	$	31,530	$	2,358,890	$	2,390,420

See "Financial Condition" in Item 2, "Management's Discussion and Analysis," under the headings "Credit Risk" and "Allowance for Loan Losses" in this Form 10-Q for additional information about changes in the Company's credit quality indicators since December 31, 2018.

Credit quality indicators

Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors internal credit quality indicators such as, among others, the risk classification of adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity. These credit quality indicators are discussed below.

Adversely classified loans

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

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.~~

September 30, 2017
Adversely Classified Not Adversely
(Dollars in thousands) Substandard Doubtful Loss Classified Gross Loans
Commercial real estate $ 14,270
$ —
$ —
$ 1,138,838
$ 1,153,108
Commercial and industrial 11,287
51
1
501,397
512,736
Commercial construction 1,615
—
—
243,838
245,453
Residential mortgages 1,366
—
—
193,009
194,375
Home equity loans and lines 527
—
—
88,517
89,044
Consumer 53
11
—
10,021
10,085
Total gross loans $ 29,118
$ 62
$ 1
$ 2,175,620
$ 2,204,801

December 31, 2016
Adversely Classified Not Adversely
(Dollars in thousands) Substandard Doubtful Loss Classified Gross Loans
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 1.32% of total loans at September 30, 2017, as compared to 1.70% at December 31, 2016.~~

2017



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

The following tables present the Company's credit risk profile for each portfolio classification by internally assigned adverse risk rating category as of the periods indicated:



	March 31, 2019
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	17,323	$	—	$	—	$	1,274,724	$	1,292,047
Commercial and industrial	12,642		38		—		497,053		509,733
Commercial construction	2,254		—		—		242,724		244,978
Residential mortgages	1,802		—		—		231,327		233,129
Home equity loans and lines	549		—		—		97,249		97,798
Consumer	33		8		—		9,856		9,897
Total gross loans	$	34,603	$	46	$	—	$	2,352,933	$	2,387,582



	December 31, 2018
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	17,714	$	240	$	—	$	1,285,925	$	1,303,879
Commercial and industrial	12,821		—		—		501,432		514,253
Commercial construction	2,262		—		—		232,168		234,430
Residential mortgages	1,820		—		—		229,681		231,501
Home equity loans and lines	561		—		—		95,555		96,116
Consumer	35		8		—		10,198		10,241
Total gross loans	$	35,213	$	248	$	—	$	2,354,959	$	2,390,420

Total adversely classified loans amounted to 1.45% of total loans at March 31, 2019, as compared to 1.49% at December 31, 2018.

Past due and non-accrual loans

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


	Balance at September 30, 2017														Balance at March 31, 2019
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or more		Total Past Due Loans		Current Loans		Gross Loans		Non-accrual Loans		30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or more		Total Past Due Loans		Current Loans		Gross Loans		Non-accrual Loans
Commercial real estate	$	2,005	$	638	$	3,641	$	6,284	$	1,146,824	$	1,153,108	$	8,058	$	7,650	$	—	$	3,247	$	10,897	$	1,281,150	$	1,292,047	$	6,668
Commercial and industrial	529		81		1,095		1,705		511,031		512,736		3,428		1,939		121		1,774		3,834		505,899		509,733		2,936
Commercial construction	3,133		—		—		3,133		242,320		245,453		197		1,769		—		174		1,943		243,035		244,978		174
Residential mortgages	1,630		95		89		1,814		192,561		194,375		267		1,182		—		289		1,471		231,658		233,129		754
Home equity loans and lines	39		—		194		233		88,811		89,044		477		97		—		92		189		97,609		97,798		502
Consumer	57		27		31		115		9,970		10,085		62		38		—		2		40		9,857		9,897		15
Total gross loans	$	7,393	$	841	$	5,050	$	13,284	$	2,191,517	$	2,204,801	$	12,489	$	12,675	$	121	$	5,578	$	18,374	$	2,369,208	$	2,387,582	$	11,049



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


	Balance at December 31, 2016														Balance at December 31, 2018
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or more		Total Past Due Loans		Current Loans		Gross Loans		Non-accrual Loans		30-59 Days Past Due		60-89 Days Past Due		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	$	7,596	$	21	$	3,821	$	11,438	$	1,292,441	$	1,303,879	$	6,894
Commercial and industrial	267		4		1,544		1,815		488,984		490,799		3,174		619		17		2,299		2,935		511,318		514,253		3,417
Commercial construction	—		—		—		—		213,447		213,447		519		4,319		—		—		4,319		230,111		234,430		176
Residential mortgages	648		—		99		747		179,813		180,560		289		114		—		377		491		231,010		231,501		763
Home equity loans and lines	270		—		269		539		90,526		91,065		616		14		168		209		391		95,725		96,116		514
Consumer	94		13		11		118		10,727		10,845		11		23		31		6		60		10,181		10,241		20
Total gross loans	$	7,272	$	940	$	3,322	$	11,534	$	2,013,264	$	2,024,798	$	9,485	$	12,685	$	237	$	6,712	$	19,634	$	2,370,786	$	2,390,420	$	11,784

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, all loans past due 90 days or more were carried as non-accrual, in addition to those loans 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 in the tables above.

Non-accrual loans that were not adversely classified amounted to $680 thousand at ~~September 30, 2017~~March 31, 2019 and $~~220~~81 thousand at December 31, ~~2016~~2018. These balances primarily represented the guaranteed portions of non-performing SBA loans. The majority of the non-accrual loan balances were also carried as impaired loans during the periods noted and are discussed further below.

The ratio of non-accrual loans to total loans amounted to ~~0.57%~~0.46% at ~~September 30, 2017~~March 31, 2019, and ~~0.47%~~0.49% at December 31, ~~2016~~2018.

At ~~September 30, 2017,~~March 31, 2019, additional funding commitments for non-accrual loans ~~was~~were not material.

Impaired loans

Impaired loans are individually significant loans for which management considers it probable that not all amounts due (principal and interest) will be collected in accordance with the original contractual terms will be collected. Impaired loans are individually evaluated for credit loss and a specific allowance reserve is assigned for the amount of the estimated probable credit loss. 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.terms. Impaired loans include loans that have been modified in a troubled debt restructuring ("TDR"), see ~~"Trouble~~"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.

The carrying value of impaired loans amounted to $30.4 million and $31.5 million at March 31, 2019 and December 31, 2018, respectively. Total accruing impaired loans amounted to $19.3 million and $19.7 million at March 31, 2019 and December 31, 2018, respectively, while non-accrual impaired loans amounted to $11.0 million and $11.8 million as of March 31, 2019 and December 31, 2018, respectively.

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated by portfolio classification as of the dates indicated:



	Balance at March 31, 2019
(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	$	16,491	$	15,622	$	15,454	$	168	$	6
Commercial and industrial	12,147		11,643		7,522		4,121		2,112
Commercial construction	1,802		1,732		1,732		—		—
Residential mortgages	967		883		464		419		12
Home equity loans and lines	679		502		502		—		—
Consumer	15		15		—		15		14
Total	$	32,101	$	30,397	$	25,674	$	4,723	$	2,144

2119



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

~~The carrying value of impaired loans amounted to~~ ~~$29.7 million~~ ~~and~~ ~~$31.8 million~~ at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively. Total accruing impaired loans amounted to~~ ~~$17.3 million~~ ~~and~~ ~~$22.4 million~~ at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively, while non-accrual impaired loans amounted to $12.4 million and $9.4 million as of September 30, 2017 and December 31, 2016, respectively.~~

~~The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dates indicated:~~



	Balance at December 31, 2018
(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	$	17,140	$	16,318	$	15,948	$	370	$	55
Commercial and industrial	12,538		12,053		7,752		4,301		2,140
Commercial construction	1,804		1,736		1,736		—		—
Residential mortgages	970		893		473		420		13
Home equity loans and lines	685		514		514		—		—
Consumer	16		16		—		16		16
Total	$	33,153	$	31,530	$	26,423	$	5,107	$	2,224

Balance at September 30, 2017
(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 $ 16,739
$ 15,133
$ 12,876
$ 2,257
$ 386
Commercial and industrial 12,591
12,098
8,406
3,692
1,778
Commercial construction 1,665
1,615
1,615
—
—
Residential mortgages 515
403
403
—
—
Home equity loans and lines 545
378
352
26
26
Consumer 37
36
—
36
36
Total $ 32,092
$ 29,663
$ 23,652
$ 6,011
$ 2,226

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

The following table presents the average recorded investment in impaired loans by portfolio classification and the related interest recognized during the three months indicated:

Three Months Ended September 30, 2017 Three Months Ended September 30, 2016
(Dollars in thousands)
Average recorded
investment

Interest income
recognized

Average recorded
investment

Interest income (loss)
recognized
Commercial real estate $ 15,401
$ 92
$ 14,828
$ 107
Commercial and industrial 12,264
94
9,889
69
Commercial construction 1,617
21
3,113
39
Residential mortgages 315
—
300
—
Home equity loans and lines 451
1
368
(2 )
Consumer 27
—
13
1
Total $ 30,075
$ 208
$ 28,511
$ 214



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

~~The following table presents the average recorded investment in impaired loans and the related interest recognized during the periods indicated:~~


	Nine Months Ended September 30, 2017					Nine Months Ended September 30, 2016					Three Months Ended March 31, 2019				Three Months Ended March 31, 2018
(Dollars in thousands)	Average recorded investment		Interest income (loss) recognized			Average recorded investment		Interest income (loss) recognized			Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	$	14,394	$	271		$	12,399	$	214		$	15,803	$	120	$	13,715	$	94
Commercial and industrial	12,503		275			8,801		134			11,919		115		10,647		77
Commercial construction	1,884		70			3,059		113			1,734		25		1,636		22
Residential mortgages	293		—			304		—			890		1		614		(1		)
Home equity loans and lines	518		(1		)	307		(4		)	507		—		475		—
Consumer	18		—			18		1			19		—		32		—
Total	$	29,610	$	615		$	24,888	$	458		$	30,872	$	261	$	27,119	$	192

At ~~September 30, 2017~~March 31, 2019, additional funding commitments for impaired loans ~~totaled~~ ~~$414 thousand~~.was not material. 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.

Troubled debt restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Bank grants the borrower a concession on the terms, that would not otherwise be considered. Typically, such concessions may consist of one or a combination of the following: a reduction in interest rate to a below market rate, taking into account the credit quality of the ~~note,~~note; extension of additional credit based on receipt of adequate ~~collateral,~~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, and a specific reserve is assigned for the amount of the estimated probable credit loss.

Total TDR loans, included in the impaired loan balances above, as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, were $~~23.6~~23.5 million and $~~27.0~~23.1 million, respectively. TDR loans on accrual status amounted to $~~17.3~~19.3 million and $~~22.4~~19.4 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. TDR loans included in non-performing loans amounted to $~~6.3 million~~ ~~and~~ ~~$4.6~~4.2 million at ~~September 30, 2017~~March 31, 2019 and $3.7 million at December 31, ~~2016~~2018~~, 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.

At ~~September 30, 2017,~~March 31, 2019, additional funding commitments for TDR loans ~~totaled $390 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.~~

2320



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

credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.

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


	Nine months ended						Three months ended
	September 30, 2017			September 30, 2016			March 31, 2019			March 31, 2018
(Dollars in thousands)	Number of restructurings	Amount		Number of restructurings	Amount		Number of restructurings	Amount		Number of restructurings	Amount
Loan advances with adequate collateral	1	$	357	5	$	7,760
Extended maturity date	1	984		—	—
Temporary payment reduction and payment re-amortization of remaining principal over extended term	7	831		3	343		6	$	607	2	$	139
Temporary interest only payment plan	3	179		7	1,150		—	—		2	132
Other payment concessions							1	314		—	—
Total	12	$	2,351	15	$	9,253	7	$	921	4	$	271
Amount of specific reserves included in the allowance for loan losses associated with TDRs listed above		$	83		$	204		$	91		$	120

Loans modified as TDRs during the three month periods ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016~~March 31, 2018 by portfolio classification are detailed ~~below.~~

below:


	Three months ended										Three months ended
	September 30, 2017					September 30, 2016					March 31, 2019					March 31, 2018
(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		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	2	$	577	$	571	3	$	532	$	2,026	1	$	421	$	415	2	$	131	$	132
Commercial and industrial	—	—		—		2	224		200		5	194		192		2	142		139
Commercial construction	—	—		—		—	—		—		—	—		—		—	—		—
Residential mortgages	1	136		136		—	—		—		1	315		314		—	—		—
Home equity loans and lines	—	—		—		—	—		—		—	—		—		—	—		—
Consumer	1	1		1		—	—		—		—	—		—		—	—		—
Total	4	$	714	$	708	5	$	756	$	2,226	7	$	930	$	921	4	$	273	$	271

~~Payment defaults,~~There were no subsequent charge-offs associated with the new TDRs noted in the table above during the three ~~month periods~~months ended ~~September 30, 2017 and September 30, 2016 on loans modified as TDRs within the preceding twelve months are detailed below.~~

Three months ended
September 30, 2017 September 30, 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 —
—
—
—
Commercial construction —
—
1
1,188
Residential mortgages —
—
—
—
Home equity loans and lines —
—
—
—
Consumer —
—
—
—
Total —
$ —
2
$ 1,336
March 31, 2019 or 2018.

2421



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

~~Loans modified as TDRs during the nine month periods ended September 30, 2017 and September 30, 2016 are detailed below.~~

Nine months ended
September 30, 2017 September 30, 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
$ 689
7
$ 5,624
$ 7,016
Commercial and industrial 7
1,446
1,525
8
2,282
2,237
Commercial construction —
—
—
—
—
—
Residential mortgages 1
136
136
—
—
—
Home equity loans and lines —
—
—
—
—
—
Consumer 1
1
1
—
—
—
Total 12
$ 2,279
$ 2,351
15
$ 7,906
$ 9,253

~~There were no subsequent charge-offs associated with the new TDRs noted in the table above during the nine months ended September 30, 2017, or 2016.~~

Payment defaults by portfolio classification during the ~~nine~~three month ~~periods~~period ended ~~September 30, 2017 and September 30, 2016~~March 31, 2019 on loans modified as TDRs within the preceding twelve months are detailed ~~below.~~below:


	Nine months ended						Three months ended
	September 30, 2017			September 30, 2016			March 31, 2019
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment		Number of TDRs that defaulted	Post- modification outstanding recorded investment		Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	585	1	$	148	—	$	—
Commercial and industrial	3	267		2	389		2	174
Commercial construction	—	—		1	1,188		—	—
Residential mortgages	—	—		—	—		—	—
Home equity loans and lines	—	—		—	—		—	—
Consumer	—	—		—	—		—	—
Total	4	$	852	4	$	1,725	2	$	174

For the three months ended March 31, 2018, there were no payment defaults on loans modified as TDRs within the preceding twelve months.

Other real estate owned ("OREO")

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at estimated fair value of the property acquired, less estimated costs to sell, establishing a new cost basis and carried on the consolidated balance sheet in the line item "Prepaid expenses and other assets". The ~~Company carried~~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.

The carrying value of OREO at March 31, 2019 was $255 thousand and consisted of one property added during the three months ended March 31, 2019, compared to no OREO at ~~September 30, 2017,~~ December 31, ~~2016~~2018 or ~~September 30, 2016.~~March 31, 2018. There were no OREO sales or write downs of OREO during the three months ended March 31, 2019. During the three months ended March 31, 2018, there were no additions, sales or write downs on ~~OREO during the nine months ended September 30, 2017 or 2016.~~OREO.

At ~~September 30, 2017,~~both March 31, 2019 and December 31, 2018, the Company had no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable ~~jurisdictions with carrying amounts totaling $101 thousand compared with $200 thousand at December 31, 2016.~~jurisdictions.

Allowance for loan loss activity

The allowance for loan losses is an estimate of probable credit loss 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. 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.



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

The allowance for loan losses amounted to ~~$33.2~~$33.7 million at ~~September 30, 2017,~~March 31, 2019, compared to ~~$31.3~~$33.8 million at December 31, ~~2016,~~2018, and ~~$31.6~~$34.5 million at September 30, 2016. For the nine months ended September 30, 2017 and September 30, 2016, the provision for loan losses amounted to $1.6 million and $2.5 million, respectively. The decrease in the provision for the nine months ended September 30, 2017 was due primarily to generally improving credit quality metrics and underlying collateral values, partially offset by the higher level of loan growth during the 2017 period, as compared to the 2016 period.

March 31, 2018. The allowance for loan losses to total loans ratio was ~~1.51%~~1.41% at ~~September 30, 2017, 1.55%~~March 31, 2019, 1.42% at December 31, ~~2016~~2018 and ~~1.59%~~1.51% at ~~September 30, 2016.~~March 31, 2018. 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~~ ~~September 30, 2017~~.

