U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
For the transition period from _____________ to _______________
Commission file number O-21021
Enterprise Bancorp, Inc.
(Exact name of small business issuer as specified in its charter)
Massachusetts 04-3308902
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
222 Merrimack Street, Lowell, Massachusetts, 01852
(Address of principal executive offices)
(508) 459-9000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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. Yes ..X.... No......
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: October 31, 1996,
Common Stock - Par Value $0.01 1,576,192 shares outstanding
Transitional Small Business Disclosure Format (check one): Yes .......... No X
<PAGE>
ENTERPRISE BANCORP, INC.
INDEX
Page Number
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements
Enterprise Bancorp, Inc.
Balance Sheet - September 30, 1996 4
Statements of Income -
Three months and nine months ended September 30, 1996
and 1995 5
Statement of Cash Flows -
Nine months ended September 30, 1996 and 1995 6
Notes to Financial Statements 7
Item 2
Business Review and Management's Discussion and
Analysis of Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 20
Item 3 Defaults upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 5 Other Information 20
Item 6 Exhibits and Reports on Form 8-K 20
Signature Page 21
2
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains certain "forward-looking statements" including statements
concerning plans, objectives, future events or performance and assumptions and
other statements which are other than statements of historical fact. Enterprise
Bancorp, Inc. (the "company") wishes to caution readers that the following
important factors, among others, may have affected and could in the future
affect the company's results and could cause the company's results for
subsequent periods to differ materially from those expressed in any
forward-looking statement made herein: (i) the effect of changes in laws and
regulations, including federal and state banking laws and regulations, with
which the company or its subsidiaries must comply, and the associated costs of
compliance with such laws and regulations either currently or in the future as
applicable; (ii) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as by the Financial Accounting
Standards Board, or of changes in the company's organization, compensation and
benefit plans; (iii) the effect on the company's competitive position within its
market area of the increasing competition from larger regional and out-of-state
banking organizations as well as non-bank providers of various financial
services; (iv) the effect of unforeseen changes in interest rates; and (v) the
effect of changes in the business cycle and downturns in the local, regional or
national economies.
3
<PAGE>
ENTERPRISE BANCORP, INC.
BALANCE SHEET
ASSETS September 30, 1996
----------------------
(Unaudited)
----------------------
Cash and due from banks $15,686,020
Federal funds sold 0
----------------------
Total cash and cash equivalents 15,686,020
----------------------
Investment securities at market value 119,005,324
Loans held for sale 0
Loans, gross 137,383,596
Less: allowance for possible loan losses (3,970,109)
Less: deferred origination fees (796,431)
----------------------
Loans, net 132,617,056
----------------------
Premises and equipment, net 2,385,317
Accrued interest receivable 2,421,756
Deferred income taxes 2,612,384
Real estate acquired by foreclosure 77,721
Prepaid expenses and other assets 278,984
----------------------
Total assets $275,084,562
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand 38,057,929
Savings and NOW and MMDA 88,924,995
Time 105,239,019
----------------------
Total deposits 232,221,943
Short term borrowings 22,195,220
Accrued interest payable 485,315
Income taxes payable 44,046
Accrued expenses and other liabilities 1,049,569
----------------------
Total liabilities 255,996,093
----------------------
Shareholders' equity:
Preferred stock, $0.01 par value; 1,000,000
shares authorized, no shares issued 0
Common Stock, $0.01 par value;
5,000,000 shares authorized, 1,576,192
issued and outstanding 1,576,192
Additional paid-in capital 13,916,427
Retained earnings 4,632,267
Net unrealized (loss)/gain on investment securities,
net of applicable income taxes (1,036,417)
----------------------
Total shareholders' equity 19,088,469
----------------------
Total liabilities and shareholders' equity $275,084,562
======================
See accompanying notes to the financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
STATEMENTS OF INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
Sept. 30, 1996 Sept. 30, 1995 Sept. 30, 1996 Sept. 30, 1995
------------------- ------------------- ------------------ -----------------
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------------- ------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Interest income:
Loans $3,207,933 $2,867,392 $9,137,338 $8,439,292
Investment securities 1,761,611 812,349 4,892,000 2,298,289
Daily federal funds sold 19,516 210,404 129,176 261,451
------------------- ------------------- ------------------ -----------------
Total interest income 4,989,060 3,890,145 14,158,514 10,999,032
------------------- ------------------- ------------------ -----------------
Interest expense:
Savings and NOW and MMDA deposits 490,744 430,848 1,409,637 1,283,757
Time deposits 1,465,814 916,669 4,132,144 1,909,128
Short-term borrowings 131,075 143,632 453,797 791,828
------------------- ------------------- ------------------ -----------------
Total interest expense 2,087,633 1,491,149 5,995,578 3,984,713
