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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
EXCHANGE ACT
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: April 30, 1998, Common Stock - Par
Value $0.01, 1,583,217 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 of Enterprise Bancorp, Inc.
Consolidated Balance Sheets - March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income -
Three months ended March 31, 1998 and 1997 4
Consolidated Statements of Changes in Stockholders' Equity 5
Three months ended March 31, 1998
Consolidated Statements of Cash Flows -
Three months ended March 31, 1998 and 1997 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 14
Item 2 Changes in Securities 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature Page 15
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 or
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 changes in interest rates; (v) the effect of
changes in the business cycle and downturns in the local, regional or national
economies; and (vi) the potential for the company to materially underestimate
the cost to be incurred and/or the time required in connection with systems
preparation for Year 2000 compliance.
2
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Balance Sheets
March 31, December 31,
1998 1997
(Unaudited) (Audited)
----------- ---------
($ in thousands)
<S> <C> <C>
Assets
Cash and cash equivalents $ 19,071 19,779
Daily federal funds sold 6,100 3,775
Investment securities at fair value 112,365 112,886
Loans, less allowance for loan losses of $4,356
at March 31, 1998 and $4,290 at December 31, 1997 188,904 176,294
Premises and equipment 3,942 4,079
Accrued interest receivable 2,636 2,971
Prepaid expenses and other assets 903 645
Income taxes receivable -- 220
Real estate acquired by foreclosure 469 393
Deferred income taxes, net 1,527 1,581
-------- --------
Total assets $335,917 322,623
======== ========
Liabilities and Stockholders' Equity
Deposits $292,695 283,249
Short-term borrowings 15,778 12,467
Escrow deposits of borrowers 731 612
Income taxes payable 57 --
Accrued expenses and other liabilities 1,323 1,884
Accrued interest payable 578 566
-------- --------
Total liabilities 311,162 298,778
-------- --------
Stockholders' equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized, no shares issued at March 31, 1998 -- --
Common stock $.01 par value; 5,000,000 shares
authorized, 1,580,217 shares issued and out-
standing at March 31, 1998 and December 31, 1997 16 16
Additional paid-in capital 15,531 15,531
Retained earnings 8,466 7,663
Accumulated other comprehensive income 742 635
-------- --------
Total stockholders' equity 24,755 23,845
-------- --------
Total liabilities and stockholders' equity $335,917 322,623
======== ========
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Income
Three months ended March 31, 1998 and 1997
March 31, March 31,
1998 1997
($ in thousands, except per share data) (Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Interest and dividend income:
Loans $ 4,331 3,405
Investment securities 1,713 1,874
Federal funds sold 24 15
---------- ----------
Total interest income 6,068 5,294
---------- ----------
Interest expense:
Deposits 2,259 1,987
Borrowed funds 169 235
---------- ----------
Total interest expense 2,428 2,222
---------- ----------
Net interest income 3,640 3,072
Provision for loan losses 90 60
---------- ----------
Net interest income after provision for loan losses 3,550 3,012
---------- ----------
Non-interest income:
Deposit service fees 219 217
Trust fees 237 178
Net gain on sales of loans 19 19
Net gain on sales of investments 71 --
Other income 84 70
---------- ----------
Total non-interest income 630 484
---------- ----------
Non-interest expense:
Salaries and employee benefits 1,678 1,406
Occupancy expenses 555 430
Advertising and public relations 106 173
Office and data processing supplies 93 82
Audit, legal and other professional fees 126 76
Trust professional and custodial expenses 74 50
Other operating expenses 300 296
---------- ----------
Total non-interest expense 2,932 2,513
---------- ----------
Income before income taxes 1,248 983
Income tax expense 445 354
---------- ----------
Net income $ 803 629
========== ==========
Basic earnings per average common share outstanding $ 0.51 0.40
========== ==========
Diluted earnings per average common share outstanding $ 0.49 0.39
========== ==========
Basic weighted average common shares outstanding 1,580,217 1,576,192
========== ==========
Diluted weighted average common shares outstanding 1,644,104 1,612,027
========== ==========
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Changes in Stockholders' Equity
Three months ended March 31, 1998
Common Stock Additional Comprehensive Income Total
------------------- Paid-in Retained -------------------- Stockholders'
($ in thousands) Shares Amount Capital Earnings Period Accumulated Equity
------ ------ ---------- -------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 1,580,217 $ 16 $ 15,531 $ 7,663 $ 635 $ 23,845
Comprehensive income
Net income 803 $ 803 803
Unrealized gains on securities,
net of reclassification 107 107 107
------
Total comprehensive income, net of tax $ 910
======
--------- ---- -------- ------- ----- ---------
Balance at March 31, 1998 1,580,217 $ 16 $ 15,531 $ 8,466 $ 742 $ 24,755
========= ==== ======== ======= ===== =========
Disclosure of reclassification amount:
Gross unrealized holding gains arising
during the period $ 249
Less: tax effect 96
-----
Unrealized holding gains, net of tax 153
-----
Less: reclassification adjustment for
gains included in net income
(net of $25 tax) 46
-----
Net unrealized gains on securities $ 107
=====
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
ENTERPRISE BANCORP, INC.
