10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended June 30, 2014

Commission File Number:  001-33912

Enterprise Bancorp, Inc.

(Exact name of registrant as specified in its charter)

Massachusetts	04-3308902
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)
222 Merrimack Street, Lowell, Massachusetts	01852
(Address of principal executive offices)	(Zip code)

(978) 459-9000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  x Yes   o  No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files)  x Yes  o  No

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

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  ¨  Yes  x  No

As of August 4, 2014, there were 10,138,268 shares of the issuer's common stock outstanding- Par Value $0.01 per share

ENTERPRISE BANCORP, INC.

INDEX

		Page Number
	Cover Page	1
	Index	2
	PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Consolidated Balance Sheets –June 30, 2014 and December 31, 2013	3
	Consolidated Statements of Income -Three and six months ended June 30, 2014 and 2013	4
	Consolidated Statements of Comprehensive Income -Three and six months ended June 30, 2014 and 2013	5
	Consolidated Statement of Changes in Stockholders’ Equity - Six months ended June 30, 2014	6
	Consolidated Statements of Cash Flows - Six months ended June 30, 2014 and 2013	7
	Notes to Unaudited Consolidated Financial Statements	8
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3	Quantitative and Qualitative Disclosures About Market Risk	59
Item 4	Controls and Procedures	60
	PART II - OTHER INFORMATION
Item 1	Legal Proceedings	61
Item 1A	Risk Factors	61
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	61
Item 3	Defaults Upon Senior Securities	61
Item 4	Mine Safety Disclosures	61
Item 5	Other Information	61
Item 6	Exhibits	62
	Signature page	63

2

PART I-FINANCIAL INFORMATION

Item 1 - Financial Statements

ENTERPRISE BANCORP, INC.

Consolidated Balance Sheets

(Dollars in thousands)	June 30, 2014		December 31, 2013
	(Unaudited)
Assets
Cash and cash equivalents:
Cash and due from banks	$	51,637	$	41,362
Interest-earning deposits	17,114		10,153
Fed funds sold	—		2,218
Total cash and cash equivalents	68,751		53,733
Investment securities at fair value	214,845		215,369
Federal Home Loan Bank Stock	3,357		4,324
Loans held for sale	2,431		1,255
Loans, less allowance for loan losses of $26,528 at June 30, 2014 and $26,967 at December 31, 2013	1,564,875		1,497,089
Premises and equipment	29,193		29,891
Accrued interest receivable	6,101		6,186
Deferred income taxes, net	12,984		13,927
Bank-owned life insurance	16,116		15,902
Prepaid income taxes	840		443
Prepaid expenses and other assets	8,099		6,150
Goodwill	5,656		5,656
Total assets	$	1,933,248	$	1,849,925
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	1,746,794	$	1,635,992
Borrowed funds	484		36,534
Junior subordinated debentures	10,825		10,825
Accrued expenses and other liabilities	15,092		14,675
Accrued interest payable	551		565
Total liabilities	$	1,773,746	$	1,698,591
Commitments and Contingencies
Stockholders’ Equity
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued	—		—
Common stock $0.01 par value per share; 20,000,000 shares authorized; 10,137,443 shares issued and outstanding at June 30, 2014 (including 160,521 shares of unvested participating restricted awards) and 9,992,560 shares issued and outstanding at December 31, 2013 (including 170,365 shares of unvested participating restricted awards)	101		100
Additional paid-in-capital	55,068		52,936
Retained earnings	100,558		96,153
Accumulated other comprehensive income	3,775		2,145
Total stockholders’ equity	$	159,502	$	151,334
Total liabilities and stockholders’ equity	$	1,933,248	$	1,849,925

See the accompanying notes to the unaudited consolidated financial statements.

3

ENTERPRISE BANCORP, INC.

Consolidated Statements of Income

(Unaudited)

	Three months ended June 30,				Six months ended June 30,
(Dollars in thousands, except per share data)	2014		2013		2014		2013
Interest and dividend income:
Loans and loans held for sale	$	17,707	$	16,653	$	34,883	$	33,026
Investment securities	1,051		794		2,073		1,604
Other interest-earning assets	22		11		55		21
Total interest and dividend income	18,780		17,458		37,011		34,651
Interest expense:
Deposits	1,025		996		2,026		2,030
Borrowed funds	8		40		30		86
Junior subordinated debentures	295		295		589		589
Total interest expense	1,328		1,331		2,645		2,705
Net interest income	17,452		16,127		34,366		31,946
Provision for loan losses	200		534		400		1,317
Net interest income after provision for loan losses	17,252		15,593		33,966		30,629
Non-interest income:
Investment advisory fees	1,145		1,045		2,249		2,061
Deposit and interchange fees	1,261		1,181		2,459		2,289
Income on bank-owned life insurance, net	106		119		214		235
Net gains on sales of investment securities	127		468		615		948
Gains on sales of loans	75		222		148		557
Other income	550		518		1,058		1,102
Total non-interest income	3,264		3,553		6,743		7,192
Non-interest expense:
Salaries and employee benefits	9,324		8,651		18,398		16,699
Occupancy and equipment expenses	1,597		1,488		3,293		3,059
Technology and telecommunications expenses	1,334		1,203		2,596		2,356
Advertising and public relations expenses	771		946		1,357		1,566
Audit, legal and other professional fees	492		411		841		825
Deposit insurance premiums	289		284		554		533
Supplies and postage expenses	255		250		519		487
Investment advisory and custodial expenses	128		134		266		260
Other operating expenses	1,255		1,094		2,446		2,130
Total non-interest expense	15,445		14,461		30,270		27,915
Income before income taxes	5,071		4,685		10,439		9,906
Provision for income taxes	1,757		1,606		3,619		3,394
Net income	$	3,314	$	3,079	$	6,820	$	6,512
Basic earnings per share	$	0.33	$	0.31	$	0.68	$	0.67
Diluted earnings per share	$	0.32	$	0.31	$	0.67	$	0.66
Basic weighted average common shares outstanding	10,124,372		9,825,335		10,077,502		9,770,559
Diluted weighted average common shares outstanding	10,204,976		9,889,639		10,162,187		9,840,016

See the accompanying notes to the unaudited consolidated financial statements.

4

ENTERPRISE BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three months ended June 30,						Six months ended June 30,
(Dollars in thousands)	2014			2013			2014			2013
Net income	$	3,314		$	3,079		$	6,820		$	6,512
Other comprehensive income (loss), net of taxes:
Gross unrealized holding gains (losses) on investments arising during the period	1,700			(2,744		)	3,188			(2,386		)
Income tax (expense) benefit	(620		)	999			(1,162		)	884
Net unrealized holding gains (losses), net of tax	1,080			(1,745		)	2,026			(1,502		)
Less: Reclassification adjustment for net gains included in net income
Net realized gains on sales of securities during the period	127			468			615			948
Income tax expense	(49		)	(163		)	(219		)	(339		)
Reclassification adjustment for gains realized, net of tax	78			305			396			609
Total other comprehensive income (loss)	1,002			(2,050		)	1,630			(2,111		)
Comprehensive income	$	4,316		$	1,029		$	8,450		$	4,401

See the accompanying notes to the unaudited consolidated financial statements.

5

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity

(Unaudited)

(Dollars in thousands)	Common Stock		Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Income		Total Stockholders’ Equity
Balance at December 31, 2013	$	100	$	52,936	$	96,153		$	2,145	$	151,334
Net income					6,820					6,820
Other comprehensive income, net								1,630		1,630
Tax benefit from exercise of stock options			3							3
Common stock dividend paid ($0.24 per share)					(2,415		)			(2,415		)
Common stock issued under dividend reinvestment plan	—		609							609
Stock-based compensation	1		973							974
Stock options exercised, net	—		547							547
Balance at June 30, 2014	$	101	$	55,068	$	100,558		$	3,775	$	159,502

See the accompanying notes to the unaudited consolidated financial statements.

6

ENTERPRISE BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Six Months Ended June 30,
(Dollars in thousands)	2014			2013
Cash flows from operating activities:
Net income	$	6,820		$	6,512
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	400			1,317
Depreciation and amortization	2,756			2,458
Stock-based compensation expense	916			859
Mortgage loans originated for sale	(7,806		)	(25,274		)
Proceeds from mortgage loans sold	6,778			30,471
Net gains on sales of loans	(148		)	(557		)
Net gains on sales of OREO	—			(121		)
Net gains on sales of investments	(615		)	(948		)
Income on bank-owned life insurance, net	(214		)	(235		)
Changes in:
Accrued interest receivable	85			(264		)
Prepaid expenses and other assets	(2,375		)	1,802
Accrued expenses and other liabilities	(363		)	(1,319		)
Accrued interest payable	(14		)	(24		)
Net cash provided by operating activities	6,220			14,677
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale	21,415			7,361
Net proceeds (purchases) from FHLB capital stock	967			(64		)
Proceeds from maturities, calls and pay-downs of investment securities	23,773			8,040
Purchase of investment securities	(41,273		)	(19,297		)
Net increase in loans	(68,186		)	(87,759		)
Additions to premises and equipment, net	(1,394		)	(3,332		)
Proceeds from OREO sales and payments	—			652
Net cash used in investing activities	(64,698		)	(94,399		)
Cash flows from financing activities:
Net increase in deposits	110,802			104,266
Net decrease in borrowed funds	(36,050		)	(24,660		)
Cash dividends paid	(2,415		)	(2,244		)
Proceeds from issuance of common stock	609			630
Proceeds from the exercise of stock options	547			716
Tax benefit from the exercise of stock options	3			7
Net cash provided by financing activities	73,496			78,715
Net increase (decrease) in cash and cash equivalents	15,018			(1,007		)
Cash and cash equivalents at beginning of period	53,733			52,735
Cash and cash equivalents at end of period	$	68,751		$	51,728
Supplemental financial data:
Cash Paid For: Interest	$	2,659		$	2,729
Cash Paid For: Income Taxes	3,995			4,583
Supplemental schedule of non-cash investing activity:
Purchases of investment securities not yet settled	(1,541		)	(4,978		)
Transfer from loans to other real estate owned	—			167

 See accompanying notes to the unaudited consolidated financial statements.