------------------- ------------------- ------------------ -----------------
Net interest income 2,901,427 2,398,996 8,162,936 7,014,319
Provision for possible loan losses 0 0 0 0
------------------- ------------------- ------------------ -----------------
Net interest income after provision for
possible loan losses 2,901,427 2,398,996 8,162,936 7,014,319
------------------- ------------------- ------------------ -----------------
Non-interest income:
Trust income 157,743 152,513 475,972 449,601
Deposit service fees 175,172 131,811 484,386 416,897
Gains on securities sales 0 0 1,909 0
Other income 87,591 127,546 264,174 364,963
------------------- ------------------- ------------------ -----------------
Total non-interest income 420,506 411,870 1,226,441 1,231,461
------------------- ------------------- ------------------ -----------------
Income before operating expenses and income taxes 3,321,933 2,810,866 9,389,377 8,245,780
------------------- ------------------- ------------------ -----------------
Non-interest expense:
Salaries and employee benefits 1,283,826 1,189,808 3,728,827 3,339,850
Occupancy expenses 306,802 341,949 940,233 876,283
FDIC insurance expense 500 6,368 2,000 151,419
Office and data processing supplies 64,395 122,989 199,034 328,934
Trust professional and custodial expenses 64,500 48,000 165,550 144,000
Audit, legal and other professional fees 57,116 62,957 230,971 290,320
Other 399,542 349,855 1,263,963 1,014,990
------------------- ------------------- ------------------ -----------------
Total non-interest expenses 2,176,681 2,121,926 6,530,578 6,145,796
------------------- ------------------- ------------------ -----------------
Income before income taxes 1,145,252 688,940 2,858,799 2,099,984
------------------- ------------------- ------------------ -----------------
Provision for income taxes 429,988 273,973 1,077,952 774,555
------------------- ------------------- ------------------ -----------------
Net income $715,264 $414,967 $1,780,847 $1,325,429
=================== =================== ================== =================
EARNINGS PER SHARE
- -----------------------------------------------
Net Income per common share $0.45 $0.26 $1.13 $0.84
=================== =================== ================== =================
Weighted average common shares outstanding 1,576,077 1,574,960 1,575,993 1,574,848
=================== =================== ================== =================
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
STATEMENTS OF CASH FLOWS
Nine months ended
Sept. 30, 1996 Sept. 30, 1995
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income $1,780,847 $1,325,429
Adjustments to reconcile net income
to net cash provided by (used in) operating activities:
Depreciation and amortization 620,161 472,111
Provision for possible loan losses 0 0
Gain on sale of investments (1,909) 0
Net (increase) decrease in loans held for sale 1,855,340 (55,475)
(Increase) decrease in accrued interest receivable (598,677) (243,857)
(Increase) decrease in prepaid expenses and
other assets 12,113 (61,618)
(Increase) decrease in deferred income taxes (1,397) 93,414
Increase (decrease) in accrued expenses and
other liabilities (150,992) 82,163
Increase (decrease) in accrued interest payable (64,358) 128,242
Increase (decrease) in income taxes payable/receivable (129,300) 208,120
-------------- -------------
Net cash provided by operating activities 3,321,828 1,948,529
-------------- -------------
Cash flows from investing activities:
Proceeds from sales of investment securities 5,919,844 0
Proceeds from calls, maturities or paydowns of
investment securities 7,739,653 7,822,536
Purchase of investment securities (55,992,509) (21,374,331)
Proceeds from payments or sales/additions to real
estate acquired by foreclosure 27,701 (51,522)
Net (increase) decrease in loans, net of chargeoffs (20,605,093) (3,635,326)
Additions to premises and equipment, net (459,206) (1,191,694)
-------------- -------------
Net cash used in investing activities (63,369,610) (18,430,337)
-------------- -------------
Cash flows from financing activities:
Net increase (decrease) in deposits 35,827,376 42,677,224
Net increase (decrease) in short term borrowings 15,213,437 (8,954,909)
Proceeds from exercise of stock options 3,402 12,100
Dividends paid (472,805) (433,068)
-------------- -------------
Net cash provided by financing activities 50,571,410 33,301,347
-------------- -------------
Net increase (decrease) in cash and cash equivalents (9,476,372) 16,819,539
Cash and cash equivalents at beginning of period 25,162,392 8,441,033
-------------- -------------
Cash and cash equivalents at end of period $15,686,020 $25,260,572
============== =============
Disclosure of cash flow information:
Cash paid during the period for:
Interest on deposits and short-term borrowings $6,059,936 $3,856,471
Income taxes 990,050 473,021
Transfers from loans to real estate acquired by foreclosure 0 77,721
Transfers from real estate acquired by foreclosure to loans 331,532 0
<FN>
See accompanying notes to the financial statements.
</FN>
</TABLE>
6
<PAGE>
ENTERPRISE BANCORP, INC.
Notes to Financial Statements
(1) Organization of Holding Company
Enterprise Bancorp, Inc. (the "company") is a Massachusetts corporation, which
was organized on February 29, 1996, at the direction of Enterprise Bank and
Trust Company, a Massachusetts trust company (the "bank") for the purpose of
becoming the holding company for the bank. The company had no material assets or
operations prior to completion of the holding company reorganization on July 26,
1996. To the extent that the accompanying financial statements contain
information as of a date or for a period prior to July 26, 1996, such
information pertains to the bank.
