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~~June 30, ~~2017~~2020

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

For the transition period from to

Commission File Number: 001-33912

Enterprise Bancorp, Inc.

(Exact name of registrant as specified in its charter)



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

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

(978)459-9000

(Registrant's telephone number, including area code)

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



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

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

Large accelerated filer ☐Accelerated filer x

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

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

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

☐Yes xNo

As of ~~November 1, 2017~~July 31, 2020, there were ~~11,597,683~~11,911,813 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~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019	3
	Consolidated Statements of Income - Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	4
	Consolidated Statements of Comprehensive Income - Three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	5
	Consolidated Statement of Changes in ~~Stockholders’~~Stockholders' Equity - ~~Nine~~Three and six months ended ~~September~~June 30, ~~2017~~2020 and 2019	6
	Consolidated Statements of Cash Flows - ~~Nine~~Six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~2019	78
	Notes to Unaudited Consolidated Interim Financial Statements	89
Item 2	~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations	3943
Item 3	Quantitative and Qualitative Disclosures About Market Risk	6274
Item 4	Controls and Procedures	6374

	PART II - OTHER INFORMATION

Item 1	Legal Proceedings	6476
Item 1A	Risk Factors	6476
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	6478
Item 3	Defaults Upon Senior Securities	6478
Item 4	Mine Safety Disclosures	6478
Item 5	Other Information	6478
Item 6	Exhibits	6579
	Signature page	6680

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
(Dollars in thousands, except per share data)						June 30, 2020		December 31, 2019
Assets
Cash and cash equivalents:
Cash and due from banks	$	35,920	$	33,047		$	48,483	$	39,927
Interest-earning deposits	14,771		17,428			206,280		23,867
Total cash and cash equivalents	50,691		50,475			254,763		63,794
Investment securities at fair value	385,942		374,790
Federal Home Loan Bank stock	7,225		2,094
Investments:
Debt securities at fair value						507,674		504,788
Equity securities at fair value						654		467
Total investment securities at fair value						508,328		505,255
Federal Home Loan Bank ("FHLB") stock						2,014		4,484
Loans held for sale	876		1,569			1,477		601
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
Loans, less allowance for loan losses of $42,324 at June 30, 2020 and $33,614 at December 31, 2019						3,133,818		2,531,845
Premises and equipment, net	36,260		33,540			46,562		45,419
Lease right-of-use asset						18,737		19,048
Accrued interest receivable	10,088		8,792			16,055		12,295
Deferred income taxes, net	15,889		17,020			8,110		8,732
Bank-owned life insurance	29,292		28,765			31,079		30,776
Prepaid income taxes	906		1,344			616		572
Prepaid expenses and other assets	13,458		10,837			10,014		6,572
Goodwill	5,656		5,656			5,656		5,656
Total assets	$	2,725,472	$	2,526,269		$	4,037,229	$	3,235,049
Liabilities and Stockholders' Equity
Liabilities
Deposits	$	2,302,673	$	2,268,921
Deposits:
Customer deposits						$	3,573,111	$	2,786,730
Brokered deposits						74,997		—
Total Deposits						3,648,108		2,786,730
Borrowed funds	149,255		10,671			4,165		96,173
Subordinated debt	14,844		14,834			14,879		14,872
Lease liability						17,829		18,104
Accrued expenses and other liabilities	26,540		16,794			34,911		21,683
Accrued interest payable	273		263			661		846
Total liabilities	2,493,585		2,311,483			3,720,553		2,938,408
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
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 11,911,488 shares issued and outstanding at June 30, 2020 and 11,825,331 shares issued and outstanding at December 31, 2019						119		118
Additional paid-in capital						95,656		94,170
Retained earnings	141,992		130,008			198,965		191,843
Accumulated other comprehensive income (loss)	2,287		(758		)
Accumulated other comprehensive income						21,936		10,510
Total stockholders' equity	231,887		214,786			316,676		296,641
Total liabilities and stockholders' equity	$	2,725,472	$	2,526,269		$	4,037,229	$	3,235,049

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 June 30,				Six months ended June 30,
(Dollars in thousands, except per share data)	2017			2016		2017		2016		2020		2019		2020		2019
Interest and dividend income:
Loans and loans held for sale	$	24,892		$	21,466	$	70,544	$	63,379	$	32,693	$	30,419	$	63,991	$	60,035
Investment securities	2,017			1,629		5,901		4,720		3,384		3,285		6,868		6,507
Other interest-earning assets	136			96		302		189		79		597		244		1,056
Total interest and dividend income	27,045			23,191		76,747		68,288		36,156		34,301		71,103		67,598
Interest expense:
Deposits	1,509			1,138		4,117		3,325		3,220		5,292		7,625		9,998
Borrowed funds	169			2		422		79		180		—		595		279
Subordinated debt	233			234		692		695		230		231		461		459
Total interest expense	1,911			1,374		5,231		4,099		3,630		5,523		8,681		10,736
Net interest income	25,134			21,817		71,516		64,189		32,526		28,778		62,422		56,862
Provision for loan losses	1,225			1,386		1,630		2,503		2,675		955		8,822		555
Net interest income after provision for loan losses	23,909			20,431		69,886		61,686		29,851		27,823		53,600		56,307
Non-interest income:
Investment advisory fees	1,311			1,162		3,803		3,593
Wealth management fees										1,346		1,371		2,786		2,670
Deposit and interchange fees	1,527			1,272		4,389		3,790		1,506		1,687		3,197		3,251
Income on bank-owned life insurance, net	174			182		527		564		150		162		303		324
Net gains (losses) on sales of investment securities	(284		)	546		485		611
Net gains on sales of debt securities										—		147		100		146
Net gains on sales of loans	88			198		359		392		338		69		485		105
Other income	628			588		1,954		1,786		670		604		1,337		1,380
Total non-interest income	3,444			3,948		11,517		10,736		4,010		4,040		8,208		7,876
Non-interest expense:
Salaries and employee benefits	12,177			10,948		36,661		32,458		16,417		14,119		31,236		27,600
Occupancy and equipment expenses	1,993			1,859		5,877		5,453		2,082		2,096		4,258		4,308
Technology and telecommunications expenses	1,601			1,577		4,789		4,548		2,311		1,701		4,499		3,427
Advertising and public relations expenses	597			591		2,013		2,087		489		792		1,134		1,497
Audit, legal and other professional fees	381			409		1,058		1,241		612		438		1,217		861
Deposit insurance premiums	371			347		1,130		997		537		366		941		717
Supplies and postage expenses	248			241		726		728		226		262		473		486
Other operating expenses	1,465			1,442		4,753		4,313		1,655		1,979		3,250		3,707
Total non-interest expense	18,833			17,414		57,007		51,825		24,329		21,753		47,008		42,603
Income before income taxes	8,520			6,965		24,396		20,597		9,532		10,110		14,800		21,580
Provision for income taxes	3,014			2,251		7,723		6,799		2,276		2,347		3,527		5,121
Net income	$	5,506		$	4,714	$	16,673	$	13,798	$	7,256	$	7,763	$	11,273	$	16,459

Basic earnings per share	$	0.48		$	0.41	$	1.44	$	1.28	$	0.61	$	0.66	$	0.95	$	1.40
Diluted earnings per share	$	0.47		$	0.41	$	1.43	$	1.27	$	0.61	$	0.66	$	0.95	$	1.39

Basic weighted average common shares outstanding	11,589,039			11,430,134		11,557,054		10,801,278		11,902,230		11,798,942		11,871,811		11,764,901
Diluted weighted average common shares outstanding	11,669,159			11,498,990		11,640,373		10,869,405		11,918,620		11,834,507		11,898,727		11,808,833

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,
(Dollars in thousands) 2017 2016 2017 2016
Net income $ 5,506
$ 4,714
$ 16,673
$ 13,798
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
Income tax (expense) benefit 431
213
(1,885 ) (2,416 )
Net unrealized holding gains (losses), net of tax (749 ) (345 ) 3,366
4,106
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

Total other comprehensive income (loss), net (577 ) (695 ) 3,045
3,715
Comprehensive income $ 4,929
$ 4,019
$ 19,718
$ 17,513



	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands)	2020			2019		2020			2019
Net income	$	7,256		$	7,763	$	11,273		$	16,459
Other comprehensive income, net of tax
Net change in fair value of debt securities	6,430			8,012		13,790			11,146
Net change in fair value of cash flow hedges	(301		)	—		(2,364		)	—
Total other comprehensive income, net of tax	6,129			8,012		11,426			11,146
Total comprehensive income, net	$	13,385		$	15,775	$	22,699		$	27,605

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

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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, except per share data)	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)		Total Stockholders' Equity
Balance at March 31, 2020	11,897,322		$	119	$	94,920		$	193,791		$	15,807	$	304,637
Net income								7,256					7,256
Other comprehensive income, net											6,129		6,129
Common stock dividend declared ($0.175 per share)								(2,082		)			(2,082		)
Common stock issued under dividend reinvestment plan	13,781		—		305								305
Common stock issued, other	1,753		—		48								48
Stock-based compensation, net	(35	)	—		420								420
Net settlement for employee taxes on restricted stock and options	(1,633	)	—		(42		)						(42		)
Stock options exercised, net	300		—		5								5
Balance at June 30, 2020	11,911,488		$	119	$	95,656		$	198,965		$	21,936	$	316,676

Balance at March 31, 2019	11,798,114		$	118	$	92,089		$	172,004		$	1,850	$	266,061
Net income								7,763					7,763
Other comprehensive income, net											8,012		8,012
Common stock dividend declared ($0.16 per share)								(1,887		)			(1,887		)
Common stock issued under dividend reinvestment plan	10,503		—		294								294
Common stock issued, other	946		—		28								28
Stock-based compensation, net	(347	)	—		457								457
Net settlement for employee taxes on restricted stock and options	(3,828	)	—		(113		)						(113		)
Stock options exercised, net	620		—		12								12
Balance at June 30, 2019	11,806,008		$	118	$	92,767		$	177,880		$	9,862	$	280,627

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

Table of Contents

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders' Equity (Continued)

(Unaudited)



	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
(Dollars in thousands, except per share data)	Shares		Amount		Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
Balance at December 31, 2019	11,825,331		$	118	$	94,170		$	191,843		$	10,510		$	296,641
Net income								11,273						11,273
Other comprehensive income, net											11,426			11,426
Common stock dividend declared ($0.35 per share)								(4,151		)				(4,151		)
Common stock issued under dividend reinvestment plan	24,831		—		608									608
Common stock issued, other	2,226		—		55									55
Stock-based compensation, net	66,022		1		1,026									1,027
Net settlement for employee taxes on restricted stock and options	(7,962	)	—		(224		)							(224		)
Stock options exercised, net	1,040		—		21									21
Balance at June 30, 2020	11,911,488		$	119	$	95,656		$	198,965		$	21,936		$	316,676

Balance at December 31, 2018	11,708,218		$	117	$	91,281		$	165,183		$	(1,284	)	$	255,297
Net income								16,459						16,459
Other comprehensive income, net											11,146			11,146
Common stock dividend declared ($0.32 per share)								(3,762		)				(3,762		)
Common stock issued under dividend reinvestment plan	19,844		—		592									592
Common stock issued, other	1,210		—		36									36
Stock-based compensation, net	62,176		1		1,055									1,056
Net settlement for employee taxes on restricted stock and options	(6,569	)	—		(353		)							(353		)
Stock options exercised, net	21,129		—		156									156
Balance at June 30, 2019	11,806,008		$	118	$	92,767		$	177,880		$	9,862		$	280,627

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,						Six months ended June 30,
(Dollars in thousands)	2017			2016			2020			2019
Cash flows from operating activities:
Net income	$	16,673		$	13,798		$	11,273		$	16,459
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,630			2,503			8,822			555
Depreciation and amortization	5,250			4,387			3,269			2,981
Stock-based compensation expense	1,287			1,349			932			944
Income on bank-owned life insurance, net							(303		)	(324		)
Net gains on sales of debt securities							(100		)	(146		)
Mortgage loans originated for sale	(16,033		)	(19,943		)	(23,228		)	(6,207		)
Proceeds from mortgage loans sold	17,085			19,873			22,837			5,637
Net gains on sales of loans	(359		)	(392		)	(485		)	(105		)
Net gains (losses) on sales of investments	(485		)	(611		)
Income on bank-owned life insurance, net	(527		)	(564		)
Net losses (gains) on equity securities							132			(263		)
Changes in:
Decrease (increase) in other assets	1,342			(1,810		)
Increase in other liabilities	2,458			497
Increase in other assets							(7,216		)	(5,860		)
Decrease in other liabilities							(1,840		)	(309		)
Net cash provided by operating activities	28,321			19,087			14,093			13,362
Cash flows from investing activities:
Proceeds from sales of investment securities	65,114			4,729
Net (purchases) proceeds from FHLB capital stock	(5,131		)	1,166
Proceeds from maturities, calls and pay-downs of investment securities	21,135			16,708
Purchase of investment securities	(91,890		)	(65,846		)
Proceeds from sales of debt securities							2,627			13,623
Purchase of debt securities							(6,350		)	(59,875		)
Proceeds from maturities, calls and pay-downs of debt securities							27,325			22,714
Net purchases of equity securities							(319		)	(717		)
Net proceeds from the sales of FHLB capital stock							2,470			3,781
Net increase in loans	(179,432		)	(125,814		)	(610,795		)	(26,904		)
Additions to premises and equipment, net	(6,253		)	(7,033		)	(3,761		)	(4,252		)
Proceeds from bank-owned life insurance	—			405
Net cash used in investing activities	(196,457		)	(175,685		)	(588,803		)	(51,630		)
Cash flows from financing activities:
Net increase in deposits	33,752			203,461			861,378			265,366
Net increase (decrease) in borrowed funds	138,584			(53,000		)
Cash dividends paid	(4,676		)	(4,196		)
Net decrease in borrowed funds							(92,008		)	(100,008		)
Cash dividends paid, net of dividend reinvestment plan							(3,543		)	(3,170		)
Proceeds from issuance of common stock	1,179			20,816			55			36
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
Net settlement for employee taxes on restricted stock and options							(224		)	(353		)
Net proceeds from stock option exercises							21			156
Net cash provided by financing activities	168,352			167,263			765,679			162,027

Net increase in cash and cash equivalents	216			10,665			190,969			123,759
Cash and cash equivalents at beginning of period	50,475			51,495			63,794			63,120
Cash and cash equivalents at end of period	$	50,691		$	62,160		$	254,763		$	186,879

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~~2019 audited consolidated financial statements and notes thereto contained in the ~~2016~~2019 Annual Report on Form 10-K of Enterprise Bancorp, Inc. as filed with the Securities and Exchange Commission (the "SEC") on March 10, 2020 (the "2019 Annual Report on Form 10-K"). The Company has not materially changed its significant accounting policies from those disclosed in its 2019 Annual Report on Form 10-K, other than to elect options for the temporary deferral of certain accounting guidance as allowed under the recently-enacted Coronavirus Aid, Relief, and Economic Security ("CARES") Act as discussed under Item (c), "Accounting Policies," below in this Note 1. See also Item (e), "Recent Accounting Pronouncements," under the subheading "Accounting pronouncements adopted by the Company," below in this Note 1.

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, ~~(the "Bank"~~commonly referred to as Enterprise Bank ("the Bank"). The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries.

The Bank's subsidiaries include Enterprise Insurance Services, LLC and Enterprise ~~Investment~~Wealth Services, LLC, both organized under the laws of the State of Delaware, ~~for the purposes of engaging~~to 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~~June 30, ~~2017,~~2020, the Company had ~~24 full service branches~~25 full-service 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). The Company is also scheduled to open a branch in North Andover, Massachusetts in late 2020 or early 2021. 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 commercial 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~~1 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 SEC instructions for Quarterly Reports on 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 unaudited consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.

The Company has evaluated subsequent events and transactions from September 30, 2017 through the date this Quarterly Report on 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~~2019 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~~2019 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~~ ~~Annual Report on Form 10-K.~~

Restricted ~~Instruments~~Cash and Investments

~~Certain of the Company's derivative agreements contain provisions that require the Company to post collateral if the derivative exposure exceeds a threshold amount.~~ When the Company has pledged cash as collateral ~~for this purpose,~~in relation to certain derivatives, the cash is carried as restricted cash within ~~cash~~"Interest-earning deposits" on the Company's Consolidated Balance Sheet. See Note 8, "Derivatives and ~~cash equivalents.~~Hedging Activities," to the Company's unaudited consolidated interim financial statements below in the Quarterly Report on this Form 10-Q ("this Form 10-Q") for more information about the Company's collateral related to its derivatives.

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 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").~~Company and is carried at cost, which management believes approximates fair value. Based on management's periodic review for other-than-temporary impairment ("OTTI"), the Company has not recorded any OTTI charges on this investment to date. ~~If it was determined that a write-down~~

Other Accounting Policies

The CARES Act allows certain financial institutions the option to delay the adoption of ~~FHLB stock was required, impairment would be recognized through a charge~~the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-13 (Measurement of Credit Losses on Financial Instruments), including the current expected credit loss ("CECL") methodology for estimating allowances for credit losses, during the period beginning on March 27, 2020 until the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic ("pandemic") declared under the National Emergencies Act terminates; or (2) December 31, 2020. In the first quarter of 2020, the Company has elected to ~~earnings.~~

delay the adoption of CECL. See Item (e) "Recent Accounting Pronouncements," under the subheading "Accounting pronouncements not yet adopted by the Company," below in this Note ~~2, "Investment Securities,"~~1 for additional information on ~~management's OTTI review.~~CECL.

~~(d) Income Taxes~~

~~The Company uses~~In addition, Section 4013 of the ~~asset and liability method of~~CARES Act provides the option for financial institutions to suspend troubled debt restructuring ("TDR") accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax expense or benefit attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities. The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable tounder GAAP in certain circumstances, during the period inbeginning March 1, 2020 and ending on the (1) earlier of December 31, 2020; or (2) the date that is 60 days after the date on 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~~national emergency concerning the ~~provision for income taxes in~~pandemic declared under 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 tax-exempt interest from certain investment securities, loans and bank-owned life insurance.

~~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~~.National Emergencies Act terminates. The Company is ~~subject~~suspending TDR accounting, which primarily impacts financial statement disclosure, for loans that have had a short-term payment deferral related to ~~U.S. federal~~the pandemic since March 1, 2020, as long as those loans were current and ~~state income tax examinations by taxing authorities for the~~ ~~2013~~ ~~through~~ ~~2016~~ ~~tax years.~~risk rated as “pass” as of February 29, 2020.

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(d) Subsequent Events

The Company has evaluated subsequent events and transactions from June 30, 2020 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP and determined that outside of the item noted below, there were no material subsequent events requiring recognition or disclosure.

On July 7, 2020, the Company completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes due July 15, 2030 and redeemable at the Company's option on or after July 15, 2025 (the "Notes"). The Notes bear a fixed rate of 5.25% for the first five years and will reset quarterly thereafter to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 5.175%. The Company is entitled to redeem the Notes, in whole or in part, on any interest payment date on or after July 15, 2025, or at any time, in whole but not in part, upon certain other specified events. The Company intends to use the net proceeds from the offering for general corporate purposes, organic growth and to support Bank regulatory capital ratios. Management anticipates contributing approximately $53.0 million of the net proceeds to the Bank in the third quarter of 2020.

(e) Recent Accounting Pronouncements

~~Accounting~~The tables below summarize recent accounting pronouncements issued by the FASB that were either recently adopted by the Company

~~In March 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU"~~ or ~~"Update") No. 2016-09, "Compensation - Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting."~~ ~~The new standard was effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years.~~

The Company adopted ASU No. 2016-09 in the first quarter of 2017. Several aspects of the accounting are simplified including, generally: a) income tax consequences; b) classification of awards as either equity or liabilities; c) accounting for forfeitures; and d) classification on the statement of cash flows. Upon adoption, the most significant impact of this amendment resulted from the prospective application of current excess tax benefits and deficiencies being recognized in income tax expense, which would previously have not yet been ~~recognized in additional paid-in capital, in the reporting period in which they occur.~~adopted. For the nine months ended September 30, 2017, 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 as a function of the volume of share-based payments vested or exercised and the then current market price of the Company's stock in comparison to the compensation cost recognized in the consolidated financial statements.

Additionally upon adoption, the Company made a policy election to record forfeitures as they occur rather than make use of an estimate. Using a modified retrospective approach, the Company recorded an immaterial cumulative effect adjustment from retained earnings to additional paid-in-capital. The other provisions did not have a material impact on the Company's consolidated financial statements upon adoption.

~~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): Deferral of the Effective Date" to amend the effective date ~~of ASU 2014-09. The amendments~~listed below is in ~~ASU 2014-09 are effective~~line with the required adoption date for annual 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 samepublic business entities, such as the ~~effective date and transition requirements of Topic 606.~~Company, though certain accounting pronouncements may permit early adoption. For more detailed information regarding these pronouncements, refer to the FASB's ASUs.

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;

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~~Requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; and~~

Requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements.

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

The Company is currently evaluating 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 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, the FASB issued ASU No. 2016-15, "Statement of Cash flows (Topic 230) - Classification of Certain Cash Receipts and Cash Payments."~~ The amendments are intended to reduce diversity in practice related to the presentation of eight specific cash flow issues. 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 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 that adoption of the ASU will have a material impact on its consolidated financial statements, results of operations or disclosures.

~~In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842),"~~ which supersedes previous leasing guidance in Topic 840, Leases. Under the new guidance, lessees are required to recognize lease assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with



Accounting pronouncements adopted by the Company

Standard/Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
ASU No. 2018-13, Fair Value Measurement (ASU Topic 820)-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020	The amendments in this ASU modify the disclosure requirements related primarily to level 3 fair value measurements of the fair value hierarchy.	The adoption of ASU No. 2018-13 in January 2020 did not have a material impact on the Company's consolidated financial statements and results of operations because this ASU relates primarily to disclosure requirements and the dollar amounts of related assets held by the Company are immaterial.
ASU No.2018-15, Intangibles-Goodwill and Other- Internal-Use Software (ASU Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract January 1, 2020	The major provision in the amendments in this ASU requires 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. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.	The adoption of ASU No. 2018-15 in January 2020 did not have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2020-04. Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting Upon Issuance	The amendments in the provision are effective for a limited period and mainly address accounting and reporting challenges due to the transition from LIBOR on existing contracts. The optional expedients may be applied to loans, borrowings, leases and derivatives. The standard 1) simplifies the accounting analyses for contract modifications and 2) simplifies the hedge effectiveness assessment and allows hedging relationships impacted by the LIBOR transition to continue.	This ASU was effective upon issuance and is applicable until December 31, 2022. The Company adopted this ASU prospectively and made certain optional elections related to its cashflow hedge relationships which did not materially impact our consolidated financial statements. The Company continues to assess the other implications and expedients under this standard, which allows for elections to be made at different time intervals, but does not expect that the ASU will have a material impact on the Company's consolidated financial statements, or results of operations.



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

classification affecting the pattern of expense recognition in the income statement. The new standard is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the consolidated financial statements, with certain practical expedients available.

The Company is currently evaluating 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 upon 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 expense in the income statement on a straight-line basis similar to current operating leases. The straight-line expense will reflect the interest expense on the lease liability (effective interest method) and amortization of the right-of-use asset. Lease expense will be presented as a single line item in the operating expense section of the income statement. Management believes that lease expense under the new standard will generally approximate lease expense under current GAAP. The foregoing observations are subject to change as management completes their evaluation.

~~In 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 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 consolidated financial statements, results of operations and disclosures upon adoption.

~~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 current estimate of all expected credit losses.

The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset.

Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP. However, the amendments in this Update require that credit losses be presented as an allowance rather than as a write-down. Unlike current GAAP, the ASU provides for reversals of credit losses in future period net income in situations where the estimate of loss declines.

An entity will apply the amendments in this Update through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach). For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption for fiscal years beginning after December 15, 2018 is permitted.

The Company has established an implementation committee and an enterprise-wide implementation plan for this ASU, which will consider the impact to operations, financial results, disclosures and controls. At present, the impact of the adoption of ASU No. 2016-13 on the Company's operations, financial results, disclosures, and controls is unknown.



Accounting pronouncements not yet adopted by the Company

Standard/Anticipated Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments The earlier of (1) the date on which the national emergency concerning the pandemic declared by the National Emergencies Act terminates; or (2) December 31, 2020.	The amendments in this ASU require a financial asset (or a group of financial assets) measured on an 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 current estimate of 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 report amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The Statement of Income 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 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. Based on current regulatory guidance, as of the adoption date an entity will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of January 1, 2020 (that is, a modified-retrospective approach).	In accordance with the CARES Act, the Company elected to defer the adoption of this standard. Upon adoption, the Company estimates a reduction to retained earnings in the range of $1.0 to $3.0 million, net of tax, with an effective date of January 1, 2020. The Company continues to monitor regulatory guidance related to this deferment. In March 2020, the regulatory banking agencies issued an interim final rule that allows banking institutions that implement CECL during 2020 to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period. The Company is currently assessing its options at this time and will make its election when it adopts CECL. The foregoing observations are subject to change as management completes its analysis and adopts the standard later this year.
ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (ASU Subtopic 715-20) - Disclosure Framework- Changes to the Disclosure Requirements for Defined Benefit Plans January 1, 2021	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.	The adoption of ASU No. 2018-14 will not have a material impact on the Company's consolidated financial statements and results of operations because this ASU relates primarily to disclosure requirements and the balances of the benefit plans impacted by this ASU are immaterial to the Company.