~~Changes in the allowance for loan losses by portfolio segment for the three months ended September 30, 2017 are presented below:~~

(Dollars in thousands)
Cmml Real
Estate

Cmml and
Industrial

Cmml
Constr

Resid.
Mortgage

Home
Equity
Consumer Total
Beginning Balance at June 30, 2017 $ 15,645
$ 10,987
$ 3,484
$ 989
$ 622
$ 231
$ 31,958
Provision 475
216
432
32
42
28
1,225
Recoveries 61
48
—
—
1
1
111
Less: Charge offs —
104
—
—
—
6
110
Ending Balance at September 30, 2017 $ 16,181
$ 11,147
$ 3,916
$ 1,021
$ 665
$ 254
$ 33,184

~~Changes in the allowance for loan losses by portfolio segment for the nine months ended~~ ~~September 30, 2017~~ ~~are presented below:~~

(Dollars in thousands)
Cmml Real
Estate

Cmml and
Industrial

Cmml
Constr

Resid.
Mortgage

Home
Equity
Consumer Total
Beginning Balance at December 31, 2016 $ 14,902
$ 11,204
$ 3,406
$ 960
$ 634
$ 236
$ 31,342
Provision 1,086
(127 ) 510
61
28
72
1,630
Recoveries 193
391
—
—
3
6
593
Less: Charge offs —
321
—
—
—
60
381
Ending Balance at September 30, 2017 $ 16,181
$ 11,147
$ 3,916
$ 1,021
$ 665
$ 254
$ 33,184
Ending allowance balance:
Allocated to loans individually evaluated for impairment $ 386
$ 1,778
$ —
$ —
$ 26
$ 36
$ 2,226
Allocated to loans collectively evaluated for impairment $ 15,795
$ 9,369
$ 3,916
$ 1,021
$ 639
$ 218
$ 30,958

~~Changes in the allowance for loan losses by portfolio segment for the three months ended September 30, 2016 are presented below:~~

(Dollars in thousands)
Cmml Real
Estate

Cmml and
Industrial

Cmml
Constr

Resid.
Mortgage

Home
Equity
Consumer Total
Beginning Balance at June 30, 2016 $ 14,514
$ 9,913
$ 4,056
$ 1,085
$ 552
$ 225
$ 30,345
Provision 581
761
22
17
4
1
1,386
Recoveries —
28
—
—
—
1
29
Less: Charge offs —
151
—
—
—
20
171
Ending Balance at September 30, 2016 $ 15,095
$ 10,551
$ 4,078
$ 1,102
$ 556
$ 207
$ 31,589



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

~~Changes in the allowance for loan losses by portfolio segment for the nine months ended~~ ~~September 30, 2016~~ ~~are presented below:~~

(Dollars in thousands)
Cmml Real
Estate

Cmml and
Industrial

Cmml
Constr

Resid.
Mortgage

Home
Equity
Consumer Total
Beginning Balance at December 31, 2015 $ 13,514
$ 9,758
$ 3,905
$ 1,061
$ 540
$ 230
$ 29,008
Provision 1,740
510
178
41
19
15
2,503
Recoveries 20
637
—
—
2
4
663
Less: Charge offs 179
354
5
—
5
42
585
Ending Balance at September 30, 2016 $ 15,095
$ 10,551
$ 4,078
$ 1,102
$ 556
$ 207
$ 31,589
Ending allowance balance:
Allocated to loans individually evaluated for impairment $ 518
$ 975
$ 473
$ —
$ —
$ 2
$ 1,968
Allocated to loans collectively evaluated for impairment $ 14,577
$ 9,576
$ 3,605
$ 1,102
$ 556
$ 205
$ 29,621


~~(5)~~	~~Deposits~~

~~Deposits are summarized as follows:~~

(Dollars in thousands) September 30, 2017 December 31, 2016
Non-interest bearing demand deposits $ 717,879
$ 646,115
Interest bearing checking 359,308
372,696
Savings 198,595
178,637
Money market 770,006
844,216
Certificates of deposit $250,000 or less 132,041
125,580
Certificates of deposit more than $250,000 42,352
42,315
Total customer deposits 2,220,181
2,209,559
Brokered deposits ⁽¹⁾
82,492
59,362
Total deposits $ 2,302,673
$ 2,268,921


⁽¹⁾	~~Brokered CDs $250,000 and under~~

Total customer deposits (deposits excluding brokered 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 full FDIC insurance. Essentially, the equivalent of the customers' original 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 $222.7 million and $281.6 million at September 30, 2017 and December 31, 2016, respectively.

~~See Note 12, "Fair Value Measurements," below for further information regarding the Company's fair value measurements for deposits.~~


~~(6)~~	~~Borrowed Funds and Subordinated Debt~~

~~Borrowed funds, consisting of FHLB borrowings, amounted to $149.3 million at~~ ~~September 30, 2017, compared to~~ ~~$10.7 million~~ at ~~December 31, 2016~~.

~~The Company also carried subordinated debt of~~ ~~$14.8 million~~ ~~(net of deferred issuance costs) at both~~ ~~September 30, 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, with a 15 year term. The Notes are intended to qualify as Tier 2 capital for

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

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 March 31, 2019.

Changes in the allowance for loan losses by portfolio classification for the three months ended March 31, 2019 are presented below:



(Dollars in thousands)	Cmml Real Estate			Cmml and Industrial				Cmml Constr		Resid. Mortgage		Home Equity			Consumer		Total
Beginning Balance at December 31, 2018	$	18,014		$	10,493		��	$	3,307	$	1,160	$	629		$	246	$	33,849
Provision	(188		)	(406		)		145		24		(4		)	29		(400		)
Recoveries	—			316				—		—		2			5		323
Less: Charge offs	—			—				—		—		—			43		43
Ending Balance at March 31, 2019	$	17,826		$	10,403			$	3,452	$	1,184	$	627		$	237	$	33,729
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	6		$	2,112			$	—	$	12	$	—		$	14	$	2,144
Allocated to loans collectively evaluated for impairment	$	17,820		$	8,291			$	3,452	$	1,172	$	627		$	223	$	31,585

Changes in the allowance for loan losses by portfolio classification for the three months ended March 31, 2018 are presented below:



(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr			Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at December 31, 2017	$	17,545	$	9,669	$	3,947		$	904	$	608	$	242	$	32,915
Provision	755		1,435		(664		)	10		20		44		1,600
Recoveries	—		108		—			—		1		5		114
Less: Charge offs	—		41		—			—		—		64		105
Ending Balance at March 31, 2018	$	18,300	$	11,171	$	3,283		$	914	$	629	$	227	$	34,524
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	52	$	2,776	$	—		$	4	$	—	$	22	$	2,854
Allocated to loans collectively evaluated for impairment	$	18,248	$	8,395	$	3,283		$	910	$	629	$	205	$	31,670

(5)Leases

As of March 31, 2019, the Company had 15 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, clauses with its lease contracts allow the Company, upon notification, to terminate the lease at the end of the lease term, or any option period. Several 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 to the parties. The Company has an agreement to purchase one of the leased buildings in its main campus and anticipates this transaction will be completed during the second quarter of 2019.

On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)." Under this ASU, as amended, lessees are required to recognize lease assets (right-of-use asset or "ROU") and lease liabilities on the balance sheet for all leases with terms longer than 12 months. For the Company, this ASU primarily impacted operating leases on our facilities, mainly branch leases, and as a result the Company recorded, on its consolidated balance sheet a lease liability of $18.0 million and ROU asset of $19.0 million on January 1, 2019 related to these leases.



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

Upon adoption of this ASU, the Company elected the following practical expedients:

to not reassess, among other things, the historical lease classification, and

to use hindsight to assess lease terms and impairment of the ROU asset.

The Company excludes leases with a term of 12 months or less from the recorded lease liability and ROU asset and accounts for lease and non-lease components separately. In order to calculate the lease liability, the Company used 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 options renewal periods that it considered reasonably certain to exercise, which generally resulted in the inclusion of all lease option periods.

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 income statement. Lease expenses, consisting of operating lease costs and variable lease costs, for the three months ended March 31, 2019 were $319 thousand. Variable lease costs and short-term lease expenses during this period were immaterial.

The weighted average remaining lease term for operating leases at March 31, 2019 was 28.5 years, and the weighted average discount rate was 3.82%.

At March 31, 2019, the remaining undiscounted cash flows by year of these lease liabilities were as follows:



(Dollars in thousands)	Operating Leases
2019 (nine remaining months)	$	891
2020	1,179
2021	1,179
2022	1,181
2023	1,188
Thereafter	24,134
Total lease payments	$	29,752
Less: Imputed interest	11,881
Total	$	17,871

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


(6)	Deposits

Deposits are summarized as follows:



(Dollars in thousands)	March 31, 2019		December 31, 2018
Non-interest checking	$	743,151	$	765,029
Interest-bearing checking	409,480		403,497
Savings	198,784		193,214
Money market	1,067,370		862,028
CDs $250,000 or less	228,585		215,200
CDs greater than $250,000	78,297		69,031
Total customer deposits	2,725,667		2,507,999
Brokered deposits ⁽¹⁾	30,499		56,783
Total deposits	$	2,756,166	$	2,564,782


(1)	Brokered CDs which are $250,000 and under.



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

Total customer deposits (deposits excluding brokered deposits) include reciprocal balances from checking, 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 customers' original deposited funds comes back to the Company and are carried within the appropriate category under total customer deposits. The Company's balances in these reciprocal products were $510.5 million and $342.4 million at March 31, 2019 and December 31, 2018, respectively.

See Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for deposits.


(7)	Borrowed Funds and Subordinated Debt

The Company had $488 thousand in borrowed funds at March 31, 2019 linked to outstanding commercial loans under various community reinvestment programs of the FHLB. At December 31, 2018, borrowed funds consisted of FHLB borrowings amounting to $100.5 million.

The Company had outstanding subordinated debt (net of deferred issuance costs) of $14.9 million at both March 31, 2019 and December 31, 2018, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the "Notes") issued in January 2015, with a 15 year term. Original debt issuance costs were $190 thousand 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.

The Notes are intended to qualify 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. Refer to Note 7, "Borrowed Funds and Subordinated Debt," to the Company's audited consolidated financial statements contained in the ~~2016~~2018 Annual Report on Form 10-K for additional information about the Company's subordinated debt.

See Note ~~12, "Fair Value Measurements,~~2, "Investments," ~~below~~and Note 3, "Loans" to the Company's unaudited consolidated interim financial statements, contained above, for further information regarding securities and loans pledged for borrowed funds. Refer to the "Liquidity" section and "Borrowed Funds" in the "Financial Condition" section in Item 2, "Management's Discussion and Analysis," for additional information about other sources of funding available to the Company and the Company's ~~fair value measurements for borrowed funds and subordinated debt.~~borrowing capacity.


~~(7)~~(8)	Derivatives and Hedging Activities

~~Interest rate~~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~~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~~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. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the estimated fair ~~values~~value of the Company's interest rate lock commitments and commitments to sell these ~~derivative instruments~~mortgage loans were ~~considered to be~~deemed immaterial.

The Company may use interest-rate ~~contract~~ swaps as part of its ~~interest-rate~~interest rate risk management strategy. Interest-rate swap agreements ~~are~~may be entered into as hedges against future ~~interest-rate~~interest rate fluctuations on specifically identified assets or liabilities. The Company ~~did not have~~had no derivative fair value hedges or derivative cash flow hedges at ~~either September 30, 2017~~March 31, 2019 or December 31, ~~2016.~~2018.

The Company has a ~~“Back-to-Back Swap”~~"Back-to-Back Swap" program whereby the Bank enters into an ~~interest rate~~interest-rate swap with a qualified commercial banking customer and simultaneously enters into an equal and opposite ~~interest rate~~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~~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~~swaps are not ~~speculative but~~speculative; rather, the transactions result from a service the Company provides to certain commercial customers. Back-to-Back ~~Swaps~~swaps do not meet hedge accounting requirements and therefore changes in the fair value of both the customer swaps and the counterparty swaps, which have an offsetting relationship, are recognized directly in



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

earnings. As a result of this offsetting relationship, there were no net gains or losses recognized in income on Back-to-Back ~~Swaps~~swaps during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 or ~~September 30, 2016.~~March 31, 2018.

~~The Company had six~~Each Back-to-Back swap transaction consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of eight interest rate swaps outstanding at ~~September 30, 2017~~both March 31, 2019 and December 31, 2018, with an aggregate notional amount of ~~$29.6~~$37.4 million ~~compared to four interest-rate swaps with an aggregate notional amount of $26.7~~and $37.7 million ~~at December 31, 2016.~~on those respective dates.

Asset derivatives are included in the line item prepaid expenses and other assets and liability derivatives are included in ~~prepaid expenses and other assets and~~the accrued expenses and other liabilities line item on the consolidated balance sheets, respectively. Interest-rate swaps with the counterparty are subject to master netting agreements, while interest-rate swaps with customers are not.

The table below presents the fair value and classification of the ~~Company’s~~Company's derivative financial instruments for the periods presented:


	As of September 30, 2017				As of December 31, 2016				As of March 31, 2019				As of December 31, 2018
(Dollars in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts - pay floating, received fixed	$	65	$	493	$	—	$	610
Interest rate contracts - pay floating, receive fixed									$	165	$	434	$	45	$	723
Interest rate contracts - pay fixed, receive floating	428		—		610		—		269		—		678		—
Total interest rate swaps	$	493	$	493	$	610	$	610	$	434	$	434	$	723	$	723

By using derivative financial instruments, the Company exposes itself to ~~counterparty credit~~counterparty-credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy. The Company has one counterparty and it was rated A and A2 by Standard & Poor and Moody, respectively, at March 31, 2019. Additionally, counterparty interest rate swaps contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount.

The Company had credit risk exposure amounting to $269 thousand and $678 thousand at March 31, 2019 and December 31, 2018, respectively, relating to interest rate swaps with counterparties. The Company held cash collateral of $200 thousand at March 31, 2019 and $850 thousand at December 31, 2018. Collateral held by the Company is restricted and not considered an asset of the Company. Therefore, it is not carried on the Company's consolidated balance sheet.

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



	As of March 31, 2019
(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	$	434	$	165	$	269

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

instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy. As the swaps are subject to master netting agreements, the Company had reduced exposure relating to interest rate swaps with institutional counterparties at September 30, 2017. The Company had unsecured counterparty credit risk exposure of $428 thousand and $610 thousand on interest rate swaps at September 30, 2017 and December 31, 2016, respectively. The counterparty was rated A / A2 by S&P and Moody’s, respectively, at September 30, 2017.



	As of December 31, 2018
(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	$	723	$	45	$	678

The ~~table below also presents the~~ Company's ~~asset derivative positions and the potential effect of netting arrangements on its financial position, as of the periods presented. Interest rate~~interest-rate swaps with ~~customers are not subject to master netting agreements and therefore are not included in the table below.~~

September 30, 2017
(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 $ 493
$ 65
$ 428

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

Certain counterparty interest rate swaps contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount. As of September 30, 2017 and December 31, 2016, the Company has not posted or received any collateral.

~~The Company has interest rate swaps with~~ counterparties ~~that~~ 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, where the originating bank utilizes a back-to-back ~~interest rate~~interest-rate swap structure; however, the Company is not a party to the swap agreements. Under the terms of the loan participations, the Company has accepted contingent liabilities that would only be realized if the swaps were terminated early and there were outstanding losses not covered by the underlying borrowers and the borrowers' pledged collateral. If applicable, the ~~Company’s swap loss~~Company's swap-loss exposure would be equal to the percentage of the ~~Company’s~~Company's participation in the underlying loan applied to the originating bank's swap loss. At ~~September 30, 2017~~both March 31, 2019 and December 31, ~~2016,~~2018, the Company had ~~two~~one such participation ~~loans and~~loan. At March 31, 2019, management considers the risk of material ~~swap loss~~swap-loss exposure related to this participation loan to be unlikely based on the swap market value, as well as the borrower's financial and collateral strength.



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


~~(8)~~(9)	Stockholders' Equity

Shares ~~authorized~~Authorized and ~~share issuance~~Share Issuance

The ~~Company’s~~Company'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 theThe Company is authorized to issue ~~from 20,000,000~~40,000,000 shares ~~to 40,000,000 shares.~~of common stock, with a par value of $0.01, and as of March 31, 2019 had 11,798,114 shares of common stock issued and outstanding. The Company is authorized to issue 1,000,000 shares of preferred stock, with a par value of $0.01. No preferred stock has been issued as of the date of this Form 10-Q. Holders of common stock are entitled to one vote per share and are entitled to receive dividends if and when declared by the Company's Board of Directors (the "Board"). Dividend and liquidation rights of the common stock may be subject to the rights of any outstanding preferred stock.

The Company has a ~~shareholders~~shareholders' rights plan. Under the plan, each share of common stock includes a right to purchase under certain circumstances one one-hundredth of a share of the ~~Company’s~~Company's Series A Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of ~~$52.00~~$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’s~~Company'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, ~~2018. The Company is currently evaluating the renewal of the plan in anticipation of this expiration date.~~2028.

The Company's stock incentive plans permit the Board ~~of Directors~~ 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. ~~These plans also allow for newly issued shares of common stock to be issued without restrictions to officers and other employees, directors and consultants.~~

The 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 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 ~~125,134~~124,938 shares and ~~141,580~~91,708 shares as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. See Note 12, "Earnings per Share," to the



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

Company's unaudited consolidated interim financial statements, contained below, 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.~~Company and returned to the pool of shares reserved for issuance under the incentive plans. Chapter 156D of the Massachusetts General Laws, a statute known as the Massachusetts Business Corporation Act, which applies to Massachusetts corporations such as the Company, eliminates the concept of ~~“treasury stock”~~"treasury stock" and provides that shares reacquired by a Massachusetts company ~~reacquires~~ will be treated as authorized but unissued shares.

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 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. See Note ~~10,~~11, "Stock-Based Compensation," to the Company's unaudited consolidated interim financial statements, contained below, for additional information regarding the Company's stock incentive plans.

In addition to shares issued to employees, non-employee directors and ~~consultants~~community members for consulting on regional advisory councils, and shares issued through equity offerings, ~~(see below),~~ the Company maintains a dividend reinvestment and direct stock purchase plan ~~(“DRSPP”~~("DRSPP") ~~for~~which enables stockholders, ~~and new investors~~at their discretion, to elect to reinvest ~~or purchase~~cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock ~~directly~~ from the ~~Company.~~

~~Capital Raised~~

InCompany at a purchase price equal to fair market value. Under the ~~second quarter of 2016,~~DRSPP, stockholders and new investors also have 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 930,232opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and received gross proceeds of $20.0 million ($19.7 million, net of offering costs) in the Offering. The Company contributed the net proceeds to the Bank to support future asset growth and for general corporate purposes.

~~See Note 11, "Earnings per Share," below for addition information regarding the impact of common stock and options issued.~~maximums.

Comprehensive Income

Comprehensive income is defined as all changes to stockholders' equity except investments by and distributions to stockholders. Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income. ~~The~~At March 31, 2019 and March 31, 2018, the Company's only other comprehensive income component is the net unrealized holding gains



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

or losses on ~~investments~~ available-for-sale debt securities, net of deferred income taxes. Pursuant to GAAP, the Company initially excludes these 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 debt securities are sold. When 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 income" subheading on the line item "net gains (losses) on sales of investment securities" and the related income tax expense is included in the line item "provision for income taxes," both of which are also detailed on the Consolidated Statements of Comprehensive Income under the subheading "reclassification adjustment for net gains (losses) included in net income."