On July 17, 1996, the Articles of Organization of the company were amended to
increase the company's authorized capital to 1,000,000 shares of preferred
stock, $.01 par value, and 5,000,000 shares of common stock, $.01 par value. On
July 25, 1996, the bank purchased 100 shares of the company's common stock for
$50,000.
On July 26, 1996, pursuant to an Agreement and Plan of Reorganization dated as
of February 29, 1996, the company acquired all of the outstanding common stock
of the bank, $1.00 par value, in a share-for-share exchange for common stock of
the company, and the previously outstanding shares of the company's common stock
were redeemed at par value and retired to the status of authorized and unissued
shares (the "Reorganization"). Upon effectiveness of the Reorganization, the
bank became the wholly owned subsidiary of the company and the former
shareholders of the bank became the shareholders of the company.
(2) Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the bank's December 31, 1995, audited financial statements and notes
thereto. Interim results are not necessarily indicative of results to be
expected for the entire year.
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and revenues and expenses for the period. Actual
results could differ from those estimates. Material estimates that are
particularly susceptible to change relate to the determination of the allowance
for possible loan losses and valuation of other real estate owned.
In the opinion of management, the accompanying financial statements reflect all
necessary adjustments consisting of normal recurring accruals for a fair
presentation.
(3) Earnings per share
Earnings per share are calculated based on the average number of common shares
outstanding during the period.
Nine Months Ended September 30,
1996 1995
Common Shares 1,575,993 1,574,848
(4) Reclassification
Certain fiscal 1995 information has been reclassified to conform with 1996
presentation.
7
<PAGE>
ITEM 2 - Business Review and Management's Discussion and Analysis of Financial
Condition and Results of Operation
Enterprise Bancorp, Inc. (the "company")
Enterprise Bancorp, Inc. was organized on February 29, 1996, at the direction of
Enterprise Bank and Trust Company (the "bank") for the purpose of becoming the
holding company of the bank. The company entered into an Agreement and Plan of
Reorganization with the bank dated as of February 29, 1996, (the
"Reorganization"). The Reorganization was consummated on July 26, 1996. Upon the
consummation of the Reorganization, the bank became the wholly owned subsidiary
of the company and the former shareholders of the bank became shareholders of
the company. The business and operations of the company are subject to the
regulatory oversight of the Board of Governors of the Federal Reserve System.
Enterprise Bank and Trust Company is a Massachusetts trust company which
commenced banking operations on January 3, 1989.
The bank's main office is at 222 Merrimack Street in Lowell, Massachusetts. The
bank began offering trust services in June of 1992. A branch office was opened
at 185 Littleton Road, Chelmsford, Massachusetts, in June of 1993. The bank
opened a branch office in Leominster, Massachusetts, in May of 1995 and a branch
office in Billerica, Massachusetts, in June of 1995. The bank received the
necessary approvals to open a branch in Tewksbury, Massachusetts, and opened the
branch for business on October 28, 1996. The bank's deposit-gathering and
lending activities are conducted primarily in the city of Lowell and the
surrounding Massachusetts towns of Billerica, Chelmsford, Dracut, Tewksbury,
Tyngsboro, and Westford and in the cities of Leominster and Fitchburg. The bank
offers a range of commercial and consumer services with a goal of satisfying the
needs of consumers, small and medium-sized businesses and professionals.
The bank's deposit accounts are insured by the Bank Insurance Fund of the
Federal Deposit Insurance Corporation (the "FDIC") up to the maximum amount
provided by law. The FDIC and the Massachusetts Commissioner of Banks (the
"Commissioner") have regulatory authority over the bank.
The bank's results of operations depend primarily on the bank's net interest
income, the difference between income earned on its loan and investment
portfolios and the interest paid on its deposits and borrowed funds, and the
size of the bank's provision for possible loan losses. Net interest income is
primarily affected in the short-term by the level of earning assets as a
percentage of total assets, the level of interest-bearing and
non-interest-bearing deposits, yields earned on assets, rates paid on
liabilities, the level of non-accrual loans and changes in interest rates. The
provision for possible loan losses is primarily affected by individual problem
loan situations, overall loan portfolio quality, the level of charge-offs,
regulatory examinations, an assessment of current and expected economic
conditions, and changes in the character and size of the loan portfolio.
Earnings are also affected by non-interest income, which consists primarily of
deposit account fees, trust fees, and gains and losses on sales of securities,
and the level of non-interest expense and income taxes. The bank's residential
mortgage operations in the first six months of 1995 were negatively impacted by
interest rates and competition. As a result of a rapid increase in interest
rates in 1994, the competition for residential mortgages increased and volume
and profit margins decreased. The mortgage center, beginning in the second
quarter of 1995, has refocused its business away from originating mortgages for
resale into the secondary market to originating construction,
construction-to-permanent and commercial mortgages.
8
<PAGE>
The pages following should be read in conjunction with the bank's consolidated
financial statements and notes thereto.