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

~~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~~(2)Investment Securities

As of the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An impairment charge would be recognized for the amount the carrying value exceeds the reporting unit's fair value as long as the amount recognized doesn't exceed the amount of goodwill allocated to the reporting unit. For public business entities that are SEC filers, such as the Company, the amendments in this Update are effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. Early adoption is permitted for impairment tests performed on testing dates after January 1, 2017. Goodwill carried on the Company’s consolidated financial statements was $5.7 million at both SeptemberJune 30, ~~2017~~2020, and December 31, ~~2016. This asset is related~~2019, the Company's investment portfolio was comprised primarily of debt securities, with a small portion of the portfolio invested in equity securities.

See also the section "Restricted Cash and Investments," under Item (c), "Accounting Policies," contained in Note 1, "Summary of Significant Accounting Policies," above in this Form 10-Q, for further information regarding the Company's investment in FHLB stock. See Note 14, "Fair Value Measurements," to the ~~Company’s acquisition~~Company's unaudited consolidated interim financial statements of ~~two branch offices in July 2000. The Company does not expect the adoption of ASU No. 2017-01 to have a material impact on~~this Form 10-Q, contained below, for further information regarding the Company's ~~consolidated financial statements and results of operations.~~fair value measurements for investment securities.


~~(2)~~	~~Investment~~Debt Securities

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



	June 30, 2020
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations⁽¹⁾	$	1,000	$	1	$	—	$	1,001
Residential federal agency MBS⁽¹⁾	178,325		7,828		51		186,102
Commercial federal agency MBS⁽¹⁾	109,233		8,232		—		117,465
Taxable municipal securities	83,989		7,985		45		91,929
Tax-exempt municipal securities	90,537		6,396		—		96,933
Corporate bonds	12,908		882		—		13,790
Certificate of deposits("CDs")⁽²⁾	454		—		—		454
Total debt securities, at fair value	$	476,446	$	31,324	$	96	$	507,674

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


	December 31, 2016								December 31, 2019
(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	$	999	$	5	$	—	$	1,004
Residential federal agency MBS⁽¹⁾	94,818		96		1,561		93,353		190,392		2,599		333		192,658
Commercial federal agency MBS⁽¹⁾	71,993		15		1,730		70,278		111,182		3,453		—		114,635
Municipal securities	112,401		922		1,520		111,803
Taxable municipal securities									79,095		2,726		134		81,687
Tax-exempt municipal securities									95,342		4,696		—		100,038
Corporate bonds	10,734		51		90		10,695		13,826		485		—		14,311
Certificates of deposits ⁽²⁾	950		—		1		949
Total debt securities	365,578		1,516		4,947		362,147
Equity investments	10,413		2,532		302		12,643
Total investment securities, at fair value	$	375,991	$	4,048	$	5,249	$	374,790
CDs⁽²⁾									454		1		—		455
Total debt securities, at fair value									$	491,290	$	13,965	$	467	$	504,788

⁽¹⁾

(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)CDs represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.

As of the dates reflected in the tables above, the majority of investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as, investments guaranteed by Ginnie Mae ("GNMA"), a wholly-owned government entity.


⁽²⁾	~~Certificates of deposits ("CDs") represent term deposits issued by banks that are subject to FDIC insurance and purchased on the open market.~~

~~Included~~ in the residential and commercial federal agency ~~MBS~~mortgage back securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. ~~agencies with fair values totaling $110.2~~agencies. The remaining MBS investments totaled $23.0 million and ~~$107.0~~$23.5 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

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

1314



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 in individual common stock of financial services entities.~~

~~As of the dates reflected in the tables above, all of the Company’s investment 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 2019 Annual Report on Form 10-K. Gains or losses will be recognized in the ~~income statement~~Consolidated Statement of Income 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.

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~~June 30, ~~2017~~2020 and December 31, ~~2016.~~

2019:

September 30, 2017
Less than 12 months 12 months or longer Total
(Dollars in thousands)
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
# of holdings
Federal agency obligations $ 22,980
$ 46
$ —
$ —
$ 22,980
$ 46
6
Residential federal agency MBS 57,917
401
7,454
142
65,371
543
23
Commercial federal agency MBS 41,007
318
—
—
41,007
318
9
Municipal securities 5,627
57
6,084
110
11,711
167
21
Corporate bonds 2,281
23
1,095
10
3,376
33
19
Equity investments 74
2
—
—
74
2
1
Total temporarily impaired investment securities⁽¹⁾
$ 129,886
$ 847
$ 14,633
$ 262
$ 144,519
$ 1,109
79



	June 30, 2020
	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
Residential federal agency MBS	$	5,348	$	51	$	—	$	—	$	5,348	$	51	2
Taxable municipal securities	2,955		45		—		—		2,955		45		2
Total temporarily impaired debt securities	$	8,303	$	96	$	—	$	—	$	8,303	$	96	4



	December 31, 2019
	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
Residential federal agency MBS	$	36,464	$	263	$	5,060	$	70	$	41,524	$	333	11
Taxable municipal securities	16,826		134		—		—		16,826		134		15
Total temporarily impaired debt securities	$	53,290	$	397	$	5,060	$	70	$	58,350	$	467	26

December 31, 2016
Less than 12 months 12 months or longer Total
(Dollars in thousands)
Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses
# of holdings
Federal agency obligations $ 13,956
$ 45
$ —
$ —
$ 13,956
$ 45
3
Residential federal agency MBS 68,138
1,236
8,008
325
76,146
1,561
31
Commercial federal agency MBS 60,060
1,730
—
—
60,060
1,730
18
Municipal securities 60,436
1,520
—
—
60,436
1,520
107
Corporate bonds 5,729
90
—
—
5,729
90
37
Certificates of deposit 949
1
—
—
949
1
4
Equity investments 1,185
20
2,743
282
3,928
302
3
Total temporarily impaired investment securities $ 210,453
$ 4,642
$ 10,751
$ 607
$ 221,204
$ 5,249
203


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



~~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 debt securities with unrealized losses that are other-than-temporarily impaired. ~~At September~~During the six months ended June 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~~2020 and 2019, the Company ~~for~~did not record any OTTI on its investments in debt securities and ~~the impact of market value fluctuations on the equity portion of our portfolio. As of September~~at June 30, ~~2017,~~2020, management did not consider ~~its~~any debt securities to ~~be other-than-temporarily impaired because (1) the decline in market value is not attributable~~have OTTI. There have been no material changes 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 process for assessing investments for OTTI as reported 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, 2017,2019 Annual Report on Form 10-K. For more information about 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~~for OTTI, see Note 2, "Investment Securities," to 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~~Company's audited consolidated financial statements contained in the ~~net unrealized gains (losses)~~Company's 2019 Annual Report on ~~investments.~~Form 10-K.

The contractual maturity distribution at ~~September~~June 30, ~~2017~~2020 of ~~total~~ debt securities was as follows:


(Dollars in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in one year or less	$	16,217	$	16,262	$	12,108	$	12,204
Due after one, but within five years	112,615		113,439		86,716		92,700
Due after five, but within ten years	117,552		118,680		162,614		177,568
Due after ten years	134,132		134,515		215,008		225,202
Total debt securities	$	380,516	$	382,896	$	476,446	$	507,674

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 $89.8 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~~$496.7 million at ~~September~~June 30, ~~2017.~~2020.



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

Sales of debt securities for the three and six months ended June 30, 2020 and June 30, 2019 are summarized as follows:



	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands)	2020		2019		2020		2019
Amortized cost of debt securities sold ⁽¹⁾	$	—	$	9,828	$	2,527	$	11,621
Gross realized gains on sales	—		147		100		149
Gross realized losses on sales	—		—		—		(3		)
Total proceeds from sales of debt securities	$	—	$	9,975	$	2,627	$	11,767

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

Equity Securities

Equity securities are accounted for under ASC Topic 321, "Investments-Equity Securities," and are recorded on the Company's consolidated balance sheet at fair value with changes in fair value recognized in the Company's Consolidated Statement of Income as a component of "Other Income." The amount related to equity securities fair value adjustments recognized in "Other income" is dependent primarily on the amount of dollars invested in equities and the magnitude of changes in equity market values.

The Company held equity securities with a fair value of $654 thousand at June 30, 2020 and $467 thousand at December 31, 2019. At June 30, 2020, the equity portfolio consisted primarily of investments in common stock of individual entities in the financial services industry and mutual funds held in conjunction with the Company's supplemental executive retirement and deferred compensation plan.

Gains and losses on equity securities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 are summarized as follows:



	Three months ended June 30,					Six months ended June 30,
(Dollars in thousands)	2020			2019		2020			2019
Net gains (losses) recognized during the period on equity securities	$	66		$	77	$	(132	)	$	263
Less: Net losses recognized on equity securities sold during the period	(11		)	—		(11		)	—
Unrealized gains (losses) recognized during the reporting period on equity securities still held at the end of the period	$	77		$	77	$	(121	)	$	263

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


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

~~The losses realized in the third quarter of 2017 were predominately from a debt security portfolio restructuring, largely offset by gains on equity sales.~~

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


(3)	Loans

The Company specializes in lending to business entities, non-profit organizations, professionals and individuals. The Company's primary lending focus is on the development of high quality commercial relationships achieved through active business development efforts, long-term relationships with established commercial developers, strong community involvement and focused marketing strategies. Loans made to businesses include commercial mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and letters of credit. The Company also originates equipment lease financing for businesses. Loans made to individuals include conventional residential mortgage loans, home equity loans and lines, residential construction loans on 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.

~~See Note 4, "Allowance for Loan Losses," for~~ For additional information on the Company's ~~credit risk management, non-accrual, impaired and troubled debt restructured loans and~~lending products, see the ~~allowance for loan losses.~~heading "Lending Products" under Item 1, "Business," contained in the Company's 2019 Annual Report on Form 10-K.

~~Major classifications of loans at 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



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)	June 30, 2020			December 31, 2019
Commercial real estate	$	1,471,586		$	1,394,179
Commercial and industrial	454,455			501,227
Commercial construction	404,008			317,477
SBA Paycheck Protection Program	505,557			—
Total commercial loans	2,835,606			2,212,883

Residential mortgages	261,786			247,373
Home equity	88,157			98,252
Consumer	9,174			10,054
Total retail loans	359,117			355,679

Gross loans	3,194,723			2,568,562
Deferred loan origination fees, net	(3,183		)	(3,103		)
Deferred PPP fees	(15,398		)	—
Total loans	3,176,142			2,565,459

Allowance for loan losses	(42,324		)	(33,614		)
Net loans	$	3,133,818		$	2,531,845

- 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~~$102.5 million at ~~September~~June 30, ~~2017~~2020 and ~~$85.2~~$104.3 million at December 31, ~~2016~~.2019. See also "Loans serviced for others" below for information related to commercial loans participated out to various other institutions.

Paycheck Protection Program (the "PPP")

The PPP was established by the CARES act and implemented by the Small Business Administration (“SBA”) with support from the Department of the Treasury. The PPP is a federally-guaranteed, low-interest rate loan program that is designed to provide a direct incentive for small businesses to keep workers on the payroll. Businesses may use PPP loan funds to pay up to eight weeks of payroll costs as well as to cover other eligible business expenses. PPP loans may be partially or fully forgiven by the SBA if the funds are used for eligible expenses during the relevant forgiveness period and the borrower meets the employee retention criteria. The PPP loans will carry an interest rate of 1% to paid by either the SBA, in the event of forgiveness, or by the borrower for the term of the loan, which may be 2 years or 5 years. The PPP loans that the SBA approved on or after June 5, 2020 will have a maturity date of 5 years. Payments for PPP loans are deferred until the SBA issues a forgiveness decision or ten months after the end of the forgiveness period if the borrower fails to apply for forgiveness. All PPP loans are fully guaranteed by the SBA and are included in total loans outstanding. As of June 30, 2020, the Company had funded 2,636 PPP loans totaling $505.6 million.

In addition to generating interest income, the SBA pays a lender’s fees for processing PPP loans. As of June 30, 2020, the Company has recorded $17.0 million in PPP-related SBA processing fees "PPP fees" and is accreting these deferred fees into interest income over the life of the applicable loans. If a PPP loan is forgiven or paid off before maturity, the remaining deferred fee is realized into interest-income at that time. During the quarter, the Company recognized $1.6 million in PPP fees.

~~Letters of credit are conditional commitments issued~~Loans serviced for others

At June 30, 2020 and December 31, 2019, the Company was servicing residential mortgage loans owned by investors amounting to $15.9 million and $15.7 million, respectively. Additionally, the Company was servicing commercial loans originated by the Company and participated out to ~~guarantee the financial obligation or performance of a customer~~various other institutions amounting 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.$78.0 million and $80.2 million at June 30, 2020 and December 31, 2019, respectively.

~~- 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.

~~Loans serviced for others~~

At ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, the Company was servicing residential mortgage loans owned by investors amounting to~~ ~~$19.1 million~~ ~~and~~ ~~$18.7 million, respectively. Additionally, the Company was servicing commercial loans participated out to various other institutions amounting to~~ ~~$67.7 million~~ ~~and~~ ~~$62.3 million~~ at ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, 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~~as of the ~~periods~~dates indicated are summarized below:



(Dollars in thousands)	June 30, 2020		December 31, 2019
Commercial real estate	$	224,432	$	246,865
Residential mortgages	236,653		231,028
Home equity	7,380		7,676
Total loans pledged to FHLB	$	468,465	$	485,569

(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 also Note ~~12,~~4, "Allowance for Loan Losses," of this Form 10-Q, 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. See Note 8, "Derivatives and Hedging Activities," of this Form 10-Q, contained below, for information regarding interest-rate swap agreements related to certain commercial loans, and see Note 14, "Fair Value Measurements," of this Form 10-Q, contained 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.


~~(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~~but due to the ~~2016 Annual Report on Form 10-K. Refer to~~economic uncertainty from the pandemic, management has strengthened risk management over new originations and existing credits. See Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the ~~2016~~2019 Annual Report on Form ~~10-K for further discussion~~10-K.

The Company has elected to delay the adoption of ~~management's methodology used~~CECL in accordance with the CARES Act, which allows Companies to ~~estimate a sufficient allowance for loan losses,~~delay adoption until the ~~credit risk management function and adversely classified loan rating system.~~earlier of: (1) the date on which the national emergency concerning the pandemic declared under the National Emergencies Act terminates; or (2) December 31, 2020. The information that follows is presented under the incurred loss model.

The balances of loans as of ~~September~~June 30, ~~2017~~2020 by ~~segment~~portfolio classification and evaluation method are summarized as follows:


(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Gross Loans		Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Gross Loans
Commercial real estate	$	15,133	$	1,137,975	$	1,153,108	$	14,310	$	1,457,276	$	1,471,586
Commercial and industrial	12,098		500,638		512,736		9,513		444,942		454,455
Commercial construction	1,615		243,838		245,453		8,294		395,714		404,008
SBA PPP loans							—		505,557		505,557
Residential mortgages	403		193,972		194,375		888		260,898		261,786
Home equity loans and lines	378		88,666		89,044
Home equity							473		87,684		88,157
Consumer	36		10,049		10,085		39		9,135		9,174
Total gross loans	$	29,663	$	2,175,138	$	2,204,801	$	33,517	$	3,161,206	$	3,194,723



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

The balances of loans as of December 31, ~~2016~~2019 by ~~segment~~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	$	17,515	$	1,376,664	$	1,394,179
Commercial and industrial	9,332		491,895		501,227
Commercial construction	3,347		314,130		317,477
Residential mortgages	1,229		246,144		247,373
Home equity	411		97,841		98,252
Consumer	44		10,010		10,054
Total gross loans	$	31,878	$	2,536,684	$	2,568,562

(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, among others, the risk classification of ~~individual~~adversely classified 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.~~activity. These credit quality indicators are discussed below.



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

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 classification by internally assigned adverse risk rating category as of the periods ~~indicated.~~ indicated:


	September 30, 2017										June 30, 2020
	Adversely Classified						Not Adversely				Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans		Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	14,270	$	—	$	—	$	1,138,838	$	1,153,108	$	18,311	$	—	$	—	$	1,453,275	$	1,471,586
Commercial and industrial	11,287		51		1		501,397		512,736		9,872		2,452		—		442,131		454,455
Commercial construction	1,615		—		—		243,838		245,453		8,798		—		—		395,210		404,008
SBA PPP loans											—		—		—		505,557		505,557
Residential mortgages	1,366		—		—		193,009		194,375		983		—		—		260,803		261,786
Home equity loans and lines	527		—		—		88,517		89,044
Home equity											556		—		—		87,601		88,157
Consumer	53		11		—		10,021		10,085		61		—		—		9,113		9,174
Total gross loans	$	29,118	$	62	$	1	$	2,175,620	$	2,204,801	$	38,581	$	2,452	$	—	$	3,153,690	$	3,194,723

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.~~

2019



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



	December 31, 2019
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	16,664	$	—	$	—	$	1,377,515	$	1,394,179
Commercial and industrial	10,900		2,370		—		487,957		501,227
Commercial construction	4,836		—		—		312,641		317,477
Residential mortgages	1,825		—		—		245,548		247,373
Home equity	455		—		—		97,797		98,252
Consumer	69		3		—		9,982		10,054
Total gross loans	$	34,749	$	2,373	$	—	$	2,531,440	$	2,568,562

Total adversely classified loans amounted to 1.29% of total loans at June 30, 2020, compared to 1.45% at December 31, 2019.

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
(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
Commercial real estate $ 2,005
$ 638
$ 3,641
$ 6,284
$ 1,146,824
$ 1,153,108
$ 8,058
Commercial and industrial 529
81
1,095
1,705
511,031
512,736
3,428
Commercial construction 3,133
—
—
3,133
242,320
245,453
197
Residential mortgages 1,630
95
89
1,814
192,561
194,375
267
Home equity loans and lines 39
—
194
233
88,811
89,044
477
Consumer 57
27
31
115
9,970
10,085
62
Total gross loans $ 7,393
$ 841
$ 5,050
$ 13,284
$ 2,191,517
$ 2,204,801
$ 12,489


	Balance at December 31, 2016														Balance at June 30, 2020
(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	$	3,375	$	2,282	$	4,382	$	10,039	$	1,461,547	$	1,471,586	$	8,789
Commercial and industrial	267		4		1,544		1,815		488,984		490,799		3,174		345		602		1,074		2,021		452,434		454,455		5,549
Commercial construction	—		—		—		—		213,447		213,447		519		—		—		5,295		5,295		398,713		404,008		5,801
SBA PPP loans															—		—		—		—		505,557		505,557		—
Residential mortgages	648		—		99		747		179,813		180,560		289		674		—		—		674		261,112		261,786		473
Home equity loans and lines	270		—		269		539		90,526		91,065		616
Home equity															—		—		254		254		87,903		88,157		705
Consumer	94		13		11		118		10,727		10,845		11		20		15		—		35		9,139		9,174		18
Total gross loans	$	7,272	$	940	$	3,322	$	11,534	$	2,013,264	$	2,024,798	$	9,485	$	4,414	$	2,899	$	11,005	$	18,318	$	3,176,405	$	3,194,723	$	21,335



	Balance at December 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
Commercial real estate	$	1,469	$	3,914	$	4,158	$	9,541	$	1,384,638	$	1,394,179		$	8,280
Commercial and industrial	576		1,034		265		1,875		499,352		501,227			3,285
Commercial construction	576		3,325		1,735		5,636		311,841		317,477			1,735
Residential mortgages	700		283		623		1,606		245,767		247,373			411
Home equity	645		—		169		814		97,438		98,252			1,040
Consumer	12		—		6		18		10,036		10,054		��	20
Total gross loans	$	3,978	$	8,556	$	6,956	$	19,490	$	2,549,072	$	2,568,562		$	14,771

At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, all loans past due 90 days or more were carried as non-accrual, in addition to those loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal that have also been designated as non-accrual, despite their payment due status shown in the tables above.

Non-accrual loans that were not adversely classified amounted to $658 thousand at ~~September~~June 30, ~~2017~~2020 and $~~220~~84 thousand at December 31, ~~2016~~2019. 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.



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

The ratio of non-accrual loans to total loans amounted to ~~0.57%~~0.67% at ~~September~~June 30, ~~2017~~,2020 and ~~0.47%~~0.58% and at December 31, ~~2016~~2019.

At ~~September~~June 30, ~~2017,~~2020, additional funding commitments for non-accrual loans ~~was~~were not material.

At June 30, 2020, short term payment deferrals were granted on 1,130 loans amounting to $594.8 million, or 22% of the Company's loan portfolio, excluding PPP loans.

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"),~~TDR, see ~~"Trouble debt restructurings"~~"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.



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

The carrying value of impaired loans amounted to $~~29.7~~33.5 million and $~~31.8~~31.9 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, respectively. Total accruing impaired loans amounted to $~~17.3~~12.2 million and $~~22.4~~17.1 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, respectively, while non-accrual impaired loans amounted to ~~$12.4~~$21.3 million and ~~$9.4~~$14.8 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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 September 30, 2017										Balance at June 30, 2020
(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		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	$	15,410	$	14,310	$	13,816	$	494	$	37
Commercial and industrial	12,591		12,098		8,406		3,692		1,778		11,557		9,513		5,533		3,980		2,351
Commercial construction	1,665		1,615		1,615		—		—		8,333		8,294		6,263		2,031		1,440
SBA PPP loans											—		—		—		—		—
Residential mortgages	515		403		403		—		—		996		888		888		—		—
Home equity loans and lines	545		378		352		26		26
Home equity											657		473		473		—		—
Consumer	37		36		—		36		36		40		39		—		39		39
Total	$	32,092	$	29,663	$	23,652	$	6,011	$	2,226	$	36,993	$	33,517	$	26,973	$	6,544	$	3,867


	Balance at December 31, 2016										Balance at December 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		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	$	18,537	$	17,515	$	17,129	$	386	$	31
Commercial and industrial	14,291		13,372		9,366		4,006		2,222		11,455		9,332		7,405		1,927		974
Commercial construction	3,408		3,364		3,051		313		28		3,359		3,347		3,347		—		—
Residential mortgages	388		289		289		—		—		1,331		1,229		1,229		—		—
Home equity loans and lines	665		509		509		—		—
Home equity											607		411		411		—		—
Consumer	2		1		—		1		1		44		44		—		44		44
Total	$	34,764	$	31,796	$	25,659	$	6,137	$	2,621	$	35,333	$	31,878	$	29,521	$	2,357	$	1,049

~~The following table presents the average recorded investment in impaired loans 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

2221



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 by portfolio classification and the related interest recognized during the ~~periods~~three months indicated:


	Nine Months Ended September 30, 2017					Nine Months Ended September 30, 2016					Three months ended June 30, 2020					Three months ended June 30, 2019
(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		$	14,289	$	70		$	16,425	$	122
Commercial and industrial	12,503		275			8,801		134			8,664		40			11,474		94
Commercial construction	1,884		70			3,059		113			7,674		5			1,738		27
SBA PPP loans											—		—			—		—
Residential mortgages	293		—			304		—			898		2			939		17
Home equity loans and lines	518		(1		)	307		(4		)
Home equity											419		(1		)	436		—
Consumer	18		—			18		1			41		1			24		(1		)
Total	$	29,610	$	615		$	24,888	$	458		$	31,985	$	117		$	31,036	$	259

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



	Six months ended June 30, 2020					Six months ended June 30, 2019
(Dollars in thousands)	Average recorded investment		Interest income recognized			Average recorded investment		Interest income recognized
Commercial real estate	$	14,781	$	142		$	16,114	$	242
Commercial and industrial	8,236		68			11,696		209
Commercial construction	6,215		5			1,736		52
SBA PPP loans	—		—			—		—
Residential mortgages	1,059		4			914		18
Home equity	410		(1		)	472		—
Consumer	41		1			21		(1		)
Total	$	30,742	$	219		$	30,953	$	520

At ~~September~~June 30, ~~2017~~2020, additional funding commitments for impaired loans ~~totaled~~ ~~$414 thousand~~. 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 iswere not ~~in compliance, additional funding commitments may or may not be made at the Company's discretion.~~material.

Troubled debt restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the ~~Bank~~Company grants the borrower a concession on the terms that would not otherwise be considered. Typically, such concessions may consist of one or a combination of the following: a reduction in interest rate to a below market rate, taking into account the credit quality of the ~~note,~~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~~Company'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~~June 30, ~~2017~~2020 and December 31, ~~2016~~,2019, were ~~$23.6~~$19.3 million and ~~$27.0~~$21.1 million,, respectively. TDR loans on accrual status amounted to ~~$17.3~~$12.2 million and ~~$22.4~~$17.1 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, respectively. TDR loans included in non-performing loans amounted to $~~6.3~~7.1 million at June 30, 2020 and ~~$4.6~~$4.0 million at ~~September 30, 2017~~ ~~and~~ December 31, ~~2016, respectively.~~2019. 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, additional funding commitments for TDR loans totaled $390 thousand. 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.

