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, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE AC
For the transition period from _____________ to _______________
Commission file number 0-21021
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)
(978) 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, 1997, Common Stock - Par
Value $0.01 1,576,217 shares outstanding
Transitional Small Business Disclosure Format (check one): Yes .......... No X
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
INDEX
Page
<S> <C> <C>
Number
Cover Page 1
Index 2
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements of Enterprise Bancorp, Inc.
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996 3
Consolidated Statements of Income -
Three months and nine months ended September 30, 1997 and 1996 4
Consolidated Statements of Cash Flows -
Nine months ended September 30, 1997 and 1996 5
Notes to Financial Statements 6
Item 2 Business Review and Management's Discussion and
Analysis of Financial Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 1 Legal Proceedings 16
Item 2 Changes in Securities 16
Item 3 Defaults upon Senior Securities 16
Item 4 Submission of Matters to a Vote of Security Holders 16
Item 5 Other Information 16
Item 6 Exhibits and Reports on Form 8-K 16
Signature Page 17
</TABLE>
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; (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.
2
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
September 30, December 31,
1997 1996
(Unaudited) (Audited)
------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 16,078,808 14,507,497
Federal funds sold 4,500,000 --
Investment securities at fair value 123,029,798 119,395,742
Loans, less allowance for loan losses of $4,313,105
at September 30, 1997 and $3,894,520 at December 31, 1996 170,384,993 140,425,093
Premises and equipment 3,326,546 3,388,736
Accrued interest receivable 2,707,179 2,699,833
Prepaid expenses and other assets 557,402 491,277
Income taxes receivable 224,594 140,396
Real estate acquired by foreclosure 77,721 82,721
Deferred income taxes, net 1,599,023 1,884,283
------------ ------------
Total assets $322,486,064 283,015,578
============ ============
Liabilities and Stockholders' Equity
Deposits $282,100,033 243,428,800
Short-term borrowings 14,464,493 16,737,249
Escrow deposits of borrowers 607,460 411,050
Accrued expenses and other liabilities 1,972,366 1,297,699
Accrued interest payable 557,290 493,276
------------ ------------
Total liabilities 299,701,642 262,368,074
------------ ------------
Stockholders' equity
Common stock $.01 par value; 5,000,000 shares
authorized; 1,576,217 and 1,576,192 shares
issued and outstanding at September 30, 1997 and
December 31, 1996, respectively 15,762 15,762
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares issued at September 30, 1997 -- --
Additional paid-in capital 15,477,207 15,476,857
Retained earnings 6,879,536 5,263,074
Net unrealized gain/(loss) on investment
securities, net of applicable income taxes 411,917 (108,189)
------------ ------------
Total stockholders' equity 22,784,422 20,647,504
------------ ------------
Total liabilities and stockholders' equity $322,486,064 283,015,578
============ ============
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Three months and nine months ended September 30, 1997 and 1996
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- --------------------------
1997 1996 1997 1996
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans $ 4,140,611 3,207,933 11,325,600 9,137,338
Investment securities 1,890,560 1,761,611 5,692,944 4,892,000
Federal funds sold 102,518 19,516 122,361 129,176
----------- ----------- ----------- -----------
Total interest income 6,133,689 4,989,060 17,140,905 14,158,514
----------- ----------- ----------- -----------
Interest expense:
Deposits 2,285,150 1,956,558 6,356,707 5,541,781
Borrowed funds 226,102 131,075 678,844 453,797
----------- ----------- ----------- -----------
Total interest expense 2,511,252 2,087,633 7,035,551 5,995,578
----------- ----------- ----------- -----------
Net interest income 3,622,437 2,901,427 10,105,354 8,162,936
Provision for loan losses (80,000) -- (200,000) --
----------- ----------- ----------- -----------
Net interest income after provision for loan losses 3,542,437 2,901,427 9,905,354 8,162,936
Non-interest income:
Deposit service fees 235,715 175,172 674,337 484,386
Trust fees 157,509 157,743 492,813 475,972
Gain on sale of loans 7,884 8,493 31,472 52,746
Gain/(loss) on sale of investments (10,786) -- (10,786) 1,909
Loss on sale of real estate acquired