Financial Condition
Total assets were $275,084,562 at September 30, 1996, compared with $207,578,194
at September 30, 1995, an increase of approximately 33%.
The following table shows selected balance sheet accounts at September 30:
1996 1995
Total assets $275,084,562 $207,578,194
Loans, net 132,617,056 114,140,255
Investment securities at market value 119,005,324 61,656,208
Total deposits 232,221,943 176,950,302
Short-term borrowings 22,195,220 10,664,121
Liquidity
Liquidity is the ability to meet cash needs, such as those arising from
fluctuations in loans, investments and deposits. Liquidity management is the
coordination of activities so that cash needs are anticipated and met easily and
efficiently. Liquidity policies are set and monitored by the bank's investment
and asset/liability committee. The bank's liquidity is maintained by projecting
cash needs, by balancing maturing assets with maturing liabilities, by the
monitoring of various liquidity ratios, by monitoring deposit flows, and by
maintaining liquidity within the investment portfolio. The bank's liability
management objectives are to maintain liquidity, provide and enhance access to a
diverse and stable source of funds, provide competitively priced and attractive
products to customers, conduct funding at a low cost relative to current market
conditions and to engage in sound balance sheet management strategies. Primary
sources of liquidity consist of deposit inflows, loan repayments, Federal Home
Loan Bank (FHLB) borrowings and maturities and sales of investment securities.
These sources fund the bank's lending and investing activities. Management
believes that the bank has adequate liquidity to meet its commitments.
Capital Resources
Capital planning by the bank considers current needs and anticipated future
growth. The primary source of additional capital has been retention of earnings
since the bank commenced operations.
Both the company and the bank are subject to regulatory capital adequacy
guidelines. New risk-based capital guidelines became effective in 1990 and were
fully-phased in as of December 31, 1992. As of September 30, 1996, the bank's
total risk-based capital ratio was 14.6% and its Tier 1 capital ratio was 13.3%.
At September 30, 1996, the bank's leverage ratio was 7.3%. The minimum total
risk based, tier 1 and leverage ratio guidelines are 10%, 6%,and 5%,
respectively, to be classified for regulatory purposes as a "well capitalized"
institution. The company and the bank, therefore, would be considered to be
"well capitalized".
At the April 1996, meeting of the board of directors, a dividend of $.30 per
share was declared and was paid on July 1, 1996. The payment of future dividends
will be considered on an annual basis by the board of directors.
9
<PAGE>
Balance Sheet
Total Assets
Total assets increased $50.8 million since December 31, 1995, an increase of
22.7%. An increase in investments of $40.2 million and increase in gross loans
and loans held for sale of $19.2 million partially offset by a decrease in cash
and cash equivalents of $9.5 million were the primary reasons of the change. The
increase in assets was funded by an increase in deposits and borrowings of $35.8
million and $15.2 million, respectively.
Investments
The investment portfolio is managed with the primary objective of maintaining an
appropriate level of liquidity and controlling interest rate risk. The bank's
investment securities consist of treasury, agency, and municipal securities and
mortgage-backed and collateralized mortgage obligations (CMOs). The bank's CMO
investments primarily consist of investments in planned amortization
classes(PACs). The yield and maturity of such PAC CMOs are less susceptible to
change, as opposed to non PAC CMOs, due to increasing or decreasing market
rates. The bank reviews, on an ongoing basis, the credit quality of its
investment securities and the banks in which it invests federal funds sold.
Federal funds investments are typically made on an overnight basis.
At September 30, 1996 and 1995, and December 31, 1995, all of the bank's
investment securities were classified as available for sale and carried at
market value. The net unrealized losses at September 30, 1996, net of tax
effects, are shown as a separate component of stockholders' equity in the amount
of $1,036,417.
Loans
Total loans were $137.4 million, or 49.9% of total assets, at September 30,
1996, compared to $118.2 million, or 52.7% of total assets, at December 31,
1995. The increase in loans of $19.2 million was primarily attributed to
increased loan originations in the commercial real estate and commercial loan
portfolios. The bank continues to pursue active customer calling efforts as well
as increased marketing and advertising to identify quality lending
opportunities.
Deposits and Borrowings
Total deposits increased $35.8 million, or 18.2%, during the nine months of 1996
from $196.4 million at December 31, 1995, to $232.2 million at September 30,
1996. The increase is due to the opening of the new Leominster and Billerica
branches and continued strong growth from our Lowell and Chelmsford offices.
Total borrowings, consisting of securities sold under agreements to repurchase
and FHLB borrowings, increased $15.2 million, or 217.9%, from $7.0 million at
December 31, 1995, to $22.2 million at September 30, 1996. The increase was
primarily attributable to an increase in FHLB borrowings. Management
periodically takes advantage of opportunities to fund asset growth with
borrowings, but on a long-term basis the bank intends to replace the FHLB
borrowings with deposits. Management also actively uses FHLB borrowings in
managing the bank's asset/liability position. FHLB borrowings at September 30,
1996, were $11.8 million with additional available borrowings of approximately
$97.1 million.