2322



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

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						Six months ended
	September 30, 2017			September 30, 2016			June 30, 2020			June 30, 2019
(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		—	—		2	$	1,743	—	$	—
Temporary payment reduction and payment re-amortization of remaining principal over extended term	7	831		3	343		2	975		7	89
Temporary interest only payment plan	3	179		7	1,150		—	—		2	395
Forbearance of post default rights							4	2,509		—	—
Other payment concessions							—	—		3	1,759
Total	12	$	2,351	15	$	9,253	8	$	5,227	12	$	2,243
Amount of specific reserves included in the allowance for loan losses associated with TDRs listed above		$	83		$	204		$	1,320		$	89

Loans modified as TDRs during the three month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 are detailed ~~below.~~

below:



	Three months ended
	June 30, 2020					June 30, 2019
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—	2	$	1,626	$	1,626
Commercial and industrial	—	—		—		2	212		216
Commercial construction	2	1,314		1,518		—	—		—
SBA PPP loans	—	—		—		—	—		—
Residential mortgages	—	—		—		—	—		—
Home equity loans and lines	—	—		—		—	—		—
Consumer	—	—		—		1	6		6
Total	2	$	1,314	$	1,518	5	$	1,844	$	1,848

Three 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 2
$ 577
$ 571
3
$ 532
$ 2,026
Commercial and industrial —
—
—
2
224
200
Commercial construction —
—
—
—
—
—
Residential mortgages 1
136
136
—
—
—
Home equity loans and lines —
—
—
—
—
—
Consumer 1
1
1
—
—
—
Total 4
$ 714
$ 708
5
$ 756
$ 2,226

At June 30, 2020, additional funding commitments for TDR loans were not material.

~~Payment defaults, during the three month periods 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

2423



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

Payment defaults, during the three month periods ended June 30, 2020 on loans modified as TDRs within the preceding twelve months are detailed below:



	Three months ended
	June 30, 2020
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	2	64
Commercial construction	—	—
SBA PPP loans	—	—
Residential mortgages	—	—
Home equity loans and lines	—	—
Consumer	—	—
Total	2	$	64

There were 0 payment defaults during the three month period ended June 30, 2019.

Loans modified as TDRs during the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 are detailed ~~below.~~below:



	Six months ended
	June 30, 2020					June 30, 2019
(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	$	2,047	$	1,626
Commercial and industrial	1	474		402		7	406		299
Commercial construction	6	4,754		4,825		—	—		—
SBA PPP loans	—	—		—		—	—		—
Residential mortgages	—	—		—		1	315		312
Home equity	—	—		—		—	—		—
Consumer	1	1		—		1	6		6
Total	8	$	5,229	$	5,227	12	$	2,774	$	2,243

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 no0 subsequent charge-offs associated with the new TDRs noted in the table above during the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020 or ~~2016.~~June 30, 2019.



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

Payment defaults, during the ~~nine~~six month periods ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016~~2019 on loans modified as TDRs within the preceding twelve months are detailed ~~below.~~below:



	Six months ended
	June 30, 2020			June 30, 2019
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment		Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—	—	$	—
Commercial and industrial	2	64		2	172
Commercial construction	2	1,743		—	—
SBA PPP loans	—	—		—	—
Residential mortgages	—	—		—	—
Home equity	—	—		—	—
Consumer	—	—		—	—
Total	4	$	1,807	2	$	172

Nine 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
$ 585
1
$ 148
Commercial and industrial 3
267
2
389
Commercial construction —
—
1
1,188
Residential mortgages —
—
—
—
Home equity loans and lines —
—
—
—
Consumer —
—
—
—
Total 4
$ 852
4
$ 1,725

~~Other real estate owned (~~See "Financial Condition" in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations,"~~OREO~~")

~~The Company carried no OREO at September 30, 2017,~~ 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, ~~2016 or September 30, 2016. There were no additions, sales or write downs on OREO during the nine months ended September 30, 2017 or 2016.~~2019.

At September 30, 2017, the Company had 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.

Allowance for loan loss activity

The allowance for loan losses is an estimate of probable credit losses 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~~$42.3 million at ~~September~~June 30, ~~2017,~~2020, compared to ~~$31.3~~$33.6 million at December 31, ~~2016,~~2019, and ~~$31.6~~$34.4 million at ~~September~~June 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.

2019. The allowance for loan losses to total loans ratio was ~~1.51%~~1.33% at ~~September~~June 30, ~~2017, 1.55%~~2020, 1.31% at December 31, ~~2016~~2019, and ~~1.59%~~1.42% at ~~September~~June 30, ~~2016.~~2019. 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~~June 30, ~~2017~~.2020.

~~Changes in~~For the ~~allowance~~six months ended June 30, 2020, the provision for loan losses ~~by portfolio segment~~amounted to $8.8 million, compared to $555 thousand for the ~~three~~six months ended ~~September~~June 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~~2019. The provision for the six months ended June 30, 2020 consisted of $5.2 million in general reserve factor increases related primarily to economic weakness caused by the pandemic and its impact on credit quality in the ~~allowance for~~ loan ~~losses by~~ portfolio, ~~segment for the nine months ended~~ ~~September 30, 2017~~ ~~are presented below:~~ $2.3 million related to classified and impaired loans and $1.3 million related to loan growth and other factors.

(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

2625



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

Changes in the allowance for loan losses by portfolio ~~segment~~classification for the ~~nine~~three months ended ~~September~~June 30, ~~2016~~2020 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



(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity			Consumer			Total
Beginning Balance at March 31, 2020	$	20,861	$	10,235		$	6,161	$	1,598	$	636		$	273		$	39,764
Provision	1,616		(345		)	1,337		130		(26		)	(37		)	2,675
Recoveries	—		67			—		—		3			15			85
Less: Charge offs	—		194			—		—		—			6			200
Ending Balance at June 30, 2020	$	22,477	$	9,763		$	7,498	$	1,728	$	613		$	245		$	42,324

Changes in the allowance for loan losses by portfolio classification for the six months ended June 30, 2020 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, 2019	$	18,338	$	9,129	$	4,149	$	1,195	$	536	$	267		$	33,614
Provision	4,139		759		3,349		533		71		(29		)	8,822
Recoveries	—		174		—		—		6		25			205
Less: Charge offs	—		299		—		—		—		18			317
Ending Balance at June 30, 2020	$	22,477	$	9,763	$	7,498	$	1,728	$	613	$	245		$	42,324
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	37	$	2,351	$	1,440	$	—	$	—	$	39		$	3,867
Allocated to loans collectively evaluated for impairment	$	22,440	$	7,412	$	6,058	$	1,728	$	613	$	206		$	38,457

Changes in the allowance for loan losses by portfolio classification for the three months ended June 30, 2019 are presented below:



(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr		Resid. Mortgage		Home Equity			Consumer		Total
Beginning Balance at March 31, 2019	$	17,826	$	10,403	$	3,452	$	1,184	$	627		$	237	$	33,729
Provision	2		647		265		3		(1		)	39		955
Recoveries	—		140		—		—		3			8		151
Less: Charge offs	—		459		—		—		—			25		484
Ending Balance at June 30, 2019	$	17,828	$	10,731	$	3,717	$	1,187	$	629		$	259	$	34,351



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

Changes in the allowance for loan losses by portfolio classification for the six months ended June 30, 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	(186		)	241		410		27		(5		)	68		555
Recoveries	—			456		—		—		5			13		474
Less: Charge offs	—			459		—		—		—			68		527
Ending Balance at June 30, 2019	$	17,828		$	10,731	$	3,717	$	1,187	$	629		$	259	$	34,351
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	5		$	2,307	$	—	$	5	$	—		$	32	$	2,349
Allocated to loans collectively evaluated for impairment	$	17,823		$	8,424	$	3,717	$	1,182	$	629		$	227	$	32,002

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 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 Company had 0 OREO at June 30, 2020 or December 31, 2019, and the OREO carrying value at June 30, 2019 was $255 thousand. There were 0 OREO additions during the six months ended June 30, 2020 and 1 addition during the six months ended June 30, 2019. There were 0 sales, or subsequent write downs of OREO during the six months ended June 30, 2020 or 2019.

At both June 30, 2020 and December 31, 2019, the Company had 0 consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions.

(5)Leases

For the Company, material leases consist of operating leases on our facilities, mainly branch leases; leases 12 months or less and immaterial equipment leases have been excluded. As of June 30, 2020, 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, the lease contains provisions that allow the Company, upon notification, to terminate the lease at the end of the lease term, or any option period. Several real estate leases also provide the Company the right of first refusal should the property be offered for sale.

Lease expenses for the three and six months ended June 30, 2020 were $324 thousand and $649 thousand, respectively. Lease expense for the three and six months ended June 30, 2019 were $373 thousand and $707 thousand, respectively. Variable lease costs and short-term lease expenses included in lease expense during these periods were immaterial.

The weighted average remaining lease term for operating leases at June 30, 2020 and June 30, 2019 was 27.0 years and 27.7 years, respectively. The weighted average discount rate was 3.79% at June 30, 2020 and June 30, 2019.



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

At June 30, 2020, the remaining undiscounted cash flows by year of these lease liabilities were as follows:



(Dollars in thousands)	Operating Leases
2020 (six remaining months)	$	634
2021	1,242
2022	1,244
2023	1,251
2024	1,256
Thereafter	23,344
Total lease payments	$	28,971
Less: Imputed interest	11,142
Total lease liability	$	17,829

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

See also Item (k), "Leases," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's consolidated financial statements contained in the Company's 2019 Annual Report on Form 10-K, for further information regarding the accounting for the Company's leases.


~~(5)~~(6)	Deposits

Deposits are summarized as follows:



(Dollars in thousands)	June 30, 2020		December 31, 2019
Non-interest checking	$	1,282,535	$	794,583
Interest-bearing checking	540,735		467,988
Savings	243,647		203,236
Money market	1,228,847		1,009,972
CDs $250,000 or less	198,843		220,751
CDs greater than $250,000	78,504		90,200
Total customer deposits	3,573,111		2,786,730
Brokered deposits ⁽¹⁾	74,997		—
Total deposits	$	3,648,108	$	2,786,730

(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 which are $250,000 and ~~under~~under.

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 ~~full~~enhanced FDIC insurance. Essentially, the equivalent of the customers' original deposited funds comes back to the Company ~~as customer deposits~~and are carried within the appropriate category under ~~total deposits on the consolidated balance sheet.~~deposits. The Company's balances in these reciprocal products were ~~$222.7~~$520.0 million and ~~$281.6~~$419.7 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively.

The Company's brokered deposit balance at June 30, 2020 consists of short-term brokered CDs used in conjunction with cash flow hedge interest-rate swaps.

See Note ~~12,~~8, "Derivatives and Hedging Activities," of this Form 10-Q, contained below, for additional information on the Company's interest-rate swaps. See Note 14, "Fair Value Measurements," of this Form 10-Q, contained 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



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


(7)	Borrowed Funds and Subordinated Debt

The Company's borrowed funds amounted to $4.2 million and $96.2 million at June 30, 2020 and December 31, 2019, respectively, in FHLB advances.

Borrowed funds at June 30, 2020 and December 31, 2019 are summarized, as follows:



	June 30, 2020				December 31, 2019
(Dollars in thousands)	Balance		Rate		Balance		Rate
Overnight	$	—	—	%	$	92,000	1.85	%
Within 12 months	3,697		2.22	%	3,697		2.22	%
Over 5 years	468		—	%	476		—	%

The Company's borrowings at June 30, 2020 are related to specific lending projects under the FHLB's community development program. At December 31, 2019, borrowed funds, excluding overnight advances, also related to the specific lending projects noted above.

The Company also had outstanding subordinated debt (net of deferred issuance costs) of $14.9 million at both June 30, 2020 and December 31, 2019, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the "2015 Notes") issued in January 2015, with a 15-year term and currently callable by the Company at a premium. 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 2015 Notes.

The 2015 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 7,8, "Borrowed Funds and Subordinated Debt," to the Company's audited consolidated financial statements contained in the ~~2016~~Company's 2019 Annual Report on Form 10-K for additional information about the Company's subordinated debt.

See Note ~~12, "Fair Value Measurements,~~1, "Summary of Significant Accounting Policies," ~~below~~item (d), "Subsequent Events," of this Form 10-Q, contained above, for information regarding additional subordinated debt issued on July 7, 2020.

See Note 2, "Investment Securities," and Note 3, "Loans," of this Form 10-Q, contained above, for further information regarding securities and loans pledged for borrowed funds. Refer to the "Liquidity" and "Borrowed Funds" sections in the "Financial Condition" section in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation," of this Form 10-Q 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 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~~is exposed to certain risks arising from both its business operations and economic conditions. The Company principally manages its exposures to a wide variety of business and operational risks through management of its core business activities. The Company manages economic risks, including interest rate, ~~exposure arising from~~liquidity, and credit risk primarily by managing the amount, sources, and duration of its ~~loan sale activity,~~assets and liabilities and may also, at times, use derivative financial instruments. Specifically, the Company ~~enters~~may enter into derivative financial instruments to manage exposures that arise from business activities that result in the ~~commitment to sell these loans at essentially~~receipt or payment of future known and unknown cash amounts, the ~~same time that the~~value of which are determined by interest ~~rate lock commitment is quoted on the origination of the loan.~~ rates.



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

The ~~Company estimates~~accounting for changes in the fair value of ~~these~~ derivatives ~~based~~depends on ~~current secondary mortgage market prices. At September 30, 2017~~the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and ~~December 31, 2016,~~apply hedge accounting and whether the ~~estimated~~hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair ~~values~~value of ~~these~~the hedged asset or liability that are attributable to the earnings effect of the hedged forecasted transactions in a cash flow hedge. For derivatives designated and that qualify as cash flow hedges of interest rate risk, the gain or loss on the derivative ~~instruments were considered~~is recorded in Accumulated Other Comprehensive Income (“AOCI”), net of tax and subsequently reclassified into interest income or interest expense in the same period during which the hedged transaction affects earnings. Amounts reported in AOCI related to cash flow hedge derivatives will be ~~immaterial.~~reclassified to interest expense as interest is incurred on the Company’s hedge liability or to interest income as interest is earned on the Company's hedge asset. See Note 10, “Other Comprehensive Income (Loss),” of this Form 10-Q for additional information related to the cash flow hedges impact on the Company’s AOCI and Consolidated Statements of Income.

The Company may ~~use interest-rate contract swaps as part~~enter into derivative contracts that are intended to economically hedge certain of its ~~interest-rate~~ risk, ~~management strategy. Interest-rate swap agreements are entered into as hedges against future interest-rate fluctuations on specifically identified assets~~even though hedge accounting does not apply, or ~~liabilities. The~~the Company ~~did~~elects not ~~have derivative fair value hedges or derivative cash flow hedges at either September 30, 2017 or December 31, 2016.~~

The Company has a “Back-to-Back Swap” program whereby the Bank enters into an interest rate swap with a qualified commercial banking customer and simultaneously enters into an equal and opposite interest rate swap with a counterparty. The customer interest rate swap agreement allows commercial banking customers to ~~convert a floating-rate loan payment to fixed-rate payment.~~

The transaction structure effectively minimizes the Bank’s net risk exposure resulting from such transactions. Customer-related credit risk is minimized by the cross collateralization of the loan and the interest rate swap agreement.

apply hedge accounting. 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 earnings.

The Company records all derivatives on the balance sheet at fair value. Asset derivatives are included in the line item "Prepaid expenses and other assets," and liability derivatives are included in the "Accrued expenses and other liabilities" line item on the Consolidated Balance Sheets, respectively. In accordance with GAAP, the Company elects to measure the credit risk of its derivative financial instruments that are subject to master netting agreements by derivative type on a net basis by counterparty portfolio.

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



	As of June 30, 2020
(Dollars in thousands)	Asset Notional Amount		Asset Derivatives⁽¹⁾		Liability Notional Amount		Liability Derivatives⁽¹⁾
Derivatives designated as hedging instruments
Interest-rate contracts - pay fixed, receive floating	$	—	$	—	$	75,000	$	3,288
Total cash flow hedge interest-rate swaps	$	—	$	—	$	75,000	$	3,288

Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed	$	38,881	$	3,011	$	—	$	—
Interest-rate contracts - pay fixed, receive floating	—		—		38,881		3,011
Total back-to-back interest-rate swaps	$	38,881	$	3,011	$	38,881	$	3,011



	December 31, 2019
(Dollars in thousands)	Asset Notional Amount		Asset Derivatives⁽¹⁾		Liability Notional Amount		Liability Derivatives⁽¹⁾
Derivatives not subject to hedge accounting
Interest-rate contracts - pay floating, receive fixed	$	10,502	$	625	$	12,273	$	187
Interest-rate contracts - pay fixed, receive floating	—		—		22,775		438
Total back-to-back interest-rate swaps	$	10,502	$	625	$	35,048	$	625


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

The Company had no derivative fair value hedges at either June 30, 2020 or December 31, 2019.



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

Cash flow hedges

Interest-rate swap agreements may be entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company’s cash flow hedges are used to manage differences in the amount, timing, and duration of the Company’s known or expected cash receipts and its known or expected cash payments principally related to the Company’s wholesale funding.

The Company’s objectives in using these interest rate derivatives are to add stability to interest expense and to manage its exposure to interest rate movements. During the first quarter of 2020, the Company entered into 3 pay fixed, receive float interest rate swaps to hedge the variable cash flows associated with short-term wholesale funding, which may be comprised of brokered deposits and FHLB advances. Each swap has a notional value of $25.0 million with respective maturities of three years, four years and five years. At June 30, 2020, these interest rate swaps are designated as cash flow hedges and involve the receipt of variable amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without exchange of the underlying notional amount.

In relation to the Company's cash flow hedges, the Company estimates that an additional $905 thousand (pre-tax) will be reclassified out of AOCI as an increase to interest expense during the next twelve months.

Back-to-back swaps

The Company has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swap with qualified commercial banking customers and simultaneously enters into equal and opposite interest-rate swap with a swap counterparty. The customer interest-rate swap agreement allows commercial banking customers to convert a floating-rate loan payment to a fixed-rate payment.

Each Back-to-Back swap consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of 10 interest-rate swaps outstanding at both June 30, 2020 and December 31, 2019. The transaction structure effectively minimizes the Bank's interest rate 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 to the customer's underlying collateral.

Interest-rate swaps with the counterparty are subject to master netting agreements, while interest-rate swaps with customers are not. As a result of this offsetting relationship, there were no0 net gains or losses recognized in income on Back-to-Back ~~Swaps~~swaps during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 or ~~September~~June 30, ~~2016.~~2019.

~~The Company had six interest-rate swaps at September~~At June 30, ~~2017 with an aggregate notional amount~~2020, all of ~~$29.6 million compared to four interest-rate~~the Back-to-Back swaps with ~~an aggregate notional amount of $26.7 million at December 31, 2016.~~

~~Asset derivatives and~~the counterparty were in the same liability ~~derivatives are included~~position, therefore there was no netting reflected in ~~prepaid expenses and other assets and accrued expenses and other liabilities on~~ the ~~consolidated balance sheets, respectively.~~

Company’s Consolidated Balance Sheet. The table below presents at December 31, 2019, the ~~fair value~~Company's liability derivative positions and ~~classification~~the potential effect of those netting arrangements on its financial position. As noted above, interest-rate swaps with customers are not subject to master netting agreements and therefore are not included in the ~~Company’s derivative financial instruments for the periods presented:~~table below.



	As of December 31, 2019
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Consolidated Balance Sheet		Net Amounts of Liabilities Presented in the Consolidated Balance Sheet
Liabilities Derivatives
Interest-rate contracts - pay fixed, receive floating	$	625	$	187	$	438

As of September 30, 2017 As of December 31, 2016
(Dollars in thousands) Asset Derivatives Liability Derivatives Asset Derivatives Liability Derivatives
Interest rate contracts - pay floating, received fixed $ 65
$ 493
$ —
$ 610
Interest rate contracts - pay fixed, receive floating 428
—
610
—
Total interest rate swaps $ 493
$ 493
$ 610
$ 610

Credit Risk

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



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

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



~~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.

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 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~~Additionally, counterparty interest rate swaps contain provisions ~~that require the Company~~for collateral to ~~post collateral~~be posted if the derivative exposure exceeds a threshold amount. As

The Company has one counterparty and it was rated A and A2 by Standard & Poor's and Moody's, respectively, at June 30, 2020. The Company had 0 credit risk exposure at either June 30, 2020 or December 31, 2019 relating to interest-rate swaps with counterparties. When the Company has credit risk exposure, collateral is received from the counterparty and held by the Company. Collateral held by the Company is restricted and not considered an asset of ~~September~~the Company. Therefore, it is not carried on the Company's Consolidated Balance Sheet. If the Company posts collateral, the cash is restricted, is considered an asset of the Company and is carried on the Company's Consolidated Balance Sheet. The Company posted cash collateral of $6.4 million and $850 thousand at June 30, ~~2017~~2020 and December 31, ~~2016, the Company has not posted or received any collateral.~~2019, respectively.

Credit-risk-related Contingent Features

The ~~Company has interest rate~~Company's 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.

As of June 30, 2020, the fair value of derivatives in a net liability position, which excludes any adjustment for nonperformance risk, related to these agreements was $6.3 million. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and has posted collateral at June 30, 2020 as noted above.

Other Derivative Related Activity

The Company also participates in loans originated by third party banks, where the originating bank utilizes a back-to-back ~~interest rate~~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~~a percentage of ~~the Company’s participation in the underlying loan applied to~~ the originating bank's swap ~~loss.~~loss based on the ratio of the Company's loan participation to the underlying loan. At ~~September~~both June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had ~~two such~~1 participation ~~loans and~~loan where the originating bank utilizes a back-to-back interest-rate swap structure. At June 30, 2020, management considers the risk of material ~~swap loss~~swap-loss exposure related to this participation loan to be unlikely based on the borrower's financial and collateral strength. Management continues to closely monitor for credit changes resulting from the pandemic.

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. At June 30, 2020 and December 31, 2019, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.



~~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 of common stock, with a par value of $0.01 per share, and as of June 30, 2020 had 11,911,488 shares issued and outstanding. Holders of common stock are entitled to ~~40,000,000 shares.~~1 vote per share and are entitled to receive dividends if, as, 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 is also authorized to issue 1,000,000 shares of preferred ~~stock.~~stock, with a par value of $0.01 per share. NaN preferred stock has been issued as of the date of this Form 10-Q.

The Company has a ~~shareholders~~stockholders' 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~~



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

$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~~118,550 shares and ~~141,580~~102,056 shares as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. See Note 13, "Earnings per Share," of this Form 10-Q, contained below, for further information regarding unvested participating restricted awards and the Company's earnings per share calculation.

Upon vesting, restricted stock awards may be net ~~share-settled~~settled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the ~~Company. Chapter 156D~~Company and returned to the pool of shares reserved for issuance under the incentive plans. In accordance with Massachusetts ~~General Laws, a statute known as the Massachusetts Business Corporation Act, which applies to Massachusetts corporations such as~~law, shares reacquired by the Company ~~eliminates the concept of “treasury stock” and provides that shares 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,~~12, "Stock-Based Compensation," to the Company's unaudited consolidated interim financial statements of this Form 10-Q, contained below, for additional information regarding the Company's stock incentive plans.

In addition, ~~to shares issued to employees, directors and consultants 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~~maximums.

See "Capital Resources" in Item 2, "Management's Discussion and Analysis," of ~~$20.0 million ($19.7 million, net~~this Form 10-Q for the Company's capital ratios and capital adequacy assessment as of ~~offering costs)~~June 30, 2020. See Note 10 "Comprehensive Income (Loss)," of this Form 10-Q for changes to stockholders' equity from comprehensive income (loss) as of June 30, 2020. Refer to Note 11, "Stockholders' Equity," to the Company's audited consolidated financial statements included in the ~~Offering. The Company contributed~~Company's 2019 Annual Report on Form 10-K for additional information relating to capital adequacy requirements, dividends and the ~~net proceeds to the Bank to support future asset growth and for general corporate purposes.~~DRSPP.

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


(10)	Comprehensive Income (Loss)

~~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~~See below for the Company's ~~only~~ other components of comprehensive income ~~component is~~at 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, net of deferred income taxes.~~respective dates. 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 ~~securities~~losses or gains are ~~sold. When securities are sold,~~realized.