by foreclosure (22,759) -- (22,759) --
Other income 82,605 79,098 220,850 211,428
----------- ----------- ----------- -----------
Total non-interest income 450,168 420,506 1,385,927 1,226,441
----------- ----------- ----------- -----------
Non-interest expense:
Salaries and employee benefits 1,659,602 1,283,826 4,600,947 3,728,827
Occupancy expenses 384,639 306,802 1,148,543 940,233
Advertising and public relations 77,339 92,478 354,541 361,055
Office and data processing supplies 103,135 64,395 273,614 199,034
Audit, legal and other professional fees 108,497 57,116 373,509 230,971
Trust professional and custodial expenses 55,500 64,500 160,000 165,550
Postage 66,976 98,814 191,717 186,649
Other operating expenses 275,700 208,750 840,140 718,259
----------- ----------- ----------- -----------
Total non-interest expense 2,731,388 2,176,681 7,943,011 6,530,578
----------- ----------- ----------- -----------
Income before income taxes 1,261,217 1,145,252 3,348,270 2,858,799
Income tax expense 462,133 429,988 1,219,545 1,077,952
----------- ----------- ----------- -----------
Net income $ 799,084 715,264 2,128,725 1,780,847
=========== =========== =========== ===========
Net income per
average common share outstanding $ 0.51 0.45 1.35 1.13
=========== =========== =========== ===========
Weighted average common shares outstanding 1,576,194 1,576,077 1,576,193 1,575,993
=========== =========== =========== ===========
</TABLE>
4
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<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
Nine Months Ended
September 30,
-----------------------------
1997 1996
(Unaudited) (Unaudited)
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,128,725 1,780,847
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 200,000 --
Depreciation and amortization 684,063 620,161
Gain on sale of loans (31,472) (52,746)
Loss/(gain) on sale of investments 10,786 (1,909)
Loss on sale of real estate owned 22,759 --
Provision for deferred income taxes (75,257) (1,397)
(Increase)/Decrease:
Loans held for sale 105,492 1,908,086
Accrued interest receivable (7,346) (598,677)
Income taxes payable/receivable (84,198) (129,300)
Prepaid expenses and other assets (66,125) 12,113
Increase/(Decrease):
Accrued expenses and other liabilities 674,667 (150,992)
Accrued interest payable 64,014 (64,358)
------------ ------------
Net cash provided by operating activities 3,626,108 3,321,828
------------ ------------
Cash flows from investing activities:
Proceeds from sales of investment securities 4,960,469 5,919,844
Proceeds from maturities, calls and paydowns
of investment securities 4,611,501 7,739,653
Purchase of investment securities (12,381,414) (55,992,509)
Proceeds from sales of or payments on real estate
acquired by foreclosure 150,347 27,701
Net increase in loans (30,402,026) (20,605,093)
Additions to premises and equipment, net (576,648) (459,206)
------------ ------------
Net cash used in investing activities (33,637,771) (63,369,610)
------------ ------------
Cash flows from financing activities:
Net increase in deposits, including escrow deposits 38,867,643 35,827,376
Net increase in short-term borrowings (2,272,756) 15,213,437
Net proceeds from exercise of stock options 350 3,402
Cash dividends paid on common stock (512,263) (472,805)
------------ ------------
Net cash provided by financing activities 36,082,974 50,571,410
------------ ------------
Net increase (decrease) in cash and cash equivalents 6,071,311 (9,476,372)
Cash and cash equivalents at beginning of period 14,507,497 25,162,392
------------ ------------
Cash and cash equivalents at end of period $ 20,578,808 15,686,020
============ ============
Supplemental financial data:
Cash paid for:
Interest on deposits and borrowings 6,971,537 6,059,936
Income taxes 1,379,000 990,050
Transfers from real estate acquired by foreclosure to loans -- 331,532
Transfers from loans to real estate acquired by foreclosure 168,106 --
</TABLE>
5
<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.
(2) Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the company's December 31, 1996 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 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) Reclassification
Certain fiscal 1996 information has been reclassified to conform to the 1997
presentation.
6
<PAGE>
ITEM 2 - Business Review and Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capital Resources
The company's capital amounts and capital adequacy ratios are presented in the
table below. The bank's capital amounts and ratios do not differ materially from
the amounts and ratios presented.