7

ENTERPRISE BANCORP, INC.

Notes to the Unaudited Consolidated Financial Statements

(1) Summary of Significant Accounting Policies

(a) Organization of Holding Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2013 audited consolidated financial statements and notes thereto contained in the 2013 Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the “Company” or “Enterprise”), a Massachusetts corporation, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2014.  The Company has not changed its reporting policies from those disclosed in its 2013 Annual Report on Form 10-K.

The Company's unaudited consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company (the “Bank”).  The Bank is a Massachusetts trust company organized in 1989. Substantially all of the Company’s operations are conducted through the Bank.

The Bank’s subsidiaries include Enterprise Insurance Services, LLC and Enterprise Investment Services, LLC, organized under the laws of the State of Delaware for the purposes of engaging in insurance sales activities and offering non-deposit investment products and services, respectively.  In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III, which hold various types of qualifying securities.  The security corporations are limited to conducting securities investment activities that the Bank itself would be allowed to conduct under applicable laws.

The Company has 22 full service branches serving the Merrimack Valley and North Central regions of Massachusetts and Southern New Hampshire. Through the Bank and its subsidiaries, the Company offers a range of commercial and consumer loan products, deposit and cash management products, investment advisory and wealth management, trust and insurance services.  The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.

Pursuant to the Accounting Standards Codification (“ASC”) Topic 810 “Consolidation of Variable Interest Entities,” issued by the Financial Accounting Standards Board (“FASB”), the Company carries Junior Subordinated Debentures as a liability on its consolidated financial statements, along with the related interest expense. The debentures were issued by a statutory business trust (the “Trust”) created by the Company in March 2000 under the laws of the State of Delaware, and the trust preferred securities issued by the Trust, and the related non-interest expense, are excluded from the Company’s consolidated financial statements.

The Federal Deposit Insurance Corporation (the “FDIC”) and the Massachusetts Division of Banks (the “Division”) have regulatory authority over the Bank.  The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department.  The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board.  The Division also retains supervisory jurisdiction over the Company.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions for Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation.  All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated interim financial statements. Interim results are not necessarily indicative of results to be expected for the entire year.

8

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

(b) Critical Accounting Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized.  These estimates and assumptions affect the reported values of assets and liabilities as of the balance sheet date and income and expenses for the period then ended.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used change over time due to changes in circumstances.  Changes in those estimates resulting from continuing change in the economic environment and other factors will be reflected in the financial statements and results of operations in future periods.

As discussed in the Company’s 2013 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, impairment review of investment securities and the impairment review of goodwill.  Refer to Note 1,“Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s 2013 Annual Report on Form 10-K for significant accounting policies. The Company has not changed its significant accounting policies from those disclosed in its 2013 Annual Report filed on Form 10-K.

(c) Reporting Comprehensive Income

Comprehensive income is defined as all changes to equity except investments by and distributions to stockholders.  Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income.  The Company’s only other comprehensive income component is the net unrealized holding gains or losses on investments available-for-sale, net of deferred income taxes. Pursuant to Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, the Company initially excludes these unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when the securities are sold. When securities are sold, the reclassification of realized gains and losses on available-for-sale securities are included on the Consolidated Statements of Income under the “non-interest income” subheading on the line item “net gains on sales of investment securities” and the related income tax expense is included in the line item “provision for income taxes,” both of which are also detailed on the Consolidated Statements of Comprehensive Income under the subheading “reclassification adjustment for net gains included in net income.”

(d) Restricted Investments

As a member of the Federal Home Loan Bank of Boston (“FHLB”), the Company is required to purchase certain levels of FHLB capital stock in association with the Company’s borrowing relationship from the FHLB.  This stock is classified as a restricted investment and carried at cost, which management believes approximates fair value.  FHLB stock represents the only restricted investment held by the Company.

In conjunction with the other-than-temporary-impairment (“OTTI”) review on available-for-sale investments (See Note 2, "Investments," for additional information), management also regularly reviews its holdings of FHLB stock for OTTI. Based on management’s ongoing review, the Company has not recorded any OTTI charges on this investment to date. If it was determined that a write-down of FHLB stock was required, impairment would be recognized through a charge to earnings.

(e) Income Taxes

The Company uses the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes.

The Company’s policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law.  The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company’s judgment changes regarding an uncertain tax position.

9

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

The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, primarily due to the impact of tax exempt interest from certain investment securities, loans and bank owned life insurance.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at June 30, 2014.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2007 through 2013 tax years.

(f) Recent Accounting Pronouncements

In January 2014, FASB issued ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to reduce diversity of practice by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan, such that the loan should be removed, and the real estate property recognized, on the financial statements. Additionally, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in collateralized residential mortgage loans that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. As this ASU primarily offers clarification of existing standards and added disclosures, the adoption of this ASU in the first quarter of 2015 is not expected to have a material impact on the Company's financial statements, or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this ASU apply to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow through entities for tax purposes. The amendments in this ASU eliminate the effective yield election and permit reporting entities to make an accounting policy election to account for such investments using the proportional amortization method if certain conditions are met. Those not electing the proportional amortization method would account for the investment using the equity method or cost method. The decision to apply the proportional amortization method of accounting is an accounting policy decision that must be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments. The amendments in this Update are to be applied retrospectively to all periods presented. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption by the Company of this ASU, on the effective date, is not expected to have a material impact on the Company's financial statements, or results of operations.

10

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

(2)Investments

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

	June 30, 2014
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations (1)	$	31,851	$	121	$	5	$	31,967
Federal agency mortgage backed securities (MBS) (1)	95,576		740		886		95,430
Municipal securities	64,688		2,040		102		66,626
Corporate bonds	6,046		69		18		6,097
Total fixed income securities	198,161		2,970		1,011		200,120
Equity investments	10,893		3,836		4		14,725
Total available for sale securities, at fair value	$	209,054	$	6,806	$	1,015	$	214,845

	December 31, 2013
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	55,440	$	146	$	43	$	55,543
Federal agency mortgage backed securities (MBS) (1)	80,997		367		1,714		79,650
Municipal securities	60,675		1,604		325		61,954
Corporate bonds	5,080		29		55		5,054
Total fixed income securities	202,192		2,146		2,137		202,201
Equity investments	9,960		3,228		20		13,168
Total available for sale securities, at fair value	$	212,152	$	5,374	$	2,157	$	215,369

__________________________________________

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank, or one of several Federal Home Loan Banks.  All agency MBS/Collateralized Mortgage Obligations ("CMOs") investments owned by the Company are backed by residential mortgages.

Included in the carrying amount of the federal agency MBS category were CMOs totaling $15.4 million and $17.4 million at June 30, 2014 and December 31, 2013, respectively.

At June 30, 2014, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a small portion of the portfolio (approximately 15%) invested in individual common stock of entities in the financial services industry.

Net unrealized appreciation and depreciation on investments available for sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income.

The net unrealized gain or loss in the Company's fixed income portfolio fluctuates as market interest rates rise and fall.  Due to the fixed rate nature of this portfolio, as market rates fall the value of the portfolio rises, and as market rates rise, the value of the portfolio declines.  The unrealized gains or losses on fixed income investments will also decline as the securities approach maturity, or if the issuer is credit impaired. Unrealized gains or losses will be recognized in the statements of income if the securities are sold. However, if an unrealized loss on a fixed income investment is deemed to be other than temporary, the credit loss portion is charged to earnings and the noncredit portion is recognized in accumulated other comprehensive income.

11

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

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

Management regularly reviews the portfolio for securities with unrealized losses that are other-than-temporarily impaired.  During the six months ended June 30, 2014 and 2013, the Company did not record any fair value impairment charges on its investments. As of June 30, 2014, there were a total of 41 investments (fixed income and equity), with a fair market value of $46.2 million, in an unrealized loss position totaling $1.0 million, including unrealized losses of $985 thousand that have been temporarily impaired for 12 months or longer. Management attributes these unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company. Management does not consider these investments to be other-than-temporarily impaired at June 30, 2014, because (1) the decline in market value is not attributable to credit quality for fixed income securities or a fundamental deterioration in the equity fund or issuers, and (2) the Company does not intend to, and it is more likely than not that it will not be required to, sell those investments prior to a market price recovery or maturity.  