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

The following table presents a reconciliation of the ~~reclassification~~changes in the components of ~~realized gains and losses on available-for-sale securities are included~~other comprehensive income (loss) for the dates indicated, including the amount of income tax (expense) benefit allocated to each component of other comprehensive income (loss):



	Three months ended June 30, 2020									Three months ended June 30, 2019
(Dollars in thousands)	Pre Tax			Tax (Expense) Benefit			After Tax Amount			Pre Tax		Tax (Expense) Benefit			After Tax Amount
Change in fair value of debt securities	$	8,256		$	(1,826	)	$	6,430		$	10,454	$	(2,327	)	$	8,127
Less: net security gains reclassified into non-interest income	—			—			—			147		(32		)	115
Net change in fair value of debt securities	8,256			(1,826		)	6,430			10,307		(2,295		)	8,012

Change in fair value of cash flow hedges	(504		)	142			(362		)	—		—			—
Less: net cash flow hedges losses reclassified into interest expense	(85		)	24			(61		)	—		—			—
Net change in fair value of cash flow hedges	(419		)	118			(301		)	—		—			—

Total other comprehensive income (loss), net	$	7,837		$	(1,708	)	$	6,129		$	10,307	$	(2,295	)	$	8,012



	Six months ended June 30, 2020									Six months ended June 30, 2019
(Dollars in thousands)	Pre Tax			Tax (Expense) Benefit			After Tax Amount			Pre Tax		Tax (Expense) Benefit			After Tax Amount
Change in fair value of debt securities	$	17,830		$	(3,962	)	$	13,868		$	14,494	$	(3,234	)	$	11,260
Less: net security gains reclassified into non-interest income	100			(22		)	78			146		(32		)	114
Net change in fair value of debt securities	17,730			(3,940		)	13,790			14,348		(3,202		)	11,146

Change in fair value of cash flow hedges	(3,348		)	941			(2,407		)	—		—			—
Less: net cash flow hedges losses reclassified into interest expense	(60		)	17			(43		)	—		��			—
Net change in fair value of cash flow hedges	(3,288		)	924			(2,364		)	—		—			—

Total other comprehensive income (loss), net	$	14,442		$	(3,016	)	$	11,426		$	14,348	$	(3,202	)	$	11,146

Information on the ~~Consolidated Statements~~Company's accumulated other comprehensive income (loss), net of ~~Income under~~tax, is comprised of the ~~"non-interest income" subheading on~~following components as of 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."periods indicated:

~~Refer to Note 10, "Stockholders' Equity," to the Company's consolidated financial statements included in the Company's~~ ~~2016~~ ~~Annual Report on Form 10-K for additional information relating to capital adequacy requirements, dividends and the DRSPP.~~



	Three months ended June 30, 2020							Three months ended June 30, 2019
(Dollars in thousands)	Unrealized gains on debt securities		Unrealized losses on cash flow hedges			Total		Unrealized gains on debt securities		Unrealized losses on cash flow hedges		Total
Accumulated other comprehensive income - beginning balance	$	17,870	$	(2,063	)	$	15,807	$	1,850	$	—	$	1,850
Total other comprehensive income (loss), net	6,430		(301		)	6,129		8,012		—		8,012
Accumulated other comprehensive income - ending balance	$	24,300	$	(2,364	)	$	21,936	$	9,862	$	—	$	9,862



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



	Six months ended June 30, 2020							Six months ended June 30, 2019
(Dollars in thousands)	Unrealized gains on debt securities		Unrealized losses on cash flow hedges			Total		Unrealized gains (losses) on debt securities			Unrealized gains (losses) on cash flow hedges		Total
Accumulated other comprehensive income - beginning balance	$	10,510	$	—		$	10,510	$	(1,284	)	$	—	$	(1,284	)
Total other comprehensive income (loss), net	13,790		(2,364		)	11,426		11,146			—		11,146
Accumulated other comprehensive income - ending balance	$	24,300	$	(2,364	)	$	21,936	$	9,862		$	—	$	9,862



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


~~(9)~~(11)	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~~2 of its current executive officers and ~~one~~1 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.

~~Total net periodic benefit costs, comprised of interest costs only, were $29 thousand and $87 thousand for~~ Benefits paid under the ~~three and nine months ended September 30, 2017, respectively, compared to $31 thousand and $93 thousand for the three and nine months ended September 30, 2016, respectively.~~

~~Benefits paid~~plan amounted to $69 thousand and ~~$207~~$138 thousand for both the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016,~~2019, respectively.

Total expenses for the plan were $20 thousand and $40 thousand for the three and six months ended June 30, 2020, respectively, compared to $25 thousand and $50 thousand for the three and six months ended June 30, 2019, respectively. The Company anticipates accruing an additional ~~$29~~$40 thousand related to the ~~SERP~~plan during the remainder of ~~2017~~2020.

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").~~insurance.

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.



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

~~The following table illustrates the~~Total net periodic post-retirement benefit cost for ~~the~~ supplemental life insurance plans, which consisted mainly of interest costs, were $23 thousand and $46 thousand for the ~~periods indicated:~~three and six months ended June 30, 2020, respectively, compared to $49 thousand and $99 thousand for the three and six months ended June 30, 2019, respectively.

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
See also Note 12, "Stock-Based Compensation," of this Form 10-Q, contained below, for further information regarding employee benefits offered in the form of stock options and stock awards.


~~(10)~~(12)	Stock-Based Compensation

The Company currently has ~~two individual~~1 active stock incentive ~~plans: the 2009 plan,~~plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended ~~in 2015, and the 2016 plan.~~(the "2016 plan"). As of ~~September~~June 30, ~~2017, an aggregate of 446,860~~2020, 192,190 shares ~~remain~~remained available for future grants under the ~~plans.~~2016 plan.

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

The Company's stock-based compensation expense related to these plans includes stock options and stock awards to officers and other employees included in salary and benefits expense, and stock awards and stock compensation in lieu of cash fees to non-employee directors, both included in other operating expenses. Total stock-based compensation expense was ~~$467~~$506 thousand and ~~$1.3 million~~$932 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, respectively, compared to ~~$444~~$518 thousand and ~~$1.3 million~~$944 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~,2019, respectively.

~~Stock Option Awards~~

~~The Company recognized stock-based~~A tax expense associated with employee exercises and vesting of stock compensation ~~expense related to stock option awards~~ of ~~$49~~approximately $2 thousand and ~~$152~~$34 thousand was recorded as an addition to the Company's income tax expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, respectively, compared ~~to $63~~with a tax benefit of $17 thousand and ~~$205~~$128 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2019,



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

respectively. 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 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:



	Six Months Ended June 30,
	2020			2019
Options granted	24,208			23,218
Term in years	10			10
Weighted average assumptions used in the fair value model:
Expected volatility	37		%	33		%
Expected dividend yield	3.43		%	2.75		%
Expected life in years	6.5			6.5
Risk-free interest rate	1.02		%	2.58		%
Weighted average market price on date of grants	$	28.22		$	29.84
Per share weighted average fair value	$	8.41		$	8.70
Fair value as a percentage of market value at grant date	30		%	29		%

Options granted during the first six months of 2020 and 2019 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 stock option grants.

The Company recognized stock-based compensation expense related to stock option awards of $45 thousand and $90 thousand for the three and six months ended June 30, 2020, respectively, compared to $48 thousand and $96 thousand for the three and six months ended June 30, 2019, respectively.

Restricted Stock Awards

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

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



	Six Months Ended June 30,
Restricted Stock Awards (number of underlying shares)	2020		2019
Two-year vesting	8,295		8,368
Four-year vesting	26,015		22,403
Performance-based vesting	25,001		24,427
Total restricted stock awards granted	59,311		55,198
Weighted average grant date fair value	$	28.22	$	29.84

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.

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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, mainly restricted stock awards, amounted to ~~$358~~$375 thousand and ~~$929~~$684 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~,2020, respectively, compared to ~~$322~~$409 thousand and ~~$939~~$710 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~,2019, 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~~committee meetings. Stock-based compensation expense related to these directors' fees amounted to ~~$60~~$86 thousand and ~~$206~~$158 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, respectively, compared to ~~$59~~$61 thousand and ~~$205~~$138 thousand for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019, respectively, and is included in other operating expenses. In January ~~2017~~2020, non-employee directors were issued ~~12,992~~8,346 shares of the Company's common stock in lieu of ~~2016~~2019 annual cash fees of $~~286~~253 thousand at a ~~market value~~ price of $~~22.04~~30.35 per share, ~~the market value of the common stock~~based on the ~~opt-in measurement date of January 4, 2016.~~Company's average quarterly close price in 2019.

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 8,9, "Stockholders' Equity," of this Form 10-Q, contained above, under the caption "Shares ~~authorized~~Authorized and ~~share issuance.~~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 2019 Annual Report on Form 10-K. Refer to Note 13, "Stock-Based Compensation Plans," to the Company's audited consolidated financial statements in the Company's 2019 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.



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


~~(11)~~(13)	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," of this Form 10-Q 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 June 30,		Six months ended June 30,
	2020	2019	2020	2019
Basic weighted average common shares outstanding	11,902,230	11,798,942	11,871,811	11,764,901
Dilutive shares	16,390	35,565	26,916	43,932
Diluted weighted average common shares outstanding	11,918,620	11,834,507	11,898,727	11,808,833

Three months ended September 30, Nine months ended September 30,
2017 2016 2017 2016
Basic weighted average common shares outstanding 11,589,039
11,430,134
11,557,054
10,801,278
Dilutive shares 80,120
68,856
83,319
68,127
Diluted weighted average common shares outstanding 11,669,159
11,498,990
11,640,373
10,869,405

~~Basic~~There were 75,979 and ~~diluted weighted average common shares~~75,545 stock options outstanding for the ~~nine~~three and six months ended ~~September~~June 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 options outstanding~~2020, respectively, that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for those periods. There were 52,571 and 52,478 stock options outstanding for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017.~~2019, respectively, that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for those periods. These stock options, which were not dilutive at ~~that date,~~those dates, may potentially dilute earnings per share in the future.



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


~~(12)~~(14)	Fair Value Measurements

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



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

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


									June 30, 2020
	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	$	—	$	507,674	$	—	$	507,674	$	—
Equity securities	3,046		3,046		—		—		654		654		—		—
FHLB stock	7,225		—		—		7,225		2,014		—		2,014		—
Interest-rate swaps	493		—		493		—		3,011		—		3,011		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	3,745		—		—		3,745		3,866		—		—		3,866

Liabilities measured on a recurring basis:
Interest-rate swaps	493		—		493		—		$	6,299	$	—	$	6,299	$	—



	December 31, 2019
			Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	504,788	$	—	$	504,788	$	—
Equity securities	467		467		—		—
FHLB stock	4,484		—		4,484		—
Interest-rate swaps	625		—		625		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	1,268		—		—		1,268

Liabilities measured on a recurring basis:
Interest-rate swaps	$	625	$	—	$	625	$	—

December 31,
2016 Fair Value Measurements using:
(Dollars in thousands) Fair Value (level 1) (level 2) (level 3)
Assets measured on a recurring basis:

Debt securities $ 362,147
$ —
$ 362,147
$ —
Equity investments 12,643
12,643
—
—
FHLB stock 2,094
—
—
2,094
Interest-rate swaps 610
—
610
—
Assets measured on a non-recurring basis:

Impaired loans (collateral dependent) 3,481
—
—
3,481

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

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

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



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

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. The stock is issued, redeemed, repurchased and transferred by the FHLB only at their fixed par value. This stock is classified as a restricted investment and carried at ~~cost~~FHLB par value which management believes approximates fair value; therefore, these securities are categorized as Level 32 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.~~



~~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~~$3.3 million at ~~September~~June 30, ~~2017~~2020 compared to ~~$1.9 million~~$564 thousand at December 31, ~~2016~~2019.

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

Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party. The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements. In accordance with the FASB, the estimated fair values of these commitments are carried on the ~~balance sheet~~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 ~~balance sheet~~Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 were deemed immaterial.

~~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. 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~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these ~~mortgages~~mortgage loans were deemed immaterial.



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

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~~June 30, ~~2017~~:2020 and December 31, 2019:

Fair Value

(Dollars in thousands)

Fair Value

Valuation Technique

Unobservable Input

Unobservable Input Value or Range

June 30, 2020

December 31, 2019

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

Assets measured on a non-recurring basis:

Impaired loans (collateral dependent)

3,745

Appraisal of collateral

Appraisal adjustments ⁽¹⁾

5% - 50%

3,866

1,268

Appraisal of collateral

Appraisal adjustments ⁽¹⁾

5% - 50%

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

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the ~~consolidated balance sheet,~~Consolidated Balance Sheet, the Company is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the ~~balance sheet.~~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 ~~balance sheet~~Consolidated Balance Sheets at the dates indicated are summarized as follows:


											June 30, 2020
	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	$	—	$	1,477	$	1,487	$	—	$	1,487	$	—
Loans, net	2,169,189		2,178,545		—		—		2,178,545		3,133,818		3,180,977		—		—		3,180,977
Financial liabilities:
Certificates of deposit (including brokered)	256,885		256,220		—		256,220		—
CDs (including brokered)											352,344		356,606		—		356,606		—
Borrowed funds	149,255		149,251		—		149,251		—		4,165		4,085		—		4,085		—
Subordinated debt	14,844		14,216		—		—		14,216		14,879		15,604		—		—		15,604



	December 31, 2019
					Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	601	$	609	$	—	$	609	$	—
Loans, net	2,531,845		2,542,577		—		—		2,542,577
Financial liabilities:
CDs	310,951		311,975		—		311,975		—
Borrowed funds	96,173		96,045		—		96,045		—
Subordinated debt	14,872		14,957		—		—		14,957

December 31, 2016 Fair value measurement
(Dollars in thousands)
Carrying
Amount
Fair Value Level 1 inputs Level 2 Inputs Level 3 Inputs
Financial assets:

Loans held for sale $ 1,569
$ 1,569
$ —
$ 1,569
$ —
Loans, net 1,991,387
1,997,887
—
—
1,997,887
Financial liabilities:

Certificates of deposit (including brokered) 227,257
226,536
—
226,536
—
Borrowed funds 10,671
10,670
—
10,670
—
Subordinated debt 14,834
14,011
—
—
14,011

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

Also excluded from these tables are the fair values of commitments for ~~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:~~


(15)	Supplemental Cash Flow Information

The ~~estimates of fair value of financial instruments were based on~~supplemental cash flow information ~~available at September~~for the six months ended June 30, ~~2017~~2020 and ~~December 31, 2016 and are not indicative of the fair market value of those instruments~~June 30, 2019 is 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.

Fair value estimates were based on existing on and off-balance sheet financial instruments without an attempt to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments, including premises and equipment and foreclosed real estate, if any.

In addition, the tax ramifications related to the realization of the unrealized appreciation and depreciation can have a significant effect on fair value estimates and have not been considered in any of the estimates. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

follows:



	Six months ended June 30, 2020
(Dollars in thousands)	2020		2019
Supplemental financial data:
Cash paid for: interest	$	8,866	$	10,753
Cash paid for: income taxes	5,938		5,671
Cash paid for: lease liability	643		576
Supplemental schedule of non-cash activity:
Net purchases of investment securities not yet settled	10,119		2,950
Transfer from loans to other real estate owned	—		255
ROU lease assets: operating leases⁽¹⁾	—		19,635


(1)	This represents the right of use ("ROU") lease asset that was recorded upon adoption of ASC 842 in 2019 and new leases added in the periods indicated.

Table of Contents


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

Management's discussion and analysis should be read in conjunction with the Company's ~~(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~~2019 (the "~~2016~~2019 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. These statements ~~that~~ are ~~other than~~not 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;

the impact of the COVID-19 pandemic ("pandemic") and the Company’s participation in and execution of government programs related to the pandemic;

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;

expansion strategy; and

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

The Company cautions readers that such forward-looking statements reflect numerous assumptions that management believes to be reasonable, but which are inherently uncertain and beyond the Company's control. Forward-looking statements involve a number of risks and uncertainties that could cause the Company's actual results to differ materially from those expressed in, or implied by, the forward-looking statement. Accordingly, we caution you that any such forward-looking statements are not guarantees of future performance. 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)


(i)	failure of risk management controls and procedures;


(ii)	adequacy of the allowance for loan losses;


(iii)	risk specific to commercial loans and borrowers;


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


(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)	changes in interest rates could negatively impact net interest income;


(vii)	liquidity risks;


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


(ix)	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;


(x)	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;


(xi)	our ability to retain and increase our aggregate assets under management;


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


(xiii)	damage to our reputation in the markets we serve;


(xiv)	exposure to legal claims and litigation;

Table of various financial services could adversely affect the Company's competitive position within its market area and reduce demand for the Company's products and services; (v) deterioration of securities markets could adversely affect the value or credit quality of the Company's assets and the availability of funding sources necessary to meet the Company's liquidity needs; (vi) technology related risk, including technological changes and technology service interruptions or failure could adversely impact the Company's operations and increase technology-related expenditures; (vii) cyber-security risk including security breaches and identity theft could impact the Company's reputation, increase regulatory oversight and impact the financial results of the Company; (viii) increases in employee compensation and benefit expenses could adversely affect the Company's financial results; (ix) changes in laws and regulations that apply to the Company's business and operations, including without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and the 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~~Contents


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


(xvi)	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;


(xvii)	future regulatory compliance costs, including any increase caused by new regulations imposed by the government's current administration;


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


(xix)	the risks and uncertainties described in the documents that the Company files or furnishes to the SEC, including those discussed under Part II, Item1A, "Risk Factors," of this Form 10-Q and Item 1A, "Risk Factors," of the Company's 2019 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~~June 30, ~~2017~~2020 amounted to ~~$5.5~~$7.3 million, ~~an increase of $792 thousand,~~ or ~~17%,~~$0.61 per diluted share, compared to ~~the same three-month period in 2016. Diluted earnings~~$7.8 million, or $0.66 per diluted share, ~~were $0.47~~ for the three months ended ~~September~~June 30, ~~2017, an increase of 15%,~~2019. Net income for the six months ended June 30, 2020 amounted to $11.3 million, or $0.95 per diluted share, compared to $16.5 million, or $1.39 per diluted share, for the six months ended June 30, 2019.

The net income results for the quarter and year-to-date June 30, 2020, compared to the same ~~three-month period~~respective 2019 periods, were impacted by the ongoing pandemic and the Company's participation in ~~2016.~~the Small Business Administration ("SBA") Paycheck Protection Program ("PPP”). The provision for loan losses increased as the Company added general reserves to address economic weakness caused by the pandemic and its impact on credit quality in the loan portfolio. The increase over the prior year was larger in the first quarter. Net interest income increased, in particular in the second quarter benefiting from first quarter loan growth and from second quarter PPP loan income, partially offset by a lower net interest margin since the comparable periods. Interest rates have declined significantly since late 2019, including an extraordinary emergency federal funds rate cut in mid-March 2020. Operating expenses increased for the ~~nine months~~quarter and year-to-date ended ~~September~~June 30, ~~2017 amounted to $16.7 million, an increase of $2.9 million, or 21%,~~2020 compared to the ~~nine months ended September 30, 2016. Diluted earnings per share were $1.43 for the nine months ended September 30, 2017, an increase of 13%, compared~~prior year, due primarily to the ~~nine months ended September 30, 2016. Diluted earnings per share for~~Company’s strategic growth initiatives, and also from higher salary and benefit costs related to the ~~nine months ended September 30, 2017 include~~pandemic, including our team members’ PPP loan origination effort in the ~~full dilutive impact~~second quarter. These items are discussed in more detail below and in the “Results of ~~the Company’s equity offering on June 23, 2016.~~ Operations.”

Total assets, total loans, and customer deposits as of June 30, 2020 have increased ~~10%~~by 27%, ~~11%~~32%, and 3%26%, respectively, as compared to ~~September~~June 30, ~~2016. Loan~~2019. Our growth ~~was particularly strong as~~figures have been significantly impacted by both the outstanding PPP loans ~~grew $88.0 million, or~~ 4%~~, during~~and the ~~quarter. Customer deposits, whose growth trends and month end balances vary depending on market conditions, grew~~pandemic in general. Excluding PPP loans, total loans have increased by ~~3% from a year ago and~~ ~~20%~~ ~~from two years ago. The increase in our 2017 earnings~~11% compared to ~~2016~~June 30, 2019. Deposit growth has been positively and significantly impacted by the PPP, stimulus checks and the pandemic, as the PPP loan monies were distributed into deposit accounts and many customers are proactively building liquidity in response to the economic uncertainty caused by the pandemic. We anticipate that as the majority of PPP loans are forgiven or paid off, which we believe will occur principally over the next 12 months, and as customers spend down their PPP loan funds, this ~~growth.~~will result in a reduction in both loans and deposits.

~~Strategically, our focus remains~~Overall, the Company strategically operates with a long-term mindset that is focused on organic growth and supporting such growth by continually ~~planning for and~~ investing in our ~~future. We recently~~people, products, services, technology, digital transformation, and both new and existing branches. Our 25th branch located in Lexington, Massachusetts opened in the first quarter and our 24^th26th branch located in ~~Windham, NH~~North Andover, Massachusetts is anticipated to open in late 2020 or early 2021.

COVID-19 Pandemic

The pandemic and ~~completed~~its effects have impacted the ~~relocation~~Company’s financial condition and results of operations, as discussed in this Management Discussion & Analysis. Management underscores that the pandemic may continue to impact the Company's financial condition and results of operations in the coming quarters, particularly due the economic uncertainty and its potential impact on interest rates, organic growth opportunities and the quality of the loan portfolio. However, the long-term impact of the pandemic on the Company cannot be reasonably estimated at this time.

The Company activated its pandemic response team in January in response to the emergence of the pandemic and has continued to adjust its operations as the pandemic has evolved. For updated information on business and operating changes impacting customers, please visit our website at www.Enterprisebanking.com.

Paycheck Protection Program

The PPP was established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and implemented by the SBA with support from the Department of the Treasury. The PPP is a federally-guaranteed, low-interest rate loan program that is designed to provide a direct incentive for small businesses to keep workers on the payroll. Businesses may use PPP loan funds to pay up to eight weeks of payroll costs as well as to cover other eligible business expenses. PPP loans may be partially or fully forgiven by the SBA if the funds are used for eligible expenses during the relevant forgiveness period and the borrower meets the employee retention criteria. The PPP loans will carry an interest rate of 1% to be paid by either the SBA, in the event of forgiveness, or by the borrower for the term of the loan, which may be either 2 or 5 years. The PPP loans that the SBA approved on or after June 5, 2020 will have a maturity date of 5 years. Payments for PPP loans are deferred until the SBA issues a forgiveness decision or ten months after the end of the forgiveness period if the borrower fails to apply for forgiveness.

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All PPP loans are fully guaranteed by the SBA and are included in total loans outstanding. As of June 30, 2020, the Company had funded 2,636 PPP loans totaling $505.6 million.

In addition to generating interest income, the SBA pays a lender’s fees for processing PPP loans. At June 30, 2020, the Company has recorded $17.0 million in PPP-related SBA processing fees "PPP fees" and is accreting these fees into interest income over the life of the applicable loans. If a PPP loan is forgiven or paid off before maturity, the remaining deferred fee is realized into interest-income at that time. During the quarter, the Company recognized $1.6 million in PPP fees.

Credit Quality

The Company determined its allowance for loan loss reserves using the incurred loss methodology. The allowance for loan losses to total loan ratio was 1.33% at June 30, 2020, compared to 1.31% at December 31, 2019 and 1.42% at June 30, 2019. Excluding PPP loans, which are fully guaranteed by the SBA, the allowance for loan losses to total loan ratio was 1.58% at June 30, 2020.

Non-performing assets to total assets amounted to 0.53% at June 30, 2020, compared to 0.46% at December 31, 2019 and 0.39% at June 30, 2019. Excluding PPP loans, the non-performing assets to total assets ratio was 0.60% at June 30, 2020.

The long-term impact of the pandemic on the credit quality of our ~~branch~~loan portfolio cannot be reasonably estimated at this time. It will likely be influenced by a variety of factors including the depth and duration of the economic contraction and the extent of financial support and fiscal stimulus by the U.S. government. We will continue to closely monitor the effect on credit quality across all industry sectors in ~~Salem, NH~~our diversified loan portfolio as the results unfold in future quarters.

Management has been proactive with customers since the onset of the pandemic and granted short term payment deferrals to ~~its new location. We expect~~those requesting financial assistance as a result of the ~~relocation~~pandemic's impact. As of ~~our Leominster branch~~June 30, 2020, short term payment deferrals were granted on 1,130 loans amounting to $594.8 million, or 22% of the Company's loan portfolio, excluding PPP loans. Management is closely monitoring loans on deferral and estimates that approximately 75% of these loans will return to payment status after the initial three-month period has expired. The remaining loans on deferral are expected to be given another three-month deferral period. These loans continue to accrue interest in accordance with their initial terms.

Financial Strength & Stability

The Bank is designated as “well capitalized” by the Federal Deposit Insurance Corporation ("FDIC") and has collateralized lines of credit at both the Federal Home Loan Bank ("FHLB") and the Federal Reserve Bank of Boston ("FRB"). We also have access to the PPP Liquidity Facility ("PPPLF") established by the FRB. The Company had no PPPLF borrowings outstanding or loans pledged to the PPPLF at June 30, 2020. Any PPP loans pledged as collateral for the PPPLF would be excluded from average assets used in the leverage ratio calculation. The $505.6 million in PPP loans are fully guaranteed by the SBA and have no impact on our risk-based capital ratios.

On July 7, 2020, the Company also completed a private placement with registration rights of $60.0 million in ~~early 2018.~~fixed-to-floating rate subordinated notes. The ~~relocation~~notes, with an initial fixed rate of ~~our branches~~5.25%, are due in ~~Salem, NH~~2030 and ~~Leominster, MA~~redeemable at the option of the Company beginning on or after July 15, 2025. After the July issuance, the par value of or total outstanding subordinated notes amounted to $75.0 million. We anticipate the additional capital will ~~provide improved~~increase the Bank's total capital to risk-weighted assets ratio from 11.79% at June 30, 2020 to 13.58% on a pro forma basis. For further information on the Bank's capital ratios, refer to "Capital Resources" below.