<TABLE>
<CAPTION>
Minimum Capital
For Capital Minimum Capital To Be
Actual Adequacy Purposes Well Capitalized
-------------------- ------------------- ---------------------
($ in Thousands) Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997:
Total Capital
(to risk weighted assets) $ 24,754 13.1% $15,179 8.0% $18,974 10.0%
Tier 1 Capital
(to risk weighted assets) 22,358 11.8% 7,589 4.0% 11,384 6.0%
Tier 1 Capital *
(to average assets) 22,358 7.0% 12,761 4.0% 15,952 5.0%
<FN>
* For the bank to qualify as well capitalized, it must also maintain a Tier 1 Capital to average assets ratio of at least 5.0%.
This requirement does not apply to the company and is reflected merely for informational purposes with respect to the bank.
</FN>
</TABLE>
Balance Sheet
Total Assets
Total assets increased $39.5 million, or 14.0%, since December 31, 1996. The
increase is primarily related to an increase in gross loans of $38.2 million, an
increase in investments of $3.6 million and an increase in cash and due from
banks of $1.6 million. The increase in assets was funded primarily by increases
in deposits of $38.9 million.
Investments
At September 30, 1997, all of the bank's investment securities were classified
as available for sale and carried at market value. The net unrealized gain at
September 30, 1997, net of tax effects, is shown as a separate component of
stockholders' equity in the amount of $411,917.
Loans
Total loans, before the allowance for loan losses, were $174.7 million, or 54.2%
of total assets, at September 30, 1997, compared to $144.3 million, or 51.0% of
total assets, at December 31, 1996. The increase in loans of $30.4 million was
primarily attributable to increased commercial loan originations of $13.5
million, $8.0 and $1.9 million, in the commercial real estate, commercial
construction and commercial loan portfolios, respectively. Residential mortgages
and home equity lines of credit also contributed to the growth with increases of
$3.9 million and $2.6 million, respectively. 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, including escrow deposits of borrowers, increased $38.9 million,
or 15.9%, during the first nine months of 1997 from $243.8 million at December
31, 1996, to $282.7 million at September 30, 1997. The increase was the result
of substantial increases in deposits in all of the bank's branches.
Total borrowings, consisting of securities sold under agreements to repurchase
and FHLB (Federal Home Loan Bank) borrowings, decreased $2.3 million, or 13.6%,
from $16.7 million at December 31, 1996 to $14.5 million at September 30, 1997.
The decrease was attributable to a decrease in FHLB borrowings of $4.9 million.
Management periodically takes advantage of opportunities to fund asset growth
with borrowings, but on a long-term basis management intends to replace the FHLB
borrowings with deposits. Management also actively uses FHLB borrowings in
managing the bank's asset/liability position. Leveraging strategies are employed
after careful consideration by management of the bank's anticipated growth,
anticipated changes in market interest rates, anticipated earnings and capital
levels and the overall economic environment. At September 30, 1997, the bank had
the ability to borrow approximately $109.4 million from the FHLB.
7
<PAGE>
<TABLE>
<CAPTION>
Loan Loss Experience/Non-performing Assets
The following table summarizes the activity in the allowance for loan losses for
the periods indicated:
Nine months ended September 30,
1997 1996
---- ----
<S> <C> <C>
Balance at beginning of year $ 3,894,520 4,106,659
Loans charged off
Commercial 147,666 3,377
Commercial real estate -- 111,481
Construction -- --
Residential real estate -- --
Home Equity -- 35,004
Other 3,403 15,164
----------- -----------
151,069 165,026
Recoveries on loans charged off
Commercial 148,093 2,363
Commercial real estate 155,385 20,577
Construction -- --
Residential real estate -- --
Home Equity 40,290 2,834
Other 25,886 2,702
----------- -----------
369,654 28,476
Net loans (recovered)/charged off (218,585) 136,550
Provision charged to income 200,000 --
----------- -----------
Balance at September 30 $ 4,313,105 3,970,109
=========== ===========
Allowance for loan losses: Gross loans 2.47% 2.91%
=========== ===========
Annualized net (recoveries)/charge-offs:
Average loans outstanding (.17%) .14%
=========== ===========
Allowance for loan losses: Non-performing loans 206.53% 144.41%
=========== ===========
<CAPTION>
The following table sets forth non-performing assets at September 30:
1997 1996
---- ----
<S> <C> <C>
Loans on non accrual:
Commercial $ 457,560 568,663
Commercial real estate 814,903 1,366,711
Construction -- --
Residential real estate 248,991 248,633
Home equity 456,446 557,402
Other -- --
---------- ----------
Total loans on non accrual 1,977,900 2,741,409
Loans past due >90 days, still accruing 110,515 7,822
---------- ----------