See "Capital Resources" in Item 2, "Management's Discussion and Analysis," of this Form 10-Q for the Company's capital ratios and capital adequacy assessment as of March 31, 2019. Refer to Note 10, "Stockholders' Equity," to the Company's audited consolidated financial statements included in the Company's ~~2016~~2018 Annual Report on Form 10-K for additional information relating to capital adequacy requirements, dividends and the DRSPP.


~~(9)~~(10)	Supplemental Retirement ~~Plan~~Plans and Other ~~Post-retirement~~Post-Retirement Benefit Obligations

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 age." The individuals covered under the SERP have reached the defined benefit age and are receiving payments under the plan. 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.

This non-qualified plan represents a direct liability of the Company, and as such 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'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.

Additionally, on December 11, 2018, the Board approved and adopted 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. Please refer to Exhibit 10.17 attached to the Company's 2018 Annual Report on



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

Form 10-K and our Current Report on Form 8-K filed with the SEC on March 22, 2019 for a more complete description of the plan.

Total ~~net periodic benefit costs, comprised of interest costs only,~~expenses for these plans were ~~$29 thousand and $87~~$111 thousand for the three ~~and nine~~ months ended ~~September 30, 2017, respectively,~~March 31, 2019, compared to ~~$31 thousand and $93~~$56 thousand for the three ~~and nine~~ months ended ~~September 30, 2016, respectively.~~March 31, 2018.

Benefits paid amounted to $69 thousand ~~and $207 thousand~~ for both the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016, respectively.~~March 31, 2018. The Company anticipates accruing an additional ~~$29~~$314 thousand ~~to the SERP~~ in total for these SERPs during the remainder of ~~2017~~2019.

Supplemental Life Insurance

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

These arrangements provide a death benefit to the officer's designated beneficiaries that extend to postretirement periods for some of the supplemental life insurance plans. The Company has recognized a liability for these future postretirement 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 postretirement benefit obligation," which is the present value of the post-retirement benefits associated with this arrangement.

Total net periodic post-retirement benefit cost for supplemental life insurance plans, which consisted mainly of interest costs, were $50 thousand and $45 thousand for the three months ended March 31, 2019 and March 31, 2018, respectively.



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

~~The following table illustrates~~See also Note 11, "Stock-Based Compensation," to the ~~net periodic post-retirement benefit cost~~Company's unaudited consolidated interim financial statements, contained below, for further information regarding employee benefits offered in the ~~supplemental life insurance plans for the periods indicated:~~

Three months ended September 30, Nine months ended September 30,
(Dollars in thousands) 2017 2016 2017 2016
Service Cost $ (3 ) $ (2 ) $ (9 ) $ (7 )
Interest Cost 22
22
68
64
Net periodic post-retirement benefit cost $ 19
$ 20
$ 59
$ 57
form of stock options and stock awards.


~~(10)~~(11)	Stock-Based Compensation

The Company currently has ~~two~~one active individual stock incentive ~~plans:~~plan: the ~~2009 plan,~~Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as ~~amended in 2015, and the 2016 plan.~~amended. As of ~~September 30, 2017, an aggregate of 446,860~~March 31, 2019, there remained 271,584 shares ~~remain~~ available for future grants under this plan.

Additionally, the ~~plans.~~Enterprise Bancorp, Inc 2009 Stock Incentive Plan, as amended expired in March 2019 with 87,849 unissued shares. As such, this plan is closed for future grants, although awards previously granted under this plan remain outstanding and may be exercised through 2028.

The Company's stock-based compensation expense related to these plans includes stock options and stock awards to officers and other employees included in salary and benefits expense, and stock awards and stock compensation in lieu of cash fees to non-employee directors both included in other operating expenses. Total stock-based compensation expense was ~~$467 thousand and~~ $~~1.3 million~~426 thousand for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, ~~respectively,~~ compared to ~~$444~~$385 thousand ~~and~~ ~~$1.3 million~~ for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2018~~, respectively.~~.

A tax benefit associated with employee exercises and vesting of stock compensation of approximately $111 thousand was recorded as a reduction of the Company's income tax expense for the three months ended March 31, 2019, compared with $195 thousand for the three months ended March 31, 2018. These amounts, treated as discrete tax 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 Company's unaudited consolidated interim financial statements.

Stock Option Awards

The Company recognized stock-based compensation expense related to stock option awards of ~~$49 thousand and~~ $~~152~~48 thousand for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019, ~~respectively,~~ compared to ~~$63 thousand and~~ $~~205~~51 thousand for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2018~~, respectively.~~.

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

~~The table below provides a summary of the options granted during the periods indicated:~~

Nine Months Ended September 30,
2017 2016
Options granted 15,009
31,047
Term in years 10
10
Weighted average assumptions used in the fair value model:
Expected volatility 40 % 42 %
Expected dividend yield 2.09 % 3.02 %
Expected life in years 7
7
Risk-free interest rate 2.35 % 1.91 %
Weighted average market price on date of grants $ 30.46
$ 21.91
Per share weighted average fair value $ 11.34
$ 7.91
Fair value as a percentage of market value at grant date 37 % 36 %

~~Options granted during the first nine months of~~ ~~2017~~ ~~and~~ ~~2016~~ generally vest 50% in year two and 50% in year four, on 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.



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

~~Refer to Note 12 "Stock-Based Compensation Plans," in the Company's~~ ~~2016~~ ~~Annual Report on Form 10-K for a further description of the assumptions used in the valuation model.~~

~~Stock Awards~~

~~Stock-based compensation expense recognized in association with stock awards amounted to $358 thousand and~~ ~~$929 thousand~~ ~~for the three and nine months ended~~ ~~September 30, 2017, respectively, compared to $322 thousand and~~ ~~$939 thousand~~ ~~for the three and nine months ended~~ ~~September 30, 2016, respectively.~~

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

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

Nine Months Ended September 30,
Restricted Stock Awards (no. of underlying shares) 2017 2016
Two Year Vesting 6,944
9,060
Four Year Vesting 16,253
18,298
Performance-Based Vesting 25,623
35,071
Total Restricted Stock Awards 48,820
62,429

Weighted average grant date fair value $ 30.46
$ 21.90

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 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-settled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the Company.~~

~~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 open.~~

~~Stock in Lieu of Directors' Fees~~

In addition to restricted stock awards discussed above, the non-employee members of the Company's Board of Directors 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. Stock-based compensation expense related to these directors' fees amounted to $60 thousand and ~~$206 thousand~~ ~~for the three and nine months ended~~ ~~September 30, 2017, respectively, compared to $59 thousand and~~ ~~$205 thousand~~ ~~for the three and nine months ended~~ ~~September 30, 2016, respectively, and is included in other operating expenses. In~~ ~~January 2017, non-employee directors were issued~~ ~~12,992~~ ~~shares of common stock in lieu of~~ ~~2016~~ ~~annual cash fees of~~ ~~$286 thousand~~ ~~at a market value price of~~ ~~$22.04~~ ~~per share, the market value of the common stock on the opt-in measurement date of January 4, 2016.~~

In the first quarter of 2017, the Company adopted ASU 2016-09. For further information regarding the implementation of this update and the financial statement impact, refer to Note 1, "Summary of Significant Accounting Policies," Item (e), "Recent Accounting Pronouncements" above.

~~For further information regarding the Company's stock awards, see Note 8, "Stockholders' Equity," above under the caption "Shares authorized and share issuance."~~

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

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



	Three Months Ended March 31,
	2019			2018
Options granted	23,218			14,755
Term in years	10			10
Weighted average assumptions used in the fair value model:
Expected volatility	33		%	37		%
Expected dividend yield	2.75		%	2.10		%
Expected life in years	6.5			6.5
Risk-free interest rate	2.58		%	2.86		%
Weighted average market price on date of grants	$	29.84		$	34.33
Per share weighted average fair value	$	8.70		$	11.98
Fair value as a percentage of market value at grant date	29		%	35		%

Options granted during the first three months of 2019 and 2018 generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards.

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

Restricted Stock Awards

Stock-based compensation expense recognized in association with stock awards, mainly restricted stock awards, amounted to $301 thousand for the three months ended March 31, 2019, compared to $259 thousand for the three months ended March 31, 2018.

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

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



	Three Months Ended March 31,
Restricted Stock Awards (number of underlying shares)	2019		2018
Two year vesting	8,368		7,280
Four year vesting	22,403		16,666
Performance-based vesting	24,427		20,559
Total restricted stock awards granted	55,198		44,505
Weighted average grant date fair value	$	29.84	$	34.33

Stock in Lieu of Directors' Fees

In addition to restricted stock awards discussed above, the non-employee members of the Company's Board may opt to receive newly issued shares of the Company's common stock in lieu of cash compensation for attendance at Board and Board committee meetings. Stock-based compensation expense related to these directors' fees amounted to $77 thousand for the three months ended March 31, 2019, compared to $75 thousand for the three months ended March 31, 2018, and is included in other operating expenses. In January 2019, non-employee directors were issued 7,470 shares of common stock in lieu of 2018 annual cash fees of $250 thousand at a market value price of $33.50 per share, the market value of the common stock on the opt-in



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

measurement date of January 2, 2018.

For further information regarding the Company's stock awards, see Note 9, "Stockholders' Equity," to the Company's unaudited consolidated interim financial statements, contained above, under the caption "Shares Authorized and Share Issuance." There have been no material changes to the terms of the Company's stock incentive plans or the terms for vesting, forfeiture and settlement for options and restricted stock awards granted and outstanding under such plans as reported in the 2018 Annual Report on Form 10-K. Refer to Note 12, "Stock-Based Compensation Plans," to the Company's audited consolidated financial statements in the Company's 2018 Annual Report on Form 10-K for further information on the Company's stock incentive plans, stock options and restricted awards including descriptions of the assumptions used in the valuation model for stock options.


~~(11)~~(12)	Earnings per ~~share~~Share

Basic earnings per share are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding (including participating securities) during the year. The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. See Note 8,9, "Stockholders' Equity," under the caption "Shares ~~authorized~~Authorized and ~~share issuance,~~Share Issuance," to the Company's unaudited consolidated interim financial statements above for further information regarding the Company's participating securities. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.

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


	Three months ended September 30,		Nine months ended September 30,		Three months ended March 31,
	2017	2016	2017	2016	2019	2018
Basic weighted average common shares outstanding	11,589,039	11,430,134	11,557,054	10,801,278	11,730,482	11,628,587
Dilutive shares	80,120	68,856	83,319	68,127	52,923	72,267
Diluted weighted average common shares outstanding	11,669,159	11,498,990	11,640,373	10,869,405	11,783,405	11,700,854

Basic and diluted weighted average common shares outstanding for the nine months ended September 30, 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 periods were only affected by the Offering from the issue date of June 23, 2016 through period end.

There were ~~14,758~~52,478 and 29,353 stock options outstanding at March 31, 2019 and March 31, 2018, respectively that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for the ~~nine~~three months ended ~~September 30, 2017.~~March 31, 2019 and 2018. These stock options, which were not dilutive at ~~that date,~~those dates, may potentially dilute earnings per share in ~~the future.~~subsequent periods.


~~(12)~~(13)	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.

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

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


									March 31, 2019
	September 30, 2017		Fair Value Measurements using:								Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	382,896	$	—	$	382,896	$	—	$	458,765	$	—	$	458,765	$	—
Equity securities	3,046		3,046		—		—		2,049		2,049		—		—
FHLB stock	7,225		—		—		7,225		1,491		—		—		1,491
Interest-rate swaps	493		—		493		—
Interest rate swaps									434		—		434		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	3,745		—		—		3,745		2,556		—		—		2,556
Other real estate owned									255		—		—		255

Liabilities measured on a recurring basis:
Interest-rate swaps	493		—		493		—
Interest rate swaps									$	434	$	—	$	434	$	—


									December 31, 2018
	December 31, 2016		Fair Value Measurements using:								Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)		Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	362,147	$	—	$	362,147	$	—	$	431,473	$	—	$	431,473	$	—
Equity investments	12,643		12,643		—		—
Equity securities									1,448		1,448		—		—
FHLB stock	2,094		—		—		2,094		5,357		—		—		5,357
Interest-rate swaps	610		—		610		—
Interest rate swaps									723		—		723		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	3,481		—		—		3,481		2,574		—		—		2,574

Liabilities measured on a recurring basis:
Interest-rate swaps	610		—		610		—
Interest rate swaps									$	723	$	—	$	723	$	—

The Company did not transfer any assets between the fair value measurement levels during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 or the year ended December 31, ~~2016~~2018.

All of the Company's debt ~~and equity~~ securities ~~that~~ are considered "available-for-sale" and are carried at fair value. The debt security category above includes federal agency obligations, 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's standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources. Therefore, management regards the inputs and methods used by third-party pricing vendors to be "Level 2 inputs and methods" as defined in the "fair value hierarchy." The Company periodically obtains a second price from an impartial third party on debt securities to assess the reasonableness of prices provided by the primary independent pricing vendor.

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

The Bank is required to purchase FHLB stock at par value in association with advances from the ~~FHLB; this~~FHLB. This stock is classified as a restricted investment and carried at cost which management believes approximates fair value; therefore, these securities are categorized as Level 3 measures. ~~See Note 1, "Summary of Significant Accounting Policies," Item (c) "Restricted Instruments" for further information regarding the Company's fair value assessment of FHLB capital stock.~~

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

Impaired 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'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's estimated probable credit loss. The specific allowances assigned to the collateral dependent impaired loans amounted to ~~$1.6~~$1.1 million at ~~September 30, 2017~~March 31, 2019 compared to ~~$1.9~~$1.6 million at December 31, ~~2016~~2018.

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

The fair values for the ~~interest-rate~~interest rate swap assets and liabilities represent a FASB Level 2 measurement and are based on settlement values adjusted for credit ~~risk~~risks and observable market interest rate curves. The settlement values are based 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~~interest rate swap assets and liabilities attributable to credit risk was not significant during the reported periods. Refer also to Note 7,8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements, contained above, for additional information on the Company's ~~interest-rate~~interest rate swaps.

Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party. The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements. In accordance with the FASB, the estimated fair values of these commitments are carried on the consolidated balance 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 sheet at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 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's derivative instruments are deemed to be FASB Level 2 measurements. At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the estimated fair value of the Company's ~~interest-rate~~interest rate lock commitments and commitments to sell these ~~mortgages~~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 ~~September 30, 2017~~March 31, 2019:

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input Value or Range

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input Value or Range

Assets measured on a recurring basis:

FHLB stock

7,225

FHLB Stated Par Value

N/A

1,491

FHLB Stated Par Value

N/A

Assets measured on a non-recurring basis:

Impaired loans (collateral dependent)

3,745

Appraisal of collateral

Appraisal adjustments ⁽¹⁾

5% - 50%

2,556

Appraisal of collateral

Appraisal adjustments ⁽¹⁾

5% - 50%

Other real estate owned

255

Appraisal of collateral

Appraisal adjustments ⁽¹⁾

0% - 30%

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



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



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

The carrying values, estimated fair values and placement in the fair value hierarchy of the Company's consolidated financial instruments for which fair value is only disclosed but not recognized on the consolidated balance sheet at the dates indicated are summarized as follows:


											March 31, 2019
	September 30, 2017				Fair value measurement										Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs		Carrying Amount		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	876	$	876	$	—	$	876	$	—	$	332	$	335	$	—	$	335	$	—
Loans, net	2,169,189		2,178,545		—		—		2,178,545		2,350,908		2,339,246		—		—		2,339,246
Financial liabilities:
Certificates of deposit (including brokered)	256,885		256,220		—		256,220		—
CDs (including brokered)											337,381		336,679		—		336,679		—
Borrowed funds	149,255		149,251		—		149,251		—		488		328		—		328		—
Subordinated debt	14,844		14,216		—		—		14,216		14,863		14,680		—		—		14,680


											December 31, 2018
	December 31, 2016				Fair value measurement										Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs		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	$	—	$	701	$	710	$	—	$	710	$	—
Loans, net	1,991,387		1,997,887		—		—		1,997,887		2,353,657		2,331,076		—		—		2,331,076
Financial liabilities:
Certificates of deposit (including brokered)	227,257		226,536		—		226,536		—
CDs (including brokered)											341,014		339,308		—		339,308		—
Borrowed funds	10,671		10,670		—		10,670		—		100,492		100,312		—		100,312		—
Subordinated debt	14,834		14,011		—		—		14,011		14,860		14,300		—		—		14,300

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 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 ~~the~~ unused ~~portion~~portions of lines of credit and ~~letters of credit, which were estimated to be the fees currently charged to enter into similar agreements and are deemed to be immaterial, as well as~~ commitments to originate loans ~~which~~that were short-term, at current market rates and estimated to have no significant change in fair value.

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 of future cash flows. The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

~~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.~~

~~Loans:~~ The fair value of loans was determined using discounted cash flow analysis, using interest rates currently being offered by the Company. The incremental credit risk for adversely classified loans was considered in the determination of the fair value of the loans.

~~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 September 30, 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 September 30, 2017 and December 31, 2016.

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

~~Limitations:~~ The estimates of fair value of financial instruments were based on information available at September 30, 2017 and December 31, 2016 and are not indicative of the fair market value of those instruments as of the date of this Quarterly Report on Form 10-Q. 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.


(14)	Supplemental Cash Flow Information

~~Fair value estimates were based on existing on~~The supplemental cash flow information for the three months ended March 31, 2019 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.March 31, 2018 is as follows:

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.



	Three months ended March 31,
(Dollars in thousands)	2019		2018
Supplemental financial data:
Cash paid for: interest	$	5,100	$	2,638
Cash paid for: income taxes	1,012		868
Cash paid for: lease liability	288		—
Supplemental schedule of non-cash activity:
Net purchases of investment securities not yet settled	1,500		—
Transfer from loans to other real estate owned	255		—
ROU lease assets: operating leases⁽¹⁾	$	19,002	$	—


(1)	This represents the ROU lease asset that was recorded upon adoption of ASC 842 and was primarily offset by a corresponding lease liability.