Accounting Implications

In the first quarter of 2020, the Company elected under the CARES Act to delay the adoption of CECL. The Company will be required to adopt CECL by December 31, 2020. We anticipate the adoption of CECL will result in a reduction to retained earnings and ~~state-of-the-art branches~~may increase the provision for loan losses in the period of adoption. See Note 1, Item (e), "Recent Accounting Pronouncements" to the Company's unaudited consolidated interim financial statements in this Form 10-Q for information regarding CECL.

The Company also suspended TDR accounting under the CARES Act beginning in the first quarter of 2020 for certain loan modifications. This election primarily impacts financial statement disclosure, for loans that have had a short-term payment deferral since March 1, 2020 as long as those ~~communities to better serve our customers.~~loans were current and risk rated as “pass” as of February 29, 2020.

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Composition of Earnings

Throughout this Form 10-Q we have noted certain ratios or other measures of the Company’s performance as having been adjusted to remove the impact of PPP loans. Such ratios and other measures are considered non-GAAP measures. See the non-GAAP table below which provides a reconciliation of the non-GAAP measures to the information presented under U.S. generally accepted accounting principles (“GAAP”).

The Company's earnings are largely dependent on its net interest income, which is primarily 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 ("margin"). Margin presented on a tax equivalent basis by factoring in adjustments associated with interest income on tax exempt loans and investments is referred to as tax equivalent net interest margin ("T/E margin").

Net interest income for the three months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$25.1~~$32.5 million, an increase of ~~$3.3~~$3.7 million, or ~~15%~~13%, compared to the ~~same period in 2016.~~three months ended June 30, 2019. Net interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$71.5~~$62.4 million, an increase of ~~$7.3~~$5.6 million, or ~~11%~~10%, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. The increase in net interest income was due largely to interest-earning asset growth, primarily in loans, partially offset by a decline in T/E margin. The Company recognized $948 thousand in PPP interest income and $1.6 million in PPP fees, accreted to ~~loan growth.~~ interest income, during the second quarter.

Average loan balances ~~(including loans held for sale)~~ increased ~~$204.2~~$661.4 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%or 28%, for the three months ended June 30, ~~2017, while net interest~~2020 and $443.1 million, or 19%, for the six months ended June 30, 2020, compared to the same respective 2019 period averages. Excluding PPP loans, average loan balances increased $293.5 million, or 12%, and $259.1 million, or 11%, for the three and six months ended June 30, 2020, respectively, compared to the same respective 2019 period averages.

T/E margin was ~~3.86%~~3.59%, 3.89%, and 3.96% for the three months ended ~~September~~June 30, ~~2016. Margin~~2020, March 31, 2020, and June 30, 2019, respectively. T/E margin was ~~3.95%~~3.73% and 3.97% for the ~~nine~~six months ended ~~September~~June 30, ~~2017, compared to 3.96%~~2020 and June 30, 2019, respectively. Excluding PPP loans, T/E margin for the ~~nine~~three and six months ended ~~September~~June 30, ~~2016. See~~2020 was 3.68% and 3.78%, respectively. The lower margin results primarily reflect the ~~discussion under~~significant decline in interest rates since the ~~heading "Results~~comparable periods resulting in interest-earning asset yields declining faster than the cost of ~~Operations" below,~~funding. T/E margin for the June 2020 quarter was also impacted by higher balances in ~~this Item 2, for further information regarding changes~~lower-yielding short-term and overnight investments than the comparable periods. Interest-earning asset yields have been impacted by a 225 basis point decrease in ~~margin.~~

the federal funds rate since June 30, 2019, with 150 basis points of that total decline occurring in March 2020. Term interest rates have also fallen significantly over the respective periods and collectively these interest rate decreases have reduced yields on loans repricing, short-term and overnight investments and interest-earning asset growth. The Company funds these interest-earning assets principally through non-term customer deposits, which were less impacted by interest rate declines.

The re-pricing frequency of the ~~Company’s~~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”~~"interest-rate risk" and is reviewed in more detail in Part I, Item 3, ~~“Quantitative~~"Quantitative and Qualitative Disclosures About Market Risk,”" of this Form 10-Q and in Item 7A, ~~“Quantitative~~"Quantitative and Qualitative Disclosures About Market Risk,”" of the Company's ~~2016~~2019 Annual Report on Form 10-K.

For the three months ended ~~September~~June 30, ~~2017 and September 30, 2016,~~2020, the provision for loan losses amounted to ~~$1.2~~$2.7 million, compared to $955 thousand for the three months ended June 30, 2019. The provision for the quarter ended June 30, 2020 consisted of $1.9 million in general reserve factor increases related primarily to economic weakness caused by the pandemic and ~~$1.4 million, respectively.~~ its impact on credit quality in the loan portfolio and $800 thousand related to classified and impaired loans.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017 and September 30, 2016,~~2020, the provision for loan losses amounted to ~~$1.6~~$8.8 million, ~~and $2.5 million, respectively.~~compared to $555 thousand for the six months ended June 30, 2019. The ~~decrease in the~~ provision for the ~~nine~~six months ended ~~September~~June 30, ~~2017, was due~~2020 consisted of $5.2 million in general reserve factor increases primarily related to ~~generally improved~~economic weakness caused by the pandemic and its impact on credit quality ~~metrics~~in the loan portfolio, $2.3 million related to classified and ~~underlying collateral values,~~impaired loans and $1.3 million related to loan growth and other factors.

The provisions for the 2019 periods were impacted by generally positive credit metrics, partially offset by ~~increased~~the impact of loan ~~growth compared to the prior year period.~~

~~Contributing to the provision for loan losses were:~~

Total non-performing loans as a percentage of total loans (a measure of credit risk) amounted to 0.57% 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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The balance of the allowance for loan losses allocated to impaired and adversely classified loans decreased by $761 thousand during the nine months ended September 30, 2017, compared to an increase of $863 thousand during the nine months ended September 30, 2016.

~~The Company recorded net recoveries of $212 thousand for the nine 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.~~

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

growth.

Non-interest income for the three months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$3.4~~$4.0 million, a decrease of ~~$504~~$30 thousand, or ~~13%~~1%, compared to the ~~same quarter last year. Non-interest income for the nine~~three months ended ~~September~~June 30, ~~2017 amounted~~2019. Quarter-to-date non-interest income decreased in 2020 due primarily to ~~$11.5 million, an increase of $781 thousand, or 7%, compared to the nine months ended September 30, 2016. The decrease~~decreases in ~~the quarter was primarily due to net losses of $284 thousand on sales of securities compared to~~deposit and interchange fees as well as net gains on sales of securities, partially offset by net gains on sales of ~~$546~~loans. Non-interest income for the six months ended June 30, 2020 amounted to $8.2 million, an increase of $332 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~~or

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4%, compared to the ~~same period in 2016.~~six months ended June 30, 2019. Year-to-date ~~increases in~~ non-interest income ~~over the prior year-to-date period were~~increased in 2020 due primarily to increases in ~~deposit and interchange fees and~~net gains on sales of loans. Year-to-date other non-interest income decreased mainly due to decreases in equity investment ~~advisory fees,~~fair values, partially offset by ~~a decrease in net gains on the sales of investment securities.~~

derivative fee income.

Non-interest expense for the ~~quarter~~three months ended ~~September~~June 30, ~~2017~~2020, amounted to ~~$18.8~~$24.3 million, an increase of ~~$1.4~~$2.6 million, or 8%12%, compared to the ~~same quarter in the prior year. For the nine~~three months ended ~~September~~June 30, ~~2017, non-interest~~2019. Non-interest expense for the six months ended June 30, 2020, amounted to ~~$57.0~~$47.0 million, an increase of ~~$5.2~~$4.4 million, or 10%, ~~over~~compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2019. Increases in non-interest ~~expenses over~~expense in 2020 related primarily to the ~~same periods in the prior year primarily~~Company's strategic growth initiatives, particularly salaries and employee benefits, and to a lesser extent technology and telecommunications expenses. Salaries and employee benefits expense also included costs related to the ~~Company’s strategic growth~~PPP effort and ~~market expansion initiatives, mainly increases in salaries and benefits 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.

pandemic.

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 brokered deposits, overnight borrowings from correspondent ~~banks.~~banks and borrowings from the FRB. 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~~common stock. The Company's sources of funds are intended to be used to ~~originate~~conduct operations and to support growth, by funding loans ~~purchase investment~~and investing in securities, ~~conduct operations,~~to expand the branch network, and to pay dividends to stockholders.

The investment portfolio is used 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~~a component of ~~the key components of interest earning~~interest-earning assets, amounted to ~~$385.9~~$508.3 million at ~~September~~June 30, ~~2017~~2020, ~~an increase of $11.2 million, or 3%, since~~consistent with December 31, ~~2016,~~2019 balances, and comprised ~~14%~~13% and 16%, of total assets at ~~September~~June 30, ~~2017~~2020 and ~~15% of total assets at~~ December 31, ~~2016.~~2019, respectively.

Enterprise's main asset strategy is to grow loans, the largest component of ~~interest earning~~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%~~79% of total assets at ~~September~~both June 30, ~~2017~~2020 and ~~80% of total assets at~~ December 31, ~~2016~~.2019, amounted to $3.18 billion at June 30, 2020, compared to $2.57 billion at December 31, 2019, an increase of $610.7 million, or 24%, due largely to PPP loan growth. Excluding PPP loans, total loans have increased $120.5 million, or 5%, since December 31, 2019. Total commercial loans amounted to $~~1.91~~2.84 billion, or ~~87%~~89% of gross loans, at ~~September~~June 30, ~~2017~~2020, ~~which was relatively consistent with the composition~~compared to 86% at December 31, ~~2016~~2019. Excluding PPP loans, total commercial loans amounted to $2.33 billion, or 87% of ~~86%.~~gross loans, at June 30, 2020.

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Management's preferred strategy for funding asset growth is to grow relationship-based customer deposit balances, preferably ~~transactional deposits (comprised~~comprised of ~~demand deposit~~non-interest checking accounts, interest-bearing checking accounts and traditional savings ~~accounts).~~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~~June 30, ~~2017~~,2020, customer deposits (total deposits excluding brokered deposits) amounted to ~~$2.22~~$3.57 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~~,$2.79 billion, or 3%86% of total assets, ~~an increase~~at December 31, 2019. Since December 31, 2019, customer deposits increased $786.4 million, or 28%, primarily in checking accounts, and to a lesser extent money markets. Management believes this deposit growth was due in large part to PPP loan funds distributed to deposit accounts and customers generally maintaining higher account balances in response to the pandemic. See "Deposits" under "Financial Condition" contained in this Item 2 of ~~$161.7 million.~~ this Form 10-Q for a further breakdown of deposit growth.

Wholesale funding, ~~included~~which may be comprised of brokered deposits and FHLB advances, ~~of $149.3 million and $10.7~~amounted to $79.2 million at ~~September~~June 30, ~~2017 and December 31, 2016, respectively, and brokered deposits of~~ ~~$82.5 million~~ at ~~September 30, 2017~~2020, compared to ~~$59.4~~$96.2 million at December 31, ~~2016. The Company's level~~2019, a decrease of $17.0 million, or 18%. At June 30, 2020, wholesale funding ~~has increased~~was comprised primarily of brokered deposits, while at December 31, 2019, it was principally overnight FHLB advances. See "Borrowed Funds," "Wholesale Funding," and "Derivatives and Hedging Activities" under "Financial Condition" contained in ~~2017 as loan growth exceeded deposit growth.~~this Item 2 of this Form 10-Q for additional information on the Company's borrowings and wholesale funding strategies at June 30, 2020.

~~Opportunities~~On July 7, 2020, the Company also completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes. These notes, with an initial fixed rate of 5.25%, are due in 2030 and ~~Risks~~redeemable at the option of the Company beginning on or after July 15, 2025.

~~This Opportunities~~

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Non-GAAP Measures

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with GAAP. Non-GAAP measures are intended to provide the reader with additional supplemental perspectives on operating results, performance trends, and ~~Risks discussion~~financial condition. Non-GAAP financial measures are not a substitute for GAAP measures; they should be read and used in conjunction with ~~Item 1A "Risk Factors," and~~ the ~~section titled "Opportunities and Risks" contained~~Company’s GAAP financial information.

Certain non-GAAP measures provided in ~~Item 7 "Management's~~this Management Discussion and Analysis exclude the outstanding balance of ~~Financial Conditions~~PPP loans that the Company began originating in April 2020 and ~~Results~~which are expected to be short-term in nature. The Company normalized for this activity in order to provide a more meaningful comparison to prior periods.

The following tables summarize the reconciliation of ~~Operations"~~GAAP items to non-GAAP items ⁽¹⁾:



(Dollars in thousands)	June 30, 2020
Total loans (GAAP)	$	3,176,142
Adjustment: PPP loans	(505,557		)
Adjustment: Deferred PPP fees	15,398
Total loans (non-GAAP)	$	2,685,983

Total assets (GAAP)	$	4,037,229
Adjustment: PPP loans	(505,557		)
Adjustment: Deferred PPP fees	15,398
Total assets (non-GAAP)	$	3,547,070



	Three months ended			Six months ended
(Dollars in thousands)	June 30, 2020			June 30, 2020
Total average loans (GAAP) ⁽²⁾	$	3,056,052		$	2,826,991
Adjustment: Average PPP loans	(376,727		)	(188,364		)
Adjustment: Average deferred PPP fees	8,867			4,433
Total average loans (non-GAAP) ⁽²⁾	$	2,688,192		$	2,643,060

Net interest margin (tax equivalent) (GAAP)	3.59		%	3.73		%
Adjustment: PPP effect ⁽¹⁾	0.09		%	0.05		%
Net interest margin (tax equivalent) (non-GAAP)	3.68		%	3.78		%

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

⁽²⁾Total average loans include loans held for sale.

Culture and Organic Growth Strategy

Management's present priorities continue to be the ~~Company's~~ ~~2016~~ ~~Annual Report~~safety and wellness of our team members and customers and on ~~Form 10-K, which addresses other factors~~managing through the pandemic and ~~details that could adversely affect~~its economic impact. Looking beyond the ~~Company's business, reputation, its future results of operations and financial condition.~~

~~Enterprise faces robust competition to attract and retain customers within existing and neighboring geographic markets. The Company's ability to achieve its~~pandemic, management is focused on long-term strategic growth initiatives, including investments in employee hiring and ~~market share objectives will depend~~training and development, fostering diversity and inclusion, cultivating strong community relationships in ~~part upon management's continued success in differentiating the Company in the market place~~all markets that we serve, loan growth funded by customer deposits, technology and ~~its ability~~digital transformation, and branch evolution and expansion.

The Company's business model is to ~~strengthen its competitive position.~~provide a full range of diversified financial products and services through a highly-trained team of knowledgeable banking professionals, who have an 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~~strong reputation within the local market as a ~~dependable commercial-focused~~customer-centric, community rooted, and commercially focused community bank, ~~delivering consistent~~offering robust product and ~~exceptional customer~~ service lines, including commercial lending, cash management, wealth

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management and trust services and commercial insurance, delivered by a knowledgeable and dedicated team of community bankers through traditional in-person service and multiple digital delivery channels offering ~~competitive products~~24/7 remote banking capabilities.

The Company's banking professionals are dedicated to upholding the Company's core values, including significant and ~~taking an~~ active ~~role~~involvement in ~~support~~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.~~ serve, it also helps to fuel the local economy, creating new businesses and jobs, and has led to a strong referral network with local businesses, non-profit organizations and community leaders.

As we face the current period of unprecedented and unpredictable economic uncertainty, management is committed to utilizing its disciplined and reliable credit management approach, which has served to provide consistent quality asset growth over varying economic cycles during the Company's history. The Company's loan growth initiatives are executed through strong business development and referral efforts, by a seasoned lending team possessing a broad breadth of business acumen and lending experience, supported by a highly qualified and experienced commercial credit review function.

The Company ~~actively seeks~~has an ongoing commitment to ~~increase market share~~use scalable technology and ~~strengthen its competitive position through continuous reviews~~digitization to continually improve the customer experience and internal efficiencies and productivity. As part of ~~deposit product offerings, cash management and ancillary~~the Company's multi-year digital evolution strategy, new technology-driven products, services, ~~and state-of-the-art~~ delivery channels, ~~targeted~~and process automation are continually introduced. These investments proved invaluable in keeping our business operating efficiently and effectively for our customers as social distancing and non-essential business shut down orders were issued in early March by local and state government authorities.

Branch evolution includes enhancing our highly-personalized customer interactions, updating technology and delivery methods, and ongoing facility improvements and renovations. New and renovated branches exhibit a modern, open-concept lobby with advanced technology. These branches are supported by our "Universal Bankers," who are crossed-trained to ~~businesses, non-profits, professional practice groups, municipalities~~fully serve customer needs, and ~~consumers' needs. In addition, Enterprise carefully plans market expansion through~~have on-site commercial lenders.

The Company also continually looks to develop new branch ~~development, identifying branches strategically located~~locations within, and to complement, our existing ~~locations while expanding the Company's geographic market~~ footprint. In ~~July 2016, the Company's 23~~^rd ~~branch~~March 2020, Enterprise opened ~~on Route 101A in Nashua, NH, and in July 2017,~~its new Lexington, Massachusetts location. Additionally, the Company ~~opened its 24~~^this also in the process of establishing a branch office in ~~Windham, NH. Branch expansion~~North Andover, Massachusetts and anticipates that this location will open in late 2020 or early 2021. The opening is ~~aimed at achieving not only deposit market share growth, but also is intended~~subject to ~~contribute~~postponement until health concerns and social distancing requirements in Massachusetts begin to ~~loan originations and generate referrals for investment advisory and wealth management, trust and insurance services, residential mortgages and cash management products.~~normalize.

Management continues to undertake significant strategic initiatives, including investments in employee hiring, training and development; marketing and public relations; technology and electronic delivery methods; ongoing improvements, renovations or strategic relocation of existing facilities; and the continued development of recently added branches. 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. While management recognizes that such investments increase expenses in the short term, Enterprise believes that such initiatives are a ~~necessary~~critical 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, a delay in the time line for such initiatives due to the current pandemic, or other reasons, 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~~802.2 million, or 8%25%, since December 31, ~~2016~~2019 to $4.04 billion at June 30, 2020. Excluding PPP loans, total assets have increased $312.0 million, or 10%, to ~~$2.73 billion~~ at ~~September 30, 2017~~.since December 31, 2019. The balance sheet composition and changes since December 31, ~~2016~~2019 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 increased $191.0 million since December 31, 2019. At June 30, 2020, cash and cash equivalents amounted to 6% of total assets, compared to 2% of total assets at ~~both~~ ~~September 30, 2017~~ ~~and~~ December 31, ~~2016. Balances~~2019. While balances in cash and cash equivalents will fluctuate due primarily to the timing of net ~~deposit~~cash flows ~~borrowing~~from deposits, borrowings, loans and ~~loan inflows and outflows, investment purchases and maturities, calls and sales proceeds,~~investments, and the immediate liquidity needs of the ~~Company.~~Company, management believes customers are generally maintaining higher liquidity in response to the pandemic and have increased cash balances since December 31, 2019.

Investments

At ~~September~~June 30, ~~2017~~2020, the ~~carrying~~fair value of the investment portfolio amounted to $~~385.9~~508.3 million, an increase of ~~$11.2~~$3.1 million, or ~~3%,~~ 1%

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since December 31, ~~2016.~~2019 balance. The investment portfolio represented 13% and 16% of total assets at June 30, 2020 and December 31, 2019, respectively. As of June 30, 2020, and December 31, 2019, the investment portfolio was comprised primarily of debt securities, with a small portion of the portfolio invested in equity securities.

See also Note 2, "Investment Securities," and Note 14, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements contained in Item 1 in this Form 10-Q 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 impairment has or has not been recognized, and investments pledged as collateral, as well as the Company's fair value measurements for investments.

Debt Securities

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


	September 30, 2017				December 31, 2016				September 30, 2016				June 30, 2020				December 31, 2019				June 30, 2019
(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	%	$	1,001	0.2	%	$	1,004	0.2	%	$	1,005	0.2	%
Residential federal agency MBS⁽¹⁾	100,958		26.2	%	93,353		24.9	%	88,706		25.4	%	186,102		36.7	%	192,658		38.2	%	172,738		37.1	%
Commercial federal agency MBS⁽¹⁾	64,796		16.8	%	70,278		18.7	%	44,679		12.8	%	117,465		23.1	%	114,635		22.7	%	117,011		25.1	%
Municipal securities	129,762		33.6	%	111,803		29.8	%	111,556		31.9	%
Municipal securities taxable													91,929		18.1	%	81,687		16.2	%	59,749		12.8	%
Municipal securities tax exempt													96,933		19.1	%	100,038		19.8	%	100,108		21.5	%
Corporate bonds	11,356		2.9	%	10,695		2.9	%	11,131		3.2	%	13,790		2.7	%	14,311		2.8	%	14,383		3.1	%
Certificates of deposits⁽²⁾	952		0.2	%	949		0.3	%	970		0.3	%
CDs⁽²⁾													454		0.1	%	455		0.1	%	950		0.2	%
Total debt securities	382,896		99.2	%	362,147		96.6	%	337,187		96.6	%	$	507,674	100.0	%	$	504,788	100.0	%	$	465,944	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~~As of the dates reflected in the tables above, the majority of investments in the residential and commercial federal agency MBS categories were collateralized mortgage obligations ~~(“CMOs”~~("CMOs") issued by U.S. ~~agencies totaling $110.2~~agencies. The remaining MBS investments totaled $23.0 million, ~~$107.0~~$23.5 million, and ~~$78.6~~$23.7 million at ~~September~~June 30, ~~2017,~~2020 December 31, ~~2016~~2019 and ~~September~~June 30, ~~2016,~~2019, respectively.

During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company purchased ~~$99.4~~$15.7 million in debt securities. The Company had principal pay downs, calls and maturities totaling ~~$21.1~~$27.3 million during the ~~nine~~six months ended ~~September~~June 30, ~~2017. In addition,~~2020.

During the six months ended June 30, 2020, management sold debt securities with an amortized cost of approximately ~~$70.2~~$2.5 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.~~$100 thousand.

Net unrealized gains on the ~~investment~~debt securities portfolio amounted to ~~$3.6~~$31.2 million at ~~September~~June 30, ~~2017~~2020, compared to net unrealized ~~losses~~gains of ~~$1.2~~$13.5 million at December 31, ~~2016~~2019 and net unrealized gains of ~~$9.4~~$12.7 million at ~~September~~June 30, ~~2016.~~2019. The Company attributes the large increase in net unrealized gains ~~from~~as compared to December 31, ~~2016 primarily~~2019 to ~~the debt 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.~~ significant decreases in market yields.

Unrealized gains or losses on debt securities are carried on the Consolidated Balance Sheet and will ~~only~~ be recognized in the ~~statements~~Consolidated Statements of ~~income~~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 2019 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~~2019 Annual Report on Form 10-K.

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Equity Securities

The Company held equity securities with a fair value of $654 thousand at June 30, 2020, $467 thousand at December 31, 2019, and $2.4 million at June 30, 2019. During the six months ended June 30, 2020, the Company recorded net losses on ~~debt and~~ equity securities ~~including information about investments~~ in ~~an unrealized loss position~~the Consolidated Statements of Income of $132 thousand, compared to net gains of $263 thousand for ~~which an other-than-temporary impairment has or has not been~~the six months ended June 30, 2019, due in both periods primarily to fair market value adjustments stemming from fluctuations in market prices of securities held. The amount recognized related to equity securities in "Other income" is dependent primarily on the amount of dollars invested in equities and ~~investments pledged as collateral, as well as~~ the ~~Company's fair value measurements for available-for-sale securities.~~magnitude of changes in equity market values.

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~~2.0 million ~~for the period ended~~ ~~September~~ at June 30, ~~2017~~2020, ~~$2.1~~$4.5 million at December 31, ~~2016~~2019 and ~~$1.9~~$1.6 million at ~~September~~June 30, ~~2016~~2019.

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See Note 1, "Summary of Significant Accounting Policies," under the section "Restricted Cash and Investments," in Item (c), ~~"Restricted Instruments,~~"Accounting Policies," 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%~~79% of total assets at ~~September~~June 30, ~~2017~~2020 and ~~80% of total assets at~~ December 31, ~~2016.~~2019. Total loans increased $~~179.6~~610.7 million, or 9%24%, compared to December 31, ~~2016~~2019, and increased $~~216.5~~762.0 million, or ~~11%~~32%, since ~~September~~June 30, ~~2016~~.2019. The mix of loans within the portfolio remained relatively unchanged with commercial loans amounting to approximately ~~87%~~89% of gross loans (87% excluding PPP loans) at ~~September~~June 30, ~~2017, reflecting a continued focus on commercial~~2020. PPP loan ~~growth.~~production, which began in April 2020, accounted for $505.6 million in growth through June 30, 2020.