Total non performing loans 2,088,415 2,749,231
Other real estate owned 77,721 77,721
---------- ----------
Total non performing loans and real estate owned $2,166,136 2,826,952
========== ==========
Restructured loans $ 436,195 --
========== ==========
Non performing loans: Gross loans 1.19% 2.00%
========== ==========
Non performing loans and real estate owned: Total assets .67% 1.03%
========== ==========
Delinquent loans 30-89 days past due: Gross loans 1.12% 1.60%
========== ==========
</TABLE>
8
<PAGE>
Non accrual loans decreased by $763,509, or 27.9% from September 30, 1996 to
September 30, 1997. The reduction in non accrual loans was primarily
attributable to a reduction in commercial real estate loans on non accrual which
declined by $551,508 for the same period due, in part, to the repayment in full
of a loan on non accrual of approximately $300,000 and, in part, to loans being
taken off of non accrual after a satisfactory payment history under either the
restructured or the original terms of the loans.
Impaired loans as of September 30, 1997 and September 30, 1996 were $1,523,109
and $1,315,622, respectively. Impaired loans of $999,220 and $1,315,622 were
included in the non accrual total in the table above. Impaired loans excluded
from non accrual are those loans where charge offs have been taken but the
remaining balance is expected to be fully collected. The increase in impaired
loans from September 30, 1996 to September 30, 1997 of $207,487 is attributed to
the addition of three loans to the impaired loan category with balances net of
charge offs ranging from approximately $100,000 to $220,000. One loan was
removed from the impaired list as a result of its repayment in full. The
remaining change in impaired loans is attributable to payments made by the
borrowers.
Results of Operations
Nine Months Ended September 30, 1997 vs. Nine Months Ended September 30, 1996
The company reported net income of $2,128,725, or $1.35 per common share, for
the nine months ended September 30, 1997, versus $1,780,847, or $1.13 per common
share, for the nine months ended September 30, 1996, or an increase of 19.5%.
The following table highlights changes, which affected the company's earnings
for the periods indicated:
<TABLE>
<CAPTION>
Nine months ended September 30,
-------------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Average assets $301,62$ $ 247,966
Average deposits and short-term borrowings 278,090 226,814
Average loans 157,495 124,496
Average investment securities (1) 121,537 107,017
Net interest income 10,105 8,163
Provision for loan losses 200 --
Tax expense 1,220 1,078
Average loans : Average deposits and borrowings 56.63% 54.89%
Non-interest expense : Average assets (2) 3.52% 3.51%
Non-interest income, exclusive of securities
gains : Average assets (2) .62% .66%
Average tax equivalent rate earned on interest earning assets 8.25% 8.17%
Average rate paid on interest bearing deposits and
short-term borrowings 4.01% 4.12%
Net interest rate spread 4.24% 4.05%
<FN>
(1) Average investment securities are shown at average amortized cost
(2) Annualized based on number of days in the period
</FN>
</TABLE>
9
<PAGE>
Net Interest Income
The company's net interest income was $10,105,354 for the nine months ended
September 30, 1997, an increase of 1,942,418, or 23.8% from $8,162,936 for the
nine months ended September 30, 1996, primarily as a result of an increase in
the bank's interest earning assets, specifically the bank's loans and
investments, and a decrease in the bank's cost of funds. This increase in the
net interest income was partially offset by increased interest expense, due to
an increase in deposit balances.
The average tax equivalent yield on interest earning assets in the nine months
ended September 30, 1997, was 8.25%, up 8 basis points from 8.17% in the nine
months ended September 30, 1996. The increase in yield was a result of faster
growth in average loan balances of 26.5% compared to growth in average
investment balances of 13.6% as well as an increase in the yield on investment
securities of 17 basis points. These increases were partially offset by a 17
basis point decline in loan yields. The average rate paid on interest bearing
deposits and borrowings in the nine months ended September 30, 1997, was 4.01%,
a decrease of 11 basis points from 4.12% in the nine months ended September 30,
1996. The decrease in the average rate paid was due to the maturities in certain
categories of certificates of deposit which were maturing and renewing at lower
rates. This improvement in rate paid on certificates of deposit was partially
offset by increases in interest rates in savings accounts, NOW accounts, money
market accounts and short term borrowings. The resulting interest rate spread
increased 19 basis points to 4.24% in the nine months ended September 30, 1997,
from 4.05% in the nine months ended September 30, 1996.