10
<PAGE>
Loan Loss Experience/Non-performing Assets
The following table summarizes the activity in the allowance for possible loan
losses for the periods indicated:
Nine months ended September 30,
1996 1995
Balance at beginning of year $4,106,659 $4,341,204
Loans charged off (165,026) (116,989)
Recoveries on loans charged off 28,476 164,203
Provision charged to income - -
----------- -----------
Balance at September 30 $3,970,109 $4,388,418
=========== ===========
Reserve to loans outstanding 2.91% 3.76%
=========== ===========
Annualized net (charge-offs)/recoveries to
average loans outstanding (.14%) (.05%)
=========== ===========
The following table sets forth non-performing assets at September 30:
1996 1995
Loans on non accrual:
Commercial $ 558,330 $ 520,844
Residential real estate 248,633 119,730
Commercial real estate 1,366,711 463,539
Construction - -
Consumer, including home equity 567,735 537,311
---------- ----------
Total loans on non accrual 2,741,409 1,641,424
Real estate acquired by foreclosure 77,721 414,309
---------- ----------
Total non accrual loans and real
estate acquired by foreclosure $2,819,130 $2,055,733
========== ==========
Non accrual loans and real estate owned as
percentage of total assets 1.02% .99%
========== ==========
Allowance for possible loan losses to
non accrual loans 145% 267%
========== ==========
Total non-accrual loans increased $1,099,985 or 67.0% from September 30, 1995,
to September 30, 1996. The increase in non-performing loans is primarily due to
several large commercial real estate loans to a few borrowers becoming
delinquent.
11
<PAGE>
RESULTS OF OPERATIONS SUMMARY
NINE MONTHS ENDED September 30, 1996, VS.
NINE MONTHS ENDED September 30, 1995
The bank reported net income of $1,780,847 in the nine months ended September
30, 1996, versus $1,325,429 in the nine months ended September 30, 1995, an
increase of 34.4%. The bank had earnings per common share of $1.13 in the nine
months ended September 30, 1996, compared with $.84 in the nine months ended
September 30, 1995. The per share results are based on 1,575,993 and 1,574,848
average common shares outstanding at September 30, 1996, and September 30, 1995,
respectively.
The following table highlights changes which affected the bank's earnings for
the periods
Nine Months Ended September 30,
1996 1995
(Dollars in thousands)
Average assets $247,966 $184,278
Average deposits and short-term borrowings $226,814 $164,560
Average investment securities (1) $107,017 $ 50,752
Average loans & loans held for sale $124,496 $118,503
Average loans & loans held for sale to average
deposits & short-term borrowings ratio 54.89% 72.01%
Non interest expenses to average assets (2) 3.51% 4.46%
Non interest income, exclusive of securities
gains to average assets (2) .66% .89%
Average tax equivalent rate earned on interest
earning assets 8.17% 8.53%
Average rate paid on deposits and
short-term borrowings 3.52% 3.24%
Net interest rate spread 4.65% 5.29%
Net interest income $ 8,163 $ 7,014
Provision for possible loan losses $ - $ -
Tax expense $ 1,078 $ 775
Gain from sale of securities $ 2 $ 0
(1) Average investment securities are shown at average amortized cost
(2) Ratios have been annualized based on number of days for the period
Net Interest Income
Net interest income is the difference between the interest earned on assets and
the interest paid on liabilities. Interest income and expense are affected by
changes in earning asset and interest-bearing liability balances, as well as
changes in the level of interest rates. Stable and growing net interest income
is dependent upon effective spread management, asset growth, and maintenance of
strong underwriting and credit standards.
The bank's net interest income was $8,162,936 in the nine months ended September
30, 1996, an increase of $1,148,617 or 16.4% from $7,014,319 in the nine months
ended September 30, 1995, primarily a result of an increase in the bank's asset
size and an increase in interest rates earned on investments and loans. These
increases were partially offset by increased interest expense from an increase
in certificate of deposit balances and rates paid.
12
<PAGE>
The average tax equivalent yield on earning assets in the nine months ended
September 30, 1996, was 8.17% down 36 basis points from 8.53% in the nine months
ended September 30, 1995. The average rate paid on deposits and borrowings in
the nine months ended September 30, 1996, was 3.52%, an increase of 28 basis
points from 3.24% in the nine months ended September 30, 1995. The resulting
interest rate spread decreased 64 basis points to 4.65% in the nine months ended
September 30, 1996, from 5.29% in the nine months ended September 30, 1995. The
principal reason for the increase in the bank's net interest income and the
decrease in the interest rate margin during the first nine months of 1996 is the
increase in average loans and investments of $62.2 million which was principally
funded by an increase in certificates of deposit.
The following table sets forth, among other things, the extent to which changes
in interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the nine months ended September 30, 1996, and 1995. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1) changes in volume (change in average
portfolio balance multiplied by prior year average rate); (2) changes in
interest rates (change in average interest rate multiplied by prior year average
balance); and (3) changes in rate and volume.