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					June 30, 2020					December 31, 2019					June 30, 2019
(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	%	$	1,471,586		46.1	%	$	1,394,179		54.3	%	$	1,294,509		53.6	%
Commercial and industrial	512,736			23.3	%	490,799			24.2	%	490,590			24.7	%	454,455			14.2	%	501,227			19.5	%	514,402			21.3	%
Commercial construction	245,453			11.1	%	213,447			10.5	%	215,432			10.9	%	404,008			12.7	%	317,477			12.4	%	264,484			10.9	%
SBA PPP loans																505,557			15.8	%	—			—	%	—			—	%
Total commercial loans	1,911,297			86.7	%	1,742,328			86.0	%	1,714,384			86.3	%	2,835,606			88.8	%	2,212,883			86.2	%	2,073,395			85.8	%
Residential mortgages	194,375			8.8	%	180,560			8.9	%	172,556			8.7	%	261,786			8.2	%	247,373			9.6	%	235,392			9.7	%
Home equity loans and lines	89,044			4.0	%	91,065			4.5	%	90,116			4.5	%
Home equity																88,157			2.7	%	98,252			3.8	%	97,994			4.1	%
Consumer	10,085			0.5	%	10,845			0.6	%	10,634			0.5	%	9,174			0.3	%	10,054			0.4	%	10,208			0.4	%
Total retail loans	293,504			13.3	%	282,470			14.0	%	273,306			13.7	%	359,117			11.2	%	355,679			13.8	%	343,594			14.2	%

Gross loans	2,204,801			100.0	%	2,024,798			100.0	%	1,987,690			100.0	%	3,194,723			100.0	%	2,568,562			100.0	%	2,416,989			100.0	%
Deferred fees, net	(2,428		)			(2,069		)			(1,836		)			(3,183		)			(3,103		)			(2,887		)
Deferred PPP fees																(15,398		)			—					—
Total loans	2,202,373					2,022,729					1,985,854					3,176,142					2,565,459					2,414,102
Allowance for loan losses	(33,184		)			(31,342		)			(31,589		)			(42,324		)			(33,614		)			(34,351		)
Net loans	$	2,169,189				$	1,991,387				$	1,954,265				$	3,133,818				$	2,531,845				$	2,379,751

As of ~~September~~June 30, ~~2017,~~2020, commercial real estate loans increased ~~$115.0~~$77.4 million, or ~~11%~~6%, compared to December 31, ~~2016~~2019, and increased $177.1 million, or 14%, compared to ~~September~~June 30, ~~2016~~2019. 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~~multi-

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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 June 30, 2020, commercial and industrial ~~loans increased $21.9~~loan balances decreased by $46.8 million, or 4%9%, compared to December 31, ~~2016~~,2019 and ~~increased~~ 5% asdecreased $59.9 million, or 12%, compared to ~~September~~June 30, ~~2016~~.2019. The decrease reflects a decline in line utilization on revolving lines as business customers made use of alternative government sponsored funding sources and declines in business activity in response to the pandemic, as well as general paydowns, maturities and reduction in originations. These loans include seasonal and formula-based revolving lines of credit, working capital loans, equipment financing, ~~(including equipment leases),~~ and term loans. Also included in commercial and industrial loans are loans partially guaranteed by the ~~U.S. Small Business Administration ("SBA"), and loans~~SBA under various long-established programs (see below regarding the SBA PPP loan portfolio). Commercial and ~~agencies.~~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~~86.5 million, or ~~15%~~27%, since December 31, ~~2016~~2019, and increased ~~14%~~ as$139.5 million, or 53%, compared to ~~September~~June 30, ~~2016~~2019. 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. In many cases, these loans move into the permanent commercial real estate portfolio when the construction phase is completed. The increases since December 31, 2019 and June 30, 2019 were due primarily to active local construction markets fueled by strong demand for residential and multi-family housing and increased commercial development activity.

~~Retail~~As previously noted in the "Overview" of this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the PPP was established by the CARES Act and implemented by the SBA. The PPP began in early April and the deadline for submission of PPP loan applications is currently August 8, 2020. PPP loans may be partially or fully forgiven by the SBA if certain criteria are met. The PPP loans will carry an interest rate of 1% to be paid by either the SBA, in the event of forgiveness, or by the borrower for the term of the loan, which may be either 2 or 5 years. Payments for PPP loans are deferred until the SBA issues a forgiveness decision or ten months after the end of the forgiveness period if the borrower fails to apply for forgiveness.

Total retail loan balances increased by ~~$11.0~~$3.4 million, or 4%1%, since December 31, ~~2016~~2019, and ~~have~~ increased by 7%$15.5 million, or 5%, since ~~September~~June 30, ~~2016~~2019. ~~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~~June 30, ~~2017~~2020, commercial loan balances participated out to various banks amounted to $~~67.7~~78.0 million, compared to $~~62.3~~80.2 million at December 31, ~~2016~~2019, and $~~62.4~~70.0 million at ~~September~~June 30, ~~2016~~2019. 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~~102.5 million, $~~85.2~~104.3 million and $~~86.8~~69.0 million at ~~September~~June 30, ~~2017~~2020, December 31, ~~2016~~2019, and ~~September~~June 30, ~~2016~~2019, 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.

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

Section 4013 of the CARES Act provides financial institutions the option to suspend TDR accounting under GAAP in certain circumstances, during the period beginning March 1, 2020, and ending on the earlier of (i) December 31, 2020, or (ii) the date that is 60 days after the date on which the national emergency concerning the pandemic declared under the National Emergencies Act terminates. The Company has elected to suspend TDR accounting, which impacts primarily financial statement disclosure, for loans that have had a short-term payment deferral related to the pandemic, as long as those loans were current and risk rated as “pass” as of February 29, 2020.

Management has been proactive with customers since the onset of the pandemic and granted short term payment deferrals to those requesting financial assistance. As of June 30, 2020, short term payment deferrals were granted on 1,130 loans amounting to $594.8 million, or 22% of the Company's loan portfolio, excluding PPP loans. Management is closely monitoring loans on deferral and estimates that approximately 75% of these loans will return to payment status after the initial three-month period has expired. The remaining loans on deferral are expected to be given another three-month deferral period. These loans continue to accrue interest in accordance with their initial terms.

The following table provides information on loans with short-term payment deferrals as of June 30, 2020, by loan segment.



(Dollars in thousands)	Gross loan balance		Segment % of Gross loans		Deferred balance		Average deferred balance		Deferred balance to gross loans⁽¹⁾
Commercial real estate	$	1,471,586	46.1	%	$	420,466	$	754	15.6	%
Commercial and industrial	454,455		14.2	%	94,862		196		3.5	%
Commercial construction	404,008		12.7	%	55,306		1,975		2.1	%
SBA PPP loans	505,557		15.8	%	—		—		—	%
Residential mortgages	261,786		8.2	%	21,701		482		0.8	%
Home equity	88,157		2.7	%	2,468		224		0.1	%
Consumer	9,174		0.3	%	43		14		—	%
Total	$	3,194,723	100.0	%	$	594,846	$	526	22.1	%

(1) Gross loans excluding PPP loans

Approximately 84% of the loan balances with short-term payment deferrals, included in commercial real estate, commercial construction, residential mortgages and home equity loans in the table above, are secured primarily by real estate. Commercial and industrial loans with short-term payment deferrals are not secured primarily by real estate, but consist generally of smaller balances. At June 30, 2020, the average loan size for commercial and industrial loans with a short-term payment deferral was $196 thousand.

Based on management's review of the loan portfolio and underlying credits, the industries the Company considers generally to be most At-Risk from the impact of the pandemic are: retail trade, non-owner occupied - retail property, restaurants and hotels, and fitness centers. Collectively, these industries amounted to 13% of total gross loans (excluding PPP loans) at June 30, 2020, and comprised 28% of the total deferred balance.

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The following table provides information on balances as of June 30, 2020 for industries considered At-Risk.



(Dollars in thousands)	Industry gross loan balance		Industry to gross loans⁽¹⁾		Total deferred balance		Deferred balance to total industry
Retail trade	$	114,332	4.3	%	$	26,295	23	%
Non-owner occupied - retail leasing	105,562		3.9	%	40,156		38	%
Restaurants	67,418		2.5	%	46,696		69	%
Hotels	34,624		1.3	%	24,601		71	%
Fitness centers	33,441		1.2	%	28,215		84	%
Total	$	355,377	13.2	%	$	165,963

(1) Gross loans excluding PPP loans

Of these At-Risk industries, hotels, restaurants, and fitness centers are experiencing the largest deferrals as a percentage of industry balance with a combined 73% of the total industry balance on deferral. However, in total these three industries amount to only 5% of total gross loans (excluding PPP loans) and 17% of the total deferred balance. Management is closely monitoring all deferrals and notes that the loans are generally secured by real estate, usually have personal guarantees and typically are managed by experienced operators. The Company will continue to closely monitor the effect on credit quality across all industry sectors in our diversified loan portfolio as the results of the pandemic unfold in future quarters. The credit quality of our loans could be further impacted and additional provisions may be necessary.

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Asset Quality

The following table sets forth information regarding non-performing assets, ~~trouble debt restructuring ("TDR")~~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			June 30, 2020			December 31, 2019			June 30, 2019
Non-accrual loan summary:
Commercial real estate	$	8,058		$	4,876		$	5,639		$	8,789		$	8,280		$	6,602
Commercial and industrial	3,428			3,174			3,128			5,549			3,285			4,049
Commercial construction	197			519			209			5,801			1,735			123
SBA PPP loans										—			—			—
Residential	267			289			297			473			411			745
Home equity	477			616			607			705			1,040			432
Consumer	35			—			—			18			20			27
Total non-accrual loans	12,462			9,474			9,880			21,335			14,771			11,978
Overdrafts > 90 days past due	27			11			8
Total non-performing loans	12,489			9,485			9,888
OREO	—			—			—			—			—			255
Total non-performing assets	$	12,489		$	9,485		$	9,888		$	21,335		$	14,771		$	12,233
Total Loans	$	2,202,373		$	2,022,729		$	1,985,854
Total loans										$	3,176,142		$	2,565,459		$	2,414,102
Accruing TDR loans not included above	$	17,301		$	22,418		$	18,917		$	12,182		$	17,103		$	19,091
Delinquent loans 60-89 days past due and still accruing	$	746		$	940		$	572		$	2,036		$	7,776		$	1,000
Loans 60-89 days past due and still accruing to total loans	0.03		%	0.05		%	0.03		%	0.06		%	0.30		%	0.04		%
Adversely classified loans to total loans	1.32		%	1.70		%	1.66		%	1.29		%	1.45		%	1.42		%
Non-performing loans to total loans	0.57		%	0.47		%	0.50		%	0.67		%	0.58		%	0.50		%
Non-performing assets to total assets	0.46		%	0.38		%	0.40		%	0.53		%	0.46		%	0.39		%
Allowance for loan losses	$	33,184		$	31,342		$	31,589		$	42,324		$	33,614		$	34,351
Allowance for loan losses to non-performing loans	265.71		%	330.44		%	319.47		%	198.38		%	227.57		%	286.78		%
Allowance for loan losses to total loans	1.51		%	1.55		%	1.59		%	1.33		%	1.31		%	1.42		%

The ~~net increase~~provision for loan losses for the quarter ended June 30, 2020 included an allocation of $1.9 million in ~~non-accrual loans since the prior periods was due~~general reserve factor increases related primarily to economic weakness caused by the ~~migration of two large commercial relationships~~pandemic and its impact on credit quality in the loan portfolio. The provision for the second quarter of ~~2017, totaling approximately $4.5 million that were also carried as adversely rated/impaired credits on~~2020 is discussed further under the ~~Company's "watched" credit~~heading "Results of Operations." Excluding the PPP loans, which are fully guaranteed by the SBA, the allowance for loan ~~listing for closer monitoring~~losses to total loan ratio was 1.58% at ~~September~~June 30, ~~2017. These additions, among others, were partially offset by principal paydowns and credit rating upgrades during the period.~~ 2020.

The majority of non-accrual loans were also carried as ~~impaired loans~~adversely classified during the ~~periods and the changes since December 31, 2016 are discussed further below.~~

periods. At ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, the Company had adversely classified loans (loans carrying "substandard," "doubtful" or "loss" classifications) amounting to ~~$29.2~~$41.0 million and ~~$34.3~~$37.1 million, respectively. Total adversely classified loans amounted to ~~1.32%~~1.29% of total loans at ~~September~~June 30, ~~2017 as~~2020, compared to ~~1.70%~~1.45% at December 31, ~~2016.~~ 2019.

Adversely classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become non-performing loans amounted to ~~$16.7~~$19.8 million at ~~September~~June 30, ~~2017~~2020 and ~~$25.1~~$22.4 million at December 31, ~~2016.~~2019. The remaining balances of adversely classified loans were non-accrual loans, amounting to ~~$12.5~~$21.3 million at ~~September~~June 30, ~~2017~~2020 and ~~$9.3~~$14.7 million at December 31, ~~2016.~~2019. Non-accrual loans that were not adversely classified amounted to $6$58 thousand and ~~$220~~$84 thousand at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, and primarily represented the guaranteed portions of non-performing SBA loans.

The ~~decline~~increase in ~~adversely classifieds~~non-performing loans since at June 30, 2020, was due primarily to ~~payoffs, net principal paydowns,~~commercial relationships which reached non-accrual status and ~~net~~were credit ~~rating upgrades~~downgraded due to their unique individual circumstances. These individual downgrades are not considered an indication of general credit weakness in the entire commercial portfolio and consisted of one commercial and industrial loan (in the amount of $2.3 million) and three unrelated commercial construction loans (amounting to $4.6 million in the aggregate); three of these relationships were also newly added to "Impaired" status during the ~~year, particularly of several commercial~~period. Management continues to closely monitor these relationships ~~based~~and the underlying business fundamentals on ~~a review of their individual business circumstances.~~ongoing construction projects and

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is in regular communication with the related entity's management teams. These efforts will allow us to quantify our exposure and apply the results to determine a reasonable provision for loan losses.

Total impaired loans amounted to $~~29.7~~33.5 million and $~~31.8~~31.9 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019, respectively. Total accruing impaired loans amounted to ~~$17.3~~$12.2 million and ~~$22.4~~$17.1 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively, while non-accrual impaired loans amounted to ~~$12.4~~$21.3 million and ~~$9.4~~$14.8 million as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, 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~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 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~~June 30, ~~2017~~2020, impaired loans totaling $~~23.7~~27.0 million required no specific reserves and impaired loans totaling $~~6.0~~6.5 million required specific reserve allocations of $~~2.2~~3.9 million. At December 31, ~~2016~~2019, impaired loans totaling $~~25.7~~29.5 million required no specific reserves and impaired loans totaling ~~$6.1~~$2.4 million required specific reserve allocations of ~~$2.6 million~~.$1.0 million. The increase in specific reserves since December 31, 2019 was due primarily to the credit downgrade of two commercial relationships, for which management determined that the additional provisions were necessary based on a review of underlying collateral values, individual business circumstances, and credit metrics. Management closely monitors ~~these~~all 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~~June 30, ~~2017~~2020 and December 31, ~~2016~~2019 were ~~$23.6~~$19.3 million and ~~$27.0~~$21.1 million, respectively. TDR loans on accrual status amounted to ~~$17.3~~$12.2 million and ~~$22.4~~$17.1 million at ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016,~~2019, respectively. TDR loans included in non-performing loans amounted to ~~$6.3 million and $4.6~~$7.1 million at ~~September~~June 30, ~~2017~~2020 and $4.0 million at December 31, ~~2016, respectively.~~2019. The Company continues to work with customers ~~particularly commercial relationships,~~ and enters into loan modifications (which may or may not be TDRs) to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and ~~future~~ prospects of the borrower.

The Company carried no OREO at September 30, 2017, December 31, 2016 and September 30, 2016. There were no additions, sales or writedowns on OREO during the nine months ended September 30, 2017 or 2016.

Allowance for Loan Losses

As noted above, the Company has elected to delay the implementation of CECL, as allowed under the CARES Act, which allows entities to delay adoption until the earlier of: (1) the date on which the national emergency concerning the pandemic declared under the National Emergencies Act terminates; or (2) December 31, 2020. Accordingly, the information that follows is under the incurred loss model.

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 probable credit risks associated with the portfolio. ~~Management closely monitors the~~The Company maintains a robust credit ~~quality of individual delinquent~~risk management culture and ~~non-performing relationships, industry concentrations, the local~~may adjust policies, procedures and ~~regional real estate market and current economic conditions.~~ practices as circumstances warrant.

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~~but due to the ~~2016 Annual Report on Form 10-K. Please refer to~~economic uncertainty from the pandemic, management has strengthened risk management over new originations and existing credits. See Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the ~~2016~~2019 Annual Report on Form ~~10-K for further discussion of management's methodology used~~10-K.

Management continues to ~~estimate a sufficient~~closely monitor the necessary allowance ~~for loan losses, the credit risk management function and adversely classified loan rating system.~~

levels, including specific reserves. The allowance for loan losses to total loans ratio was ~~1.51%~~1.33% at ~~September~~June 30, ~~2017, 1.55%~~2020, 1.31% at December 31, ~~2016,~~2019, and ~~1.59%~~1.42% at ~~September~~June 30, ~~2016.~~ 2019. Excluding PPP loans, which are fully guaranteed by the SBA, the allowance for loan losses to total loan ratio was 1.58% at June 30, 2020. This increase at June 30, 2020 compared to prior periods resulted from increases in general reserve factors, related primarily to economic weakness caused by the pandemic and its impact on credit quality in the loan portfolio, and to additional reserves related to classified and impaired loans, and to loan growth and other factors.

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~~June 30, ~~2017~~2020.

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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,						Six Months Ended June 30,
(Dollars in thousands)	2017			2016			2020			2019
Balance at beginning of year	$	31,342		$	29,008		$	33,614		$	33,849

Provision charged to operations	1,630			2,503
Provision for loan losses							8,822			555
Recoveries on charged-off loans:
Commercial real estate	193			20			—			—
Commercial and industrial	391			637			174			456
Commercial construction	—			—			—			—
Residential	—			—
SBA PPP loans							—			—
Residential mortgages							—			—
Home equity	3			2			6			5
Consumer	6			4			25			13
Total recoveries	593			663
Total recovered							205			474
Charged-off loans
Commercial real estate	—			179			—			—
Commercial and industrial	321			354			299			459
Commercial construction	—			5			—			—
Residential	—			—
SBA PPP loans							—			—
Residential mortgages							—			—
Home equity	—			5			—			—
Consumer	60			42			18			68
Total Charged off	381			585
Total charged-off							317			527

Net loans recovered	(212		)	(78		)
Ending Balance	$	33,184		$	31,589
Annualized net loans recovered: Average loans outstanding	(0.01		)%	(0.01		)%
Net loans charged-off							112			53
Ending balance							$	42,324		$	34,351
Annualized net loans charged-off to average loans outstanding							0.01		%	—		%

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.

Other real estate owned ("OREO")

The Company had no OREO at June 30, 2020 or December 31, 2019, and the OREO carrying value at June 30, 2019 was $255 thousand. There were no OREO additions during the six months ended June 30, 2020 and one addition during the six months ended June 30, 2019. There were no sales or subsequent write downs of OREO during the six months ended June 30, 2020 or 2019.

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Deposits

Total deposits as a percentage of total assets were 90% at June 30, 2020 and 86% at December 31, 2019.

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				June 30, 2020				December 31, 2019				June 30, 2019
(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													$	1,282,535	35.2	%	$	794,583	28.5	%	$	822,455	29.1	%
Interest-bearing checking													540,735		14.8	%	467,988		16.8	%	496,828		17.6	%
Total checking	1,077,187		46.8	%	1,018,811		44.9	%	992,864		44.7	%	1,823,270		50.0	%	1,262,571		45.3	%	1,319,283		46.7	%

Savings	198,595		8.6	%	178,637		7.9	%	181,653		8.2	%	243,647		6.7	%	203,236		7.3	%	209,477		7.3	%
Money markets	770,006		33.4	%	844,216		37.2	%	815,861		36.7	%	1,228,847		33.7	%	1,009,972		36.2	%	1,006,526		35.6	%
Total savings/money markets	968,601		42.0	%	1,022,853		45.1	%	997,514		44.9	%	1,472,494		40.4	%	1,213,208		43.5	%	1,216,003		42.9	%

Certificates of deposit (CD's)	174,393		7.6	%	167,895		7.4	%	171,891		7.7	%
CDs													277,347		7.6	%	310,951		11.2	%	294,862		10.4	%
Total customer deposits	2,220,181		96.4	%	2,209,559		97.4	%	2,162,269		97.3	%	3,573,111		98.0	%	2,786,730		100.0	%	2,830,148		100.0	%

Brokered deposits ⁽¹⁾	82,492		3.6	%	59,362		2.6	%	59,340		2.7	%	74,997		2.0	%	—		—	%	—		—	%
Total deposits	$	2,302,673	100.0	%	$	2,268,921	100.0	%	$	2,221,609	100.0	%	$	3,648,108	100.0	%	$	2,786,730	100.0	%	$	2,830,148	100.0	%


⁽¹⁾	Brokered CDs $250,000 and under.

As of ~~September~~June 30, ~~2017,~~2020, customer deposits ~~(deposits, excluding brokered deposits)~~ increased ~~$10.6 million, since~~ ~~December 31, 2016, and $57.9~~$786.4 million, or 3%28%, ~~since September 30, 2016. The increase~~ since December 31, ~~2016 was primarily~~2019, and $743.0 million, or 26%, since June 30, 2019. Since December 31, 2019, the largest growth occurred in ~~non-interest bearing~~ checking ~~account balances, largely offset~~accounts and to a lesser extent money markets. Deposit growth has been positively and significantly impacted by ~~declines~~the PPP, stimulus checks and the ongoing pandemic as the PPP loan monies were distributed into deposit accounts and many customers are proactively building liquidity in ~~money market account balances.~~response to the economic uncertainty caused by the pandemic. We anticipate that as customers spend down their PPP loan funds, this will result in a reduction in deposits.

~~Customer deposits include reciprocal money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our~~The Company offers its customers the ability to enhance FDIC insurance coverage by electing to participate a portion of their deposit balance into nationwide deposit networks. The Company’s total customer deposits reflect the equal and reciprocal deposits received from other banks' customers participating in ~~Company offered programs which allow for full FDIC insurance.~~the programs. 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~~$520.0 million, ~~$281.6~~$419.7 million and ~~$278.4~~$412.0 million at ~~September~~June 30, ~~2017,~~2020, December 31, ~~2016~~2019 and ~~September~~June 30, ~~2016,~~2019, respectively. Savings account are not eligible for this program.

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 utilizes~~Management may, from time-to-time, utilize 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.~~growth. Brokered deposits may be comprised of non-reciprocal insured overnight ~~money market deposits and~~or selected term ~~CDs~~funding gathered from nationwide bank networks or term deposits from large money center banks; however, at ~~September~~June 30, ~~2017, December 31, 2016, and September 30, 2016~~2020 the Company's $75.0 million in brokered deposits were comprised only of short-term brokered CDs. ~~Brokered~~These brokered CDs ~~increased $23.1 million, or 39%, at September 30, 2017 compared to December 31, 2016. Brokered CDs outstanding at September 30, 2017 had a weighted average remaining life of less than 1 year.~~are used in conjunction with cash flow hedge interest-rate swaps. See also "Wholesale Funding" below.

Borrowed Funds ~~and Subordinated Debt~~

~~Borrowed~~The Company had borrowed funds ~~comprised~~outstanding, all of which are FHLB advances, of $4.2 million, $96.2 million, and $484 thousand at June 30, 2020, December 31, 2019, and June 30, 2019, respectively. FHLB borrowings ~~amounted~~at June 30, 2020 are related to ~~$149.3 million at September 30, 2017, compared to $10.7 million at~~specific lending projects under the FHLB's community development program. At December 31, ~~2016 and $671 thousand at September~~2019, borrowed funds, consisted primarily of overnight advances, with the remaining balance related to the specific lending projects noted above.

At June 30, ~~2016. Borrowed fund balances have increased $138.6 million since year end as loan growth has outpaced deposit growth.~~

At ~~September 30, 2017~~,2020, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately ~~$340.0~~$575.0 million and the capacity to borrow from the FRB Discount Window of approximately ~~$120.0~~$180.0 million.

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In April 2020, the Company established access to the PPPLF, which provides funding secured by PPP pledged loans. Advances issued under the PPPLF are non-recourse. The amount and term of an advance matches the amount and remaining term of the PPP loans pledged. Due to deposit growth in large part from customers depositing funds received from PPP loan advances and generally maintaining higher liquidity in response to the pandemic, the Company did not have any borrowings outstanding under the PPPLF at June 30, 2020. The Bank had the capacity to borrow approximately $505.6 million under the PPPLF at June 30, 2020.

Wholesale Funding

Wholesale funding includes brokered deposits and borrowed funds as discussed above. Since December 31, 2019, wholesale funding has decreased $17.0 million, or 18%.

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:



	June 30, 2020				December 31, 2019				June 30, 2019
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Brokered deposits	$	74,997	94.7	%	$	—	—	%	$	—	—	%
Borrowed funds	4,165		5.3	%	96,173		100.0	%	484		100.0	%
Wholesale funding	$	79,162	100.0	%	$	96,173	100.0	%	$	484	100.0	%

The Company has the flexibility to use either brokered deposits or FHLB borrowings in conjunction with interest-rate swaps and in the second quarter, the Company shifted from FHLB borrowings to brokered CDs.

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~~June 30, ~~2017~~2020, December 31, ~~2016~~2019 and ~~September~~June 30, ~~2016,~~2019, 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.

On July 7, 2020, the Company completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes. These notes, with an initial fixed rate of 5.25%, are due in 2030 and redeemable at the option of the Company beginning on or after July 15, 2025.

See also Note 6,7, "Borrowed Funds and Subordinated Debt," to the Company's unaudited consolidated interim financial statements contained in Item 1 above in this Form 10-Q, for further information regarding the Company's subordinated debt.