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, 1997, and 1996. 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 (the remaining difference).
10
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
--------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1997 September 30, 1996 Changes due to
---------------------------- ---------------------------- -------------------------------
Average Interest Average Interest Interest Rate/
(Dollars in thousands) Balance Interest Rates(3) Balance Interest Rates (3) Total Volume Rate Volume
------- -------- -------- ------- -------- --------- ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans (1) (2) $ 157,495 $ 11,326 9.61% $ 124,496 $ 9,137 9.78% $2,189 $ 2,420 $(151) $ (80)
Investment securities (3) 121,537 5,693 6.55 107,017 4,892 6.38 801 695 139 (33)
Federal funds sold 3,045 122 5.36 3,092 129 5.56 (7) (2) (5) -
--------- ---------- --------- --------- ------ ------- ----- -------
Total interest earnings assets 282,077 17,141 8.25% 234,605 14,159 8.17% 2,983 3,113 (17) (113)
---------- --------- ------ ------- ----- -------
Other assets (4) 19,545 13,361
--------- ---------
Total assets $ 301,622 $ 247,966
========= =========
Liabilities and stockholders' equity:
Savings, NOW and money market $ 102,506 1,782 2.32% $ 82,972 1,410 2.26% 372 332 38 2
Certificate of deposit 112,359 4,575 5.44 97,186 4,132 5.66 443 645 (160) (42)
Short-term borrowings 19,867 679 4.57 13,599 454 4.45 225 209 12 4
--------- ---------- --------- --------- ------ ------- ----- -------
Total interest bearing deposits
and borrowings 234,732 7,036 4.01% 193,757 5,996 4.12% 1,040 1,186 (110) (36)
---------- --------- ------ ------- ----- -------
Non-interest bearing deposits 43,358 33,057
Other liabilities 2,027 1,788
--------- ---------
Total liabilities 280,117 228,602
Stockholders' equity 21,505 19,364
--------- ---------
Total liabilities and
stockholder$' equity $ 301,622 $ 247,966
========= =========
Net interest rate spread 4.24% 4.05%
Net interest income $ 10,105 $ 8,163 $1,943 $ 1,927 $ 93 $ (77)
Net yield on average earning assets 4.91% 4.77%
<FN>
(1) Average loans include non-accrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Average balances are presented at average amortized cost and average interest rates are presented on a tax-equivalent basis.
(4) Other assets include cash and due from banks, accrued interest receivable, allowance for loan losses, real estate acquired by
foreclosure, deferred income taxes and other miscellaneous assets.
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>
11
<PAGE>
The provision for loan losses amounted to $200,000 and $0 for the nine month
periods ended September 30, 1997 and 1996, respectively. The provision for loan
losses was reinstated in the first quarter of 1997 as a result of the
substantial loan growth over the past and current year. Loans, before the
allowance for loan losses, increased from $136.6 million at September 30, 1996,
to $174.7 million at September 30, 1997 an increase of 27.9%. Although there has
not been an increase in problem assets, management recognizes the increased risk
and the need for additional reserves as loan balances increase. 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.
Non-Interest Income
Non-interest income, exclusive of security gains, increased by $172,181 to
$1,396,713 for the nine months ended September 30, 1997, compared to $1,224,532
for the nine months ended September 30, 1996. This increase was primarily caused
by an increase in deposit service fees. The increase was partially offset by a
decrease in gains on sales of loans of $21,274 which is attributable to a
decline in originations in the first three quarters of 1997 compared to the
first three quarters of 1996, and an increase in loss on sale of real estate
acquired by foreclosure of $22,759 resulting from the disposition of one of the
bank's properties. Management believes that the balance of $77,721 remaining in
real estate acquired by foreclosure is adequately supported by the underlying
values of the properties.