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

Special Note Regarding Forward-Looking Statements

Management's discussion and analysis should be read in conjunction with the Company's ~~(also referred to herein as "Enterprise," "us," "we," or "our")~~ unaudited consolidated interim financial statements and notes thereto contained in this ~~report~~Quarterly Report on Form 10-Q (this "Form 10-Q") and the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, ~~2016~~2018 (the "~~2016~~2018 Annual Report on Form 10-K").

~~Special Note Regarding Forward-Looking Statements~~

This ~~Quarterly Report on~~ Form 10-Q ~~(this "Form 10-Q")~~ contains certain ~~"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including~~forward-looking statements concerning plans, objectives, future events or performance and assumptions and other statements that are other than statements of historical fact. Forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as "will," "should," "could," "anticipates," "believes," "expects," "intends," "may," "plans," "pursue," "views" and similar terms or expressions.

Various statements contained in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-Q are forward-looking statements, including, but not limited to statements related to management's views on on:

the banking environment and the ~~economy,~~ economy;

competition and market expansion ~~opportunities,~~ opportunities;

the ~~interest rate~~interest-rate environment, credit risk and the level of future non-performing assets and ~~charge-offs,~~ charge-offs;

potential asset and deposit growth, future non-interest expenditures and non-interest income ~~growth,~~growth; and

borrowing ~~capacity are forward-looking statements.~~ capacity.

The Company (also referred to herein as "Enterprise," "us," "we," or "our") cautions readers that such forward-looking statements reflect numerous assumptions and 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. Any forward-looking statements in this Form 10-Q are based on information available to the Company as of the date of this Form 10-Q, and the Company undertakes no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. 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 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 additional regulations that may be forthcoming as a result thereof, and potential changes in tax laws, 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 under Item 1A, "Risk Factors" of the Company's ~~2016~~


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


(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, and any 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 under Item 1A, "Risk Factors" of the Company's 2018 Annual Report on Form 10-K, 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.

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Overview

Executive Summary

Net income for the three months ended ~~September 30, 2017~~March 31, 2019 amounted to ~~$5.5~~$8.7 million, an increase of ~~$792 thousand,~~$1.9 million, or ~~17%~~27%, compared to the ~~same three-month period in 2016.~~three months ended March 31, 2018. Diluted earnings per share were ~~$0.47~~$0.74 for the three months ended ~~September 30, 2017,~~March 31, 2019, an increase of ~~15%~~28%, compared to ~~the same three-month period in 2016. Net income~~$0.58 for the ~~nine~~three months ended ~~September 30, 2017 amounted~~March 31, 2018.

As of March 31, 2019, total assets increased 8%, total loans increased 4% and customer deposits increased 14% as compared to ~~$16.7 million, an~~March 31, 2018. The increase in customer deposits includes several relationships which had large short-term balance increases in the first quarter of ~~$2.9 million, or 21%,~~2019.

The key drivers to our earnings as compared to the ~~nine months ended September 30, 2016. Diluted earnings per share~~first quarter of 2018 were ~~$1.43 for~~loan and deposit growth, along with a reduction in the ~~nine months ended September 30, 2017, an increase of 13%,~~loan loss provision due to improved credit metrics compared to the ~~nine months ended September 30, 2016. Diluted earnings per share for the nine months ended September 30, 2017 include the full dilutive impact of the Company’s equity offering on June 23, 2016.~~

~~Total assets, loans, and customer deposits have increased 10%, 11%, and 3%, respectively, as compared to September 30, 2016. Loan growth was particularly strong as loans grew $88.0 million, or~~ 4%~~, during the~~March 2018 quarter. ~~Customer deposits, whose growth trends and month end balances vary depending on market conditions, grew by 3% from a year ago and~~ ~~20%~~ ~~from two years ago. The increase in our 2017 earnings compared to 2016 has been positively impacted by this growth.~~

Strategically, ~~our focus remains~~we remain focused on organic growth and continually planning for and investing in our ~~future. We recently opened our 24~~^thfuture with an emphasis on people, technology, digital transformation, branch ~~in Windham, NH~~renovations and completed the relocation of our branch in Salem, NH to its new location. We expect the relocation of our Leominster branch to be completed in early 2018. The relocation of our branches in Salem, NH and Leominster, MA will provide improved and state-of-the-art branches in those communities to better serve our customers.market expansion.

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 three months ended ~~September 30, 2017~~March 31, 2019 amounted to ~~$25.1~~$28.1 million, an increase of ~~$3.3~~$2.1 million, or ~~15%~~8%, compared to the ~~same period in 2016. Net interest income for the nine~~three months ended ~~September 30, 2017 amounted to $71.5 million, an increase of $7.3 million, or 11%, compared to the nine months ended September 30, 2016.~~March 31, 2018. The increase in net interest income was due largely to interest-earning asset growth, primarily ~~to loan growth.~~in loans. Average loan balances (including loans held for sale) increased ~~$204.2~~$98.7 million ~~and $201.6 million for the quarter and nine months ended September 30, 2017, respectively, compared to the 2016 respective period averages. Margin was 4.03%~~ for the three months ended ~~September 30, 2017 and 3.90%~~March 31, 2019, compared to the same 2018 period average. Tax equivalent margin ("T/E margin") was 3.98% for the three months ended ~~June 30, 2017, while net interest margin was 3.86%~~March 31, 2019, compared to 3.95% for the three months ended September 30, 2016. Margin was 3.95% for the nine months ended September 30, 2017, compared to 3.96% for the nine months ended September 30, 2016. See the discussion under the heading "Results of Operations" below, in this Item 2, for further information regarding changes in margin.

The re-pricing frequency of the Company’s assets and liabilities are not identical, and therefore subject the Company to the risk of adverse changes in interest rates. This is often referred to as “interest rate risk” and is reviewed in more detail in Part I, Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” of this Form 10-Q and in Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” of the Company's 2016 Annual Report on Form 10-K.March 31, 2018.

For the three months ended ~~September 30, 2017~~March 31, 2019 there was a negative provision to the allowance for loan losses of $400 thousand, compared to a provision of $1.6 million for the three months ended March 31, 2018. The primary factor in the decrease in the year-to-date provision for loan losses compared to the prior year was a reduction in the balance of the allowance for loan losses allocated to impaired, adversely classified, and ~~September 30, 2016,~~criticized loans of $81 thousand for the three months ended March 31, 2019, compared to an increase of $1.4 million during the three months ended March 31, 2018.

Also affecting the provision for loan losses ~~amounted to $1.2 million and $1.4 million, respectively. For~~for the ~~nine~~three months ended September 30, 2017 and September 30, 2016, the provision for loan losses amounted to $1.6 million and $2.5 million, respectively. The decrease in the provision for the nine months ended September 30, 2017, was due primarily to generally improved credit quality metrics and underlying collateral values, partially offset by increased loan growthMarch 31, 2019 compared to the prior year ~~period.~~were:

~~Contributing~~Net recoveries of $280 thousand for the three months ended March 31, 2019, compared to net recoveries of $9 thousand for the ~~provision for loan losses were:~~three months ended March 31, 2018.

Total non-performing loans as a percentage of total loans ~~(a measure of credit risk)~~ amounted to ~~0.57%~~0.46% at September 30, 2017, compared to 0.50% at September 30, 2016. Impacting the non-performing loans ratio in the current period, among other changes, were new impaired/non-accrual status classifications of two larger commercial relationships totaling approximately $4.5 million, which, based on a review of their individual business circumstances, management determined that no reserves were necessary as of September 30, 2017.

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both March 31, 2019 and March 31, 2018.

The ~~balance~~ratio of adversely classified loans ("substandard," "doubtful," "loss") to total loans amounted to 1.45% at March 31, 2019, compared to 1.19% at March 31, 2018. However, the reserves allocated to these loans declined $472 thousand over the same period due to generally improved collateral values on impaired loans.

Loan growth for the three months ended March 31, 2019 was relatively flat, compared to loan growth of $20.3 million during the three months ended March 31, 2018. The allowance for loan losses allocated to ~~impaired and adversely classified~~general reserves for non-classified loans ~~decreased by $761~~declined $39 thousand ~~during~~for the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, compared to an increase of ~~$863 thousand during the nine months ended September 30, 2016.~~

~~The Company recorded net recoveries of $212~~$233 thousand for the ~~nine~~three months ended ~~September 30, 2017, compared to net recoveries of $78 thousand for the nine months ended September 30, 2016.~~

~~Loan growth for the nine months ended September 30, 2017 was $179.6 million, compared to $125.9 million during the nine months ended September 30, 2016.~~March 31, 2018.

The allowance for loan losses to total loans ratio was ~~1.51%~~1.41% at ~~September 30, 2017, 1.55%~~March 31, 2019, 1.42% at December 31, ~~2016~~2018 and ~~1.59%~~1.51% at ~~September 30, 2016.~~

For further information regarding loan quality statistics and the allowance for loan losses, see the sections below under the heading "Financial Condition" titled "Asset Quality" and "Allowance for Loan Losses."March 31, 2018.

Non-interest income for the three months ended ~~September 30, 2017~~March 31, 2019 amounted to ~~$3.4~~$3.8 million ~~a decrease of $504 thousand, or 13%,~~and was relatively flat compared to the ~~same quarter last year. Non-interest income for the nine~~three months ended September 30, 2017 amounted to $11.5 million, an increase of $781 thousand, or 7%, compared to the nine months ended September 30, 2016. The decrease in the quarter was primarily due to net losses of $284 thousand on sales of securities compared to net gains on sales of securities of $546 thousand in the comparable prior year quarter. Additionally, loan sale income decreased while deposit and interchange fees and investment advisory fees increased in the current quarter compared to the same period in 2016. Year-to-date increases in non-interest income over the prior year-to-date period were due primarily to increasesMarch 31, 2018. Increases in deposit and interchange fees and ~~investment advisory fees,~~other income, primarily as a result of fair value adjustment gains on equity securities, were partially offset by ~~a decrease in net gains on the sales of investment securities.~~lower wealth management fees.

~~Non-interest~~

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For the three months ended March 31, 2019, non-interest expense ~~for the quarter ended September 30, 2017~~ amounted to ~~$18.8~~$20.9 million, an increase of $1.4 million, or 8%7%, compared to the ~~same quarter in the prior year. For the nine~~three months ended ~~September 30, 2017, non-interest expense amounted to $57.0 million, an increase of $5.2 million, or 10%, over the nine months ended September 30, 2016.~~March 31, 2018. Increases in non-interest ~~expenses over~~expense compared to the ~~same periods in the prior year~~first quarter of 2018 primarily related to the ~~Company’s~~Company's strategic growth, digital technology and market ~~expansion~~ initiatives, ~~mainly increases in~~particularly salaries and employee benefits ~~expenses.~~

Inexpenses and technology and telecommunications expenses, partially offset by lower FDIC deposit insurance expenses in the first quarter of 2017, the Company adopted a new accounting standard, 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. Since the adoption of this standard, the provision for income taxes has decreased, increasing earnings by approximately $832 thousand for the nine months ended September 30, 2017.2019.

Sources and Uses of Funds

The Company's primary sources of funds are customer and brokered deposits, ~~Federal Home Loan Bank ("FHLB")~~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 Company may be generated through equity transactions, including the dividend reinvestment and direct stock purchase plan or exercise of stock options, and occasionally the issuance of debt securities or the sale of new stock. The Company's sources of funds are intended to be used to originate loans, purchase investment securities, conduct operations, expand the branch network, and pay dividends to stockholders.

The investment portfolio is primarily used to provide liquidity, manage the Company's asset-liability position and to invest excess funds, providing additional sources of revenue. Total investments, ~~one of~~ the ~~key components~~second-key component of interest earning assets, amounted to $~~385.9~~460.8 million at ~~September 30, 2017~~March 31, 2019, an increase of ~~$11.2~~$27.9 million, or 3%6%, since December 31, ~~2016,~~2018, and comprised ~~14%~~15% of total assets at ~~September 30, 2017~~both March 31, 2019 and ~~15% of total assets at~~ December 31, ~~2016.~~2018.

Enterprise's main asset strategy is to grow loans, the largest component of interest earning assets, with a focus on high quality commercial lending relationships. Total loans, ~~increased~~ ~~$179.6 million, or 9%, since~~ ~~December 31, 2016, and amounted to~~ ~~$2.20 billion~~ at ~~September 30, 2017~~, comprising ~~81%~~78% of total assets at ~~September 30, 2017 and 80% of total assets~~March 31, 2019 compared to 81% at December 31, ~~2016~~.2018, amounted to $2.38 billion at March 31, 2019, compared to $2.39 billion at December 31, 2018, a slight decrease of $2.9 million. Total commercial loans amounted to $~~1.91~~2.05 billion, or ~~87%~~86% of gross loans, at ~~September 30, 2017~~March 31, 2019, which was ~~relatively~~ consistent with the composition at December 31, ~~2016~~2018 ~~of 86%~~.

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Management's preferred strategy for funding asset growth is to grow relationship-based deposit balances, preferably transactional deposits (comprised of ~~demand deposit~~non-interest checking accounts, interest-bearing 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 or "investment savings" accounts and term ~~certificates of deposit)~~CDs) and wholesale funding (brokered deposits and borrowed funds).

At ~~September 30, 2017~~,March 31, 2019, customer deposits (total deposits excluding brokered deposits) amounted to ~~$2.22~~$2.73 billion,~~, an increase of~~ ~~$10.6 million, from~~ ~~December 31, 2016~~ ~~balances. During the period, the increase was primarily due to increases in non-interest bearing checking accounts, largely offset by decreases in money market account balances.~~

~~Wholesale funding amounted to~~ ~~$231.7 million~~ at ~~September 30, 2017, comprising 9%~~ or 89% of total assets, compared to ~~$70.0 million~~ at ~~December 31, 2016~~,$2.51 billion, or 3%85% of total assets, ~~an increase of $161.7 million.~~ at December 31, 2018. Customer deposits increased $217.7 million, or 9%, primarily in money market accounts.

Wholesale funding ~~included FHLB advances of $149.3 million and $10.7~~amounted to $31.0 million at ~~September 30, 2017 and December~~March 31, ~~2016, respectively, and brokered deposits~~2019, or 1% of ~~$82.5 million~~ at ~~September 30, 2017~~total assets, compared to ~~$59.4~~$157.3 million at December 31, ~~2016.~~2018, or 5% of total assets. Since December 31, 2018, wholesale funding has decreased $126.3 million, or 80%. Wholesale funding included primarily brokered CDs at March 31, 2019. At December 31, 2018, wholesale funding included brokered CDs of $56.8 million and FHLB advances of $100.5 million. The Company's level of wholesale funding has ~~increased~~decreased since December 31, 2018 as increases in ~~2017 as~~customer deposit balances have exceeded loan ~~growth exceeded deposit~~ growth.

~~Opportunities~~The re-pricing frequency of the Company's assets and ~~Risks~~

liabilities are not identical, and therefore subject the Company to the risk of adverse changes in interest rates. This ~~Opportunities~~is often referred to as "interest-rate risk" and ~~Risks discussion should be read~~is reviewed in ~~conjunction with~~more detail in Part I, Item ~~1A "Risk Factors,~~3, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-Q and ~~the section titled "Opportunities and Risks" contained~~ in Item ~~7 "Management's Discussion~~7A, "Quantitative and ~~Analysis~~Qualitative Disclosures About Market Risk," of ~~Financial Conditions and Results of Operations" included in~~ the Company's ~~2016~~2018 Annual Report on Form ~~10-K, which addresses other factors and details that could adversely affect the Company's business, reputation, its future results of operations and financial condition.~~10-K.

~~Enterprise faces robust competition~~Culture and Organic Growth Strategy

The Company actively seeks to ~~attract and retain customers within existing and neighboring geographic markets. The Company's ability to achieve its long-term strategic growth and~~increase market share ~~objectives will depend in part upon management's continued success in differentiating the Company in the market place~~ and ~~its ability to~~ strengthen its competitive ~~position.~~position through continuous reviews of competitive product offerings (including terms, liquidity, risk and return), fee structure, delivery channels, customer service levels, employee training, and a consistent and unwavering commitment to our core values of Excellence, Integrity, Teamwork, Professionalism, and Community. 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 believes the Company has differentiated itself from the competition by building a solid reputation within the local market as a convenient, 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

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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 ~~actively seeks~~ to ~~increase market share~~be a leading banking provider of commercial and ~~strengthen its competitive position through continuous reviews of deposit product offerings,~~residential loans, deposits and cash management services, wealth management and ~~ancillary~~wealth services, and ~~state-of-the-art delivery channels, targeted~~trust and insurance services in its growing market area.

Management believes that Enterprise is well equipped to ~~businesses, non-profits, professional practice groups, municipalities~~capitalize on market potential to grow both the commercial and ~~consumers' needs. In addition, Enterprise carefully plans market expansion~~residential loan portfolios through ~~new branch~~strong business development ~~identifying branches strategically located~~and referral efforts, while utilizing a disciplined and consistent lending approach and credit review practices, which have served to ~~complement existing locations while expanding~~provide consistent quality asset growth over varying economic cycles during the Company's ~~geographic market footprint. In July 2016,~~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.

Management continues to undertake significant strategic growth initiatives, including investments in employee hiring, training and development; marketing and public relations; technology; digital/electronic delivery methods; ongoing improvements, renovations or strategic relocation of existing facilities; and the ~~Company's 23~~^rd ~~branch opened, on Route 101A~~continued cultivation of recently added branches. The Company is in ~~Nashua, NH,~~the process of renovating several branches and ~~in July 2017,~~relocated the ~~Company opened its 24~~^thLeominster, Massachusetts branch in ~~Windham, NH. Branch~~the first half of 2018 to a the new, larger, and custom-designed branch, in a prime location. Management believes these investments will provide improved, state-of-the-art experiences to better serve and attract customers. The Company also continually looks to expand branch locations within, and to compliment, our existing footprint. Our consistent 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, wealth services, trust and insurance services, ~~residential mortgages~~ and cash management products.