In assessing MBS investments and federal agency obligations, the contractual cash flows of these investments are guaranteed by an agency of the U.S. Government, and the agency that issued these securities is sponsored by the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company's investments. Management's assessment of other fixed income investments within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investment's materiality, and duration of the unrealized loss position. In addition, the Company utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios, within prescribed guidelines set by management. At June 30, 2014, the Company's corporate and municipal bond portfolios did not contain any securities below investment grade, as reported by major credit rating agencies. For equities and funds, management's assessment includes the severity of the declines, whether it is unlikely that the security or fund will completely recover its unrealized loss within a reasonable time period and if the equity security or fund exhibits fundamental deterioration.

The contractual maturity distribution at June 30, 2014 of total fixed income investments is as follows:

	Within One Year				After One, But Within  Five Years				After Five, But Within Ten Years				After Ten Years
	Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields
At amortized cost:
Federal agency obligations	$	7,011	0.79	%	$	20,997	1.30	%	$	3,843	2.09	%	$	—	—	%
MBS	11		1.42	%	2,706		2.48	%	6,454		3.00	%	86,405		2.18	%
Municipal securities	4,195		2.02	%	21,531		2.86	%	28,860		4.35	%	10,102		5.59	%
Corporate bonds	101		1.26	%	4,195		1.60	%	1,750		2.99	%	—		—	%
Total fixed income securities	$	11,318	1.25	%	$	49,429	2.07	%	$	40,907	3.86	%	$	96,507	2.54	%
At fair value:
Total fixed income securities	$	11,364			$	50,145			$	42,006			$	96,605

Scheduled contractual maturities may not reflect the actual maturities of the investments. However, due to prepayments and amortization the actual MBS/CMO cash flows likely will be faster than presented above. Similarly, included in the carrying value of fixed income investments above are callable securities, comprised of municipal securities, federal agency obligations and corporate bonds totaling $37.5 million, which can be redeemed by the issuer prior to the maturity presented above.  Management considers these early payment factors when evaluating the interest rate risk in the Company’s asset-liability management program.

From time to time, the Company may pledge securities as collateral against deposit account balances of municipal deposit customers, and for borrowing capacity with the FHLB and the Federal Reserve Bank of Boston (the "FRB").  The fair value of securities pledged as collateral for these purposes was $200.1 million at June 30, 2014. 

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See Note 8, “Fair Value Measurements” below for further information regarding the Company’s fair value measurements for available-for-sale securities.

(3) Loans

The Company specializes in lending to business entities, non-profit organizations, professionals and individuals. The Company’s primary lending focus is on the development of high quality commercial relationships achieved through active business development efforts, long-term relationships with established commercial developers, strong community involvement and focused marketing strategies.  Loans made to businesses include commercial mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and standby letters of credit.  The Company also originates equipment lease financing for businesses. Loans made to individuals include conventional residential mortgage loans, home equity loans and lines, residential construction loans on primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company manages its loan portfolio to avoid concentration by industry and loan size to lessen its credit risk exposure.

See Note 4, "Allowance for Loan Losses," for Information on the Company's credit risk management, non-accrual, impaired and troubled debt restructured loans and the allowance for loan losses.

Major classifications of loans at the periods indicated, are as follows:

(Dollars in thousands)	June 30, 2014			December 31, 2013
Commercial real estate	$	838,715		$	820,299
Commercial and industrial	385,991			357,056
Commercial construction	144,553			132,507
Total commercial loans	1,369,259			1,309,862
Residential mortgages	139,134			132,721
Home equity loans and lines	76,234			74,354
Consumer	8,286			8,643
Total retail loans	223,654			215,718
Gross loans	1,592,913			1,525,580
Deferred loan origination fees, net	(1,510		)	(1,524		)
Total loans	1,591,403			1,524,056
Allowance for loan losses	(26,528		)	(26,967		)
Net loans	$	1,564,875		$	1,497,089

Loan Categories

- Commercial loans:

Commercial real estate loans include loans secured by both owner-use and non-owner occupied real estate.  These loans are typically secured by a variety of commercial and industrial property types including one-to-four and multi-family apartment buildings, office or mixed-use facilities, strip shopping centers, or other commercial property and are generally guaranteed by the principals of the borrower. Commercial real estate loans generally have repayment periods of approximately fifteen to twenty-five years.  Variable interest rate loans have a variety of adjustment terms and indices, and are generally fixed for an initial period before periodic rate adjustments begin.

Commercial and industrial loans include seasonal revolving lines of credit, working capital loans, equipment financing (including equipment leases), and term loans.  Also included in commercial and industrial loans are loans partially guaranteed by the U.S. Small Business Administration ("SBA"), loans under various programs issued in conjunction with the

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Massachusetts Development Finance Agency and other agencies.  Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally guaranteed by the principals of the borrower.  Variable rate loans and lines in this portfolio have interest rates that are periodically adjusted, with loans generally having fixed initial periods.  Commercial and industrial loans have average repayment periods of one to seven years.

Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land.  These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowers.  Construction lenders work to cultivate long-term relationships with established developers. The Company limits the amount of financing provided to any single developer for the construction of properties built on a speculative basis.  Funds for construction projects are disbursed as pre-specified stages of construction are completed.  Regular site inspections are performed, either by experienced construction lenders on staff or by independent outside inspection companies, at each construction phase, prior to advancing additional funds.  Commercial construction loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms of one to three years.

From time to time, the Company participates with other banks in the financing of certain commercial projects.  In some cases, the Company may act as the lead lender, originating and servicing the loans, but participating out a portion of the funding to other banks.  In other cases, the Company may participate in loans originated by other institutions. In each case, the participating bank funds a percentage of the loan commitment and takes on the related risk.  In each case in which the Company participates in a loan, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks.  The balances participated out to other institutions are not carried as assets on the Company’s financial statements.  Loans originated by other banks in which the Company is the participating institution are carried in the loan portfolio at the Company’s pro rata share of ownership.  The Company performs an independent credit analysis of each commitment and a review of the participating institution prior to participation in the loan.  Loans originated by other banks in which the Company is the participating institution amounted to $47.7 million at June 30, 2014 and $34.5 million at December 31, 2013.

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance by a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.

- Residential loans:

Enterprise originates conventional mortgage loans on one-to-four family residential properties.  These properties may serve as the borrower’s primary residence, vacation homes, or investment properties.  Loan to value limits vary, generally from 80% for adjustable rate and multi-family, owner occupied properties, up to 97% for fixed rate loans on single family, owner occupied properties, with mortgage insurance coverage required for loan-to-value ratios greater than 80% based on program parameters.  In addition, financing is provided for the construction of owner occupied primary and secondary residences.  Residential mortgage loans may have terms of up to 30 years at either fixed or adjustable rates of interest.  Fixed and adjustable rate residential mortgage loans are generally originated using secondary market underwriting and documentation standards.

Depending on the current interest rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable rate residential mortgage loans which are eligible for sale in the secondary market, or hold some or all of this residential loan production for the Company’s portfolio.  Mortgage loans are generally not pooled for sale, but instead sold on an individual basis. The Company may retain or sell the servicing when selling the loans.  Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans classified as held for sale are carried as a separate line item on the balance sheet.

- Home equity loans and lines of credit:

Home equity term loans are originated for one-to-four family residential properties with maximum original loan to value ratios generally up to 80% of the assessed or appraised value of the property securing the loan.  Home equity loan payments consist of

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monthly principal and interest based on amortization ranging from three to fifteen years.  The rates may also be fixed for three to fifteen years.

The Company originates home equity revolving lines of credit for one-to-four family residential properties with maximum original loan to value ratios generally up to 80% of the appraised value of the property securing the loan.  Home equity lines generally have interest rates that adjust monthly based on changes in the Prime Rate, although minimum rates may be applicable.  Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment schedule for home equity lines requires interest only payments for the first ten years of the lines. Generally at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year amortization schedule or, for eligible borrowers meeting certain requirements, the line availability may be extended for an additional interest only period.

- Consumer loans:

Consumer loans primarily consist of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities, and overdraft protection lines on checking accounts extended to individual customers. The aggregate amount of overdrawn deposit accounts are reclassified as loan balances.

Loans serviced for others

At June 30, 2014 and December 31, 2013, the Company was servicing residential mortgage loans owned by investors amounting to $19.9 million and $20.6 million, respectively.  Additionally, the Company was servicing commercial loans participated out to various other institutions amounting to $48.3 million and $52.1 million at June 30, 2014 and December 31, 2013, respectively. See the discussion above for further information regarding commercial participations.