Derivatives and Hedging

During the first quarter of 2020, the Company entered into three pay fixed, receive float interest rate swaps to hedge the variable cash flows associated with the Company's short-term wholesale funding to add stability to interest expense and to manage its exposure to interest rate movements. The combined notional value of these swaps, maturing in three to five years, was $75.0 million at June 30, 2020 and the fair value carried as a liability on the Company's Consolidated Balance Sheet was $3.3 million.

The Company also has a "Back-to-Back Swap" program whereby the Bank enters into an interest-rate swaps with qualified commercial banking customers and simultaneously enters into equal and opposite interest-rate swaps with a swap counterparty. The customer interest-rate swap agreement allows commercial banking customers to convert a floating-rate loan payment to a fixed-rate payment. The notional value of interest-rate swaps with customers increased to $38.9 million at June 30, 2020 from $22.8 million at December 31, 2019. The fair value of assets and corresponding liabilities associated with these swaps and carried on the Company's Consolidated Balance Sheets was $3.0 million at June 30, 2020 compared to $625 thousand at December 31, 2019.

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

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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~~June 30, ~~2017~~,2020, the Company's wholesale funding sources included primarily borrowing capacity at the FHLB and brokered deposits. In addition, the Company maintains uncommitted overnight fed fund purchase arrangements with correspondent banks, ~~and~~has access to the FRB Discount ~~Window.~~Window and has access to the PPPLF, which provides funding secured by PPP pledged loans.

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

The Company has in the past also increased capital and liquidity by offering for sale shares of the Company's common stock ~~for sale to its existing stockholders and new investors~~ and through the issuance of subordinated debt. On July 7, 2020, the Company completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes. See "Capital Resources," below for information on the Company's capital planning.

Capital Resources

Capital Raised and Capital Adequacy Requirements

Capital planning by the Company and the Bank considers current needs and anticipated future growth. ~~Historically, the primary sources of capital for the Company and the Bank have been common stock issuances and proceeds from the issuance of subordinated debt.~~ Ongoing sources of capital include the retention of earnings, less dividends paid, proceeds from the exercise of employee stock options and proceeds from purchases of shares pursuant to the ~~Company’s~~ 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 the Company's common stock and subordinated debt. The Company believes its current capital is adequate to support ongoing operations.

~~Since January 1, 2015, the~~The Company ~~has been~~is subject to ~~increasing~~the regulatory capital ~~ratios, with a phase in period that extends to January 2019, as a result of regulation adopted by the federal bank regulatory agencies~~framework known as the ~~“Basel~~"Basel III Rules.”

~~Table~~" As of ~~Contents~~

~~Management believes, as of September~~June 30, ~~2017, that~~2020, the Company and the Bank ~~meet~~met all capital adequacy requirements to which they were ~~subject.~~subject under Basel III. As of ~~September~~June 30, ~~2017,~~2020, the Company met the definition of ~~"well capitalized"~~"well-capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well capitalized" under the prompt corrective action regulations of Basel III and the FDIC.

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The Company's and the Bank's actual capital amounts and ratios ~~are presented~~ as of ~~September~~June 30, ~~2017~~2020 are presented 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		$	340,060	11.80	%	$	230,532	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		$	289,083	10.03	%	$	172,899	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		$	289,083	7.57	%	$	152,762	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		$	289,083	10.03	%	$	129,674	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	%	$	339,673	11.79	%	$	230,532	8.00	%	$	288,165	10.00	%
Tier 1 Capital (to risk weighted assets)	$	238,270	10.27	%	$	139,226	6.00	%	$	185,635	8.00	%	$	303,575	10.53	%	$	172,899	6.00	%	$	230,532	8.00	%
Tier 1 Capital (to average assets) or Leverage ratio	$	238,270	8.94	%	$	106,608	4.00	%	$	133,261	5.00	%	$	303,575	7.95	%	$	152,762	4.00	%	$	190,953	5.00	%
Common equity tier 1 capital (to risk weighted assets)	$	238,270	10.27	%	$	104,419	4.50	%	$	150,828	6.50	%	$	303,575	10.53	%	$	129,674	4.50	%	$	187,307	6.50	%

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

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

~~Under the~~The Basel III ~~rules,~~ capital ratio requirements ~~for all banking organizations increased and~~ include a "capital conservation ~~buffer,"~~buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. The capital conservation buffer requirement began to be phased in beginning in January 2016 at 0.625% of risk-weighted assets and will increase by that amount each year until fully implemented in January 2019. If a banking organization dips into its capital conservation buffer it may be restricted in its activities, including its ability to pay dividends and discretionary bonus payments to its executive officers. Both the Company's and the Bank's actual ratios, as outlined in the table above, ~~would exceed~~exceeded the Basel III risk-based capital requirement with ~~full~~the capital conservation buffer as of ~~September~~June 30, ~~2017.~~2020.

The Basel III minimum capital ratio requirements as applicable to the Company and the Bank ~~in 2019 after the full phase-in period~~at June 30, 2020 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
Total Capital (to risk weighted assets)	8.00%	2.50%	10.50%
Tier 1 Capital (to risk weighted assets)	6.00%	2.50%	8.50%
Tier 1 Capital (to average assets) or Leverage ratio	4.00%	—%	4.00%
Common equity tier 1 capital (to risk weighted assets)	4.50%	2.50%	7.00%

In response to the pandemic, in April 2020, the Company participated in both the PPP loan program and the PPPLF borrowing program. PPP loans are fully guaranteed by the SBA and have no impact on our risk-based capital ratios. PPP loans pledged as collateral for the PPPLF are excluded from the average assets used in the leverage ratio calculation. There are no PPP loans pledged as collateral for the PPPLF as of June 30, 2020.

In March 2020, the federal regulatory banking agencies issued an interagency interim final rule that allows banking institutions that implement CECL during 2020 to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period. The Company is currently assessing its options at this time, and will make its election when it adopts CECL. Upon adoption of CECL, the Company estimates a reduction to retained earnings in the range of $1.0 to $3.0 million, net of tax, with an effective date of January 1, 2020.

On July 7, 2020, the Company completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes due 2030 and redeemable at the option of the Company on or after July 15, 2025. Enterprise Bank’s pro

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forma capital ratios provided below reflect an anticipated $53.0 million capital investment from the Company related to the July 2020 subordinated debt issuance:

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



	Actual		Pro forma
Enterprise Bank	June 30, 2020		June 30, 2020
Total capital to risk weighted assets	11.79	%	13.58	%
Tier 1 capital to risk weighted assets	10.53	%	12.33	%
Tier 1 capital to average assets	7.95	%	9.21	%
Common equity tier 1 capital to risk weighted assets	10.53	%	12.33	%

DRSPP and Dividends

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.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, the Company ~~paid $4.7~~declared $4.2 million in cash dividends. Stockholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of ~~34,657~~24,831 shares of the Company's common stock, totaling ~~$1.1 million.~~$608 thousand. The direct purchase component of the DRSPP was used by stockholders to purchase ~~1,386~~1,424 shares of the Company's common stock, totaling ~~$47~~$34 thousand, during the ~~nine~~six months ended ~~September~~June 30, ~~2017.~~2020.

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On ~~October 17, 2017~~,July 21, 2020, the Company announced a quarterly dividend of $~~0.135~~0.175 per share to be paid on ~~December~~September 1, ~~2017~~2020 to stockholders of record as of ~~November 10, 2017~~August 11, 2020. ~~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 11, 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 Company's 2019 Annual Report on Form 10-K, respectively.

Assets Under Management

Total assets under management ~~includes~~include 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,~~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 June 30, 2020, investment assets under management, which are reflected at fair market value, ~~increased $75.2~~decreased $36.4 million, or ~~10%~~4%, since December 31, ~~2016~~2019, and since June 30, 2019, balances have increased ~~$90.7~~$23.0 million, or ~~13%~~3%. The decreases in investment assets under management since December 31, 2019 were driven primarily by the volatile financial markets stemming from the pandemic. Since March 31, 2020, investment assets under management have increased $87.0 million, or 11%, ~~since September~~due primarily to asset growth from market appreciation.

As of June 30, ~~2016.~~

~~Total~~2020, total assets under management increased ~~$280.1~~$763.7 million, or 8%18% since December 31, 2019 and $899.9 million, or 22% since June 30, 2019. Excluding PPP loans, total assets under management have increased $273.5 million, or 6%, since December 31, ~~2016~~2019 and ~~$351.2~~$263.6 million, or ~~11%~~6%, since ~~September 30, 2016.~~March 31, 2020.

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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		June 30, 2020		December 31, 2019		June 30, 2019
Total assets	$	2,725,472	$	2,526,269	$	2,470,849	$	4,037,229	$	3,235,049	$	3,167,518
Loans serviced for others	86,738		80,996		80,836		93,823		95,905		86,677
Investment assets under management	800,499		725,338		709,781		880,211		916,623		857,187
Total assets under management	$	3,612,709	$	3,332,603	$	3,261,466	$	5,011,263	$	4,247,577	$	4,111,382

Results of Operations

Three Months Ended ~~September~~June 30, ~~2017~~2020 vs. Three Months Ended ~~September~~June 30, ~~2016~~2019

Unless otherwise indicated, the reported results are for the three months ended ~~September~~June 30, ~~2017~~2020 with the "same period," the "comparable period," and "prior period" being the three months ended ~~September~~June 30, ~~2016.~~2019. Average yields are presented on aan annualized tax equivalent basis.

The Company's net income for the ~~third~~second quarter of ~~2017~~2020 amounted to ~~$5.5~~$7.3 million, compared to ~~$4.7~~$7.8 million for the same period in ~~2016, an increase of $792 thousand, or 17%.~~2019. Diluted earnings per share were ~~$0.47~~$0.61 and ~~$0.41~~$0.66 for the three months ended ~~September~~June 30, ~~2017~~2020 and ~~September~~June 30, ~~2016, respectively, an increase~~2019, respectively.

The net income results for the quarter ended June 30, 2020 compared to the prior year quarter results were impacted by PPP loan originations and the pandemic. The provision for loan losses increased as the Company added to general reserves to address the impact of ~~15%.~~the pandemic on the economy and the Company's loan portfolio. Net interest income increased mainly from loan growth and PPP loan related income, partially offset by a lower spread principally due to lower market interest rates. Operating expenses increased for the quarter ended June 30, 2020 compared to the prior period, due primarily to the Company’s strategic growth initiatives, and also from higher salary and benefit costs related to the pandemic, including our team members’ PPP loan origination effort in the second quarter.

Net Interest Income and Margin

The Company's net interest income for the quarter ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$25.1~~$32.5 million, compared to ~~$21.8~~$28.8 million for the quarter ended ~~September~~June 30, ~~2016,~~2019, an increase of ~~$3.3~~$3.7 million, or ~~15%~~13%. The Company's margin was 3.55% for three months ended June 30, 2020, compared to 3.91% for the quarter ended June 30, 2019. Margin was 3.84% for the quarter ended March 31, 2020.

Tax equivalent net interest income for the three months ended June 30, 2020 was $32.9 million compared to $29.2 million for the three months ended June 30, 2019, an increase of $3.7 million, or 13%. T/E margin was 3.59%, 3.89%, and 3.96% for the three months ended June 30, 2020, March 31, 2020, and June 30, 2019, respectively. Excluding PPP loans, T/E margin for the three months ended June 30, 2020 was 3.68%.

The increase in net interest income was due largely to interest-earning asset growth, primarily in loans, partially offset by a decline in T/E margin. The Company recognized $948 thousand in PPP interest income and $1.6 million in PPP fees, accreted to interest income, during the second quarter.

The lower margin results primarily reflect the significant decline in interest rates since the comparable periods noted above resulting in interest-earning asset yields declining faster than the cost of funding. Interest-earning asset yields have been impacted by a 225 basis-point decrease in the federal funds rate ("fed funds") since June 30, 2019, with 150 basis points of that total decline occurring in March 2020. Term interest rates have also fallen significantly over the respective periods noted above and collectively these interest rate decreases have reduced yields on loans repricing, short-term and overnight investments and interest-earning asset growth. Margin for the June 2020 quarter was also impacted by higher balances in lower-yielding short-term and overnight investments than the comparable periods. The Company funds these interest-earning assets principally through non-term customer deposits, which were less impacted by interest rate declines.

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Interest and Dividend Income

For the second quarter of 2020, total interest and dividend income amounted to $36.2 million, an increase of $1.9 million, or 5%, compared to the prior period. The increase resulted primarily from an increase of $661.4 million, or 28%, in average balances of loans and loans held for sale, partially offset by lower yields on interest-earning assets. Average T/E loan yields have declined 80 basis points and other interest-earning asset yields have decreased 221 basis points compared to the prior period. See the "Net Interest Income and Margin" discussion above for further information on the decrease in interest rates.

Interest Expense

For the three months ended June 30, 2020, total interest expense amounted to $3.6 million, a decrease of $1.9 million, or 34%, compared to the same period ~~was~~in 2019, due primarily to ~~revenue generated from~~decreases in the deposit rates, mainly checking, saving and money markets. The average cost of checking, saving and money markets decreased 53 basis points and the average cost of CDs decreased 16 basis points.

Deposit growth in the June 30, 2020 quarter has been positively and significantly impacted by the PPP loan ~~growth~~funds, stimulus checks and the ongoing pandemic as the PPP loan monies were distributed into deposit accounts and many customers are proactively building liquidity in response to ~~a lesser extent~~the economic uncertainty caused by the pandemic.

Non-interest-bearing checking accounts are an ~~increase~~important component of the Company's core funding strategy. For the three months ended June 30, 2020, the average balance of non-interest-bearing checking accounts increased $386.5 million, or 50%, as compared to the same period in ~~rate.~~

~~Net Interest Margin~~

~~The Company's margin was 4.03%~~2019, and represented 34% and 28% of total average deposit balances for the three months ended ~~September 30, 2017 compared to 3.86% for the quarter ended September 30, 2016. Margin was 3.90% for the quarter ended~~ June 30, ~~2017. Margin has increased since~~2020 and June 30, 2019, respectively.

Interest rate risk is reviewed in detail under the ~~same period in the prior year primarily to loan~~heading Item 3, "Quantitative and ~~investment yields increasing at a faster rate than cost of funds.~~Qualitative Disclosures About Market Risk," below.

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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~~June 30, ~~2017~~2020 compared to the three months ended ~~September~~June 30, ~~2016.~~2019. 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)													$	2,265		$	7,707		$	(5,442	)
Investment securities (tax-equivalent)													66			149			(83		)
Other interest-earning assets ⁽¹⁾													(518		)	201			(719		)
Total interest-earning assets (tax-equivalent)													1,813			8,057			(6,244		)
Interest Expense
Interest checking, savings and money market	230			48			164			18			(1,991		)	483			(2,474		)
Certificates of deposit	75			(1		)	78			(2		)	(137		)	(19		)	(118		)
Brokered CDs	66			54			8			4			56			85			(29		)
Borrowed funds	167			101			2			64			180			—			180
Subordinated debt	(1		)	—			(1		)	—			(1		)	—			(1		)
Total interest-bearing funding	537			202			251			84			(1,893		)	549			(2,442		)
Change in net interest income	$	3,317		$	2,447		$	907		$	(37	)
Change in net interest income (tax-equivalent)													$	3,706		$	7,508		$	(3,802	)


⁽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~~June 30, ~~2017~~2020 and ~~2016.~~2019:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS


	Three Months Ended September 30, 2017						Three Months Ended September 30, 2016						Three months ended June 30, 2020						Three months ended June 30, 2019
(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)													$	3,056,052	$	32,822	4.32	%	$	2,394,688	$	30,557	5.12	%
Investments ⁽³⁾(tax equivalent)													477,117		3,613		3.03	%	458,316		3,547		3.10	%
Other interest-earning assets ⁽⁴⁾													148,408		79		0.21	%	98,994		597		2.42	%
Total interest-earning assets (tax equivalent)													3,681,577		36,514		3.99	%	2,951,998		34,701		4.71	%
Other assets	110,750						108,485						160,077						133,269
Total assets	$	2,671,622					$	2,440,636					$	3,841,654					$	3,085,267

Liabilities and stockholders' equity:
Int chkg, savings and money market	$	1,396,589	883		0.25	%	$	1,300,326	653		0.20	%
Interest checking, savings and money market													$	1,920,764	1,750		0.37	%	$	1,675,636	3,741		0.90	%
Certificates of deposit	170,500		372		0.87	%	171,105		297		0.69	%	291,003		1,335		1.84	%	294,756		1,472		2.00	%
Brokered CDs	84,649		254		1.19	%	65,688		188		1.14	%	40,382		135		1.33	%	16,735		79		1.89	%
Borrowed funds	53,181		169		1.26	%	1,095		2		0.77	%	59,786		180		1.21	%	485		—		—	%
Subordinated debt ⁽⁵⁾	14,842		233		6.23	%	14,829		234		6.26	%	14,877		230		6.24	%	14,864		231		6.22	%
Total interest-bearing funding	1,719,761		1,911		0.44	%	1,553,043		1,374		0.35	%	2,326,812		3,630		0.63	%	2,002,476		5,523		1.11	%

Net interest rate spread					3.89	%					3.74	%
Net interest-rate spread (tax equivalent)																	3.36	%					3.60	%

Demand deposits	704,177		—				656,158		—
Non-interest checking													1,164,058		—				777,564		—
Total deposits, borrowed funds and subordinated debt	2,423,938		1,911		0.31	%	2,209,201		1,374		0.25	%	3,490,870		3,630		0.42	%	2,780,040		5,523		0.80	%
Other liabilities	17,714						17,224						39,965						33,645
Total liabilities	2,441,652						2,226,425						3,530,835						2,813,685

Stockholders' equity	229,970						214,211						310,819						271,582
Total liabilities and stockholders' equity	$	2,671,622					$	2,440,636					$	3,841,654					$	3,085,267

Net interest income (tax equivalent)															32,884						29,178
Net interest margin (tax equivalent)																	3.59	%					3.96	%
Less tax equivalent adjustment															358						400
Net interest income			$	25,134					$	21,817					$	32,526					$	28,778
Net interest margin (tax equivalent)					4.03	%					3.86	%
Net interest margin																	3.55	%					3.91	%

⁽¹⁾

Average yields and interest income are presented on a tax equivalent ~~basis. The~~basis, calculated using a U.S. federal income tax rate of 21% in both 2020 and 2019, based on tax equivalent ~~effect~~adjustments associated with tax exempt loans and investments ~~which was not included in the~~ interest ~~amount above, was $845 thousand and $778 thousand for the quarters ended September 30, 2017 and September 30, 2016, respectively.~~income.


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


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


⁽⁴⁾	Average other ~~interest earning~~interest-earning assets include ~~interest earning~~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 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~~

For the three months ended September 30, 2017, total interest expense amounted to $1.9 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 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 increases 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 provision for loan losses under the incurred loss model amounted to ~~$1.2~~$2.7 million for the three months ended ~~September~~June 30, ~~2017, a decrease~~2020, an increase of ~~$161 thousand~~$1.7 million, compared to the ~~same period last year.~~ prior period. The provision for the quarter ended June 30, 2020 consisted of $1.9 million in general reserve factor increases related primarily to economic weakness caused by the pandemic and its impact on credit quality in the loan portfolio, and $800 thousand related to classified and impaired loans.

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~~2019 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~~June 30, ~~2017~~2020 amounted to ~~$3.4~~$4.0 million, a decrease of ~~$504~~$30 thousand, or ~~13%~~1%, as compared to the same ~~period.~~period in 2019. The ~~significant changes~~primary components of the quarter over quarter change are ~~discussed below:~~as follows:

~~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~~deposit account activity combined with higher balances in customer accounts and less consumer spending resulting in lower interchange activity.

Net gains on sales of debt securities decreased as the Company did not have any sales in the ~~third~~second quarter of ~~2017 compared~~2020.

Net gains on loan sales increased due primarily to ~~the same period in 2016.~~higher volume of loans originated for sale.

Non-Interest Expense

Non-interest expense for the three months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$18.8~~$24.3 million, an increase of ~~$1.4~~$2.6 million, or 8%12%, compared to the prior ~~period in 2016.~~period. The ~~significant changes~~primary components of the quarter over quarter change are ~~discussed below:~~as follows:

Salaries and ~~employee~~ benefits increased ~~by $1.2 million, or 11%,~~due primarily to ~~support~~ the Company's strategic growth initiatives. There were also several pandemic associated expense items in the quarter including discretionary awards to recognize team contributions including the successful PPP loan effort, among others.

Technology and ~~market expansion initiatives since~~telecommunications increased due primarily to higher infrastructure costs and expenses associated with the ~~prior period.~~Company's multi–year digital evolution strategy to enhance operating efficiency and customer experience.

~~Occupancy~~Advertising and ~~equipment expense~~ ~~increased~~ by ~~$134 thousand, or~~ 7%~~, mainly~~public relations costs decreased as the Company's business development costs were less due to ~~investments~~the pandemic and the focus on PPP loan originations.

Audit, legal and other professional fees increased primarily in ~~our facilities, including new branches,~~other professional fees, which includes, among other things, consulting and professional expenses associated with the ~~overall branch network,~~Company's digital evolution strategy.

Deposit insurance premiums increased due primarily to increased FDIC assessment factors and ~~operations buildings.~~

asset growth.

Other operating expenses decreased due primarily to the pandemic resulting in lower employee-related expenses such as training, dues and entertainment, and travel.

Income Taxes

The effective tax rate for the three months ended ~~September~~June 30, ~~2017,~~2020 was ~~35.4%~~23.9%, compared to ~~32.3%~~23.2% for the three months ended ~~September~~June 30, ~~2016. The increase in rate was primarily due to higher levels~~2019.

Table of ~~projected taxable income.~~Contents

Results of Operations

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2020 vs. ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2019

Unless otherwise indicated, the reported results are for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 with the "same period," the "comparable period," "prior year," and "prior period" being the ~~nine~~six months ended ~~September~~June 30, ~~2016~~2019. Average yields are presented on aan annualized tax equivalent basis.

Net Income

The Company's net income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 amounted to $~~16.7~~11.3 million, compared to $~~13.8~~16.5 million for the same period in ~~2016~~, ~~an increase~~ of ~~$2.9 million, or~~ ~~21%~~2019. Diluted earnings per share were $~~1.43~~ ~~and $1.27~~0.95 for the ~~nine~~six months ended ~~September~~June 30, ~~2017 and~~ ~~September 30, 2016, respectively, an increase of 13%. Diluted weighted average common shares outstanding~~2020, compared to $1.39 for the ~~nine~~six months ended ~~September~~June 30, ~~2017 include~~2019.

Net income results for the ~~full~~six months ended June 30, 2020 compared to the same period in the prior year were impacted by the PPP and the pandemic. The provision for loan losses increased, primarily in the first quarter, as the Company added to general reserves to address the impact of the ~~930,232 shares of common stock issued~~pandemic on the economy and the Company's loan portfolio. Net interest income increased mainly from loan growth and PPP-related income in the ~~Company’s 2016 equity offering, while the respective weighted average~~second quarter, partially offset by a lower spread principally due to lower market interest rates. Operating expenses increased for the ~~2016 period was only affected~~six months ended June 30, 2020 compared to the prior year, due primarily to the Company’s strategic growth initiatives, and also from higher salary and benefit costs related to the ~~issue date of June 23, 2016 through period end.~~pandemic, including our team members’ PPP loan origination effort in the second quarter.

Net Interest Income and Margin

The Company's net interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~ ~~was~~ ~~$71.5~~2020 amounted to $62.4 million, compared to ~~$64.2~~$56.9 million for the ~~nine~~six months ended ~~September~~June 30, ~~2016~~,2019, an increase of ~~$7.3~~$5.6 million,, or ~~11%~~10%. The Company's margin was 3.68% for the six months ended June 30, 2020 and was 3.91% for the six months ended June 30, 2019.

Tax equivalent net interest income for the six months ended June 30, 2020 was $63.1 million compared to $57.7 million for the six months ended June 30, 2019, an increase of $5.5 million, or 9%. T/E margin was 3.73% and 3.97% for the six months ended June 30, 2020 and 2019, respectively. Excluding PPP loans, T/E margin for the six months ended June 30, 2020 was 3.78%.

The increase in net interest income over the comparable period was due largely to interest-earning asset growth, primarily in loans, partially offset by a decrease in margin. As previously noted, the Company recognized $948 thousand in PPP interest income and $1.6 million in PPP fees, accreted to interest income, during the second quarter.

As with the second quarter, the lower margin results primarily reflect the significant decline in interest rates since the comparable period resulting in interest-earning asset yields declining faster than the cost of funding. Interest-earning asset yields have been impacted by a 225 basis point decrease in the fed funds rate since June 30, 2019, with 150 basis points of that total decline occurring in March 2020. Term interest rates have also fallen significantly over the respective period and collectively these interest rate decreases have reduced yields on loans repricing, short-term and overnight investments and interest-earning asset growth. The Company funds these interest-earning assets principally through non-term customer deposits, which were less impacted by interest rate declines.