Deposit fees increased by $189,951, or 39.2% for the nine months ended September
30, 1997, compared to the nine months ended September 30, 1996. The increase was
primarily the result of an increase in transaction deposit accounts, activity
volume and increased fees.
Trust fees increased by $16,841, or 3.5%, for the nine months ended September
30, 1997 compared to the same period in the prior year due to an increase in
trust assets. Trust assets increased from $126,283,554 to $163,729,538 from
September 30, 1996 to September 30, 1997.
The net loss on sale of investments was $10,786 for the nine months ended
September 30, 1997 compared to net gains on sales of investments of $1,909 for
the nine months ended September 30, 1996. The losses in 1997 are attributable to
the implementation of certain investment portfolio strategies to increase the
total return of the investment portfolio. Management anticipates the losses
incurred will be fully recovered through an increase in investment income by the
end of the first quarter of 1998.
Other income for the nine months ended September 30, 1997, was $220,850, an
increase of 4.5% from $211,428 for the nine months ended September 30, 1996, due
primarily to increases in check fees, safe deposit fees and merchant assessment
fees partially offset by a decline in letter of credit fees.
Non-Interest Expense
Salaries and benefits expense totaled $4,600,947 for the nine months ended
September 30, 1997, compared with $3,728,827 for the nine months ended September
30, 1996, an increase of $872,120 or 23.4%. This increase was primarily the
result of the addition of the Tewksbury branch in the fourth quarter of 1996,
several new positions added during the year and annual salary increases.
Occupancy expense was $1,148,543 for the nine months ended September 30, 1997,
compared with $940,233 for the nine months ended September 30, 1996, an increase
of $208,310 or 22.2%, primarily due to the opening of the Tewksbury branch.
Office and data processing supplies expense increased by $74,580, or 37.5%, for
the nine months ended September 30, 1997 compared to the same period in the
prior year, primarily due to increased deposit and loan volume and the addition
of the Tewksbury branch.
Audit, legal and other professional expenses increased by $142,538, or 61.7% for
the nine months ended September 30, 1997 compared to the prior year period. The
increase was primarily a result of costs in 1997 associated with the outsourcing
of the internal audit function, and consulting services related to future
technology, product and growth initiatives of the bank, which were not incurred
in 1996.
Other operating expenses increased by $121,881 or 17.0% for the nine months
ended September 30, 1997 compared to the same period in the prior year. The
increase was primarily due to costs associated with the creating of a bankwide
training department, an increase in the FDIC assessment rate, the increase in
expenses associated with the Tewksbury branch and increases in various costs
related to the overall growth of the bank.
12
<PAGE>
Results of Operations
Three Months Ended September 30, 1997 vs. Three Months Ended September 30, 1996
The company reported net income of $799,084, or $.51 per common share, for the
three months ended September 30, 1997, versus $715,264, or $.45 per common
share, for the three months ended September 30, 1996, or an increase of 11.7%.
The following table highlights changes, which affected the company's earnings
for the periods indicated:
<TABLE>
<CAPTION>
Three months ended September 30,
---------------------------------
1997 1996
---- ----
(Dollars in thousands)
<S> <C> <C>
Average assets $318,818 265,200
Average deposits and short-term borrowings 294,698 243,870
Average loans 169,251 133,580
Average investment securities (1) 121,324 115,733
Net interest income 3,622 2,901
Provision for loan losses 80 --
Tax expense 462 430
Average loans: Average deposits and borrowings 57.43% 54.78%
Non-interest expense: Average assets (2) 3.40% 3.26%
Non-interest income, exclusive of securities
gains : Average assets (2) .57% .63%
Average tax equivalent rate earned on interest earning assets 8.29% 8.02%
Average rate paid on interest bearing deposits and
short-term borrowings 4.03% 3.97%
Net interest rate spread 4.26% 4.05%
<FN>
(1) Average investment securities are shown at average amortized cost
(2) Annualized based on number of days in the period
</FN>
</TABLE>
Net Interest Income
The company's net interest income was $3,622,437 for the three months ended
September 30, 1997, an increase of $721,010, or 24.9% from $2,901,427 for the
three months ended September 30, 1996. The increase was primarily a result of an
increase in the bank's interest earning assets, specifically the bank's loans,
investments and federal funds sold, and an increase in the average interest
rates on the loans and investments. These increases were partially offset by
increased interest expense due to the increase in deposit balances and average
borrowings.