Loans serving as collateral

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

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commercial real estate	$	298,401	$	320,908
Residential mortgages	102,464		97,626
Home equity	16,994		17,548
Total loans pledged to FHLB	$	417,859	$	436,082

(4) Allowance for Loan Loss

While the Company manages its loan portfolio to avoid concentration by industry and loan size to lessen its credit risk exposure, inherent in the lending process is the risk of loss due to customer non-payment, or “credit risk.”  The Company endeavors to minimize this risk through sound underwriting practices and the risk management function, however, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

The allowance for loan losses is an estimate of probable credit risk inherent in the loan portfolio as of the specified balance sheet dates.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated losses from specifically known and other credit risks associated with the portfolio.  In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio including, individual assessment of larger and high risk credits, delinquency trends and the level of non-performing loans, impaired and restructured loans, net charge-offs, the growth and composition of the loan portfolio, expansion in geographic market area and the strength of the local and national economy, among other factors.

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Credit Quality Indicators

The level of adversely classified loans, and delinquent and non-performing assets is largely a function of economic conditions, the overall banking environment, the Company's underwriting, and credit risk management standards. The Company’s commercial lending focus may entail significant additional risks compared to long term financing on existing, owner-occupied residential real estate.  The Company endeavors to minimize this risk through sound underwriting practices and the risk management function. The credit risk management function focuses on a wide variety of factors, including, among others, current and expected economic conditions, the real estate market, the financial condition of borrowers, the ability of borrowers to adapt to changing conditions or circumstances affecting their business and the continuity of borrowers’ management teams.  Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Credit Department, an external loan review service, reviews by members of senior management and the Loan Committee of the Board of Directors. This review includes the assessment of internal credit quality indicators such as the risk classification of individual loans, adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity, as well as trends in the general levels of these indicators. However, despite prudent loan underwriting and ongoing credit risk management, adverse changes within the Company's market area or deterioration in the local, regional or national economic conditions could negatively impact the portfolio's credit risk profile and the Company's asset quality in the future.

The loan portfolio continued to show improving statistics related to migration of adversely classified, non-accrual, and impaired loans and the low level of Other Real Estate Owned ("OREO") properties held during the quarter ended June 30, 2014. However, management believes that the general credit profile of the portfolio and individual commercial relationships will continue to be affected by lagging effects that the economic environment has had on the regional and local commercial markets.

Adversely Classified Loans

The Company’s loan risk rating system classifies loans depending on risk of loss characteristics.  The classifications range from “substantially risk free” for the highest quality loans and loans that are secured by cash collateral, to the more severe adverse classifications of “substandard,” “doubtful” and “loss” based on criteria established under banking regulations.

Loans classified as substandard include those loans characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.  These loans are inadequately protected by the sound net worth and paying capacity of the borrower; repayment has become increasingly reliant on collateral liquidation or reliance on guaranties; credit weaknesses are well-defined; and, borrower cash flow is insufficient to meet required debt service specified in loan terms and to meet other obligations, such as trade debt and tax payments.

Loans classified as doubtful have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until more exact status may be determined.

Loans classified as loss are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible.  These “loss” loans would require a specific loss reserve or charge-off.

Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof.  Loans which are evaluated to be of weaker credit quality are reviewed on a more frequent basis by management.

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

The following tables present the Company's credit risk profile for each class of loan in its portfolio by internally assigned risk rating category at the periods indicated. 

	June 30, 2014
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	11,993	$	1,227	$	111	$	825,384	$	838,715
Commercial and industrial	8,804		57		61		377,069		385,991
Commercial construction	3,370		—		—		141,183		144,553
Residential	1,599		—		—		137,535		139,134
Home equity	573		27		—		75,634		76,234
Consumer	47		—		—		8,239		8,286
Total gross loans	$	26,386	$	1,311	$	172	$	1,565,044	$	1,592,913

	December 31, 2013
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	13,545	$	1,266	$	—	$	805,488	$	820,299
Commercial and industrial	7,908		51		236		348,861		357,056
Commercial construction	3,358		—		—		129,149		132,507
Residential	1,012		—		—		131,709		132,721
Home equity	500		—		—		73,854		74,354
Consumer	40		—		—		8,603		8,643
Total gross loans	$	26,363	$	1,317	$	236	$	1,497,664	$	1,525,580

The minor shift in adversely classified loan balances amongst the categories since the prior period was due to a variety of activity including: credit rating upgrades, primarily in commercial real estate; payoffs; the foreclosure sale of underlying collateral with payoff on a larger commercial real estate relationship; and charge-offs, primarily commercial real estate and C&I loans; partially offset by additional credit downgrades, particularly in residential mortgage loans during the period.

Past Due and Non-Accrual Loans

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans.  Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days and when, in the judgment of management, the collectability of both principal and interest is reasonably assured. Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company. Additionally, deposit accounts overdrawn for 90 or more days are included in the consumer non-accrual numbers below.

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

 The following tables present age analysis of past due loans as of the dates indicated. 

Balance at June 30, 2014
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	4,554	$	1,590	$	10,131	$	16,275	$	822,440	$	838,715
Commercial and industrial	1,470		399		5,045		6,914		379,077		385,991
Commercial construction	185		—		1,053		1,238		143,315		144,553
Residential	1,789		—		1,224		3,013		136,121		139,134
Home equity	310		—		381		691		75,543		76,234
Consumer	30		13		120		163		8,123		8,286
Total gross loans	$	8,338	$	2,002	$	17,954	$	28,294	$	1,564,619	$	1,592,913

Balance at December 31, 2013
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	1,142	$	1,575	$	10,561	$	13,278	$	807,021	$	820,299
Commercial and industrial	680		908		5,743		7,331		349,725		357,056
Commercial construction	196		—		1,118		1,314		131,193		132,507
Residential	1,110		127		633		1,870		130,851		132,721
Home equity	211		10		281		502		73,852		74,354
Consumer	106		18		10		134		8,509		8,643
Total gross loans	$	3,445	$	2,638	$	18,346	$	24,429	$	1,501,151	$	1,525,580

At June 30, 2014 and December 31, 2013, all loans 90 days or more past due were carried as non-accrual. Included in the consumer non-accrual numbers in the table above were $105 thousand and $3 thousand of overdraft deposit account balances 90 days or more past due at June 30, 2014 and December 31, 2013, respectively. Total non-performing loans amounted to $18.0 million and $18.3 million at June 30, 2014 and December 31, 2013, respectively. Non-accrual loans which were not adversely classified amounted to $267 thousand at June 30, 2014 and $577 thousand at December 31, 2013. These balances primarily represented the guaranteed portions of non-performing U.S. Small Business Administration loans. The majority of the non-accrual loan balances were also carried as impaired loans during the periods noted, and are discussed further below. The increase in loans 30-59 days past due occurred primarily within the commercial real estate and commercial and industrial portfolios at June 30, 2014, with the majority of these loans having subsequent payments made by mid-July.

The ratio of non-accrual loans to total loans amounted to 1.13% at June 30, 2014, 1.20% at December 31, 2013, and 1.49% at June 30, 2013.

At June 30, 2014, additional funding commitments for loans on non-accrual status totaled $1.0 million. The Company’s obligation to fulfill the additional funding commitments on non-accrual loans is generally contingent on the borrower’s compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company’s discretion.

Impaired Loans

Impaired loans are individually significant loans for which management considers it probable that not all amounts due (principal and interest) in accordance with the original contractual terms will be collected.  The majority of impaired loans are included within the non-accrual balances; however, not every loan in non-accrual status has been designated as impaired.  Impaired loans include troubled debt restructured ("TDR") loans.  Impaired loans exclude large groups of smaller-balance

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

homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment and loans that are measured at fair value, unless the loan is amended in a TDR. 

Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.  Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. An impaired or TDR loan classification will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition, consistent with the criteria for returning non-accrual loans to accrual status, the expectation of the borrower's ability to continue to service the loan in accordance the original or modified terms and the collectability of the remaining balance, and in the case of TDR loans, an interest rate at, or greater than, a market rate for a similar credit at the time of modification. 

Impaired loans are individually evaluated for credit loss and a specific reserve is assigned for the amount of the estimated credit loss.  Refer to heading “Allowance for probable loan losses methodology” contained in Note 4 “Allowance For Loan Losses,” to the Company’s consolidated financial statements contained in the Company’s 2013 Annual Report on Form 10-K for further discussion of management’s methodology used to estimate specific reserves for impaired loans.

Total impaired loans amounted to $28.9 million and $29.8 million, at June 30, 2014 and December 31, 2013, respectively.  Total accruing impaired loans amounted to $11.6 million and $11.9 million at June 30, 2014 and December 31, 2013, respectively, while non-accrual impaired loans amounted to $17.3 million and $17.9 million as of June 30, 2014 and December 31, 2013, respectively.  

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dated indicated.

Balance at June 30, 2014
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	16,284	$	14,210	$	13,495	$	715	$	191
Commercial and industrial	11,603		10,041		4,342		5,699		1,632
Commercial construction	3,411		3,287		1,410		1,877		827
Residential	1,100		1,040		356		684		171
Home equity	306		302		94		208		52
Consumer	28		28		1		27		27
Total	$	32,732	$	28,908	$	19,698	$	9,210	$	2,900

Balance at December 31, 2013
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	17,420	$	15,139	$	12,105	$	3,034	$	507
Commercial and industrial	12,220		10,579		4,902		5,677		2,901
Commercial construction	3,464		3,358		1,426		1,932		830
Residential	673		619		365		254		107
Home equity	110		108		—		108		31
Consumer	23		23		—		23		23
Total	$	33,910	$	29,826	$	18,798	$	11,028	$	4,399

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

The reduction in related specific reserves on impaired loans was due primarily to increases in estimated current realizable collateral values and current charge-offs of previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values.