Consolidated Statements of Cash Flows
Three months ended March 31, 1998 and 1997
March 31, March 31,
1998 1997
($ in thousands) (Unaudited) (Unaudited)
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 803 629
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 90 60
Depreciation and amortization 274 226
Gains on sales of loans (19) (19)
Gains on sales of securities (71) --
(Increase) decrease in loans held for sale (507) 93
Decrease in accrued interest receivable 335 173
Increase in prepaid expenses and other assets (258) (126)
Increase in deferred income taxes (17) (12)
Decrease in accrued expenses and other liabilities (561) (200)
Increase in accrued interest payable 12 2
Change in income taxes payable/receivable 277 202
-------- --------
Net cash provided by operating activities 358 1,028
-------- --------
Cash flows from investing activities:
Proceeds from maturities, calls and paydowns
of investment securities 9,842 590
Purchase of investment securities (9,080) (4,796)
Proceeds from sales of real estate acquired by foreclosure -- 64
Net increase in loans (12,250) (5,402)
Additions to premises and equipment, net (129) (48)
-------- --------
Net cash used in investing activities (11,617) (9,592)
-------- --------
Cash flows from financing activities:
Net increase in deposits, including escrow deposits 9,564 3,910
Net increase in short-term borrowings 3,312 8,862
-------- --------
Net cash provided by financing activities 12,876 12,772
-------- --------
Net increase (decrease) in cash and cash equivalents 1,617 4,208
Cash and cash equivalents at beginning of period 23,554 14,507
-------- --------
Cash and cash equivalents at end of period $ 25,171 18,715
======== ========
Supplemental financial data:
Cash paid for:
Interest on deposits and short-term borrowings $ 2,416 2,219
Income taxes 184 165
Transfers from loans to real estate acquired by foreclosure 76 170
</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.
(2) Basis of Presentation
The accompanying unaudited financial statements should be read in conjunction
with the company's December 31, 1997, 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) Earnings per share
Basic earnings per share are calculated by dividing net income by the year to
date weighted average number of common shares that are outstanding. Diluted
earnings per share reflect 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 increase in
average shares outstanding, using the treasury stock method, for the diluted
earnings per share calculation were 63,887 for the quarter ended March 31, 1998.
(4) Reclassification
Certain fiscal 1997 information has been reclassified to conform to the 1998
presentation.
7
<PAGE>
ITEM 2 - Business Review and Management's Discussion and Analysis of Financial
Condition and Results of Operations
Capital Resources
The company's actual 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 Minimum Capital
for 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 March 31, 1998:
Total Capital
(to risk weighted assets) $26,485 13.23% $16,056 8.00% $20,070 10.00%
Tier 1 Capital
(to risk weighted assets) 23,953 11.93% 8,028 4.00% 12,042 6.00%
Tier 1 Capital*
(to average assets) 23,953 7.42% 12,917 4.00% 16,147 5.00%
<FN>
* For the bank to qualify as "well capitalized", it must maintain a leveraged capital ratio (Tier 1
capital to average assets) of at least 5%. This requirement does not apply to the company and is
reflected merely for informational purposes with respect to the bank.
</FN>
</TABLE>
On April 21, 1998, the board of directors declared a dividend in the amount of
$0.35 per share to be paid on or about July 1, 1998 to shareholders of record as
of the close of business on June 12, 1998. The board of directors intends to
consider the payment of future dividends on an annual basis.