Management ~~continues~~also seeks out opportunities to ~~undertake significant strategic initiatives, including investments in employee hiring, training~~recruit experienced key banking professionals with insightful market knowledge who complement the Enterprise sales 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. The relocation of our branches in Salem, NH and Leominster, MA will provide improved and state-of-the-art branches in prime locations in those communities to better serve our customers. In the third quarter of 2017, we relocated our Salem, NH branch, and we expect the relocation of our Leominster, MA branch to be completed in early 2018.service culture. 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 current 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~~adoption rates or ~~other~~ income generated from new technology or initiatives, could decrease anticipated revenues and net income on such investments in the future.

Changes in government regulation or oversight could affect the Company in substantial and unpredictable ways. The President has signed many executive orders calling for the administration to review various U.S. financial laws and regulations. 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 in addition to extensive corporate tax reform proposals. 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 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,

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~~monitoring the effectiveness of policies and procedures, conducting compliance risk assessments, and educating employees in matters relating to regulatory compliance.~~

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, employee and customer awareness campaigns, controls to manage operational risk include, but are not limited to, technology administration, information security, third-party management, and disaster recovery and business continuity planning. 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 increase 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.

~~Accounting Policies/Critical Accounting Estimates~~

~~As discussed in the Company's~~ ~~2016~~ Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, impairment review of investment securities and the impairment review of goodwill. The Company has not changed its significant accounting and reporting policies from those disclosed in its ~~2016~~ ~~Annual Report on Form 10-K.~~

Financial Condition

Total assets increased $~~199.2~~109.4 million, or 8%4%, since December 31, ~~2016~~2018, to $~~2.73~~3.07 billion at ~~September 30, 2017~~March 31, 2019. The balance sheet composition and changes since December 31, ~~2016~~2018 are discussed below.

Cash and cash equivalents

Cash and cash equivalents ismay be comprised 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 funds accounts) and federal funds sold ("fed funds") ~~sold.~~. Cash and cash equivalents amounted to 2%4% of total assets at ~~both~~ ~~September 30, 2017~~March 31, 2019 ~~and~~, compared to 2% at December 31, ~~2016~~2018. 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 ~~September 30, 2017~~March 31, 2019, the ~~carrying~~fair value of the investment portfolio amounted to $~~385.9~~460.8 million, an increase of ~~$11.2~~$27.9 million, or 3%6%, since December 31, ~~2016.~~2018. The investment portfolio represented 15% of total assets at March 31, 2019 and December 31, 2018. As of March 31, 2019, and December 31, 2018, the investment portfolio was primarily comprised of debt securities, with a small portion of the portfolio invested in equity securities.

During the three months ended March 31, 2019, the Company purchased $33.1 million in securities. The Company had principal pay downs, calls and maturities totaling $7.2 million during the three months ended March 31, 2019.

During the three months ended March 31, 2019, management sold debt securities with an amortized cost of approximately $1.8 million realizing net losses on sales of $1 thousand.

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See also Note 2, "Investment Securities," and Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements contained in Item 1 above for further information regarding the Company's unrealized gains and losses on debt securities, including information about investments in an unrealized loss position for which an OTTI has not been recognized, and investments pledged as collateral, as well as the Company's fair value measurements for investment securities.

Debt Securities

The following table summarizes the fair value of ~~investments~~debt securities at the dates indicated:


	September 30, 2017				December 31, 2016				September 30, 2016				March 31, 2019				December 31, 2018				March 31, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Federal agency obligations⁽¹⁾	$	75,072	19.5	%	$	75,069	20.0	%	$	80,145	23.0	%	$	7,988	1.7	%	$	7,975	1.9	%	$	51,385	12.5	%
Residential federal agency MBS⁽¹⁾	100,958		26.2	%	93,353		24.9	%	88,706		25.4	%	168,386		36.7	%	172,726		40.0	%	151,117		36.7	%
Commercial federal agency MBS⁽¹⁾	64,796		16.8	%	70,278		18.7	%	44,679		12.8	%	114,669		25.0	%	93,979		21.8	%	64,854		15.7	%
Municipal securities	129,762		33.6	%	111,803		29.8	%	111,556		31.9	%	152,669		33.3	%	142,043		32.9	%	132,859		32.2	%
Corporate bonds	11,356		2.9	%	10,695		2.9	%	11,131		3.2	%	14,105		3.1	%	13,806		3.2	%	11,056		2.7	%
Certificates of deposits⁽²⁾	952		0.2	%	949		0.3	%	970		0.3	%
CDs⁽²⁾													948		0.2	%	944		0.2	%	942		0.2	%
Total debt securities	382,896		99.2	%	362,147		96.6	%	337,187		96.6	%	$	458,765	100.0	%	$	431,473	100.0	%	$	412,213	100.0	%
Equity investments	3,046		0.8	%	12,643		3.4	%	11,877		3.4	%
Total investment securities at fair value	$	385,942	100.0	%	$	374,790	100.0	%	$	349,064	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")~~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”~~("CMOs") issued by U.S. agencies totaling ~~$110.2~~$259.3 million, ~~$107.0~~$242.8 million, and ~~$78.6~~$183.2 million at ~~September 30, 2017,~~March 31, 2019, December 31, ~~2016~~2018 and ~~September 30, 2016,~~March 31, 2018, respectively. Included in municipal securities were tax exempt municipal securities with fair values totaling $106.3 million, $107.3 million and $120.7 million at March 31, 2019, December 31, 2018 and March 31, 2018, respectively.

~~During the nine months ended September 30, 2017, the Company purchased $99.4 million in securities. The Company had principal pay downs, calls and maturities totaling~~ ~~$21.1 million~~ ~~during the nine months ended September 30, 2017. In addition, management sold securities with an amortized cost of approximately $70.2 million realizing net gains on sales of~~ ~~$485 thousand~~ ~~during the nine months ended September 30, 2017, predominately from gains on equity sales, largely offset by losses realized from a debt security portfolio restructuring in the third quarter of 2017.~~

Net unrealized gains on the ~~investment~~debt securities portfolio amounted to ~~$3.6~~$2.4 million at ~~September 30, 2017~~March 31, 2019, compared to net unrealized losses of ~~$1.2~~$1.7 million at December 31, ~~2016~~2018 and net unrealized ~~gains~~losses of ~~$9.4~~$7.6 million at ~~September 30, 2016.~~March 31, 2018. The Company attributes the increase in net unrealized gains ~~from~~at March 31, 2019 compared to December 31, ~~2016 primarily~~2018 to decreases in market yields since year end. Additionally, the Company attributes the increase in net unrealized gains since March 31, 2018 to lower market rates and a restructuring of the debt security portfolio ~~restructuring noted above, which mainly replaced lower yielding debt securities with higher yielding ones, and to a lesser extent lower long term interest rates.~~in the fourth quarter of 2018. Unrealized gains or losses on debt securities are carried on the balance sheet and will ~~only~~ be recognized in the statements of income if the investments are sold. ~~However, should~~Should an investment be deemed ~~"other than temporarily impaired" ("OTTI"),~~OTTI, the Company is required to write-down the fair value of the investment. See ~~“Impairment Review~~Note 1, "Summary of ~~Securities”~~Significant Accounting Policies," under ~~the heading “Critical Accounting Estimates” in~~ Item ~~7 of~~(e), "Investments," to the Company's ~~2016~~audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K for additional information ~~regarding the~~on accounting for OTTI.

~~See also~~ For more information about the Company's assessment for OTTI, see Note 2, "Investment Securities," ~~and Note 12, "Fair Value Measurements,"~~ to the Company's ~~unaudited~~audited consolidated ~~interim~~ financial statements contained in ~~Item 1 above for further information regarding~~ the Company's ~~unrealized gains and losses~~2018 Annual Report on ~~debt and~~Form 10-K.

Equity Securities

The Company held equity securities ~~including information about investments in an unrealized loss position for which an other-than-temporary impairment has or has not been recognized,~~with a fair value of $2.0 million as of March 31, 2019, compared to fair value of $1.4 million at December 31, 2018 and ~~investments pledged as collateral, as well as~~$295 thousand at March 31, 2018. During the three months ended March 31, 2019, the Company's fair value ~~measurements for available-for-sale securities.~~gain on equity securities recorded in the consolidated statement of income was $186 thousand. During the three months ended March 31, 2018, the fair value loss on equity securities was $5 thousand. The fair value changes of equity securities that will be recognized in net income in the future will depend on the amount of dollars invested in equities and the magnitude of changes in equity markets.

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Federal Home Loan Bank Stock

The Bank is required to purchase stock of the FHLB 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 ~~carrying amount of~~Company's investment in FHLB stock was $~~7.2~~1.5 million ~~for the period ended~~at ~~September 30, 2017~~March 31, 2019, ~~$2.1~~$5.4 million at December 31, ~~2016~~2018 and ~~$1.9~~$2.4 million at ~~September 30, 2016~~March 31, 2018.

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See Note 1, "Summary of Significant Accounting Policies," Item (c), "Restricted ~~Instruments,~~Cash and Investments," to the Company's unaudited consolidated interim financial statements contained in Item 1 above for further information regarding the Company's investment in FHLB stock.

Loans

Total loans represented ~~81%~~78% of total assets at ~~September 30, 2017~~March 31, 2019 and ~~80%~~81% of total assets at December 31, ~~2016.~~2018. Total loans ~~increased~~decreased slightly by $~~179.6~~2.9 million~~, or 9%,~~ as compared to December 31, ~~2016~~2018, and increased $~~216.5~~94.5 million, or ~~11%~~4%, since ~~September 30, 2016~~.March 31, 2018. The mix of loans within the portfolio remained relatively unchanged with commercial loans amounting to approximately ~~87%~~86% of gross loans at ~~September 30, 2017,~~March 31, 2019, reflecting a continued focus on commercial loan growth.

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.~~

loans:


	September 30, 2017					December 31, 2016					September 30, 2016					March 31, 2019					December 31, 2018					March 31, 2018
(Dollars in thousands)	Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent		Amount			Percent
Commercial real estate	$	1,153,108		52.3	%	$	1,038,082		51.3	%	$	1,008,362		50.7	%	$	1,292,047		54.1	%	$	1,303,879		54.6	%	$	1,254,705		54.7	%
Commercial and industrial	512,736			23.3	%	490,799			24.2	%	490,590			24.7	%	509,733			21.3	%	514,253			21.5	%	503,657			22.0	%
Commercial construction	245,453			11.1	%	213,447			10.5	%	215,432			10.9	%	244,978			10.3	%	234,430			9.8	%	228,797			10.0	%
Total commercial loans	1,911,297			86.7	%	1,742,328			86.0	%	1,714,384			86.3	%	2,046,758			85.7	%	2,052,562			85.9	%	1,987,159			86.7	%
Residential mortgages	194,375			8.8	%	180,560			8.9	%	172,556			8.7	%	233,129			9.8	%	231,501			9.7	%	198,756			8.7	%
Home equity loans and lines	89,044			4.0	%	91,065			4.5	%	90,116			4.5	%	97,798			4.1	%	96,116			4.0	%	96,531			4.2	%
Consumer	10,085			0.5	%	10,845			0.6	%	10,634			0.5	%	9,897			0.4	%	10,241			0.4	%	10,149			0.4	%
Total retail loans	293,504			13.3	%	282,470			14.0	%	273,306			13.7	%	340,824			14.3	%	337,858			14.1	%	305,436			13.3	%

Gross loans	2,204,801			100.0	%	2,024,798			100.0	%	1,987,690			100.0	%	2,387,582			100.0	%	2,390,420			100.0	%	2,292,595			100.0	%
Deferred fees, net	(2,428		)			(2,069		)			(1,836		)			(2,945		)			(2,914		)			(2,422		)
Total loans	2,202,373					2,022,729					1,985,854					2,384,637					2,387,506					2,290,173
Allowance for loan losses	(33,184		)			(31,342		)			(31,589		)			(33,729		)			(33,849		)			(34,524		)
Net loans	$	2,169,189				$	1,991,387				$	1,954,265				$	2,350,908				$	2,353,657				$	2,255,649

As of ~~September 30, 2017,~~March 31, 2019, commercial real estate loans ~~increased $115.0~~decreased $11.8 million, or ~~11%~~1%, compared to December 31, ~~2016~~2018, and increased $37.3 million, or ~~14%~~3%, compared to ~~September 30, 2016~~March 31, 2018. Commercial real estate loans 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~~As of March 31, 2019, commercial and industrial ~~loans increased $21.9~~loan balances decreased $4.5 million, or 4%1%, compared to December 31, ~~2016~~,2018 and increased 5% as$6.1 million, or 1%, compared to ~~September 30, 2016~~.March 31, 2018. These loans include seasonal and formula-based revolving lines of credit, working capital loans, equipment financing (including equipment leases), formula-based lines of credit, 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, equipment, or receivables, and are generally guaranteed by the principals of the borrower.

Commercial construction loans increased by $~~32.0~~10.5 million, or ~~15%~~4%, since December 31, ~~2016~~2018, and increased $16.2 million, or ~~14%~~7% as, compared to ~~September 30, 2016~~March 31, 2018. 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.~~

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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. In many cases, these loans move into the permanent commercial real estate portfolio when the construction phase is completed.

~~Retail~~Total retail loan balances increased by ~~$11.0~~$3.0 million, or 4%1%, since December 31, ~~2016~~2018, and have increased by35.4 million, or 7%12%, since ~~September 30, 2016~~March 31, 2018. ~~The increase over~~Residential secured one-to-four family mortgage loans continue to make up the ~~same period in~~largest portion of the ~~prior year was primarily with loans secured by residential property.~~retail segment.

At ~~September 30, 2017~~March 31, 2019, commercial loan balances participated out to various banks amounted to $~~67.7~~73.1 million, compared to $~~62.3~~72.1 million at December 31, ~~2016~~2018, and $~~62.4~~70.8 million at ~~September 30, 2016~~March 31, 2018. 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 $~~89.4~~65.5 million, $~~85.2~~63.5 million and $~~86.8~~90.6 million at ~~September 30, 2017~~March 31, 2019, December 31, ~~2016~~2018, and ~~September 30, 2016~~March 31, 2018, 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

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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 participant at loan origination. 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.

See Note 3, "Loans," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q for information on loans serviced for others and loans pledged as collateral.

Credit Risk

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, ~~and~~ 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.

Non-performing assets are comprised of non-accrual loans, deposit account overdrafts that are more than 90 days past due and ~~OREO.~~Other real estate owned ("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.

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Asset Quality

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


(Dollars in thousands)	September 30, 2017			December 31, 2016			September 30, 2016			March 31, 2019			December 31, 2018			March 31, 2018
Non-accrual loan summary:
Commercial real estate	$	8,058		$	4,876		$	5,639		$	6,668		$	6,894		$	6,485
Commercial and industrial	3,428			3,174			3,128			2,936			3,417			2,771
Commercial construction	197			519			209			174			176			192
Residential	267			289			297			754			763			582
Home equity	477			616			607			502			514			505
Consumer	35			—			—			15			17			22
Total non-accrual loans	12,462			9,474			9,880			11,049			11,781			10,557
Overdrafts > 90 days past due	27			11			8			—			3			1
Total non-performing loans	12,489			9,485			9,888			11,049			11,784			10,558
OREO	—			—			—			255			—			—
Total non-performing assets	$	12,489		$	9,485		$	9,888		$	11,304		$	11,784		$	10,558
Total Loans	$	2,202,373		$	2,022,729		$	1,985,854		$	2,384,637		$	2,387,506		$	2,290,173
Accruing TDR loans not included above	$	17,301		$	22,418		$	18,917		$	19,348		$	19,389		$	17,191
Delinquent loans 60-89 days past due and still accruing	$	746		$	940		$	572		$	112		$	205		$	1,594
Loans 60-89 days past due and still accruing to total loans	0.03		%	0.05		%	0.03		%	—		%	0.01		%	0.07		%
Adversely classified loans to total loans	1.32		%	1.70		%	1.66		%	1.45		%	1.49		%	1.19		%
Non-performing loans to total loans	0.57		%	0.47		%	0.50		%	0.46		%	0.49		%	0.46		%
Non-performing assets to total assets	0.46		%	0.38		%	0.40		%	0.37		%	0.40		%	0.37		%
Allowance for loan losses	$	33,184		$	31,342		$	31,589		$	33,729		$	33,849		$	34,524
Allowance for loan losses to non-performing loans	265.71		%	330.44		%	319.47		%	305.27		%	287.25		%	326.99		%
Allowance for loan losses to total loans	1.51		%	1.55		%	1.59		%	1.41		%	1.42		%	1.51		%

The net increase in non-accrual loans since the prior periods was due primarily to the migration of two large commercial relationships in the second quarter of 2017, totaling approximately $4.5 million that were also carried as adversely rated/impaired credits on the Company's "watched" credit loan listing for closer monitoring at September 30, 2017. These additions, among others, were partially offset by principal paydowns and credit rating upgrades during the period. The majority of non-accrual loans were also carried as impaired loans during the periods and the changes since December 31, ~~2016~~2018 are discussed further below.

At ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, the Company had adversely classified loans (loans carrying "substandard," "doubtful" or "loss" classifications) amounting to ~~$29.2~~$34.6 million and ~~$34.3~~$35.5 million, respectively. Total adversely classified loans amounted to ~~1.32%~~1.45% of total loans at ~~September 30, 2017 as~~March 31, 2019, compared to ~~1.70%~~1.49% at December 31, ~~2016.~~2018. Adversely classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become non-performing loans amounted to ~~$16.7~~$23.7 million at ~~September 30, 2017~~March 31, 2019 and ~~$25.1~~$23.8 million at December 31, ~~2016.~~2018. The remaining balances of adversely classified loans were non-accrual loans, amounting to ~~$12.5~~$11.0 million at ~~September 30, 2017~~March 31, 2019 and ~~$9.3~~$11.7 million at December 31, ~~2016.~~2018. Non-accrual loans that were not adversely classified amounted to $6$80 thousand and ~~$220~~$81 thousand at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, and primarily represented the guaranteed portions of non-performing SBA loans.