The following table presents the average recorded investment in impaired loans and the related interest recognized during the three month periods indicated.

	Three Months Ended June 30, 2014				Three Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	13,357		44		17,868		51
Commercial and industrial	10,337		42		9,252		24
Commercial construction	3,249		26		2,906		9
Residential	1,043		3		804		3
Home equity	294		—		109		—
Consumer	27		—		19		—
Total	$	28,307	$	115	$	30,958	$	87

The following table presents the average recorded investment in impaired loans and the related interest recognized during the six month periods indicated.

	Six Months Ended June 30, 2014				Six Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	$	13,758	$	94	$	20,155	$	149
Commercial and industrial	10,583		80		9,427		54
Commercial construction	3,277		52		2,902		33
Residential	901		3		807		4
Home equity	201		—		124		—
Consumer	25		—		16		—
Total	$	28,745	$	229	$	33,431	$	240

At June 30, 2014, additional funding commitments for impaired loans totaled $1.0 million. The Company's obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.

Troubled Debt Restructures

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants the borrower a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments (principal or interest) which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. All loans that are modified are reviewed by the Company to identify if a TDR has occurred. TDR loans are included in the impaired loan category and, as such, these loans are individually evaluated and a specific reserve is assigned for the amount of the estimated credit loss. 

Total TDR loans, included in the impaired loan figures above, as of June 30, 2014 and December 31, 2013, were $19.5 million and $20.9 million, respectively. TDR loans on accrual status amounted to $11.2 million and $11.4 million at June 30, 2014 and December 31, 2013, respectively. TDR loans included in non-performing loans amounted to $8.4 million and $9.5

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

million at June 30, 2014 and December 31, 2013, respectively. The Company continues to work with commercial relationships and enters into loan modifications to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the current economic environment.

At June 30, 2014, additional funding commitments for TDR loans totaled $52 thousand. The Company's obligation to fulfill the additional funding commitments on TDR loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.

Loans modified as trouble debt restructurings during the three month period ended June 30, 2014 are detailed below. 

	Three months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	4	159		157
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	6	$	357	$	354

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the periods noted are detailed below.

	Three months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

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

Loans modified as troubled debt restructurings during the six month period ended June 30, 2014 are detailed below. 

	Six months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	1	$	450	$	434
Commercial and industrial	6	226		222
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	9	$	874	$	853

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

At June 30, 2014, there were specific reserves of $24 thousand allocated to the TDRs entered into during the 2014 period as management considered it likely the majority of principal would ultimately be collected. Interest payments received on non-accruing TDRs in the table above which were applied to principal and not recognized in interest income during the six months ended June 30, 2014 amounted to $21 thousand.

There were subsequent charge-offs of $66 thousand associated with the TDRs noted in the table above during the six months ended June 30, 2014.

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

Loans modified as troubled debt restructurings during the three month period ended June 30, 2013 are detailed below. 

	Three months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Three months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	—	—
Commercial construction	2	715
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	2	$	715

Loans modified as troubled debt restructurings during the six month period ended June 30, 2013 are detailed below. 

	Six months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

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

Loans modified as troubled debt restructuring within the twelve month period previous to June 30, 2013 for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	137
Commercial and industrial	—	—
Commercial construction	3	746
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	4	$	883

There were subsequent charge-offs of $38 thousand associated with the TDRs noted in the table above during the six months ended June 30, 2013.  Included in the table above were two TDRs which defaulted, with total post modification outstanding balances of $167 thousand, and were subsequently transferred to OREO during the June 30, 2013 period. At June 30, 2013, specific reserves allocated to the TDRs entered into during the 2013 period amounted to $1 thousand, as management considered it likely the principal would ultimately be collected.

Other Real Estate Owned

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of any unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell. Any loan balance in excess of the estimated realizable fair value on the date of transfer is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.

The carrying value of OREO at June 30, 2014 and December 31, 2013 was $114 thousand and consisted of the same single property at the end of both periods. There were no sales of OREO during the six months ended June 30, 2014. There were $121 thousand of gains realized on OREO sales during the six months ended June 30, 2013.

Allowance for probable loan losses methodology

On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated credit losses.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated losses from specifically known and other credit risks associated with the portfolio.  The Company uses a systematic methodology to measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses.  The methodology makes use of specific reserves, for loans individually evaluated and deemed impaired and general reserves, for larger groups of homogeneous loans, which rely on a combination of qualitative and quantitative factors that could have an impact on the credit quality of the portfolio.

There have been no material changes in the Company’s underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in the Company’s most recent Annual Report on Form 10-K.  Refer to heading “Allowance for probable loan losses methodology” contained in Note 4 “Allowance For Loan Losses,” to the Company’s consolidated financial statements contained in the Company’s 2013 Annual Report on Form 10-K for further discussion of management’s methodology used to estimate the loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance.

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

Allowance for loan loss activity

The allowance for loan losses is established through a provision for loan losses, a direct charge to earnings.  Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely.  Recoveries on loans previously charged-off are credited to the allowance.

The allowance for loan losses amounted to $26.5 million at June 30, 2014 compared to $27.0 million at December 31, 2013. The allowance for loan losses to total loans ratio was 1.67% at June 30, 2014 compared to 1.77% at both December 31, 2013 and June 30, 2013. The decline in the overall allowance to total loan ratio at June 30, 2014 primarily resulted from a reduction in specific reserves. Specific reserves declined due to current charge-offs, the majority of which were previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values.

Based on management’s judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the heading "Credit Quality Indicators," management believes that the Company’s allowance for loan losses is adequate to absorb probable losses from specifically known and other credit risks associated with the portfolio as of June 30, 2014.

Changes in the allowance for loan losses by segment for the three months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2014	$	12,870	$	7,697		$	3,589	$	1,176	$	634	$	206	$	26,172
Provision	195		(270		)	122		90		51		12		200
Recoveries	—		198			30		—		—		10		238
Less: Charge offs	—		75			—		—		—		7		82
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221	$	26,528

Changes in the allowance for loan losses by segment for the six months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer			Total
Beginning Balance at December 31, 2013	$	13,174	$	8,365		$	3,493	$	1,057	$	653	$	225		$	26,967
Provision	94		(152		)	218		209		32		(1		)	400
Recoveries	—		224			30		—		—		22			276
Less: Charge offs	203		887			—		—		—		25			1,115
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221		$	26,528
Ending allowance balance:
Allotted to loans individually evaluated for impairment	$	191	$	1,632		$	827	$	171	$	52	$	27		$	2,900
Allotted to loans collectively evaluated for impairment	$	12,874	$	5,918		$	2,914	$	1,095	$	633	$	194		$	23,628

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

Changes in the allowance for loan losses by segment for the three months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr			Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2013	$	12,359	$	7,396	$	3,486		$	975	$	672	$	128	$	25,016
Provision	614		207		(382		)	58		10		27		534
Recoveries	61		31		50			—		—		3		145
Less: Charge offs	14		1		—			—		—		9		24
Balance at June 30, 2013	$	13,020	$	7,633	$	3,154		$	1,033	$	682	$	149	$	25,671

Changes in the allowance for loan losses by segment for the six months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate	Cmml and Industrial	Cmml Constr		Resid. Mortgage	Home Equity		Consumer	Total
Beginning Balance at December 31, 2012	11,793	7,297	3,456		854	728		126	24,254
Provision	1,180	428	(352	)	51	(23	)	33	1,317
Recoveries	61	41	50		128	21		6	307
Less: Charge offs	14	133	—		—	44		16	207
Ending Balance at June 30, 2013	13,020	7,633	3,154		1,033	682		149	25,671
Ending allowance balance:
Allotted to loans individually evaluated for impairment	915	2,302	739		163	36		19	4,174
Allotted to loans collectively evaluated for impairment	12,105	5,331	2,415		870	646		130	21,497

The balances of loans as of June 30, 2014 by segment and evaluation method are summarized as follows: 

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	14,210	$	824,505		$	838,715
Commercial and industrial	10,041		375,950			385,991
Commercial construction	3,287		141,266			144,553
Residential	1,040		138,094			139,134
Home equity	302		75,932			76,234
Consumer	28		8,258			8,286
Deferred Fees	—		(1,510		)	(1,510		)
Total loans	$	28,908	$	1,562,495		$	1,591,403

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

The balances of loans as of December 31, 2013 by segment and evaluation method are summarized as follows:

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	15,139	$	805,160		$	820,299
Commercial and industrial	10,579		346,477			357,056
Commercial construction	3,358		129,149			132,507
Residential	619		132,102			132,721
Home equity	108		74,246			74,354
Consumer	23		8,620			8,643
Deferred Fees	—		(1,524		)	(1,524		)
Total loans	$	29,826	$	1,494,230		$	1,524,056

(5) Supplemental Retirement Plan and Other Postretirement Benefit Obligations

Supplemental Retirement Plan (SERPs)

The Company has salary continuation agreements with two of its active executive officers, and one former executive officer who currently works on a part time basis. These agreements provide for predetermined fixed-cash supplemental retirement benefits to be provided for a period of 20 years after each individual reaches a defined “benefit age.” The Company has not recognized service cost in the current or prior year as each officer had previously attained their individually defined benefit age and was fully vested under the plan.