Balance Sheet
Total Assets
Total assets increased $13.3 million, or 4.1%, since December 31, 1997. The
increase is primarily attributable to an increase in gross loans of $12.7
million. The increase in assets was funded primarily by increases in deposits
and short-term borrowings of $9.6 million and $3.3 million, respectively.
Investments
At March 31, 1998 all of the bank's investment securities were classified as
available-for-sale and carried at fair value. The net unrealized gain at March
31, 1998, net of tax effects, is shown as accumulated other comprehensive
income, a separate component of stockholders' equity, in the amount of $742,000.
Loans
Total loans, before the allowance for loan losses, were $193.3 million, or 57.5%
of total assets, at March 31, 1998, compared to $180.6 million, or 56.0 % of
total assets, at December 31, 1997. The increase in loans of $12.7 million was
primarily attributed to increased loan origination 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.
8
<PAGE>
Deposits and Borrowings
Total deposits, including escrow deposits of borrowers, increased $9.6 million,
or 3.4%, during the first three months of 1998 from $283.9 million at December
31, 1997, to $293.4 million at March 31, 1998. The increase was primarily due to
increased market penetration of the bank's newer branches as well as strong
demand for the bank's new IRA products.
Total borrowings, consisting of securities sold under agreements to repurchase
and FHLB (Federal Home Loan Bank) borrowings, increased $3.3 million, or 26.6%,
from $12.5 million at December 31, 1997 to $15.8 million at March 31, 1998. The
increase was primarily attributable to an increase in securities sold under
agreements to repurchase of $4.7 million, partially offset by a decrease in FHLB
borrowings of $1.4 million. Management periodically takes advantage of
opportunities to fund asset growth with borrowings, but on a long-term basis the
bank intends to replace any FHLB borrowings with deposits. Management also
actively uses FHLB borrowings in managing the bank's asset/liability position.
The bank had no FHLB borrowings outstanding at March 31, 1998, and had the
ability to borrow approximately $75.2 million.
Loan Loss Experience/Non-performing Assets
The following table summarizes the activity in the allowance for loan losses for
the periods indicated:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
($ in thousands) 1998 1997
---- ----
<S> <C> <C>
Balance at beginning of year $4,290 3,895
Loans charged-off
Commercial 65 42
Commercial real estate -- --
Construction -- --
Residential real estate -- --
Home equity -- --
Other -- --
------ ------
65 42
Recoveries on loans charged off
Commercial 1 3
Commercial real estate -- 34
Construction -- --
Residential real estate 6 --
Home equity 2 --
Other 32 1
------ ------
41 38
Net loans charged off 24 4
Provision charged to income 90 60
------ ------
Balance at March 31 $4,356 3,951
====== ======
Allowance for loan losses : Gross loans 2.25% 2.63%
====== ======
Annualized net charge-offs : Average loans outstanding 0.05% 0.01%
====== ======
Allowance for loan losses : Non-performing loans 429.16% 156.10%
====== ======
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
The following table sets forth non-performing assets at the dates indicated:
March 31 December 31 March 31
1998 1997 1997
($ in thousands) -------- ----------- --------
<S> <C> <C> <C>
Loans on non-accrual:
Commercial $ 489 408 679
Residential real estate 76 180 249
Commercial real estate 85 179 963
Construction -- -- 75
Consumer, including home equity 300 276 466
------ ------ ------
Total loans on non-accrual 950 1,043 2,432
Loans past due >90 days, still accruing 65 74 99
------ ------ ------
Total non-performing loans 1,015 1,117 2,531
Other real estate owned 469 393 188
------ ------ ------
Total non-performing loans and real estate owned $1,484 1,510 2,719
====== ====== ======
Non-performing loans : Gross loans 0.53% 0.61% 1.68%
====== ====== ======
Non-performing loans and real estate owned : Total assets 0.44% 0.47% 0.92%
====== ====== ======
Delinquent loans 30-89 days past due : Gross loans 0.74% 1.14% 1.16%
====== ====== ======
</TABLE>
Total non-performing loans decreased $1.4 million from March 31, 1997 through
December 31, 1997. The ratio of non-performing loans to gross loans decreased
from 1.68% to 0.61% from March 31, 1997 through December 31, 1997. The primary
cause for the declines was the removal of several commercial and commercial real
estate loans from non-accrual status. These loans were either paid in full or
brought current and assessed as fully collectable by management.