13
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
Nine Months Ended Nine Months Ended
September 30, 1996 September 30, 1996 Changes due to
-------------------------- ------------------------- --------------------------------
Average Average
Average Interest Average Interest Interest Rate/
Balance Interest Rate (4) Balance Interest Rate (4) Total Volume Rate Volume
------- -------- -------- ------- -------- ---- --- ----- ------ -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and loans held for sale (1)2) $124,496 $9,137 9.78% $118,503 $8,439 9.52% $ 698 $ 428 227 43
Investment securities (4) 107,017 4,892 6.38 50,752 2,298 6.56 2,594 2,769 -67 -108
Federal funds sold 3,092 129 5.57 6,190 262 5.65 -132 -131 -4 3
-------- -------- -------- -------- ------ ------ ---- ----
Total interest earnings assets 234,605 14,159 8.17% 175,445 10,999 8.53% 3,160 3,066 156 -62
-------- -------- ------ ------ ---- ----
Other assets (3) 13,361 8,833
-------- --------
Total assets $247,966 $184,278
======== ========
Liabilities and stockholders' equity:
Non-interest bearing deposits $ 33,057 27,238
Savings, NOW and money market 82,972 1,410 2.26% 69,497 1,284 2.47% 126 250 -107 -17
Certificate of deposit 97,186 4,132 5.66 48,555 1,909 5.26 2,223 1,919 148 156
Short-term borrowings 13,599 454 4.45 19,270 792 5.49 -338 -234 -152 48
-------- -------- -------- -------- ------ ------ ---- ----
Total deposits and borrowings 226,814 5,996 3.52% 164,560 3,985 3.24% 2,011 1,935 -111 187
-------- -------- ------ ------ ---- ----
Other liabilities 1,788 1,694
-------- --------
Total liabilities 228,602 166,254
Stockholders' equity 19,364 18,024
-------- --------
Total liabilities and
stockholder's equity $247,966 $184,278
======== ========
Net interest rate spread 4.65% 5.29%
Net interest income $8,163 $ 7,014 $ 1,149 $ 1,131 $ 267 $-249
======== ======== ======= ======= ===== =====
Net yield on average earning assets 4.77% 5.49%
<FN>
(1) Average loans include non accrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Other assets include cash and due from banks, accrued interest receivable, allowance for possible loan losses, real estate
acquired by foreclosure, deferred income taxes and other miscellaneous assets.
(4) Average balances are presented at average amortized cost and average interest rates are presented on a tax-equivalent basis.
The bank manages its earning assets by fully using available capital resources within what management believes are prudent credit
and leverage parameters.
Loans, investment securities, and short-term investments comprise the bank's earning assets.
</FN>
</TABLE>
14
<PAGE>
Non Interest Income
Non-interest income, exclusive of security gains, decreased by $6,929 to
$1,224,532 for the nine months ended September 30, 1996, compared to $1,231,461
for the nine months ended September 30, 1995. This decrease was primarily caused
by a decline in gains on sales of loans of $149,011. This decline was partially
offset by increases in trust fees, deposit fees and other fees.
Trust fees increased due to an increase in trust assets.
Deposit fees increased approximately 16.2% in the nine months ended September
30, 1996, compared to the nine months ended September 30, 1995. The 1996 growth
was primarily the result of an increase in transaction deposit accounts,
activity volume and increased fees.
Other income for the nine months ended September 30, 1996, was $264,174, a
decrease of 27.6% from $364,963 in the nine months ended September 30, 1995, due
primarily to decreases in gains on sales of loans.
Gains on Sales of Securities
Gains from the sales of investment securities totaled $1,909 in 1996 versus $0
in 1995. The net gains were from gains recognized on calls on callable agency
securities and sales of securities principally maturing within approximately 30
months.
Non Interest Expenses
Salaries and benefits expense totaled $3,728,827 in the nine months ended
September 30, 1996, compared with $3,339,850 in 1995 an increase of $388,977 or
11.6%. This increase was primarily the result of the addition of the Leominster
and Billerica branches in the second quarter of 1995, accruals for an incentive
bonus plan, an increase in benefit expenses, and annual salary increases.
Occupancy expense was $940,233 in the nine months ended September 30, 1996,
compared with $876,283 in 1995, an increase of $63,950 or 7.3% primarily due to
the opening of the two branches.
FDIC insurance expense decreased by $149,419 in 1996. The decrease was due to a
reduction in the bank's assessment rate.
Office and data processing supplies expense decreased by $129,900, or 39.5%, in
the nine months ended September 30, 1996, primarily due to various cost saving
initiatives and additional costs incurred in 1995 related to the opening of the
two new branches.
Trust professional and custodial expenses increased due to an increase in trust
assets. Audit, legal and other professional expenses decreased in 1996 primarily
due to the extra costs in 1995 of a consultant hired by the bank to review its
operating procedures.
Other non interest expenses increased by $248,972 or 24.5%, primarily due to an
increase in market research and expenses associated with the two new branches.