This non-qualified plan represents a direct liability of the Company, and as such has no specific assets set aside to settle the benefit obligation.  The funded status is the aggregate amount accrued, or the “Accumulated Benefit Obligation,” which is equal to the present value of the benefits to be provided to the employee or any beneficiary in exchange for the employee’s service rendered to that date.  Because the Company’s benefit obligations provide for predetermined fixed-cash payments, the Company does not have any unrecognized costs to be included as a component of accumulated other comprehensive income.

The total net periodic benefit cost, which was comprised of interest cost only, was $35 thousand for the three months ended June 30, 2014 compared to $34 thousand for the three months ended June 30, 2013, and $71 thousand for the six months ended June 30, 2014 compared to $67 thousand for the six months ended June 30, 2013.

Benefits paid amounted to $69 thousand and $138 thousand for the three and six months ended June 30, 2014 and June 30, 2013, respectively. The Company anticipates accruing an additional $71 thousand to the plan during the remainder of 2014.

Supplemental Life Insurance

For certain senior and executive officers on whom the Bank owns bank owned life insurance ("BOLI"), the Company has provided supplemental life insurance, through split-dollar life insurance arrangements, which provides a death benefit to the officer’s designated beneficiaries.

The Company has recognized a liability for future benefits associated with supplemental life insurance plan, which is a non-qualified plan, which provides a benefit to an employee that extends to postretirement periods. This plan represents a direct liability of the Company, and as such has no specific assets set aside to settle the benefit obligation.  The funded status is the aggregate amount accrued, or the “Accumulated Postretirement Benefit Obligation,” which is the present value of the post- retirement benefits associated with this arrangement.

The total net periodic benefit cost, which was comprised of interest cost only, amounted to $18 thousand and $36 thousand for the three and six months ended June 30, 2014 and June 30, 2013, respectively.

(6) Stock-Based Compensation

The Company has individual stock incentive plans and has not changed the general terms and conditions of these plans from those disclosed in the Company’s 2013 Annual Report on Form 10-K.

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

The Company’s stock-based compensation expense includes stock option awards and stock awards to officers, other employees and directors, and stock compensation in lieu of cash fees to directors.  Total stock-based compensation expense was $435 thousand and $916 thousand for the three and six months ended June 30, 2014, respectively, compared to $520 thousand and $859 thousand for the three and six months ended June 30, 2013, respectively.

Stock Option Awards

The Company recognized stock-based compensation expense related to stock option awards of $86 thousand and $190 thousand for the three and six months ended June 30, 2014, respectively, compared to $202 thousand and $269 thousand for the three and six months ended June 30, 2013, respectively.

The table below provides a summary of the options granted, fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the options granted in 2014 and 2013.

	Six Months Ended June 30,
	2014			2013
Options granted	31,229			44,175
Term in years	10			10
Average assumptions used in the model:
Expected volatility	47		%	48		%
Expected dividend yield	2.88		%	2.99		%
Expected life in years	7			7
Risk-free interest rate	2.19		%	1.29		%
Market price on date of grant	$	20.29		$	16.43
Per share weighted average fair value	$	8.32		$	6.56
Fair value as a percentage of market value at grant date	41		%	40		%

Options granted during the first six months of 2014 and 2013 vest 50% in year two and 50% in year four, on the anniversary date of the awards. Vested options are only exercisable while the employee remains employed with the Bank and for a limited time thereafter. If a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any stock options granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.

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

Refer to Note 11 “Stock-Based Compensation Plans” in the Company’s 2013 Annual Report on Form 10-K for a further description of the assumptions used in the valuation model.

Stock Awards

Stock-based compensation expense recognized in association with stock awards amounted to $282 thousand and $590 thousand for the three and six months ended June 30, 2014, respectively, compared to $264 thousand and $481 thousand for the three and six months ended June 30, 2013, respectively.

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

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

The table below provides a summary of stock awards granted in 2014 and 2013.

	Six Months Ended June 30,
Restricted Stock Awards	2014		2013
Two Year Vesting	6,660		6,146
Four Year Vesting	19,167		24,925
Performance-Based Vesting	33,017		47,735
Total Restricted Stock Awards	58,844		78,806
Weighted average grant date fair value	$	20.29	$	16.43

If a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any shares of restricted stock granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.

The restricted stock awards allow for the receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding.

In January 2014, the Company also granted 2,142 shares of fully vested stock to employees as anniversary awards at a fair market value of $20.95 per share.

Stock in Lieu of Directors’ Fees

In addition to restricted stock awards discussed above, the members of the Company’s Board of Directors may opt to receive newly issued shares of the Company’s common stock in lieu of cash compensation for attendance at Board and Board Committee meetings.  Stock-based compensation expense related to directors’ election to receive shares of common stock in lieu of cash fees for meetings amounted to $67 thousand and $136 thousand for the three and six months ended June 30, 2014, respectively, compared to $54 thousand and $109 thousand for the three and six months ended June 30, 2013, respectively. In January 2014, directors were issued 11,136 shares of common stock in lieu of cash fees based on their 2013 annual stock-based compensation expense of $194 thousand and a market value price of $17.43 per share, the market value of the common stock on the opt-in measurement date of January 2, 2013.

(7) Earnings per share

Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding (including participating securities) during the year.  The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.

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

	Three months ended June 30,		Six months ended June 30,
	2014	2013	2014	2013
Basic weighted average common shares outstanding	10,124,372	9,825,335	10,077,502	9,770,559
Dilutive shares	80,604	64,304	84,685	69,457
Diluted weighted average common shares outstanding	10,204,976	9,889,639	10,162,187	9,840,016

For the six months ended June 30, 2014, there were an additional 18,392 average stock options outstanding, which were excluded from the year-to-date calculation of diluted earnings per share due to the exercise price of these options exceeding the average market price of the Company’s common stock for the period.  These options, which were not dilutive at that date, may potentially dilute earnings per share in the future.

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

(8) Fair Value Measurements

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

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

	June 30, 2014		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	200,120	$	—	$	200,120	$	—
Equity securities	14,725		14,725		—		—
FHLB Stock	3,357		—		—		3,357
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,250		—		—		6,250
Other real estate owned	114		—		—		114

	December 31, 2013		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	202,201	$	—	$	202,201	$	—
Equity securities	13,168		13,168		—		—
FHLB Stock	4,324		—		—		4,324
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,542		—		—		6,542
Other real estate owned	114		—		—		114

The Company did not have cause to transfer any assets between the fair value measurement levels during the six months ended June 30, 2014 or the year ended December 31, 2013. There were no liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2014 or December 31, 2013.

All of the Company's fixed income investments and equity securities that are considered “available for sale” are carried at fair value.  The fixed income category above includes federal agency obligations, federal agency MBS, municipal securities and corporate bonds as held at those dates.  The Company utilizes third-party pricing vendors to provide valuations on its fixed income securities.  Fair values provided by the vendors were generally determined based upon pricing matrices utilizing observable market data inputs for similar or benchmark securities in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources.  Therefore, management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy.” The Company periodically obtains a second price from an impartial third party on fixed income securities to assess the reasonableness of prices provided by the primary independent pricing vendor.

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

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

Net unrealized appreciation and depreciation on investments available for sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income.

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

Impaired loan balances in the table above represent those collateral dependent impaired commercial loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral (appraised value or internal analysis less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date).  Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent impaired loans are categorized as Level 3 within the fair value hierarchy.  A specific allowance is assigned to the collateral dependent impaired loan for the amount of management’s estimated credit loss.  The specific allowances assigned to the collateral dependent impaired loans at June 30, 2014 amounted to $2.2 million compared to $3.2 million at December 31, 2013.

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO.  When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell.  The estimated fair value is based on market appraisals and the Company’s internal analysis.  Certain inputs used in appraisals or the Company's internal analysis, are not always observable, and therefore, OREO may be categorized as Level 3 within the fair value hierarchy. There were no sales of OREO during the six months ended June 30, 2014. There were $121 thousand of gains realized on OREO sales during the six months ended June 30, 2013.

The following table presents additional quantitative information about assets measured at fair value on a recurring and non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of June 30, 2014.

(Dollars in thousands)	Fair Value	Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
FHLB Stock	$3,357	FHLB Stated Par Value	N/A	N/A
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	$6,250	Appraisal of collateral	Appraisal adjustments (1)	5% - 50%
Other real estate owned	$114	Appraisal of collateral	Appraisal adjustments (1)	0% - 30%

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

Other Guarantees and Commitments

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance by a customer to a third party.  The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements.  In accordance with the FASB, the estimated fair values of these commitments are carried on the balance sheet as a liability and amortized to income over the life of the letters of credit, which are typically one year.  The estimated fair value of these commitments carried on the balance sheet at June 30, 2014 and December 31, 2013 were deemed immaterial.