Total non-performing loans decreased $103,000 from December 31, 1997 to March
31, 1998. The decrease included a $76,000 reclassification from non-performing
loans to other real estate owned. The remainder of the decrease was primarily
due to payments received and applied to principal on those loans classified as
non-accrual. The ratio of non-performing loans to gross loans decreased from
0.61% as of December 31, 1997 to 0.53% as of March 31, 1998. The level of
non-performing assets is largely a function of economic conditions and the
overall banking environment, as well as the strength of the bank's loan
underwriting. Adverse changes in local, regional or national economic conditions
could negatively impact the level of non-performing assets in the future,
despite prudent underwriting.
Year 2000 Compliance
The company is currently in the process of determining and remediating the
impact of the so-called "millenium problem" (i.e., that many existing computer
programs use only two digits to identify a year in the date field and if such
programs are not corrected many computer applications could fail or create
erroneous results by or beginning in the year 2000). Management is working with
its software vendors and has developed a plan to identify both the bank's
internal systems deficiencies as well as potential credit exposures caused by
borrowers' systems deficiencies. Management is designing a program for both
internal systems remediation and for customer information regarding the
potential significance of the year 2000 problem. The company anticipates testing
to be substantially complete for all "mission critical" internal systems by
December 31, 1998. Management does not anticipate that the company will incur
significant operating expenses or be required to invest heavily in computer
system improvements to achieve year 2000 compliance.
Notwithstanding any of the company's efforts, however, there can be no assurance
that the systems of other companies on which the company's, the company's
vendors' or the company's customers' systems rely will be timely remediated.
Therefore, the company's operations and/or financial condition could be
negatively impacted as a result of the failure of such other entities to
properly address the year 2000 issue in a timely manner. Costs incurred in
connection with year 2000 compliance will be treated as period costs and will be
expensed as incurred. The need for additional provisions to the bank's allowance
for loan losses resulting from borrowers' year 2000 compliance problems will be
considered, on an ongoing basis, based on management's assessment of the
potential exposure of its customer base to such problems.
10
<PAGE>
Results of Operations
Three Months Ended March 31, 1998 vs. Three Months Ended March 31, 1997
The company reported net income of $803,000 for the three months ended March 31,
1998, versus $629,000 for the three months ended March 31, 1997, or an increase
of 27.7%. The company had basic earnings per common share of $0.51 and $0.40 for
the three months ended March 31, 1998 and March 31, 1997 respectively. Diluted
earnings per share were $0.49 and $0.39 for the three months ending March 31,
1998 and March 31,1997 respectively.
<TABLE>
<CAPTION>
The following table highlights changes which affected the company's earnings for
the periods indicated:
Three months ended March 31,
----------------------------
($ in thousands) 1998 1997
-------- -------
<S> <C> <C>
Average assets $322,992 286,410
Average deposits and short-term borrowings 297,182 263,625
Average investment securities (1) 112,601 120,625
Average loans 185,902 146,507
Net interest income 3,640 3,072
Provision for loan losses 90 60
Tax expense 445 354
Average loans : Average deposits and borrowings 62.55% 55.57%
Non interest expense : Average assets (2) 3.68% 3.56%
Non interest income, exclusive of securities
gains : Average assets (2) 0.70% .69%
Average tax equivalent rate earned on interest earning assets 8.32% 8.13%
Average rate paid on interest bearing deposits and
short-term borrowings 4.00% 4.03%
Net interest rate spread 4.32% 4.10%
<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>
Net Interest Income
The company's net interest income was $3,640,000 for the three months ended
March 31, 1998, an increase of $568,000 or 18.5% from $3,072,000 for the three
months ended March 31, 1997. Interest income increased $774,000, primarily a
result of an increase of $39.4 million in the bank's loan portfolio . The
increase in interest income was partially offset by an increase in interest
expense of $206,000, primarily due to an increase in average deposits and
short-term borrowings.
The average tax-equivalent yield on earning assets in the three months ended
March 31, 1998, was 8.32% up 19 basis points from 8.13% in the three months
ended March 31, 1997. The average rate paid on interest bearing deposits and
short-term borrowings in the three months ended March 31, 1998, was 4.00%, a
decrease of 3 basis points from 4.03% in the three months ended March 31, 1997.