Interest and Dividend Income

Total interest and dividend income amounted to $71.1 million for the six months ended June 30, 2020, an increase of $3.5 million, or 5%, compared to the prior period. The increase was attributed primarily to ~~revenue generated from~~a $443.1 million, or 19%, increase in the average balances of loans and loans held for sale, partially offset by lower yields on interest-earning assets. Average tax equivalent loan ~~growth.~~yields have declined 53 basis points and the yield on other interest earning assets has decreased 197 basis points. See the "Net Interest Income and Margin" discussion above for further information on the decrease in yields.

Interest Expense

For the six months ended June 30, 2020, total interest expense amounted to $8.7 million, a decrease of $2.1 million, or 19%, over the same period in 2019 due primarily to decreases in the cost of funding, partially offset by increases in average balances of checking, saving and money market accounts. The average cost of funding, including the impact of non-interest deposit accounts balances, decreased 25 basis points. The average balance of checking, savings and money market accounts increased $191.6 million, or 12%, and the average balance of borrowed funds increased $57.1 million.

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~~Net Interest Margin~~

~~The Company's margin was 3.95%~~Deposit growth for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2020, primarily in the second quarter, has been positively and ~~was relatively flat~~significantly impacted by the PPP loan funds, stimulus checks and the ongoing pandemic as the PPP loan monies were distributed into deposit accounts and many customers are proactively building liquidity in response to the economic uncertainty caused by the pandemic.

Non-interest deposit accounts are an important component of the Company's core funding strategy. For the six months ended June 30, 2020, the average balance of non-interest checking accounts increased $218.6 million, or 29%, as compared to the ~~margin~~same period in 2019. This non-interest-bearing funding source represented 32% and 28% of total average deposit balances for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020 and June 30, 2019, respectively.

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

Rate / Volume Analysis

The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020, compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~.2019. 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	$	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		)
Loans and loans held for sale (tax equivalent)													$	3,934		$	10,832		$	(6,898	)
Investment securities (tax equivalent)													289			427			(138		)
Other interest-earning assets ⁽¹⁾													(812		)	102			(914		)
Total interest-earning assets (tax equivalent)													3,411			11,361			(7,950		)

Interest Expense
Interest checking, savings and money market	601			231			368			2			(2,228		)	743			(2,971		)
Certificates of deposit	144			(12		)	152			4
CDs													11			41			(30		)
Brokered CDs	47			(47		)	103			(9		)	(156		)	(85		)	(71		)
Borrowed funds	343			127			83			133			316			478			(162		)
Subordinated debt	(3		)	—			(3		)	—			2			1			1
Total interest-bearing funding	1,132			299			703			130			(2,055		)	1,178			(3,233		)
Change in net interest income	$	7,327		$	7,985		$	(342	)	$	(316	)
Change in net interest income (tax equivalent)													$	5,466		$	10,183		$	(4,717	)


⁽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 ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016~~.

2019:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS


	Nine months ended September 30, 2017						Nine months ended September 30, 2016						Six months ended June 30, 2020						Six months ended June 30, 2019
(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⁾	$	2,098,992	$	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	%
Loans and loans held for sale⁽²⁾ (tax equivalent)													$	2,826,991	$	64,248	4.57	%	$	2,383,928	$	60,314	5.10	%
Investment securities⁽³⁾(tax equivalent)													482,820		7,329		3.04	%	454,885		7,040		3.10	%
Other interest-earning assets⁽⁴⁾													94,678		244		0.52	%	85,629		1,056		2.49	%
Total interest-earnings assets (tax equivalent)													3,404,489		71,821		4.24	%	2,924,442		68,410		4.71	%
Other assets	107,542						104,158						154,501						129,291
Total assets	$	2,613,555					$	2,344,277					$	3,558,990					$	3,053,733

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	%
Interest checking, savings and money market													$	1,815,978	4,650		0.51	%	$	1,624,366	6,878		0.85	%
CDs													299,392		2,840		1.91	%	294,939		2,829		1.93	%
Brokered CDs	74,584		664		1.19	%	80,782		617		1.02	%	20,191		135		1.33	%	31,188		291		1.88	%
Borrowed funds	50,179		422		1.12	%	19,281		79		0.55	%	78,489		595		1.52	%	21,361		279		2.64	%
Subordinated debt ⁽⁵⁾	14,839		692		6.23	%	14,826		695		6.26	%	14,875		461		6.24	%	14,863		459		6.23	%
Total interest-bearing funding	1,692,375		5,231		0.41	%	1,515,688		4,099		0.36	%	2,228,925		8,681		0.78	%	1,986,717		10,736		1.09	%

Net interest rate spread					3.82	%					3.85	%
Net interest-rate spread (tax equivalent)																	3.46	%					3.62	%

Demand deposits	680,817		—				616,686		—
Non-interest checking													983,326		—				764,718		—
Total deposits, borrowed funds and subordinated debt	2,373,192		5,231		0.29	%	2,132,374		4,099		0.26	%	3,212,251		8,681		0.54	%	2,751,435		10,736		0.79	%
Other liabilities	16,732						15,572						40,098						36,673
Total liabilities	2,389,924						2,147,946						3,252,349						2,788,108

Stockholders' equity	223,631						196,331						306,641						265,625
Total liabilities and stockholders' equity	$	2,613,555					$	2,344,277					$	3,558,990					$	3,053,733

Net interest income (tax equivalent)															63,140						57,674
Net interest margin (tax equivalent)																	3.73	%					3.97	%
Less tax equivalent adjustment															718						812
Net interest income			$	71,516					$	64,189					$	62,422					$	56,862
Net interest margin (tax equivalent)					3.95	%					3.96	%
Net interest margin																	3.68	%					3.91	%

⁽¹⁾

Average yields and interest income are presented on a tax equivalent ~~basis. The~~basis, calculated using a U.S. federal income tax rate of 21% in both 2020 and 2019, based on tax equivalent ~~effect~~adjustments associated with tax exempt 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.~~income.


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


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


⁽⁴⁾	Average other ~~interest earning~~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.

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~~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 under the incurred loss model amounted to ~~$1.6~~amounted to $8.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, a~~ ~~decrease~~2020, an increase of ~~$873 thousand~~$8.3 million, compared to the same period ~~last year.~~in 2019. The ~~decrease in the~~ provision for the ~~nine~~six months ended ~~September~~June 30, ~~2017 was due~~2020 consisted of $5.2 million in general reserve factor increases related primarily to ~~generally improved~~economic weakness caused by the pandemic and its impact on credit quality ~~metrics~~in the loan portfolio, $2.3 million related to classified and ~~underlying collateral values, partially offset by increased~~impaired loans and $1.3 million related to loan growth ~~compared to the prior year~~.and other factors.

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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~~"Financial Condition" section of ~~Management's~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations" in the Company's ~~2016~~2019 Annual Report on Form 10-K.

Non-Interest Income

Non-interest income for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$11.5~~$8.2 million,, an increase of ~~$781~~$332 thousand,, or 7%4%, as compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016~~.2019. The ~~significant changes~~primary components of the increase are ~~discussed below:~~as follows:

~~Investment advisory fees increased by $210 thousand, or 6%, 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~~loan sales ~~decreased $126 thousand, or 21%. Net gains on securities sales were lower~~increased due primarily to a higher volume of loans originated for sale, particularly in the ~~current year predominately~~second quarter of this year.

Other non-interest income decreased slightly mainly due to ~~gains on~~decreases in equity ~~sales, largely~~investment fair values, partially offset by ~~losses realized from a debt security portfolio restructuring.~~derivative fee income in the first quarter of this year.

Non-Interest Expense

Non-interest expense for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 amounted to ~~$57.0~~$47.0 million,, an increase of ~~$5.2~~$4.4 million,, or 10%, compared to the same period in ~~2016~~.2019. The significant changes in non-interest expense are ~~discussed below:~~as follows:

Salaries and ~~employee~~ benefits increased by ~~$4.2 million, or~~ ~~13%, since the prior period,~~ due primarily to ~~support~~ the Company's strategic growth ~~and market expansion~~ initiatives.

There were also several pandemic associated expense items in the quarter including discretionary awards to recognize team contributions including the successful PPP loan effort, among others.

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

Technology and telecommunications ~~expense~~ increased ~~$241 thousand, or 5%,~~due primarily ~~as a result of investments in our network~~to higher infrastructure costs and ~~security, to improve our service capabilities and~~expenses associated with the Company's multi–year digital evolution strategy to enhance operating efficiency and customer experience.

Advertising and public relations costs decreased primarily in the second quarter as the Company's business ~~continuity.~~development costs were less due to the pandemic and the focus on PPP loan originations.

Audit, legal and other professional fees increased primarily in other professional fees, which includes, among other things, consulting and professional expenses ~~decreased by $183 thousand, or 15%, primarily due to a reduction of $101 thousand in audit and related fees compared to~~associated with the ~~same period in 2016.~~Company's digital evolution strategy.

Deposit insurance premiums increased by ~~$133 thousand, or 13%,~~ primarily in the second quarter due mainly to increased FDIC assessment factors and asset growth.

Other operating expenses decreased largely in the second quarter of 2020 due primarily to ~~changes~~the pandemic resulting in ~~the FDIC's assessment methodology in late 2016, which applied to all banks,~~lower employee-related expenses such as training, dues and ~~the Company's growth.~~

entertainment, and travel.

Income Taxes

The effective tax rate was 23.8% and 23.7% for the ~~nine~~six months ended ~~September~~June 30, ~~2017 was 31.7%, compared~~2020 and June 30, 2019, respectively.

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Risk Management Framework

Management utilizes a comprehensive enterprise risk management framework that enables a coordinated and structured approach for identifying, assessing and managing risks across the Company and provides reasonable assurance that management has the tools, programs, people, and processes in place to ~~33.0%~~support informed decision making, anticipate risks before they materialize and maintain the Company's risk profile consistent with its strategic planning, and applicable laws and regulations.

These risks, and the decisions related thereto, include, but are not limited to: credit risk, market and interest rate risk, legal and regulatory compliance risk, reputational risk, strategic risk, capital risk, compensation risk, liquidity management, information technology and cybersecurity risk, internal controls over financial reporting, physical security, loss and fraud prevention, policy reviews, vendor management (direct and indirect vendors) and contract management, business continuity and succession planning, short and long-term capital projects and facility planning, and corporate governance. See Part I, Item 1, "Business," under the "Risk Management Framework," section of the Company's 2019 Annual Report on Form 10-K for additional information on the Company's key risk mitigation strategies.

This Form 10-Q discusses certain key risks facing the Company and the Bank, including the following:

Credit risk management is reviewed in detail in this Item 2 under the heading "Credit Risk," above.

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 2 under the heading "Liquidity, " above.

Capital adequacy risk and regulatory requirements are reviewed in this Item 2, under the heading "Capital Resources" above.

Interest-rate risk is reviewed under Part I, Item 3, "Quantitative and Qualitative Disclosures About Market Risk," below.

In addition, certain heightened risks associated with the ongoing pandemic are outlined in Part II, Item 1A, "Risk Factors," in this Form 10-Q, below.

In January 2020, management activated our pandemic response team in light of the ongoing pandemic and have utilized established business continuity protocols since that time to provide uninterrupted service to our customers and communities. The pandemic response team quickly coordinated resources and responses across the Bank in order to (i) provide for the ~~nine months ended September 30, 2016. The decrease~~safety of our team members, customers, and business partners, (ii) maintain sound business operations, and (iii) minimize the risks identified above. Team leaders are in ~~rate was due primarily~~constant communication and continually strategize and implement coordinated efforts to mitigate the risk identified above, among others. We have modified our protocols and procedures as circumstances have evolved and we will continue to monitor the impact of the pandemic on many fronts as the pandemic continues longer than originally expected, and as activities shift towards reopening of local economies and business activity.

In addition to the ~~implementation~~risks outlined in this Form 10-Q, numerous other factors that could adversely affect the Company's future results of ~~a new accounting pronouncement (ASU No. 2016-09) related to stock-based compensation accounting~~operations and financial condition, and its reputation and business model, are addressed in Part I, Item 1A, "Risk Factors," of the Company's 2019 Annual Report on Form 10-K.

Accounting Policies/Critical Accounting Estimates

As discussed in the ~~first quarter~~Company's 2019 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 materially changed its significant accounting and reporting policies from those disclosed in its 2019 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 1, Item (e), ~~“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~~Company can be subject to margin compression depending on the ~~responsibility~~economic environment and the shape 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 to changes in interest rates, within certain tolerance levels.yield curve. 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 simulation of the Company's net interest income under various interest rate scenarios. Variations in the interest rate environment affect numerous factors, including prepayment speeds, reinvestment rates, maturities of investments (due to call provisions), and interest rates on various asset and liability accounts.

~~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~~June 30, ~~2017, management continues to consider~~2020, the Company's primary ~~interest rate~~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 within liabilities.

The Company’s net interest income sensitivity results at June 30, 2020 compared to December 31, 2019 were impacted primarily by both an increase in the Company’s on balance sheet liquidity and from a decrease in customer deposit rates. Under the ~~liability side.~~Company’s static balance sheet model, relative to the December 31, 2019 results, the Company’s model results improved when interest rates increase primarily due to the increase in on balance sheet liquidity. When interest rates decrease, the Company’s results are worse than December 31, 2019 primarily due to customer deposit rates, which are at very low levels at June 30, 2020 with limited capacity for further meaningful decline. The increased liquidity at June 30, 2020 had less impact when interest rates decreased due to short-term investment rates being near zero.

The net interest income sensitivity model assumed a static balance sheet and did not forecast an increase in liquidity from potential PPP loan forgiveness, which absent any other significant balance sheet changes, would increase the Company’s on balance sheet liquidity and therefore increase the Company’s asset sensitivity as described above. Refer to heading ~~“Results~~"Results of ~~Operations”~~Operations" contained within ~~Management’s~~Item 2, "Management's Discussion and Analysis of Financial Condition and Results of ~~Operations~~Operations" of this Form 10-Q for further discussion of margin.

The following table summarizes the results from the Company’s net interest income simulation model and compares the percent change in net interest income to the rates unchanged scenario, for a 24-month period at June 30, 2020 and December 31, 2019. These results are subject to various assumptions as reported in Part II, Item 7A, “Quantitative and Qualitative Disclosures About Market Risk” of the Company's 2019 Annual Report on Form 10-K.

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	June 30, 2020		December 31, 2019
(Dollars in thousands)	Percentage Change		Percentage Change
Changes in interest rates
Rates Rise 400 Basis Points	4.93	%	0.77	%
Rates Rise 200 Basis Points	2.75	%	0.83	%
Rates Unchanged	—	%	—	%
Rates Decline 100 Basis Points	(3.14	)%	(1.24	)%


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~~June 30, ~~2017~~2020.

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Changes in Internal Control over Financial Reporting

There ~~has~~have been no ~~change~~significant changes 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~~June 30, ~~2017~~2020) 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~~Except as provided in the risk factors below, management believes that there have been no material changes in the Company's risk factors as reported in the Company's ~~2016~~2019 Annual Report on Form 10-K. If the effect of the COVID-19 pandemic ("pandemic") continues for a prolonged period, or results in sustained economic stress or recession, many of the risk factors identified in the Company's 2019 Annual Report on Form 10-K could become heightened and such effects could have a material adverse impact on the Company in a number of ways related to credit, collateral, customer demand, funding, operations and interest rate risk, as described in more detail below.

General

The pandemic has caused continued extensive disruption to the economy, impacted interest rates, increased economic and financial market uncertainty, disrupted global trade and supply chains and brought about historic unemployment levels. In addition, many state and local governments responded to the pandemic with the temporary closure of brick-and-mortar "non-essential" businesses, schools, and limitations on social gatherings, stay-at-home advisories and mandates, and travel bans and restrictions. Although many of these restrictions have eased or been lifted, these restrictions have resulted in significant adverse effects on our customers and business partners, particularly those in the retail, hospitality and food and beverage industries, among many others, including a significant number of layoffs and furloughs of employees nationwide, and in the regions and communities in which we operate. Nationwide attempts to gradually reopen commerce have, in some areas, been met with a resurgence in reported COVID-19 cases, and the decision to scale back on or delay the opening the economy. The phased-in approach to reopen certain parts of the Massachusetts and New Hampshire economies may leave certain types of businesses closed until a there is a treatment or vaccine for COVID-19. The long-term consequences experienced by our customers and businesses may, in turn, have a material adverse impact on our business, financial condition and results of operations, as more specifically discussed below.

Lending & Credit Risk

The majority of our loan portfolio consists of commercial real estate, commercial and industrial, and commercial construction loans. Concern over the pandemic has caused and may continue to cause business shutdowns, limitations on commercial activity and financial transactions, labor shortages, supply chain interruptions, increased unemployment, increased commercial property vacancy rates, and the reduced ability for property tenants to make lease payments, all of which may cause our customers to be unable to make scheduled loan payments.

If the effects of the pandemic result in widespread and sustained repayment shortfalls on loans in our portfolio, we will incur significant loan delinquencies and non-accrual of interest, which may result in foreclosures and credit losses, particularly if the available collateral is insufficient to cover our exposure. The future effects of the pandemic on economic activity could negatively affect the collateral values associated with our existing loans, the ability to liquidate the real estate collateral securing our commercial real estate and residential loans, our ability to maintain loan origination volume and our ability to obtain additional collateralized funding. Further, in the event of delinquencies, changes in regulations and policies designed to protect borrowers may slow or prevent us from making our business decisions or may result in a delay in our taking certain remedial actions, such as foreclosures. In addition, we have unfunded commitments to extend credit to customers. During a challenging economic environment, our customers may be more dependent on our credit commitments, and any increased borrowings by the Company to fund these commitments could adversely impact our liquidity.

Furthermore, in an effort to support our communities during the pandemic, we are participating in the Paycheck Protection Program ("PPP"). If the borrower under a PPP loan fails to qualify for loan forgiveness, we are at the heightened risk of (i) holding these loans at unfavorable interest rates, with no collateral and no guarantors, as compared to the credits that we would have otherwise originated; and more so, (ii) if during the remaining loan term of any unforgiven portion of these loans, the borrower defaults and the SBA finds fault and does not honor their loan guarantee, we are at risk for additional credit losses. In addition, a customer perception that their PPP loan forgiveness application was not processed promptly by the Company, or a

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change or delay in the guidance from the SBA, resulting in the SBA not approving forgiveness, could result in legal action against the Company, negative publicity or public complaints, whether real or perceived, disseminated by word of mouth, by the general media, by electronic or social networking means, or by other methods, which could result in additional expenses, and damage our reputation and adversely affect the market perception of our products and services, among other factors.

As allowed by the CARES Act, the Company has suspended TDR accounting for certain loans that have had a short-term payment deferral since March 1, 2020, as long as those loans were current and risk rated as “pass” at February 29, 2020. Although we currently expect that payments will resume after the deferral period has ended, we cannot at this time predict if a borrower’s individual business circumstances, or any prolonged economic weakness after the deferral period has expired, will allow them to support regularly scheduled payments. Consequently, the Company may experience an increase in non-performing assets and the related costs to manage those relationships, and a decline in interest income.

The long-term impact of the pandemic on the credit quality of our loan portfolio cannot be reasonably estimated at this time. It will likely be influenced by a variety of factors including the depth and duration of the economic contraction and the extent of financial support and fiscal stimulus by the U.S. government. We will continue to closely monitor the effect of the pandemic on credit quality across all industry sectors in our diversified loan portfolio as the results unfold in future quarters. The credit quality of our loans could be further impacted, and additional provisions may be necessary.

Economic & Financial Markets

At this time, it is unclear how long and to what extent the impact of the pandemic will be felt on the local and regional economy. The majority of businesses in the communities in which we operate, including the Company and its customers, business partners and vendors, have been impacted by these events in a variety of ways and to unprecedented degrees. Depending on the on-going and future developments with respect to the pandemic, which are highly uncertain and cannot be predicted, including the magnitude of the pandemic, effect of actions taken by governmental authorities, and any further weakening in general economic conditions in our market area, the demand for our financial products and services may be reduced and our business operations, financial results, and stock price could be adversely impacted.

Due to concerns about the impacts of the pandemic, citing layoffs, plummeting consumer spending and widespread closures, the Federal Reserve took action to lower the federal funds target rate range to near-zero, which has and may continue to negatively affect the Company’s net interest income and, therefore, earnings, financial condition and results of operation. A prolonged period of extremely volatile and unstable financial market conditions could increase our funding costs and negatively affect our asset-liability management strategies. Higher volatility in interest rates and spreads to benchmark indices could cause decreases in the fair market values of our investment portfolio, and assets the Company manages for others through our wealth management and trust channels, which would lower fee income, and may impair our ability to attract and retain funds from current and prospective customers. Fluctuations in interest rates will impact both the level of income and expense recorded on most of our assets and liabilities, and the market value of all interest-earning assets and interest-bearing liabilities, any of which in turn could have a material adverse effect on our liquidity and ability to fund future growth, our operating results, and financial condition.

Liquidity

If, as a result of governmental or financial market responses to the pandemic, pledged collateral values decline, or sources of external funding become restricted or eliminated, the Company may not be able to raise adequate funds, or may incur substantially higher funding costs in order to raise the necessary funds to support the Company's operations and growth, or may be required to restrict operations or the payment of dividends.

Capital Adequacy

The Company is a separate and distinct legal entity from the Bank. It receives substantially all its revenue from dividends paid by the Bank. If capital erosion occurs at the Bank, caused by a number of possible negative outcomes from the pandemic, such as an increase in the provisions for loan losses or other credit impairment charges, impairment of goodwill, or a significant decline in earnings, then the Bank may be unable to pay dividends to the Company. The Company in turn will be unable to service its debt, pay obligations or pay dividends on the Company’s common stock. If the Company is unable to raise additional capital to offset that decline, then regulatory capital ratios for both the Bank and the Company may fall below regulatory minimum adequacy levels, which could restrict the Company's ability to grow, among other operating restrictions, and require the Bank to submit a capital restoration plan under the prompt corrective action regulations.

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Technology & Information Systems, and Operations

The spread of the pandemic has also caused the Company, like many other businesses, to modify our business practices, including employee work location and cancellation of physical participation in meetings, both internally and with business partners, vendors, and customers and prospects, turning instead to working remotely with a dependence on technology and internet connectivity for many communications. Technology and cyber security in customers’ and employees’ homes may not be as robust as in our offices and could cause the available networks, information systems, applications, and other tools to become more limited or less reliable than doing business in our offices. These modifications in business practices, for the Company, customers and vendors, and changes in technology may increase risk, including the circumvention of internal controls and heightened cybersecurity and information systems risk, and may be detrimental to our business operations. Such cyber risks include greater phishing, malware, and other cybersecurity attacks, vulnerability to disruptions of our information technology infrastructure and telecommunications systems for remote operations, increased risk of unauthorized dissemination of confidential customer information, limited ability to restore the systems in the event of a systems failure or interruption, greater risk of a security breach resulting in potential impairment of our ability to perform critical functions, all of which could expose the Company to risks of data or financial loss, litigation and liability and could seriously disrupt our operations and the operations of any impacted business partners and customers, and damage our reputation.

Additionally, we rely on many third parties for our business operations, including appraisers of real estate collateral, vendors that supply essential third-party services, information security assessments and technology support services, systems and analytical tools, advisory services, and providers of electronic funds delivery networks and clearing houses, and local and federal government offices, and courthouses used for the recording of mortgages and title work related to loan closings. In light of the evolving measures in response to the pandemic, many of these entities may limit the availability of and access to their services. If third-party service providers continue to have limited capacities for a prolonged period or if additional limitations or potential disruptions in these services materialize, it may negatively affect our business operations and financial results.


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 June 30, 2020:



	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
April	1,633	$26.01	—	—
May	—	—	—	—
June	—	—	—	—

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


Item 3 -	Defaults upon Senior Securities

Not Applicable.


Item 4 -	Mine Safety Disclosures

Not Applicable.


Item 5 -	Other Information

Not Applicable.

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Item 6 -	Exhibits

EXHIBIT INDEX

_____________

Exhibit No.Description


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


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

~~3.1.1~~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).


3.1.3	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	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).

~~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).


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


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

~~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).


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)

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

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

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

101*

The following materials from Enterprise Bancorp, Inc.’s's Quarterly Report on Form 10-Q for the quarter ended ~~September~~June 30, ~~2017~~2020 were formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of ~~September~~June 30, ~~2017~~2020 and December 31, ~~2016;~~2019; (ii) Consolidated Statements of Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016;~~2019; (iii) Consolidated Statements of Comprehensive Income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016;~~2019; (iv) Consolidated Statements of Changes in Equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017;~~2020 and 2019; (v) Consolidated Statements of Cash Flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2020 and ~~2016;~~2019; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.


104*	The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2020 has been formatted in Inline XBRL and contained in Exhibit 101.

____________________

*Filed herewith

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SIGNATURES

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



		ENTERPRISE BANCORP, INC.

DATE:	~~November~~August 7, ~~2017~~2020	By:	/s/ ~~James A. Marcotte~~Joseph R. Lussier
			~~James A. Marcotte~~Joseph R. Lussier
			Executive Vice President,
			~~Chief Financial Officer and~~ Treasurer
			~~(Principal~~and Chief Financial ~~Officer)~~Officer

6680



(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



	As of September 30, 2017				As of December 31, 2016
(Dollars in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest rate contracts - pay floating, received fixed	$	65	$	493	$	—	$	610
Interest rate contracts - pay fixed, receive floating	428		—		610		—
Total interest rate swaps	$	493	$	493	$	610	$	610



	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



	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