Interest rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments.  The commitments to sell loans are also considered derivative instruments. The Company generally does not pool mortgage loans for sale, but instead, sells the loans on an individual basis. To reduce the net interest rate exposure arising from

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

its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest rate lock commitment is quoted on the origination of the loan. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices.  These commitments represent the Company’s only derivative instruments and are accounted for in accordance with FASB guidance.  The fair values of the Company’s derivative instruments are deemed to be FASB Level 2 measurements. At June 30, 2014 and December 31, 2013, the estimated fair value of the Company’s derivative instruments was considered to be immaterial.

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the balance sheet, the Company is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the balance sheet.  In cases where quoted fair values are not available, fair values are based upon estimates using various valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

Loans held for sale: Loans held for sale are recordedat the lower of aggregate amortized cost or market value. The fair value is based on comparable market prices for loans with similar rates and terms.

Loans: The fair value of loans was determined using discounted cash flow analysis, using interest rates currently being offered by the Company.  The incremental credit risk for adversely classified loans was considered in the determination of the fair value of the loans.  This method of estimating fair value does not incorporate the exit price concept of fair value.

Commitments: The fair values of the unused portion of lines of credit and letters of credit were estimated to be the fees currently charged to enter into similar agreements.  Commitments to originate non-mortgage loans were short-term and were at current market rates and estimated to have no significant change in fair value.

Financial liabilities: The fair values of certificates of deposit and borrowings were estimated using discounted cash flow analysis using rates offered by the Bank, or advance rates offered by the FHLB on June 30, 2014 and December 31, 2013 for similar instruments.  The fair value of junior subordinated debentures was estimated using discounted cash flow analysis using a market rate of interest at June 30, 2014 and December 31, 2013.

Limitations:  The estimates of fair value of financial instruments were based on information available at June 30, 2014 and December 31, 2013 and are not indicative of the fair market value of those instruments as of the date of this report.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. The fair value of the Company's time deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.

Because no active market exists for a portion of the Company’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

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

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

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

The carrying values, estimated fair values and placement in the fair value hierarchy of the Company’s financial instruments⁽¹⁾ for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2014				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	2,431	$	2,453	$	—	$	2,453	—
Loans, net	1,564,875		1,588,955		—		—		1,588,955
Financial liabilities:
Certificates of deposit (including brokered)	278,487		277,484		—		277,484		—
Borrowed funds	484		485		—		485		—
Junior subordinated debentures	10,825		12,529		—		—		12,529

	December 31, 2013				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	1,255	$	1,255	$	—	$	1,255	—
Loans, net	1,497,089		1,516,809		—		—		1,516,809
Financial liabilities:
Certificates of deposit (including brokered)	251,650		250,045		—		250,045		—
Borrowed funds	36,534		36,535		—		36,535		—
Junior subordinated debentures	10,825		11,358		—		—		11,358

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

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

Management’s discussion and analysis should be read in conjunction with the Company’s (also referred to herein as “Enterprise,” “us,” “we” or “our”) consolidated financial statements and notes thereto contained in this report and the Company’s 2013 Annual Report on Form 10-K.

Accounting Policies/Critical Accounting Estimates

As discussed in the Company’s 2013 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, impairment review of investment securities and the impairment review of goodwill.  The Company has not changed its significant accounting and reporting policies from those disclosed in its 2013 Annual Report on Form 10-K.

Special Note Regarding Forward-Looking Statements

This report contains certain “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, including statements concerning plans, objectives, future events or performance and assumptions and other statements that are other than statements of historical fact. Forward-looking statements may be identified by reference to a future period or periods or by use of forward-looking terminology such as “anticipates,” “believes,” “expects,” “intends,” “may,” “plans,” “pursue,” “views” and similar terms or expressions. Various statements contained in Item 2 - “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Item 3 - “Quantitative and Qualitative Disclosures About Market Risk,” including, but not limited to, statements related to management's views on the banking environment and the economy, competition and market expansion opportunities, the interest rate environment, credit risk and the level of future non-performing assets and charge-offs, potential asset and deposit growth, future non-interest expenditures and non-interest income growth, and borrowing capacity are forward-looking statements. The Company wishes to caution readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that may adversely affect the Company's future results. The forward-looking statements in this report are based on information available to the Company as of the date of this report and the Company undertakes no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise. The following important factors, among others, could cause the Company's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein: (i) changes in interest rates could negatively impact net interest income; (ii) changes in the business cycle and downturns in the local, regional or national economies, including deterioration in the local real estate market, could negatively impact credit and/or asset quality and result in credit losses and increases in the Company's allowance for loan losses; (iii) changes in consumer spending could negatively impact the Company's credit quality and financial results; (iv) increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services could adversely affect the Company's competitive position within its market area and reduce demand for the Company's products and services; (v) deterioration of securities markets could adversely affect the value or credit quality of the Company's assets and the availability of funding sources necessary to meet the Company's liquidity needs; (vi) changes in technology, including the increased risk of internet hacking and identity theft could adversely impact the Company's operations and increase technology-related expenditures; (vii) increases in employee compensation and benefit expenses could adversely affect the Company's financial results; (viii) changes in laws and regulations that apply to the Company's business and operations, including without limitation, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), the Jumpstart Our Business Startups Act (the "JOBS Act"), the Basel III rules adopted by the federal banking regulators and the additional regulations that will be forthcoming as a result thereof, could adversely affect the Company's business environment, operations and financial results; (ix) changes in accounting standards, policies and practices, as may be adopted or established by the regulatory agencies, the Financial Accounting Standards Board (the “FASB”) or the Public Company Accounting Oversight Board could negatively impact the Company's financial results; (x) our ability to enter new markets successfully and capitalize on growth opportunities; (xi) future regulatory compliance costs, including any increase caused by new regulations imposed by the Consumer Finance Protection Bureau; and (xii) some or all of the risks and uncertainties described in Item 1A of the Company’s 2013 Annual Report on Form 10-K could be realized, which could have a material adverse effect on the Company’s business, financial condition and results of operation.  Therefore, the Company cautions readers not to place undue reliance on any such forward-looking information and statements.

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Overview

Executive Summary

In 2014, the Company continues to focus on organic growth while continually planning for our future by investing in our branch network, technology, progressive product capabilities and, most importantly, in our Enterprise team, our customers and our communities. Within the last six years, we have added eight branches, which represents 36% of our total offices. We believe the number of relatively new branches provide opportunities for continued growth and are very positive investments for our future.

Net income for the three months ended June 30, 2014 amounted to $3.3 million, an increase of $235 thousand, or 8%, compared to the same three-month period in 2013. Diluted earnings per share was $0.32 for the three months ended June 30, 2014 and $0.31 for the same period ended June 30, 2013. Net income for the six months ended June 30, 2014 amounted to $6.8 million, an increase of $308 thousand, or 5%, compared to the same six-month period in 2013. Diluted earnings per share was $0.67 for the six months ended June 30, 2014 and $0.66 for the same period ended June 30, 2013.

As of June 30, 2014, loans have increased 4% since December 31, 2013 and deposits, excluding brokered deposits, have increased 5% over the same period. On an annualized basis, loans have increased 9% and deposits, excluding brokered deposits, have increased 10%. Additionally, our total assets exceeded $1.9 billion at the end of the current quarter and total assets under management are approaching $2.7 billion.

The Company's growth has contributed to increases in net interest income and non-interest expenses in the current year as compared to the same period in 2013. Net income, as compared to the prior year, was also impacted by a lower loan loss provision in 2014, partially offset by a decrease in non-interest income due primarily to lower gains on loan sales and lower gains on securities sales.

Composition of Earnings

The Company’s earnings are largely dependent on its net interest income, which is the difference between interest earned on loans and investments and the cost of funding (primarily deposits and borrowings).  Net interest income expressed as a percentage of average interest earning assets is referred to as net interest margin.  The Company reports net interest margin on a tax equivalent basis ("margin").

Net interest income for the three months ended June 30, 2014 amounted to $17.5 million, an increase of $1.3 million, or 8%, compared to the same period in 2013. Net interest income for the six months ended June 30, 2014 amounted to $34.4 million, an increase of $2.4 million, or 8%, compared to the same period in 2013. This increase in net interest income was primarily due to loan growth, mainly in commercial real estate loans, partially offset by a decrease in margin. Average loan balances (including loans held for sale) increased $135.4 million and $144.0 million for the three and six months ended June 30, 2014, respectively, compared to the same periods in 2013. Net interest margin was 4.04% for the quarter ended June 30, 2014, which is relatively consistent with the quarterly margins at March 31, 2014 of 4.02% and December 31, 2013 of 4.04%. The margin for the quarter ended June 30, 2013 was 4.08%. Net interest margin was 4.03% for the six months ended June 30, 2014 compared to 4.12% for the six months ended June 30, 2013.