The decline in adversely classifieds was due primarily to payoffs, net principal paydowns, and net credit rating upgrades during the year, particularly of several commercial relationships based on a review of their individual business circumstances.

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Total impaired loans amounted to $~~29.7~~30.4 million and $~~31.8~~31.5 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018, respectively. Total accruing impaired loans amounted to ~~$17.3~~$19.3 million and ~~$22.4~~$19.7 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively, while non-accrual impaired loans amounted to ~~$12.4~~$11.0 million and ~~$9.4~~$11.8 million as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. The increase in non-accrual impaired loans was primarily due to the two larger commercial relationships noted above, which, based on a review of their individual business circumstances, management determined that no reserves were necessary on these relationships as of September 30, 2017.

In management's opinion, the majority of impaired loan balances at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 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 ~~September 30, 2017, impaired loans totaling~~ ~~$23.7 million~~ ~~required no specific reserves and impaired loans totaling~~ ~~$6.0 million~~ ~~required specific reserve allocations of~~ ~~$2.2 million. At~~ ~~December~~March 31, ~~2016~~2019, impaired loans totaling $25.7 million required no specific reserves and impaired loans totaling $~~6.1~~4.7 million required specific reserve allocations of $~~2.6~~2.1 million. At December 31, 2018, impaired

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loans totaling $26.4 million required no specific reserves and impaired loans totaling $5.1 million required specific reserve allocations of $2.2 million. Management closely monitors ~~these~~impaired relationships for the individual business circumstances, and underlying collateral or credit ~~deterioration.~~deterioration to determine if additional reserves are necessary.

Total TDR loans included in the impaired loan amounts above as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016~~2018 were ~~$23.6~~$23.5 million and ~~$27.0~~$23.1 million, respectively. TDR loans on accrual status amounted to ~~$17.3~~$19.3 million and ~~$22.4~~$19.4 million at ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016,~~2018, respectively. TDR loans included in non-performing loans amounted to ~~$6.3 million and $4.6~~$4.2 million at ~~September 30, 2017~~March 31, 2019 and $3.7 million at December 31, ~~2016, respectively.~~2018. 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 one OREO property at March 31, 2019 with a carry value of $255 thousand, and no OREO at ~~September 30, 2017,~~ December 31, ~~2016 and September 30, 2016.~~2018 or March 31, 2018. There were no other additions, sales or ~~writedowns~~write-downs on OREO during the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 or ~~2016.~~2018.

Allowance for Loan Losses

The allowance for loan losses is an estimate of probable credit ~~risk~~loss 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. Management closely monitors the credit quality of individual delinquent and non-performing relationships, industry concentrations, the local and regional real estate market and current economic conditions.

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in ~~the 2016 Annual Report on Form 10-K. Please refer to~~ Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the ~~2016~~2018 Annual Report on Form ~~10-K for further discussion of management's methodology used to estimate a sufficient allowance for loan losses, the credit risk management function and adversely classified loan rating system.~~10-K.

The allowance for loan losses to total loans ratio was ~~1.51%~~1.41% at ~~September 30, 2017, 1.55%~~March 31, 2019, 1.42% at December 31, ~~2016,~~2018, and ~~1.59%~~1.51% at ~~September 30, 2016.~~March 31, 2018. General improvement in economic metrics, partially offset by individual loan downgrades to adversely classified and impaired loans, which have continued to occur due to individual business circumstances, have contributed to the gradual decline in the allowance to total loans ratio. 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 ~~September 30, 2017~~March 31, 2019.

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The following table summarizes the activity in the allowance for loan losses for the periods indicated:


	Nine Months Ended September 30,						Three Months Ended March 31,
(Dollars in thousands)	2017			2016			2019			2018
Balance at beginning of year	$	31,342		$	29,008		$	33,849		$	32,915

Provision charged to operations	1,630			2,503			(400		)	1,600
Recoveries on charged-off loans:
Commercial real estate	193			20			—			—
Commercial and industrial	391			637			316			108
Commercial construction	—			—			—			—
Residential	—			—
Residential mortgages							—			—
Home equity	3			2			2			1
Consumer	6			4			5			5
Total recoveries	593			663
Total recovered							323			114
Charged-off loans
Commercial real estate	—			179			—			—
Commercial and industrial	321			354			—			41
Commercial construction	—			5			—			—
Residential	—			—
Residential mortgages							—			—
Home equity	—			5			—			—
Consumer	60			42			43			64
Total Charged off	381			585
Total charged-off							43			105

Net loans recovered	(212		)	(78		)	(280		)	(9		)
Ending Balance	$	33,184		$	31,589
Annualized net loans recovered: Average loans outstanding	(0.01		)%	(0.01		)%
Ending balance							$	33,729		$	34,524
Annualized net loans recovered to average loans outstanding							(0.05		)%	—		%

See Note 4, ~~“Allowance~~"Allowance for Loan ~~Losses”~~Losses" to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, for further information regarding ~~credit quality and~~ the allowance for loan ~~losses.~~

losses and credit quality.

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Deposits

Total deposits amounted to $2.76 billion as of March 31, 2019, an increase of $191.4 million, or 7%, compared to December 31, 2018. Total deposits as a percentage of total assets were 90% at March 31, 2019 and 87% at December 31, 2018.

The following table sets forth the deposit balances by certain categories at the dates indicated and the percentage of each category to total ~~deposits.~~deposits:


	September 30, 2017				December 31, 2016				September 30, 2016				March 31, 2019				December 31, 2018				March 31, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent		Amount		Percent
Non-interest bearing demand deposits	$	717,879	31.2	%	$	646,115	28.5	%	$	645,907	29.1	%
Interest bearing checking	359,308		15.6	%	372,696		16.4	%	346,957		15.6	%
Non-interest checking													$	743,151	27.0	%	$	765,029	29.8	%	$	717,656	27.9	%
Interest-bearing checking													409,480		14.9	%	403,497		15.8	%	382,580		14.9	%
Total checking	1,077,187		46.8	%	1,018,811		44.9	%	992,864		44.7	%	1,152,631		41.9	%	1,168,526		45.6	%	1,100,236		42.8	%

Savings	198,595		8.6	%	178,637		7.9	%	181,653		8.2	%	198,784		7.2	%	193,214		7.5	%	193,766		7.5	%
Money markets	770,006		33.4	%	844,216		37.2	%	815,861		36.7	%	1,067,370		38.7	%	862,028		33.6	%	868,359		33.8	%
Total savings/money markets	968,601		42.0	%	1,022,853		45.1	%	997,514		44.9	%	1,266,154		45.9	%	1,055,242		41.1	%	1,062,125		41.3	%

Certificates of deposit (CD's)	174,393		7.6	%	167,895		7.4	%	171,891		7.7	%
Certificates of deposit (CDs)													306,882		11.1	%	284,231		11.1	%	223,534		8.7	%
Total customer deposits	2,220,181		96.4	%	2,209,559		97.4	%	2,162,269		97.3	%	2,725,667		98.9	%	2,507,999		97.8	%	2,385,895		92.8	%

Brokered deposits ⁽¹⁾	82,492		3.6	%	59,362		2.6	%	59,340		2.7	%	30,499		1.1	%	56,783		2.2	%	185,494		7.2	%
Total deposits	$	2,302,673	100.0	%	$	2,268,921	100.0	%	$	2,221,609	100.0	%	$	2,756,166	100.0	%	$	2,564,782	100.0	%	$	2,571,389	100.0	%


⁽¹⁾	Brokered CDs $250,000 and under.

As of ~~September 30, 2017,~~March 31, 2019, customer deposits (deposits, excluding brokered deposits) increased ~~$10.6~~$217.7 million, or 9%, since December 31, ~~2016~~2018, and ~~$57.9~~$339.8 million, or 3%14%, since ~~September 30, 2016. The increase since~~March 31, 2018. Since December 31, ~~2016 was primarily in non-interest bearing checking account balances, largely offset by declines~~2018, the largest growth occurred in money market ~~account balances.~~accounts and includes several relationships which had large balance increases in the quarter that management expects may be subsequently drawn down.

~~Customer~~Total customer deposits include reciprocal deposits from checking, 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 ~~full~~enhanced FDIC insurance. Essentially, the equivalent of the original customers' deposited funds comes back to the Company ~~as customer deposits~~and are carried within the appropriate category under total ~~deposits on the balance sheet.~~customer deposits. The Company's balances in these reciprocal products were ~~$222.7~~$510.5 million, ~~$281.6~~$342.4 million and ~~$278.4~~$299.9 million at ~~September 30, 2017,~~March 31, 2019, December 31, ~~2016~~2018 and ~~September 30, 2016,~~March 31, 2018, respectively.

Wholesale funding, which includes brokered deposits and borrowed funds, amounted to $231.7 million at September 30, 2017, compared to $70.0 million at December 31, 2016, an increase of $161.7 million. Wholesale funding has increased as loan growth has exceeded deposit growth.

~~From time to time, management~~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 ~~September 30, 2017,~~March 31, 2019, December 31, ~~2016,~~2018, and ~~September 30, 2016~~March 31, 2018 brokered deposits were comprised only of brokered CDs. ~~Brokered~~As of March 31, 2019, brokered CDs ~~increased $23.1~~decreased $26.3 million, or ~~39%~~46%, ~~at September 30, 2017~~ compared to December 31, ~~2016.~~2018. Brokered CDs outstanding at ~~September 30, 2017~~March 31, 2019 had a weighted average remaining life of less than ~~1 year.~~three months. See also "Wholesale Funding" below.

Borrowed Funds ~~and Subordinated Debt~~

~~Borrowed~~The Company had borrowed funds outstanding of $488 thousand at March 31, 2019 linked to outstanding commercial loans under a community reinvestment program of the FHLB. At December 31, 2018, borrowed funds outstanding, comprised wholly of FHLB borrowings, amounted to ~~$149.3 million at September 30, 2017, compared to $10.7 million at December~~$100.5 million. At March 31, ~~2016 and $671 thousand at September 30, 2016. Borrowed fund balances~~2018, the Company did not have ~~increased $138.6 million since year end as loan growth has outpaced deposit growth.~~any borrowed funds outstanding.

At ~~September 30, 2017~~March 31, 2019, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately ~~$340.0~~$650.0 million and capacity to borrow from the FRB Discount Window of approximately ~~$120.0~~$145.0 million.

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Wholesale Funding

Wholesale funding includes brokered deposits and borrowed funds as discussed above. Since December 31, 2018, wholesale funding has decreased $126.3 million, or 80%, as customer deposit growth has exceeded loan growth.

The following table sets forth the breakout of wholesale funding by composition at the dates indicated and the percentage of each category to total wholesale funding:



	March 31, 2019				December 31, 2018				March 31, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Brokered deposits	$	30,499	98.4	%	$	56,783	36.1	%	$	185,494	100.0	%
Borrowed funds	488		1.6	%	100,492		63.9	%	—		—	%
Wholesale funding	$	30,987	100.0	%	$	157,275	100.0	%	$	185,494	100.0	%

See "Liquidity" below for additional information.

Subordinated Debt

The Company had outstanding subordinated debt of $~~14.8~~14.9 million (net of deferred issuance costs) ~~of outstanding subordinated debt~~ at ~~September 30, 2017~~March 31, 2019, December 31, ~~2016~~2018 and ~~September 30, 2016,~~March 31, 2018, 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 also Note 6,7, "Borrowed Funds and Subordinated Debt," to the Company's unaudited consolidated interim financial statements contained in Item 1 above, for further information regarding the Company's 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.~~directors ( the "Board"). The duties and responsibilities related to asset-liability management matters are also covered by the ~~Board of Directors.~~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~~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 ~~September 30, 2017~~March 31, 2019, the Company's wholesale funding sources primarily included borrowing capacity at the FHLB and brokered deposits. In addition, the Company maintains overnight 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, causes 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.

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. See "Capital Resources," below for information on the Company's capital planning.

Capital Resources

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~~ Company's dividend reinvestment plan and direct stock purchase plan (together, the "DRSPP"). Additional sources of capital for the Company and the Bank have been proceeds from the issuance of

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common stock and proceeds from the issuance of subordinated debt. The Company believes its current capital is adequate to support ongoing operations.

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.”

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Management believes, as of ~~September 30, 2017,~~March 31, 2019, that the Company and the Bank ~~meet~~met all capital adequacy requirements to which they were subject. As of ~~September 30, 2017,~~March 31, 2019, 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.

The Company's and the Bank's actual capital amounts and ratios are presented as of ~~September 30, 2017~~March 31, 2019 in the tables ~~below.~~below:


	Actual				Minimum Capital for Capital Adequacy Purposes ₍₁₎				Minimum Capital To Be Well Capitalized ₍₂₎				Actual				Minimum Capital for Capital Adequacy Purposes⁽¹⁾				Minimum Capital To Be Well Capitalized⁽²⁾
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio		Amount		Ratio
The Company
Total Capital (to risk weighted assets)	$	268,379	11.57	%	$	185,640	8.00	%	N/A		N/A		$	305,555	11.89	%	$	205,552	8.00	%	N/A		N/A
Tier 1 Capital (to risk weighted assets)	$	223,944	9.65	%	$	139,230	6.00	%	N/A		N/A		$	258,555	10.06	%	$	154,164	6.00	%	N/A		N/A
Tier 1 Capital (to average assets) or Leverage ratio	$	223,944	8.40	%	$	106,611	4.00	%	N/A		N/A		$	258,555	8.57	%	$	120,711	4.00	%	N/A		N/A
Common equity tier 1 capital (to risk weighted assets)	$	223,944	9.65	%	$	104,422	4.50	%	N/A		N/A		$	258,555	10.06	%	$	115,623	4.50	%	N/A		N/A

The Bank
Total Capital (to risk weighted assets)	$	267,860	11.54	%	$	185,635	8.00	%	$	232,043	10.00	%	$	305,081	11.87	%	$	205,551	8.00	%	$	256,938	10.00	%
Tier 1 Capital (to risk weighted assets)	$	238,270	10.27	%	$	139,226	6.00	%	$	185,635	8.00	%	$	272,944	10.62	%	$	154,163	6.00	%	$	205,551	8.00	%
Tier 1 Capital (to average assets) or Leverage ratio	$	238,270	8.94	%	$	106,608	4.00	%	$	133,261	5.00	%	$	272,944	9.04	%	$	120,711	4.00	%	$	150,889	5.00	%
Common equity tier 1 capital (to risk weighted assets)	$	238,270	10.27	%	$	104,419	4.50	%	$	150,828	6.50	%	$	272,944	10.62	%	$	115,622	4.50	%	$	167,010	6.50	%

⁽¹⁾Before application of the capital conservation buffer of ~~1.25%~~2.50% as of ~~September 30, 2017,~~March 31, 2019, see discussion below.

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

~~Under~~The Company is subject to the Basel III ~~rules,~~ capital ratio requirements ~~for all banking organizations increased and~~which include a "capital conservation 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~~which had a phase-in implementation period, was fully implemented inon January 1, 2019. If a banking organization dips into its capital conservation buffer it may be restricted in 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 exceed~~exceeded the Basel III risk-based capital requirement with ~~full~~the capital conservation buffer as of ~~September 30, 2017.~~March 31, 2019.

The Basel III minimum capital ratio requirements as applicable to the Company and the Bank inat March 31, 2019 ~~after the full phase-in period~~ are summarized in the table below:


	Basel III Minimum for Capital Adequacy Purposes		Basel III Additional Capital Conservation Buffer		Basel III "Adequate" Ratio with Capital Conservation Buffer	Basel III Minimum for Capital Adequacy Purposes		Basel III Additional Capital Conservation Buffer	Basel III "Adequate" Ratio with Capital Conservation Buffer
(Dollars in thousands)			Basel III Additional Capital Conservation Buffer			Basel III Minimum for Capital Adequacy Purposes		Basel III Additional Capital Conservation Buffer	Basel III "Adequate" Ratio with Capital Conservation Buffer
						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)	Basel III Minimum for Capital Adequacy Purposes	8.00%		2.50%	Basel III "Adequate" Ratio with Capital Conservation Buffer	Basel III Minimum for Capital Adequacy Purposes	10.50%	Basel III Additional Capital Conservation Buffer
Tier 1 Capital (to risk weighted assets)	6.00%		2.50%		8.50%	6.00%		2.50%	Basel III "Adequate" Ratio with Capital Conservation Buffer	8.50%
Tier 1 Capital (to average assets) or Leverage ratio	4.00%		—%		4.00%	4.00%		—%	4.00%
Common equity tier 1 capital (to risk weighted assets)	4.50%		2.50%		7.00%	4.50%		2.50%	7.00%

The ~~Company maintains a~~Company's 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.

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For the ~~nine~~three months ended ~~September 30, 2017,~~March 31, 2019, the Company paid ~~$4.7~~$1.9 million in cash dividends. Stockholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of ~~34,657~~9,341 shares of the Company's common stock, totaling ~~$1.1 million.~~$298 thousand. The direct purchase component of the DRSPP was used by stockholders to purchase ~~1,386~~160 shares of the Company's common stock, totaling ~~$47~~$5 thousand, during the ~~nine~~three months ended ~~September 30, 2017.~~

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March 31, 2019.

On ~~October 17, 2017~~April 16, 2019, the Company announced a quarterly dividend of $~~0.135~~0.16 per share to be paid on ~~December 1, 2017~~June 3, 2019 to stockholders of record as of ~~November 10, 2017~~May 13, 2019. ~~The 2017 dividend rate represents a~~ ~~3.8%~~ ~~increase over the~~ ~~2016~~ ~~dividend rate.~~

For further information about the Company's capital, see Note ~~8, "Stockholder's~~9 and Note 10, both titled "Stockholders' Equity," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form ~~10-Q.~~10-Q and to the Company's audited consolidated financial statements contained in the 2018 Annual Report on Form 10-K, respectively.

Assets Under Management

Total assets under management includes total assets, loans serviced for others and investment assets under management. 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.~~GAAP, however management believes its disclosure provides information useful in understanding the trends in total assets under management.