The resulting interest rate spread increased 22 basis points to 4.32% in the
three months ended March 31, 1998, from 4.10% in the three months ended March
31, 1997. The principal reason for the increase in the bank's net interest
income during the first three months of 1998 was the increase in average loans
of $39.4 million, which was funded by an increase of $25.9 million and $11.3
million in average interest bearing deposits and non-interest bearing deposits,
respectively.
The following table sets forth, among other things, the extent to which changes
in interest rates and changes in the average balances of interest-earning assets
and interest-bearing liabilities have affected interest income and expense
during the three months ended March 31, 1998, and 1997. For each category of
interest-earning assets and interest-bearing liabilities, information is
provided on changes attributable to: (1) volume (change in average portfolio
balance multiplied by prior year average rate); (2) interest rate (change in
average interest rate multiplied by prior year average balance); and (3) rate
and volume (the remaining difference).
11
<PAGE>
<TABLE>
<CAPTION>
AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES
Three Months Ended March 31, 1998 Three Months Ended March 31, 1997
--------------------------------- ---------------------------------
Average Interest Average Interest
($ in thousands) Balance Interest Rates (3) Balance Interest Rates (3)
-------- -------- --------- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans (1)(2) $185,902 $4,331 9.45% $146,507 $3,405 9.43%
Investment securities (3) 112,601 1,713 6.50 120,625 1,874 6.59
Federal funds sold 1,691 24 5.76 1,170 15 5.20
-------- ------ -------- ------
Total interest earnings assets 300,194 6,068 8.32% 268,302 5,294 8.13%
------ ------
Other assets (4) 22,798 18,108
-------- --------
Total assets $322,992 $286,410
======== ========
Liabilities and stockholders' equity:
Savings, NOW and money market $106,538 588 2.24% $ 96,232 531 2.24%
Time deposits 122,760 1,671 5.52 107,170 1,456 5.51
Short-term borrowings 16,762 169 4.09 20,374 235 4.68
-------- ------ -------- ------
Interest bearing deposits and borrowings 246,060 2,428 4.00% 223,776 2,222 4.03%
-------- ------ -------- ------
Non-interest bearing deposits 51,122 39,849
Other liabilities 2,187 1,695
-------- --------
Total liabilities 299,369 265,320
Stockholders' equity 23,623 21,090
-------- --------
Total liabilities and
Stockholders' equity $ 322,992 $286,410
======== ========
Net interest rate spread 4.32% 4.10%
Net interest income $ 3,640 $3,072
======= ======
Net yield on average earning assets 5.04% 4.77%
<CAPTION>
($ in thousands) Changes due to
----------------------------------------------------
Interest Rate/
Total Volume Rate Volume
----- ------ -------- ------
<S> <C> <C> <C> <C>
Assets:
Loans (1)(2) $ 926 $ 916 $ 7 $ 3
Investment securities (3) (161) (130) (27) (4)
Federal funds sold 9 7 2 --
----- ---- ---- ---
Total interest earnings assets 774 793 (18) 16
----- ---- ---- ---
Other assets (4)
Total assets
Liabilities and stockholders' equity:
Savings, NOW and money market 57 57 -- --
Time deposits 215 212 3 --
Short-term borrowings (66) (42) (30) 6
----- ---- ---- ---
Interest bearing deposits and borrowings 206 227 (27) 6
----- ---- ---- ---
Non-interest bearing deposits
Other liabilities
Total liabilities
Stockholders' equity
Total liabilities and
Stockholders' equity
Net interest rate spread
Net interest income $ 568 $566 $ 9 $(7)
===== ==== ==== ===
Net yield on average earning assets
<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.
</FN>
</TABLE>
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 federal funds sold comprise the bank's earning
assets.
12
<PAGE>
The provision for loan losses amounted to $90,000 and $60,000 for the three
months ended March 31, 1998 and March 31, 1997, respectively. Loans, before the
allowance for loan losses, have increased from $149.5 million, at March 31,
1997, to $193.3 million, at March 31, 1998, or an increase of 29.3%. Although
there has not been an increase in problem assets, management recognizes the
increased risk and the need for additional reserves as the 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. The provision for loan losses is a significant
factor in the bank's operating results.