The average tax equivalent yield on interest earning assets in the three months
ended September 30, 1997, was 8.29% up 27 basis points from 8.02% in the three
months ended September 30, 1996. The average rate paid on interest bearing
deposits and borrowings in the three months ended September 30, 1997, was 4.03%,
an increase of 6 basis points from 3.97% in the three months ended September 30,
1996. The resulting interest rate spread increased 21 basis points to 4.26% in
the three months ended September 30, 1997, from 4.05% in the three months ended
September 30, 1996. The principal reason for the increase in the bank's net
interest income during the third quarter of 1997 was the increase in average
loans, investments and federal funds sold of $47.5 million, which was funded by
increases in interest bearing deposits, non-interest bearing deposits and short
term borrowings of $34.3 million, $11.8 million and $4.7 million, respectively.
The increase in the net yield on average interest earning assets was a result of
a shift in the mix of interest earnings assets. Higher yielding average loan
balances increased by $35.7 million, or 26.7%, while lower yielding investment
and federal funds sold balances increased by $11.8 million, or 10.1%, during the
same period.
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 three months ended September 30, 1997, and 1996. 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 (the remaining difference).
13
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
--------------------------------------------------------------------------------------------
Three Months Ended Three Months Ended
September 30, 1997 September 30, 1996 Changes due to
---------------------------- ---------------------------- -------------------------------
Average Interest Average Interest Interest Rate/
(Dollars in thousands) Balance Interest Rates(3) Balance Interest Rates (3) Total Volume Rate Volume
------- -------- -------- ------- -------- --------- ----- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Loans (1) (2) $169,251 $ 4,141 9.71% $ 133,580 $ 3,208 9.53% $ 933 $ 850 $ 60 $ 23
Investment securities (3) 121,324 1,891 6.48 115,733 1,762 6.31 129 88 50 (9)
Federal funds sold 7,527 103 5.43 1,291 20 6.15 83 96 (2) (11)
-------- --------- --------- --------- ------ ------ ----- -------
Total interest earnings
assets 298,102 6,134 8.29% 250,604 4,990 8.02% 1,145 1,034 108 3
--------- --------- ------ ------- ----- -------
Other assets (4) 20,716 14,596
-------- ---------
Total assets $318,818 $ 265,200
======== =========
Liabilities and stockholders' equity:
Savings, NOW and money market $108,625 661 2.41% $ 88,056 491 2.21% 170 114 44 12
Certificate of deposit 118,880 1,624 5.42 105,179 1,466 5.53 158 189 (29) (2)
Short-term borrowings 19,854 226 4.52 15,107 131 3.44 95 41 41 13
-------- --------- --------- --------- ------ ------ ----- -------
Total interest bearing
deposits and borrowings 247,359 2,511 4.03% 208,342 2,088 3.97% 423 344 56 23
--------- --------- ------ ------- ----- -------
Non-interest bearing deposits 47,339 35,528
Other liabilities 2,122 1,593
--------- ---------
Total liabilities 296,820 245,463
Stockholders' equity 21,998 19,737
--------- ---------
Total liabilities and
Stockholders' equity $318,818 $ 265,200
======== =========
Net interest rate spread 4.26% 4.05%
Net interest income $ 3,622 $ 2,901 $ 722 $ 690 $ 52 $ (20)
Net yield on average earning assets 4.94% 4.72%
<FN>
(1) Average loans include non-accrual loans.
(2) Average loans are net of average deferred loan fees.
(3) Average balances are presented at average amortized cost and average interest rates are presented on a tax-equivalent basis.
(4) Other assets include cash and due from banks, accrued interest receivable, allowance for loan losses, real estate acquired by
foreclosure, deferred income taxes and other miscellaneous assets.
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>
The provision for loan losses amounted to $80,000 and $0 in for the three-month
periods ended September 30, 1997 and 1996, respectively. As described above, the
provision for loan losses was reinstated in the first quarter of 1997 as a
result of loan growth over the past year.
Non-Interest Income
Non-interest income, exclusive of security gains, increased by $40,448 to
$460,954 for the three months ended September 30, 1997, compared to $420,506 for
the three months ended September 30, 1996. This increase was primarily caused by
an increase in deposit service fees of $60,543, partially offset by the loss on
sale of investments of $10,786 and loss on sale of real estate owned of $22,759.