The Company provides a wide range of ~~investment advisory~~wealth management and wealth ~~management~~ services, including brokerage, trust, and investment ~~management (together, "investment advisory services").~~management. Also included in the investment assets under management total are customers' commercial sweep arrangements that are invested in third-party money market mutual funds.

~~Investment~~As of March 31, 2019, investment assets under management, which are reflected at fair market value, increased ~~$75.2~~$47.7 million, or ~~10%~~6%, since December 31, ~~2016~~2018 and ~~increased $90.7 million, or 13%, since September 30, 2016.~~were relatively flat compared to March 31, 2018.

~~Total~~As of March 31, 2019, total assets under management increased ~~$280.1~~$158.1 million, or 8%4%, since December 31, ~~2016~~2018 and ~~$351.2~~$241.8 million, or ~~11%~~6%, since ~~September 30, 2016.~~March 31, 2018.

The following table sets forth the value of assets under management and its components at the dates indicated:


(Dollars in thousands)	September 30, 2017		December 31, 2016		September 30, 2016		March 31, 2019		December 31, 2018		March 31, 2018
Total assets	$	2,725,472	$	2,526,269	$	2,470,849	$	3,073,781	$	2,964,358	$	2,834,928
Loans serviced for others	86,738		80,996		80,836		90,200		89,232		88,816
Investment assets under management	800,499		725,338		709,781		848,412		800,751		846,853
Total assets under management	$	3,612,709	$	3,332,603	$	3,261,466	$	4,012,393	$	3,854,341	$	3,770,597

Results of Operations

Three Months Ended ~~September 30, 2017~~March 31, 2019 vs. Three Months Ended ~~September 30, 2016~~March 31, 2018

Unless otherwise indicated, the reported results are for the three months ended ~~September 30, 2017~~March 31, 2019 with the "same period," the "comparable period," "prior year," and "prior period" being the three months ended ~~September 30, 2016.~~March 31, 2018. Average yields are presented on a tax equivalent basis.

The Company's net income for the ~~third quarter of 2017~~three months ended March 31, 2019 amounted to ~~$5.5~~$8.7 million, compared to ~~$4.7~~$6.8 million for the same period in ~~2016,~~ 2018, an increase of ~~$792 thousand,~~$1.9 million, or ~~17%~~27%. Diluted earnings per share were ~~$0.47~~$0.74 and ~~$0.41~~$0.58 for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~September 30, 2016,~~March 31, 2018, respectively, an increase of ~~15%~~28%.

Net Interest Income and Margin

The Company's net interest income for the ~~quarter~~three months ended ~~September 30, 2017 amounted to $25.1~~March 31, 2019 was $28.1 million, compared to ~~$21.8~~$26.0 million for the ~~quarter~~three months ended ~~September 30, 2016,~~March 31, 2018, an increase of ~~$3.3~~$2.1 million, or ~~15%~~8%. The increase in net interest income over the comparable period was due largely to interest-earning asset growth, primarily ~~to revenue generated from loan growth and to a lesser extent an increase~~ in ~~rate.~~loans.

~~Net Interest Margin~~

The Company's margin was ~~4.03%~~3.92% for the three months ended ~~September 30, 2017~~March 31, 2019 compared to ~~3.86%~~3.88% for the ~~quarter~~three months ended ~~September 30, 2016. Margin was 3.90% for the quarter ended June 30, 2017. Margin has~~March 31, 2018. Interest-earning assets yields increased ~~since~~at approximately the same ~~period in~~pace as the ~~prior year primarily to loan and investment yields increasing at a faster rate than~~ cost of ~~funds.~~

funds over the comparable period.

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Tax equivalent net interest income for the three months ended March 31, 2019 was $28.5 million compared to $26.5 million for the three months ended March 31, 2018, an increase of 2.0 million, or 8%. T/E margin was 3.98% for the three months ended March 31, 2019 compared to 3.95% for the three months ended March 31, 2018. The quarter-to-date March 31, 2019 T/E margin has declined slightly compared to the quarter-to-date December 31, 2018 T/E margin of 4.03%.

Interest and Dividend Income

Total interest and dividend income amounted to $33.3 million for the three months ended March 31, 2019, an increase of $4.5 million, or 16%, compared to the prior period. The increase resulted primarily from loans and loans held for sale including a 39 basis point increase in average tax equivalent yields, as well as a $98.7 million increase in average balances. The yield on loans has increased since the prior period primarily from increases in market rates and loans repricing at higher rates.

Interest Expense

For the three months ended March 31, 2019, total interest expense amounted to $5.2 million, an increase of $2.5 million, or 89%, over the same period in 2018 due primarily to increases in the deposit market rates. The increase was primarily within interest checking, saving and money markets, partially offset by lower brokered CD balances. The average cost of interest checking, saving and money markets increased 51 basis points since the same period in the prior year, while average brokered CD balances decreased $125.9 million, or 73%.

Non-interest checking accounts are an important component of the Company's core funding strategy. For the three months ended March 31, 2019, the average balance of non-interest checking accounts increased $42.5 million, or 6%, as compared to the same period in 2018, and represented 28% of total average deposit balances for the three months ended March 31, 2019 compared to 29% of total average deposit balances for the three months ended March 31, 2018.

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

Table of Contents

Rate / Volume Analysis

The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended ~~September 30, 2017~~March 31, 2019 compared to the three months ended ~~September 30, 2016.~~March 31, 2018. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); and (2) interest rate (change in average interest rate multiplied by prior period average balance);. Changes attributable to the combined impact of volume and ~~(3)~~ rate have been allocated proportionately based on absolute value to the changes due to volume and ~~volume (the remaining difference).~~

the changes due to rate.


				Increase (decrease) due to												Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate			Rate/ Volume			Net Change			Volume			Rate
Interest Income
Loans and loans held for sale	$	3,426		$	2,326		$	940		$	160
Investment securities	388			367			64			(43		)
Other interest earning assets ⁽¹⁾	40			(44		)	154			(70		)
Total interest earnings assets	3,854			2,649			1,158			47
Loans and loans held for sale (tax equivalent)													$	3,458		$	1,102		$	2,356
Investment securities (tax equivalent)													697			265			432
Other interest-earning assets ⁽¹⁾													325			293			32
Total interest-earning assets (tax equivalent)													4,480			1,660			2,820

Interest Expense
Interest checking, savings and money market	230			48			164			18			2,121			163			1,958
Certificates of deposit	75			(1		)	78			(2		)	723			284			439
Brokered CDs	66			54			8			4			(374		)	(534		)	160
Borrowed funds	167			101			2			64			(13		)	(155		)	142
Subordinated debt	(1		)	—			(1		)	—			—			—			—
Total interest-bearing funding	537			202			251			84			2,457			(242		)	2,699
Change in net interest income	$	3,317		$	2,447		$	907		$	(37	)
Change in net interest income (tax equivalent)													$	2,023		$	1,902		$	121


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

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The following table presents the Company's average balance sheet, net interest income and average rates for the three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016.~~

2018:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS


	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016						Three months ended March 31, 2019						Three months ended March 31, 2018
(Dollars in thousands)	Average Balance		Interest		Average Yield⁽¹⁾		Average Balance		Interest		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⁾	$	2,149,365	$	24,892	4.65	%	$	1,945,196	$	21,466	4.45	%
Investments ⁽³⁾	375,236		2,017		2.73	%	319,844		1,629		2.65	%
Other interest earning assets ⁽⁴⁾	36,271		136		1.48	%	67,111		96		0.57	%
Total interest earnings assets	2,560,872		27,045		4.33	%	2,332,151		23,191		4.09	%
Loans and loans held for sale⁽²⁾ (tax equivalent)													$	2,373,047	$	29,757	5.08	%	$	2,274,302	26,299		4.69	%
Investment securities⁽³⁾(tax equivalent)													451,417		3,493		3.10	%	413,863		2,796		2.70	%
Other interest-earning assets⁽⁴⁾													72,115		459		2.58	%	25,328		134		2.15	%
Total interest-earnings assets (tax equivalent)													2,896,579		33,709		4.71	%	2,713,493		29,229		4.36	%
Other assets	110,750						108,485						125,269						99,267
Total assets	$	2,671,622					$	2,440,636					$	3,021,848					$	2,812,760

Liabilities and stockholders' equity:
Int chkg, savings and money market	$	1,396,589	883		0.25	%	$	1,300,326	653		0.20	%
Certificates of deposit	170,500		372		0.87	%	171,105		297		0.69	%
Interest checking, savings and money market													$	1,572,527	3,137		0.81	%	$	1,377,618	1,016		0.30	%
CDs													295,124		1,357		1.87	%	215,501		634		1.19	%
Brokered CDs	84,649		254		1.19	%	65,688		188		1.14	%	45,801		212		1.88	%	171,740		586		1.38	%
Borrowed funds	53,181		169		1.26	%	1,095		2		0.77	%	42,469		279		2.67	%	73,322		292		1.61	%
Subordinated debt ⁽⁵⁾	14,842		233		6.23	%	14,829		234		6.26	%	14,861		228		6.23	%	14,848		228		6.23	%
Total interest-bearing funding	1,719,761		1,911		0.44	%	1,553,043		1,374		0.35	%	1,970,782		5,213		1.07	%	1,853,029		2,756		0.60	%

Net interest rate spread					3.89	%					3.74	%
Net interest rate spread (tax equivalent)																	3.64	%					3.76	%

Demand deposits	704,177		—				656,158		—
Non-interest checking													751,730		—				709,271		—
Total deposits, borrowed funds and subordinated debt	2,423,938		1,911		0.31	%	2,209,201		1,374		0.25	%	2,722,512		5,213		0.78	%	2,562,300		2,756		0.44	%
Other liabilities	17,714						17,224						39,734						19,705
Total liabilities	2,441,652						2,226,425						2,762,246						2,582,005

Stockholders' equity	229,970						214,211						259,602						230,755
Total liabilities and stockholders' equity	$	2,671,622					$	2,440,636					$	3,021,848					$	2,812,760

Net interest income (tax equivalent)															28,496						26,473
Net interest margin (tax equivalent)																	3.98	%					3.95	%
Less tax equivalent adjustment															412						458
Net interest income			$	25,134					$	21,817					$	28,084					$	26,015
Net interest margin (tax equivalent)					4.03	%					3.86	%
Net interest margin																	3.92	%					3.88	%

⁽¹⁾

Average yields and income are presented on a tax equivalent basis. The tax equivalent effect is associated with ~~loans~~loan and ~~investments, which was not included~~investment interest income. Tax equivalent yields are impacted by the U.S. federal income tax rate of 21% in ~~the interest amount above, was $845 thousand~~2019 and ~~$778 thousand for the quarters ended September 30, 2017 and September 30, 2016, respectively.~~2018.


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


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


⁽⁴⁾	Average other interest earning assets ~~include interest earning~~includes interest-earning deposits, fed funds sold, and FHLB stock.


⁽⁵⁾	The subordinated debt ~~issued in January 2015~~ is net of average deferred debt issuance costs.

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~~Interest and Dividend Income~~

For the third quarter of 2017, total interest and dividend income amounted to $27.0 million, an increase of $3.9 million, or 17%, compared to the prior period. The increase resulted primarily from an increase of $228.7 million, or 10%, in the average balance of interest earning assets, mainly loans, and to a lesser extent a 24 basis point increase in the average yield.

~~Interest income on loans and loans held~~Provision for sale, which accounts for the majority of interest income, amounted to $24.9 million for the three months ended September 30, 2017, an increase of $3.4 million, or 16%, 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 loans and loans held for sale increased $204.2 million, or 10%, for the three months ended September 30, 2017 compared to the same period in 2016, and average yields increased 20 basis points.

Income on investment securities amounted to $2.0 million, an increase of $388 thousand, or 24%, compared to the same period in 2016. This increase primarily resulted from an increase of $55.4 million, or 17%, in the average balance of investment securities. Average investment yields also increased 8 basis points due primarily to the debt security portfolio restructuring in the third quarter of 2017.

Income on other interest-earning assets amounted to $136 thousand, an increase of $40 thousand, or 42%, compared to the same quarter in the prior year. This increase was primarily due to an increase of 91 basis points in the average yield on other interest-earning assets due mainly to an increase in the Federal Funds rate since the prior period, partially offset by a decrease of $30.8 million, or 46%, in the average balance of other interest-earning assets.

~~Interest Expense~~Loan Loss

For the three months ended ~~September 30, 2017, total interest expense amounted to $1.9~~March 31, 2019 there was a negative provision for loan losses of $400 thousand, a decrease of $2.0 million an increase of $537 thousand, or 39%, 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 9 basis points over the same period in the prior year. At the same time, the average balance of interest-bearing funding increased $166.7 million, or 11% over the same period.

Interest expense on interest checking, savings and money market accounts amounted to $883 thousand, an increase of $230 thousand, or 35%, compared to the same prior year period due primarily to an increase in average rates of 5 basis points and to a lesser extent an increase in average balances of $96.3 million, or 7%.

~~Interest expense on CDs amounted to $372 thousand, an increase of $75 thousand, or 25%,~~ compared to the same period in ~~the prior year due primarily to an increase of 18 basis points~~2018. The primary factor in ~~average rates.~~

Interest expense on brokered CDs amounted to $254 thousand, an increase of $66 thousand, or 35%, compared to the 2016 period, due primarily to an increase in average balances. Average balances increased $19.0 million, or 29%.

Interest expense on borrowed funds amounted to $169 thousand, an increase of $167 thousand due to increases in both average balances and average rates. Average balances increased $52.1 million, and average rates increased 49 basis points compared to prior period. Average rates increased due mainly to increasesthis decrease in the ~~Fed Funds rate since the prior period.~~

The average balance of non-interest bearing demand deposits increased $48.0 million, or 7%, as compared to the same period in 2016. Non-interest bearing demand deposits are an important component of the Company's core funding strategy. This non-interest bearing funding source represented 30% of total average deposit balances for both the three months ended September 30, 2017 and September 30, 2016.

~~Provision for Loan Loss~~

~~The~~year-to-date provision for loan losses ~~amounted~~was a reduction in the balance of the allowance for loan losses allocated to ~~$1.2 million~~impaired, adversely classified and criticized loans of $81 thousand for the three months ended ~~September 30, 2017, a decrease of $161 thousand~~March 31, 2019, compared to an increase of $1.4 million during the ~~same period last year.~~ three months ended March 31, 2018. Net recoveries were $280 thousand for the three months ended March 31, 2019, compared to net recoveries of $9 thousand for the three months ended March 31, 2018.

The provision for loan losses is a significant factor in the Company's operating results. For further discussion regarding the provision for loan losses and management's assessment of the adequacy of the allowance for loan losses see "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" under "Financial Condition" in this Item 2, above, and "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" in the Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's ~~2016 Annual Report on Form 10-K.~~

~~Table of Contents~~

There have been no material changes to the Company's underwriting practices or to the allowance for loan loss methodology used to estimate loan loss exposure as reported in the Company's 2016 Annual Report on Form 10-K.

~~Non-Interest Income~~

Non-interest income for the three months ended September 30, 2017 amounted to $3.4 million, a decrease of $504 thousand, or 13%, as compared to the same period. The significant changes are discussed below:

~~Investment advisory fees increased by $149 thousand, or 13%, primarily driven by asset growth due to changes in market values.~~

~~Deposit and interchange fees~~ ~~increased~~ by ~~$255 thousand, or~~ ~~20%, primarily due to increases in business checking fees and to a lesser extent ATM interchange fees and overdraft fees.~~

Net gains (losses) on sales of investment securities decreased by $830 thousand in the third quarter of 2017, predominately from losses of $1.6 million realized from a debt security portfolio restructuring, largely offset by gains on equity sales in the current quarter of $1.3 million.

~~Net gain on loan sales decreased $110 thousand, or 56%, primarily due to lower volume in the third quarter of 2017 compared to the same period in 2016.~~

~~Non-Interest Expense~~

Non-interest expense for the three months ended September 30, 2017 amounted to $18.8 million, an increase of $1.4 million, or 8%, compared to the prior period in 2016. The significant changes are discussed below:

~~Salaries and employee benefits increased by $1.2 million, or 11%, primarily to support the Company's strategic growth and market expansion initiatives since the prior period.~~

~~Occupancy and equipment expense~~ ~~increased~~ by ~~$134 thousand, or~~ 7%~~, mainly due to investments in our facilities, including new branches, the overall branch network, and operations buildings.~~

~~Income Taxes~~

The effective tax rate for the three months ended September 30, 2017, was 35.4%, compared to 32.3% for the three months ended September 30, 2016. The increase in rate was primarily due to higher levels of projected taxable income.

~~Results of Operations~~

~~Nine~~ ~~Months Ended~~ ~~September 30, 2017~~ ~~vs.~~ ~~Nine~~ ~~Months Ended~~ ~~September 30, 2016~~

~~Unless otherwise indicated, the reported results are for the nine months ended~~ ~~September 30, 2017~~ ~~with the "same period," the "comparable period," "prior year," and "prior period" being the nine months ended~~ ~~September 30, 2016. Average yields are presented on a tax equivalent basis.~~

~~The Company's net income for the nine months ended September 30, 2017 amounted to~~ ~~$16.7 million~~ ~~compared to~~ ~~$13.8 million~~ ~~for the same period in~~ ~~2016~~, ~~an increase~~ of ~~$2.9 million, or~~ ~~21%. Diluted earnings per share were~~ ~~$1.43~~ ~~and $1.27 for the nine months ended September 30, 2017 and~~ ~~September 30, 2016~~, respectively, an increase of 13%. Diluted weighted average common shares outstanding for the nine months ended September 30, 2017 include the full impact of the 930,232 shares of common stock issued in the Company’s 2016 equity offering, while the respective weighted average for the 2016 period was only affected from the issue date of June 23, 2016 through period end.