Non-Interest Income
Non-interest income, exclusive of security gains, increased by $75,000 to
$559,000 for the three months ended March 31, 1998, compared to $484,000 for the
three months ended March 31, 1997. This increase was primarily caused by an
increase in trust income of $59,000.
Trust fees increased by $59,000, or 33.2%, for the three months ended March 31,
1998 compared to the same period in 1997 due to an increase in trust assets.
Deposit fees increased by $2,000, or 0.9%, for the three months ended March 31,
1998, compared to the three months ended March 31, 1997. The leveling of income
in this category was due to a reduction in overdraft charges offsetting the
increase in deposit fees caused from overall deposit growth.
Other income for the three months ended March 31, 1998, was $84,000, an increase
of 20.0%, from $70,000 for the three months ended March 31, 1997, due primarily
to increases in check printing fees and merchant assessment fees.
Non-Interest Expenses
Salaries and benefits expense totaled $1,678,000 for the three months ended
March 31, 1998, compared with $1,406,000 for the three months ended March 31,
1997, an increase of $272,000 or 19.4%. This increase was primarily the result
of the addition of the Dracut branch during the fourth quarter of 1997, and
annual salary increases.
Occupancy expense was $555,000 for the three months ended March 31, 1998,
compared with $430,000 for the three months ended March 31, 1997, an increase of
$125,000 or 29.1%. The increase was primarily due to the establishment of the
Dracut branch in November of 1997 and the addition of the bank's training
facility in September of 1997.
Advertising and public relations expenses declined by $67,000, or 38.7%, for the
three months ended March 31, 1998 compared to the same period in 1997. The
decline was primarily attributed to a reduction in costs related to certain
newer branches.
Office and data processing supplies expense increased by $11,000, or 13.4%, for
the three months ended March 31, 1998 compared to the same period in the prior
year. The increase was primarily due to the addition of the Dracut branch and
the bank's training facility, and the increase in costs resulting from bank-wide
growth.
Audit, legal and other professional expenses increased by $50,000, or 65.8% for
the three months ended March 31, 1998 compared to the prior year period,
primarily as a result of the outsourcing of the internal audit function.
Trust, professional and custodial expenses increased by $24,000, or 48.0%, for
the three months ended March 31, 1998 as compared to the same period in 1997.
The increase was due to an increase in trust assets under management as well as
additional services provided by the trust department.
13
<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 S-8
(a) Exhibit II Description
10.16 1998 Stock Incentive Plan, filed as Exhibit A to the
company's Definitive Proxy Statement for its annual
meeting held May 5, 1998.
(b) On January 14, 1998, the company filed a current report on form
8-K disclosing the adoption of a shareholder rights plan on January
13, 1998.
14
<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: May 14, 1998 /s/ John P. Clancy, Jr.
John P. Clancy, Jr.
Senior Vice President, Chief Financial Officer,
Chief Investment Officer and Treasurer
15
<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 March 31, 1998 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 19,071
<INT-BEARING-DEPOSITS> 241,947
<FED-FUNDS-SOLD> 6,100
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 112,365
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 194,406
<ALLOWANCE> 4,356
<TOTAL-ASSETS> 335,917
<DEPOSITS> 293,426
<SHORT-TERM> 15,778
<LIABILITIES-OTHER> 1,958
<LONG-TERM> 0
0
0
<COMMON> 16
<OTHER-SE> 24,739
<TOTAL-LIABILITIES-AND-EQUITY> 335,917
<INTEREST-LOAN> 4,331
<INTEREST-INVEST> 1,713
<INTEREST-OTHER> 24
<INTEREST-TOTAL> 6,068
<INTEREST-DEPOSIT> 2,259
<INTEREST-EXPENSE> 2,428
<INTEREST-INCOME-NET> 3,640
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 71
<EXPENSE-OTHER> 2,932
<INCOME-PRETAX> 1,248
<INCOME-PRE-EXTRAORDINARY> 1,248
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 803
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.49
<YIELD-ACTUAL> 4.92
<LOANS-NON> 950
<LOANS-PAST> 65
<LOANS-TROUBLED> 253
<LOANS-PROBLEM> 1,436
<ALLOWANCE-OPEN> 4,290
<CHARGE-OFFS> 65
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 4,356
<ALLOWANCE-DOMESTIC> 4,356
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 38
</TABLE>