15
<PAGE>
Provision for Possible Loan Losses
The provision for possible loan losses amounted to $0 in 1996 and 1995. The
provision reflects real estate values and economic conditions in New England and
in Greater Lowell, in particular, the level of non accrual loans, levels of
charge-offs and recoveries, levels of outstanding loans, known and inherent
risks in the nature of the loan portfolio and management's assessment of current
risk. It is a significant factor in the bank's operating results. The bank's
allowance for possible loan losses was $3,970,109 at September 30, 1996.
RESULTS OF OPERATIONS SUMMARY
THREE MONTHS ENDED September 30, 1996, VS.
THREE MONTHS ENDED September 30, 1995
The bank reported net income of $715,264 in the quarter ended September 30,
1996, versus $414,967 in the quarter ended September 30, 1995, an increase of
72.4%. The bank had earnings per common share of $.45 in the quarter ended
September 30, 1996, compared with $.26 in the quarter ended September 30, 1995.
The per share results are based on 1,576,077 and 1,574,960 average common shares
outstanding for the quarters ended September 30, 1996, and September 30, 1995,
respectively.
The following table highlights changes which affected the bank's earnings for
the period:
<TABLE>
<CAPTION>
Three Months Ended
September 30, 1996 September 30, 1995
(Dollars in thousands)
<S> <C> <C>
Average assets $265,200 $195,118
Average deposits and short-term borrowings $243,870 $175,125
Average investment securities (1) $115,733 $ 52,331
Average loans & loans held for sale $133,580 $118,095
Average loans & loans held for sale to average
deposits & short-term borrowings ratio 54.78% 67.43%
Non interest expenses to average assets (2) 3.26% 4.31%
Non interest income, exclusive of securities
gains to average assets (2) .63% .84%
Average tax equivalent rate earned on interest
earning assets 8.02% 8.47%
Average rate paid on deposits and
short-term borrowings 3.40% 3.38%
Net interest rate spread 4.63% 5.09%
Net interest income $ 2,901 $ 2,399
Provision for possible loan losses $ - $ -
Tax expense $ 430 $ 274
Gain from sale of securities $ 0 $ 0
<FN>
(1) Average investment securities are shown at average amortized cost
(2) Ratios have been annualized based on number of days for the period
</FN>
</TABLE>
16
<PAGE>
Net Interest Income
The bank's net interest income was $2,901,427 for the quarter ended September
30, 1996, an increase of $502,431 or 20.9% from $2,398,996 in the quarter ended
September 30, 1995, primarily a result of an increase in the bank's assets. This
increase was partially offset by an increase in interest expense as a result of
increased certificates of deposit balances.
The average tax equivalent yield on earning assets in the quarter ended
September 30, 1996, was 8.02%, down 45 basis points from 8.47% in the quarter
ended September 30, 1995. The average rate paid on deposits and borrowings in
the quarter ended September 30, 1996, was 3.40%, an increase of 2 basis points
from 3.38% in the quarter ended September 30, 1995. The resulting interest rate
spread decreased 46 basis points to 4.63% in the quarter ended September 30,
1996, from 5.09% in the quarter ended September 30, 1995. The decrease in the
interest rate spread was primarily caused from the growth in the certificate of
deposit average balances of $42.0 million being primarily invested in investment
securities rather than loans.
The following table sets forth, among other things, 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 quarters ended September 30, 1996, and 1995. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to (1)changes in volume (change in average
portfolio balance multiplied by prior year average rate); (2)changes in interest
rates (change in average interest rate multiplied by prior year average
balance); and (3) changes in rate and volume.
17
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
Three Months Ended Three Months Ended
September 30, 1996 September 30, 1995 Changes due to
--------------------------- ------------------------ ------------------------------
Average Average
Average Interest Average Interest Interest Rate/
Balance Interest Rate (4) Balance Interest Rate (4) Total Volume Rate Volume
------- -------- -------- ------- -------- -------- ----- ------ -------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans and loans held for sale(1)(2) $133,580 $3,208 9.53% $118,095 $2,867 9.63% $ 341 $ 373 -31 -1
Investment securities (4) 115,733 1,762 6.31 52,331 812 6.65 949 1,054 -45 -60
Federal funds sold 1,291 20 5.99 14,927 210 5.59 -191 -191 15 -15
-------- ------ -------- ------ ------ ------- ----- -----
Total interest earnings assets 250,604 4,989 8.02% 185,353 3,890 8.47% 1,099 1,236 -61 -76
------ ------ ------ ------- ----- -----
Other assets (3) 14,596 9,765
-------- --------
Total assets $265,200 $195,118
======== ========
Liabilities and stockholders' equity:
Non-interest bearing deposits $ 35,528 29,216
Savings, NOW and money market 88,056 491 2.21% 71,438 431 2.39% 60 99 -32 -7
Certificate of deposit 105,179 1,466 5.53 63,182 917 5.76 549 605 -36 -20
Short-term borrowings 15,107 131 3.44 11,289 143 5.05 -12 48 -45 -15
-------- ------ -------- ------ ------ ------- ----- -----
Total deposits and borrowings 243,870 2,088 3.40% 175,125 1,491 3.38% 597 752 -113 -42
------ ------ ------ ------- ----- -----
Other liabilities 1,593 1,710
-------- --------
Total liabilities 245,463 176,835
Stockholders' equity 19,737 18,283
-------- --------
Total liabilities and
stockholder's equity $265,200 $195,118
======== ========
Net interest rate spread 4.63% 5.09%
Net interest income $2,901 $2,399 $ 502 $ 484 $ 52 $ -34
====== ====== ====== ======= ===== =====
Net yield on average earning assets 4.72% 5.27%
<FN>
(1) Average loans include non accrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Other assets include cash and due from banks, accrued interest receivable, allowance for possible loan losses, real estate
acquired by foreclosure, deferred income taxes and other miscellaneous assets.