Deposit service fees increased by $60,543, or 34.6% for the three months ended
September 30, 1997, compared to the three months ended September 30, 1996. The
growth was primarily the result of an increase in transaction deposit accounts,
activity volume and increased fees.
The loss on sale of investments was a result of long-term strategic decisions in
the investment portfolio to sell certain securities at a loss in order to
improve the investment portfolio yields long term. Management anticipates that
the loss on sale of securities will be recovered by an increase in investment
income by the end of the first quarter of 1998.
Non-Interest Expenses
Salaries and benefits expense totaled $1,659,602 for the three months ended
September 30, 1997, compared with $1,283,826 for the three months ended
September 30, 1996, an increase of $375,776 or 29.3%. This increase was
primarily the result of the addition of the Tewksbury branch in the fourth
quarter of 1996, several new positions added during the year, and annual salary
increases.
Occupancy expense was $384,639 for the three months ended September 30, 1997,
compared with $306,802 for the three months ended September 30, 1996, an
increase of $77,837 or 25.4%, primarily due to the opening of the Tewksbury
branch and the leasing of additional space for the bank's training facility and
credit department.
Office and data processing supplies expense increased by $38,740, or 60.2%, for
the three months ended September 30, 1997 compared to the same period in the
prior year. The increase was primarily due to increased volume and resulting
increases in costs bankwide, as well as the addition of the Tewksbury branch.
Audit, legal and other professional expenses increased by $51,381, or 90.0% for
the three months ended September 30, 1997 compared to the prior year period. The
increase was primarily as a result of costs associated with the outsourcing of
the internal audit function, and consulting services related to future
technology, product and other initiatives of the bank that were not incurred in
1996.
Postage decreased by $31,838 or 32.2% for the three months ended September 30,
1997 compared to the same period in the prior year. The decrease was primarily a
result timing of postage expenses.
Other operating expenses increased by $66,950, or 32.1% for the three months
ended September 30, 1997 compared to the same period in the prior year. The
increase was primarily due to costs associated with the start of a bankwide
training department, the increase in expenses associated with the addition of
the Tewksbury branch and increases in various costs related to the overall
growth of the bank.
15
<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
16
<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 14, 1997 /s/ John P. Clancy, Jr.
John P. Clancy, Jr.
Senior Vice President, Chief Financial Officer
and Treasurer
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements of Enterprise Bancorp, Inc. at and for the period ended
September 30, 1997 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 16,078,808
<INT-BEARING-DEPOSITS> 47,819,381
<FED-FUNDS-SOLD> 4,500,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 123,029,798
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 175,692,220
<ALLOWANCE> 4,313,105
<TOTAL-ASSETS> 322,486,064
<DEPOSITS> 282,707,493
<SHORT-TERM> 14,464,493
<LIABILITIES-OTHER> 2,529,656
<LONG-TERM> 0
0
0
<COMMON> 15,762
<OTHER-SE> 22,768,660
<TOTAL-LIABILITIES-AND-EQUITY> 322,486,064
<INTEREST-LOAN> 11,325,600
<INTEREST-INVEST> 5,692,944
<INTEREST-OTHER> 122,361
<INTEREST-TOTAL> 17,140,905
<INTEREST-DEPOSIT> 6,356,707
<INTEREST-EXPENSE> 7,035,551
<INTEREST-INCOME-NET> 10,105,354
<LOAN-LOSSES> 200,000
<SECURITIES-GAINS> (10,786)
<EXPENSE-OTHER> 7,943,011
<INCOME-PRETAX> 3,348,270
<INCOME-PRE-EXTRAORDINARY> 3,348,270
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,128,725
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
<YIELD-ACTUAL> 4.79
<LOANS-NON> 1,977,900
<LOANS-PAST> 110,515
<LOANS-TROUBLED> 436,195
<LOANS-PROBLEM> 1,252,704
<ALLOWANCE-OPEN> 3,894,520
<CHARGE-OFFS> 151,069
<RECOVERIES> 369,654
<ALLOWANCE-CLOSE> 4,313,105
<ALLOWANCE-DOMESTIC> 4,313,105
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 103,326
</TABLE>