~~Net Interest Income~~

~~The Company's net interest income for the nine months ended~~ ~~September 30, 2017~~ ~~was~~ ~~$71.5 million~~ ~~compared to~~ ~~$64.2 million~~ ~~for the nine months ended~~ ~~September 30, 2016, an~~ ~~increase~~ of ~~$7.3 million, or~~ ~~11%. The~~ ~~increase~~ ~~in net interest income over the comparable period was due primarily to revenue generated from loan growth.~~

~~Table of Contents~~

~~Net Interest Margin~~

~~The Company's margin was 3.95% for the nine months ended September 30, 2017, and was relatively flat compared to the margin for the nine months ended September 30, 2016.~~

~~Rate / Volume Analysis~~

The following table sets forth the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the nine months ended ~~September 30, 2017~~ ~~compared to the nine months ended~~ ~~September 30, 2016~~. For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); (2) interest rate (change in average interest rate multiplied by prior period average balance); and (3) rate and volume (the remaining difference).

Increase (decrease) due to
(Dollars in thousands)
Net
Change
Volume Rate
Rate/
Volume
Interest Income

Loans and loans held for sale $ 7,165
$ 6,911
$ 237
$ 17
Investment securities 1,181
1,403
(46 ) (176 )
Other interest earning assets ⁽¹⁾
113
(30 ) 170
(27 )
Total interest earnings assets 8,459
8,284
361
(186 )

Interest Expense

Interest checking, savings and money market 601
231
368
2
Certificates of deposit 144
(12 ) 152
4
Brokered CDs 47
(47 ) 103
(9 )
Borrowed funds 343
127
83
133
Subordinated debt (3 ) —
(3 ) —
Total interest-bearing funding 1,132
299
703
130
Change in net interest income $ 7,327
$ 7,985
$ (342 ) $ (316 )


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

~~Table of Contents~~

~~The following table presents the Company's average balance sheet, net interest income and average rates for the nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~.

~~AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS~~

Nine months ended September 30, 2017 Nine months ended September 30, 2016
(Dollars in thousands)
Average
Balance
Interest
Average
Yield⁽¹⁾

Average
Balance
Interest
Average
Yield⁽¹⁾
Assets:

Loans and loans held for sale ⁽²⁾
$ 2,098,992
$ 70,544
4.55 % $ 1,897,372
$ 63,379
4.52 %
Investments ⁽³⁾
377,273
5,901
2.65 % 307,203
4,720
2.67 %
Other interest earning assets ⁽⁴⁾
29,748
302
1.35 % 35,544
189
0.71 %
Total interest earnings assets 2,506,013
76,747
4.23 % 2,240,119
68,288
4.21 %
Other assets 107,542

104,158

Total assets $ 2,613,555

$ 2,344,277

Liabilities and stockholders' equity:

Int chkg, savings and money market $ 1,386,227
2,467
0.24 % $ 1,231,888
1,866
0.20 %
Certificates of deposit 166,546
986
0.79 % 168,911
842
0.67 %
Brokered CDs 74,584
664
1.19 % 80,782
617
1.02 %
Borrowed funds 50,179
422
1.12 % 19,281
79
0.55 %
Subordinated debt ⁽⁵⁾
14,839
692
6.23 % 14,826
695
6.26 %
Total interest-bearing funding 1,692,375
5,231
0.41 % 1,515,688
4,099
0.36 %

Net interest rate spread

3.82 %

3.85 %

Demand deposits 680,817
—
616,686
—

Total deposits, borrowed funds and subordinated debt 2,373,192
5,231
0.29 % 2,132,374
4,099
0.26 %
Other liabilities 16,732

15,572

Total liabilities 2,389,924

2,147,946

Stockholders' equity 223,631

196,331

Total liabilities and stockholders' equity $ 2,613,555

$ 2,344,277

Net interest income
$ 71,516

$ 64,189

Net interest margin (tax equivalent)

3.95 %

3.96 %


⁽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 $2.5 million for the nine months ended September 30, 2017 and $2.3 million for the comparable period in 2016.


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


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


⁽⁴⁾	~~Average other interest earning assets includes interest-earning deposits, fed funds sold, and FHLB stock.~~


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

~~Table of Contents~~

~~Interest and Dividend Income~~

~~Total interest and dividend income amounted to~~ ~~$76.7 million~~ ~~for the nine months ended~~ ~~September 30, 2017, an~~ ~~increase~~ of ~~$8.5 million, or~~ ~~12%, compared to the prior period. The~~ ~~increase~~ ~~resulted primarily from an~~ ~~increase~~ of ~~$265.9 million, or~~ ~~12%, in the average balance of interest earning assets, mainly loans.~~

~~Interest income on loans and loans held for sale, which accounts for the majority of interest income, amounted to~~ ~~$70.5 million, an~~ ~~increase~~ of ~~$7.2 million, or~~ ~~11%, over the comparable period, due primarily to an increase of average loans and loans held for sale balances by~~ ~~$201.6 million, or~~ ~~11%, compared to the prior period. The average yield on loans and loans held for sale also increased 3 basis points since the same period in 2016 and amounted to~~ ~~4.55%~~ ~~for the nine months ended~~ ~~September 30, 2017~~.

~~Income on investment securities amounted to~~ ~~$5.9 million, an~~ ~~increase~~ of ~~$1.2 million, or~~ ~~25%, compared to the same period in~~ ~~2016. This~~ ~~increase~~ ~~primarily resulted from an~~ ~~increase~~ ~~in the average balance of investment securities by~~ ~~$70.1 million, or~~ ~~23%, partially offset by a 2 basis points decline in the average yield on investment securities.~~

Other interest earning assets income amounted to $302 thousand for the nine months ended September 30, 2017, an increase of $113 thousand, or 60%, compared to the prior period. The increase resulted from a 64 basis point increase in the average yield, mainly due to an increase in the Fed Funds rates since the prior period, partially offset by a decrease of $5.8 million, or 16%, in the average balance of other interest earning assets compared to the prior period.

~~Interest Expense~~

~~For the nine months ended~~ ~~September 30, 2017, total interest expense amounted to~~ ~~$5.2 million, an increase of $1.1 million, or 28%, over the same period in~~ ~~2016~~ due primarily to an increase in the cost of funds, mainly interest-bearing funding, and to a lesser extent an increase in average balances. The average rate on interest-bearing funding increased by 5 basis points and the average balances increased $176.7 million, or 12%.

Interest expense on interest checking, savings and money market accounts amounted to $2.5 million, an increase of $601 thousand, or 32%, compared to the prior period due to both an increase in rates by 4 basis points and average balances of $154.3 million, or 13%, over the comparable period.

~~Interest expense on CDs amounted to $986 thousand, an increase of $144 thousand, or 17%, over the same period in~~ ~~2016~~ ~~due primarily to an increase in the average rate of 12 basis points.~~

Interest expense on brokered CDs amounted to $664 thousand, an increase of $47 thousand, or 8%, due primarily to an increase in the average rate, partially offset by a decrease in the average balance. The average rate increased 17 basis points, while the average balance decreased $6.2 million, or 8%.

Interest expense on borrowed funds amounted to $422 thousand, an increase of $343 thousand, due to increases in both average balances and average rates of borrowed funds since the prior year. Average balances increased $30.9 million and average rates increased 57 basis points since the prior period, mainly due to increases in the Fed Funds rate.

~~For the nine months ended September 30, 2017, the average balance of non-interest bearing demand deposits increased $64.1 million, or 10%, as compared to the same period in~~ ~~2016. Non-interest bearing demand deposits are an important component of the Company's core funding strategy. This non-interest bearing funding represented~~ ~~29%~~ ~~of total average deposit balances for both the nine months ended~~ ~~September 30, 2017~~ ~~and~~ ~~2016~~.

~~Provision for Loan Loss~~

~~The provision for loan losses amounted to~~ ~~$1.6 million~~ ~~for the nine months ended~~ ~~September 30, 2017, a~~ ~~decrease~~ of ~~$873 thousand~~ compared to the same period last year. The decrease in the provision for the nine months ended September 30, 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.

~~Table of Contents~~

The provision for loan losses is a significant factor in the Company's operating results. For further discussion regarding the provision for loan losses and management's assessment of the adequacy of the allowance for loan losses see "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" under "Financial Condition" in this Item 2 above, and "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" in the Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 20162018 Annual Report on Form 10-K.

Non-Interest Income

Non-interest income for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 amounted to ~~$11.5~~$3.8 million, ~~an increase~~ of ~~$781 thousand, or~~ 7%~~, as~~ and was relatively flat compared to the ~~nine~~three months ended ~~September 30, 2016~~.March 31, 2018. The most significant ~~changes are discussed below:~~

~~Investment advisory fees~~change was in other income which increased ~~by $210~~$135 thousand, or 6%21%, due primarily ~~due~~ to ~~increases in investments under management from both new business and increases in market values.~~

~~Deposit and interchange fees increased by $599 thousand, or 16%, primarily due to increases in business checking fees and to a lesser extent ATM interchange fees.~~

~~Net gains (losses) on security sales decreased $126 thousand, or 21%. Net gains on securities sales were lower in the current year predominately due to~~fair value gains on equity ~~sales, largely offset by losses realized from~~securities of $186 thousand for the three months ended March 31, 2019 compared with a ~~debt security portfolio restructuring.~~fair value loss on equity securities of $5 thousand for the three months ended March 31, 2018.

Non-Interest Expense

Non-interest expense for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 amounted to $~~57.0~~20.9 million, an increase of ~~$5.2~~$1.4 million,, or ~~10%~~7%, compared to the same period in ~~2016~~2018. The most significant ~~changes are discussed below:~~

~~Salaries~~change was primarily related to salaries and employee benefits which increased by ~~$4.2~~$1.4 million,, or ~~13%~~11%, ~~since the prior period,~~ primarily to support the Company's strategic growth and market expansion ~~initiatives.~~

~~Occupancy and equipment expenses increased $424 thousand, or 8%, mainly due to investments in our facilities, including new branches,~~initiatives since the ~~overall branch network, and operations buildings.~~

Technology and telecommunications expense increased $241 thousand, or 5%, primarily as a result of investments in our network infrastructure and security, to improve our service capabilities and to enhance business continuity.

~~Audit, legal, and professional expenses decreased by $183 thousand, or 15%, primarily due to a reduction of $101 thousand in audit and related fees compared to the same period in 2016.~~

~~Deposit insurance premiums~~ prior period.~~increased~~ by ~~$133 thousand, or 13%, due primarily to changes in the FDIC's assessment methodology in late 2016, which applied to all banks, and the Company's growth.~~

Income Taxes

The effective tax rate for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 was ~~31.7%~~24.2%, compared to ~~33.0%~~22.1% for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2018. The ~~decrease~~increase in the effective tax rate ~~was due~~is primarily related to lower tax benefits arising from permanent tax differences and discrete tax items during the three months ended March 31, 2019, as compared to the ~~implementation~~same prior year period.

Risk Factors and Risk Management Framework

This Form 10-Q outlines certain key risks of the Company including credit risk, liquidity management and interest rate risk. Credit risk management is reviewed in detail in this Item 2 under the heading "Credit Risk." Liquidity management is the coordination of activities so that cash needs are anticipated and met, readily and efficiently. Liquidity management is reviewed in this Item 7 under the heading "Liquidity." Interest rate risk is reviewed under Item 3, "Quantitative and Qualitative Disclosures About Market Risk," below. In addition to the risks outlined in this Form 10-Q, numerous other factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model are addressed in Item 1A, "Risk Factors," of the Company's 2018 Annual Report on Form 10-K.

Management utilizes a ~~new accounting pronouncement (ASU No. 2016-09) related~~comprehensive risk management framework which enables the aggregation of risks across the Company and provides reasonable assurance that management has the tools, programs and processes in place to ~~stock-based compensation accounting~~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.

The Company's enterprise risk management and operational risk management framework provides a structured approach for identifying, assessing and managing risks in a coordinated manner, which includes, but is not limited to: credit risk, market and interest rate risk, legal and regulatory compliance risk, reputational risk, strategic risk, liquidity management, information security, internal controls over financial reporting, physical security, loss and fraud prevention, policy reviews, third party vendor management and contract management, business continuity planning, short and long-term capital projects

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and facility planning, and corporate governance. See Item 1, "Business," under the "Risk Management Framework," section of the Company's 2018 Annual Report on Form 10-K for additional information.

Accounting Policies/Critical Accounting Estimates

As discussed in the ~~first quarter~~Company's 2018 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of ~~2017, which reduced tax expense~~the allowance for loan losses, impairment review of investment securities and ~~increased net income by approximately $832 thousand for~~ the ~~nine months ended September 30, 2017.~~impairment review of goodwill. The Company has not changed its significant accounting and reporting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Recent Accounting Pronouncements

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

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Item 3 -	Quantitative and Qualitative Disclosures About Market Risk

The Company's primary market risk is interest rate risk. Oversight of interest rate risk management is the responsibility of the Company's Board of Directors (the "Board"). Annually, the Board reviews and approves the Company's asset-liability management policy, which provides management with guidelines for controlling interest rate risk, as measured through net interest income sensitivity toThere have been no material 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 reviewed on a periodic basis by management and presented and discussed with the Board. These strategies and guidelines are revised based on changes in interest rate levels, general economic conditions, competition in the marketplace, the current interest 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, which is regularly presented to the Board. This analysis includes a simulationresults of the Company's net interest income ~~under various interest rate scenarios. Variations~~sensitivity analysis as reported in the ~~interest rate~~Company's 2018 Annual Report on Form 10-K. The Company can be subject to margin compression depending on the economic environment ~~affect numerous factors, including prepayment speeds, reinvestment rates, maturities~~and the shape of ~~investments (due to call provisions), and interest rates on various asset and liability accounts.~~

the yield curve. Under the Company's current balance sheet position, 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, margin compression occurs as the spread between the cost of funding and the yield on interest earning assets narrows. Under this scenario the degree of 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 will initially result in the Company's asset yields re-pricing more quickly than funding costs. After a protracted period of flat rates, the Federal Open Market Committee had begun to increase the fed funds target rate, with three 25 basis point increases since their December 2016 meeting.

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, the extent of the impact on margin is highly dependent on the Company's balance sheet mix.

In a declining rate environment, margin compression will eventually occur as the yield on interest 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) on adjustable rate loans and the fact that decreases in deposit rates may be limited or lag decreases in the Prime Rate.

~~There have been no material changes in the results of the Company's net interest income sensitivity analysis as reported in the Company's 2016 Annual Report on Form 10-K.~~ At ~~September 30, 2017, management continues to consider~~March 31, 2019, the Company's primary interest rate risk exposure continues 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,~~within assets, and higher cost versus lower cost deposits and overnight borrowings versus term borrowings and certificates of deposit ~~on the liability side.~~within liabilities. Refer to heading ~~“Results~~"Results of ~~Operations”~~Operations" contained within ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations for further discussion of margin.

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Item 4 -	Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

The Company carried out an evaluation as of the end of the period covered by this Form 10-Q under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of ~~September 30, 2017~~March 31, 2019.

Changes in Internal Control over Financial Reporting

There has been no change in the Company's internal control over financial reporting that has occurred during the Company's most recent fiscal quarter (i.e., the three months ended ~~September 30, 2017~~March 31, 2019) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION


Item 1 -	Legal Proceedings

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


Item 1A -	Risk Factors

Management believes that there have been no material changes in the Company's risk factors as reported in the Company's ~~2016~~2018 Annual Report on Form 10-K.


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

~~None.~~The following table represents information with respect to repurchases of common stock made by the Company during the three months ended March 31, 2019:



	Total number of shares repurchased ⁽¹⁾	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Announced	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
January	—	—	—	—
February	—	—	—	—
March	2,741	$30.19	—	—

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


Item 3 -	Defaults upon Senior Securities

Not Applicable.


Item 4 -	Mine Safety Disclosures

Not Applicable.


Item 5 -	Other Information

Not Applicable.

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Item 6 -	Exhibits

EXHIBIT INDEX

_____________

Exhibit No. Description


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

~~3.1.1Amended 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~~


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).

~~3.1.2Articles 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~~


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


3.2	~~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).

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


10.1	Enterprise Bank and Trust Company 2019 Variable Compensation Incentive Plan, incorporated by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed March 22, 2019 (File No. 001-33912).

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


10.2	Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan - 2019 Addendum, incorporated by reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed March 22, 2019 (File No. 001-33912).


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

32*


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


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

101*

The following materials from Enterprise Bancorp, Inc.’s's Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2017~~March 31, 2019 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September 30, 2017~~March 31, 2019 and December 31, ~~2016;~~2018; (ii) Consolidated Statements of Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016;~~2018; (iii) Consolidated Statements of Comprehensive Income for the three ~~and nine~~ months ended ~~September 30, 2017~~March 31, 2019 and ~~2016;~~2018; (iv) Consolidated Statements of Changes in Equity for the ~~nine~~three months ended ~~September 30, 2017;~~March 31, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the ~~nine~~three months ended ~~September 30, 2017~~March 31, 2019 and ~~2016;~~2018; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

____________________

*Filed herewith

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SIGNATURES

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



		ENTERPRISE BANCORP, INC.

DATE:	~~November~~May 7, ~~2017~~2019	By:	/s/ James A. Marcotte
			James A. Marcotte
			Executive Vice President,
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

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(Dollars in thousands)	Common Stock		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive (Loss)/Income			Total Stockholders' Equity
Balance at December 31, 2016	$	115	$	85,421		$	130,008		$	(758	)	$	214,786
Net income						16,673						16,673
Cumulative effect adjustment for adoption of new accounting pronouncement			13			(13		)				—
Other comprehensive income, net									3,045			3,045
Common stock dividend paid ($0.405 per share)						(4,676		)				(4,676		)
Common stock issued under dividend reinvestment plan	—		1,118									1,118
Common stock issued other	—		61									61
Stock-based compensation, net	1		1,366									1,367
Repurchases for tax withholdings on options and restricted stock awards, net of proceeds from exercise of stock options	—		(487		)							(487		)
Balance at September 30, 2017	$	116	$	87,492		$	141,992		$	2,287		$	231,887



	Nine Months Ended September 30,
Restricted Stock Awards (no. of underlying shares)	2017		2016
Two Year Vesting	6,944		9,060
Four Year Vesting	16,253		18,298
Performance-Based Vesting	25,623		35,071
Total Restricted Stock Awards	48,820		62,429

Weighted average grant date fair value	$	30.46	$	21.90