(4) Average balances are presented at average amortized cost and average interest rates are presented on a tax-equivalent basis.
The bank manages its earning assets by fully using available capital resources within what management believes are prudent credit
and leverage parameters. Loans, investment securities, and short-term investments comprise the bank's earning assets.
</FN>
</TABLE>
18
<PAGE>
Non Interest Income
Non-interest income, exclusive of security gains, increased by $8,636 to
$420,506 for the three months ended September 30, 1996, compared to $411,870 for
the three months ended September 30, 1995. This increase was primarily caused by
an increase in various deposit service fees. The increase was partially offset
by a decline in gains on sales of loans of $58,499.
Trust income increased due to an increase in trust assets.
Deposit fees increased approximately 32.9% for the quarter ended September 30,
1996 compared to the quarter ended September 30, 1995. The increase was
primarily the result of an increase in activity volume for the quarter.
Other income for the quarter ended September 30, 1996, was $87,591, a decrease
of approximately 31.3% from $127,546 in the quarter ended September 30, 1995,
primarily due to a decrease in gains from loan sales.
Non Interest Expenses
Salaries and benefits expense totaled $1,283,826 in the quarter ended September
30, 1996, compared with $1,189,808 in 1995, an increase of $94,018 or 7.9%
primarily due to the addition of several new positions, accruals for the
incentive bonus plan, an increase in benefit expenses and annual pay raises.
Occupancy expense was $306,802 in the quarter ended September 30, 1996, compared
with $341,949 in 1995, a decrease of $35,147 or 10.3%, primarily due to start up
costs associated with the new branches in 1995 and a renewal of existing
policies in the third quarter.
FDIC insurance expense decreased by $5,868 in 1996. The decrease was due to a
reduction in the bank's assessment rate.
Office and data processing supplies expense decreased by $58,594, or 47.6%, in
the quarter ended September 30, 1996, primarily due to the timing of
expenditures and various cost cutting initiatives.
Trust professional and custodial expenses increased due to an increase in trust
assets.
Audit, legal and other professional fees decreased in 1996 primarily due to the
timing of expenditures.
Other operating expenses increased in 1996 primarily due to timing of
expenditures.
19
<PAGE>
PART II - OTHER INFORMATION
Item 1 Legal Proceedings
Not Applicable
Item 2 Changes in Securities
Not Applicable
Item 3 Defaults upon Senior Securities
Not Applicable
Item 4 Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5 Other Information
None
Item 6 Exhibits and Reports on Form 8-K
None
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and 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 10, 1996 /s/ John P. Clancy, Jr.
John P. Clancy, Jr.
Senior Vice President, Chief Financial Officer,
Treasurer and Investment Manager
(authorized officer and principal financial officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements of Enterprise Bancorp, Inc. for the period ended September
30, 1996 and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 15,686,020
<INT-BEARING-DEPOSITS> 194,164,014
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 119,005,324
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 119,005,324
<LOANS> 137,383,596
<ALLOWANCE> 3,970,109
<TOTAL-ASSETS> 275,084,562
<DEPOSITS> 232,221,943
<SHORT-TERM> 22,195,220
<LIABILITIES-OTHER> 1,578,930
<LONG-TERM> 0
0
0
<COMMON> 1,576,192
<OTHER-SE> 17,512,277
<TOTAL-LIABILITIES-AND-EQUITY> 275,084,562
<INTEREST-LOAN> 9,137,338
<INTEREST-INVEST> 4,892,000
<INTEREST-OTHER> 129,176
<INTEREST-TOTAL> 14,158,514
<INTEREST-DEPOSIT> 5,541,781
<INTEREST-EXPENSE> 5,995,578
<INTEREST-INCOME-NET> 8,162,936
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 1,909
<EXPENSE-OTHER> 6,530,578
<INCOME-PRETAX> 2,858,799
<INCOME-PRE-EXTRAORDINARY> 2,858,799
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,858,799
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 1.13
<YIELD-ACTUAL> 8.17
<LOANS-NON> 2,741,409
<LOANS-PAST> 7,822
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 4,106,659
<CHARGE-OFFS> 165,026
<RECOVERIES> 28,476
<ALLOWANCE-CLOSE> 3,970,109
<ALLOWANCE-DOMESTIC> 3,970,109
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