For the quarters ended June 30, 2014 and 2013, the provision for loan losses amounted to $200 thousand and $534 thousand, respectively. The provision for loan losses amounted to $400 thousand and $1.3 million for the six months ended June 30, 2014 and 2013, respectively. In determining the provision to the allowance for loan losses, management takes into consideration the level of loan growth and an estimate of credit risk, which includes such items as adversely classified and non-performing loans, the estimated specific reserves needed for impaired loans, the level of net charge-offs, and the estimated impact of current economic conditions on credit quality. The level of loan growth for the six months ended June 30, 2014 was $67.3 million, compared to $87.7 million during the same period in 2013. Total non-performing assets as a percentage of total assets declined to 0.93% at June 30, 2014, compared to 1.24% at June 30, 2013. For the six months ended June 30, 2014, the Company recorded net charge-offs of $839 thousand compared to net recoveries of $100 thousand for the six months ended June 30, 2013. The majority of the current charge-offs were previously allocated specific reserves on commercial relationships for which management deemed the collectability of amounts due was unlikely based on current realizable collateral values. This reduction in specific reserves contributed to the decline in the overall allowance to total loan ratio at June 30, 2014. The allowance for loan losses to total loans ratio was 1.67% at June 30, 2014, 1.69% at March 31, 2014 and 1.77% at December 31,

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2013. Management continues to closely monitor the non-performing assets, charge-offs and necessary allowance levels, including specific reserves.

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

Non-interest income for the three months ended June 30, 2014 amounted to $3.3 million, a decrease of $289 thousand, or 8%, compared to the same period in 2013. Non-interest income for the six months ended June 30, 2014 amounted $6.7 million, a decrease of $449 thousand, or 6%, compared to the same period in 2013. The decreases in non-interest income were primarily due to decreases in gains on sales of loans, due to a lower volume of mortgage origination activity in 2014, and decreases in net gains on sales of investment securities. These decreases were partially offset by increases in investment advisory income and deposit and interchange fees.     

Non-interest expense for the quarter ended June 30, 2014 amounted to $15.4 million, an increase of $984 thousand, or 7%, compared to the same period in the prior year. For the six months ended June 30, 2014, non-interest expense amounted to $30.3 million, an increase of $2.4 million, or 8%, over the same period in the prior year. Increased expenses over the prior year related to salaries and benefits, occupancy and technology and were primarily due to the Company's strategic growth initiatives.

Sources and Uses of Funds

The Company’s primary sources of funds are deposits, Federal Home Loan Bank ("FHLB") borrowings, current earnings and proceeds from the sales, maturities and pay-downs on loans and investment securities.  The Company may also, from time to time, utilize brokered deposits and overnight borrowings from correspondent banks to provide additional funding sources and to aid in the company's asset liability and interest rate risk positioning. These funds are used to originate loans, purchase investment securities, conduct operations, expand the branch network, and pay dividends to shareholders.

The investment portfolio is primarily used to provide liquidity, manage the Company’s asset-liability position and to invest excess funds. Total investments, one of the key components of earning assets, amounted to $214.8 million at June 30, 2014, and comprised 11% of total assets at June 30, 2014. Investments are relatively flat since December 31, 2013.

Enterprise's main asset strategy is to grow loans, the largest component of earning assets, with a focus on high quality commercial loans.  Total loans increased $67.3 million, or 4%, since December 31, 2013 and amounted to $1.59 billion, or 82% of total assets, at June 30, 2014. Total commercial loans amounted to $1.37 billion, or 86% of gross loans, at June 30, 2014, which was consistent with the composition at December 31, 2013.

Management’s preferred strategy for funding asset growth is to grow low cost deposits (comprised of demand deposit accounts, interest and business checking accounts and traditional savings accounts).  Asset growth in excess of low cost deposits is typically funded through higher cost deposits (comprised of money market accounts, commercial tiered rate or "investment savings" accounts and term certificates of deposit) and wholesale funding (brokered deposits and borrowed funds).

At June 30, 2014, deposits, excluding brokered deposits, amounted to $1.66 billion, an increase of $77.2 million, or 5%, from December 31, 2013 balances. Non-brokered deposit growth since December 31, 2013 was noted primarily within the checking and money market categories.

Wholesale funding amounted to $85.6 million at June 30, 2014, compared to $88.1 million at December 31, 2013, a decrease of $2.5 million, or 3%. Wholesale funding included FHLB advances of $484 thousand and $36.5 million at June 30, 2014 and December 31, 2013, respectively, and brokered deposits of $85.1 million and $51.6 million at June 30, 2014 and December 31, 2013, respectively.

Opportunities and Risks

The Company’s ability to achieve its long-term strategic growth and market share objectives will depend in part upon the Company’s continued success in differentiating itself in the market place and its ability to strengthen its competitive position.

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Enterprise faces robust competition to retain and attract customers within existing and neighboring geographic markets.  National and larger regional banks have a local presence in the Company’s market area.  These larger banks have certain competitive advantages, including greater financial resources and the ability to make larger loans to a single borrower. Numerous local savings banks, commercial banks, cooperative banks and credit unions also compete in the Company’s market area.  The expanded commercial lending capabilities of credit unions and the shift to commercial lending by traditional savings banks means that both of these types of traditionally consumer-orientated institutions now compete for the Company’s targeted commercial customers.  In addition, the non-taxable status of credit unions allows them certain advantages as compared to taxable institutions such as Enterprise.  Competition for loans, deposits and cash management services, investment advisory assets, and insurance business also comes from other businesses that provide financial services, including consumer finance companies, mortgage brokers and lenders, private lenders, insurance companies, securities brokerage firms, institutional mutual funds, registered investment advisors, internet based banks and non-bank payment channels.  Consolidation within the industry, customer disenfranchisement with larger national/international banks, banks exiting certain business lines, and the cost of compliance with new government regulations are all expected to have an impact on the regional competitive market. Management actively seeks to strengthen its competitive position by capitalizing on the market opportunities and the continued pursuit of strategic growth within existing and neighboring geographic markets. Advances in, and the increased use of technology, such as internet and mobile banking, electronic transaction processing and information security, are expected to have a significant impact on the future competitive landscape confronting financial institutions.

Management believes the Company's community service culture, business model, full range of diversified financial products and services, and state-of-the-art delivery channels position the Company to be a leading provider of banking and investment advisory and wealth management services in its growing market area. The Company has differentiated itself by building a solid reputation within the local market for delivering consistently superior customer service and taking an active role in support of the communities we serve. The Company's banking professionals have developed in-depth knowledge of our markets and are committed to upholding the Company’s core values, including significant community involvement, which has led to a strong referral network with local business and community leaders. 

The Company seeks to increase deposit share through continuous reviews of deposit product offerings, ancillary services and delivery channels, targeted to both business' and consumers' needs. These products and services are delivered by experienced local banking professionals who possess strong technical skills, and function as trusted advisors to clients. In addition, Enterprise carefully plans deposit expansion through new branch development. Within the last six years, we have added eight branches, which represents 36% of our total offices. These openings occurred at an accelerated pace, which reflects our commitment to take advantage of market opportunities. The Company believes that each of these offices is strategically located to complement existing locations while expanding the Company's geographic market footprint. This branch expansion is aimed at achieving not only deposit market share growth, but also contributes to loan originations and generates referrals for investment advisory and wealth management, trust and insurance services, residential mortgages and cash management products.

Management believes that Enterprise is also well equipped to capitalize on market potential to grow both the commercial and residential loan portfolios through strong business development efforts, while utilizing a disciplined and consistent lending approach and credit review practices, which has served to provide quality asset growth over varying economic cycles during the Company’s history.  The Company has a skilled lending sales force with a broad breadth of business knowledge and depth of lending experience to draw upon, supported by a highly qualified and experienced commercial credit review function.

Management continues to undertake significant strategic initiatives, including investments in employee training and development, marketing and public relations, technology and electronic delivery methods, and ongoing improvements and renovations of existing branches and operations facilities.  Industry consolidation also provides management the opportunity to recruit experienced banking professionals with market knowledge who complement the Enterprise sales and service culture.  While management recognizes that such investments increase expenses in the short-term, Enterprise believes that such initiatives are a necessary investment in the long-term growth and earnings of the Company and are reflective of the opportunities in the current marketplace for community banks such as Enterprise. However, lower than expected return on these investments, such as slower than anticipated loan and deposit growth in new branches and/or lower than expected fee or other income generated from new technology or initiatives, could decrease anticipated revenues and net income on such investments in the future.

Any prolonged deterioration of the general economic environment could weaken the local New England economy and have adverse repercussions on local industries, leading to increased unemployment and mortgage foreclosures, further deterioration of local commercial real estate values, or other unforeseen consequences, which could have a severe negative impact on the Company’s financial condition, capital position, liquidity, and performance. In addition, the loan portfolio consists primarily of commercial real estate, commercial and industrial, and commercial construction loans.  These types of loans are typically larger

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and are generally viewed as having more risk of default than owner occupied residential real estate loans or consumer loans. Any significant deterioration in the credit quality of the commercial loan portfolio or underlying collateral values due to a worsening of the economic environment could have a material adverse effect on the Company’s financial condition and results of operations. The risk of loss due to customers’ non-payment of loans or lines of credit is called “credit risk.”  Credit risk management is reviewed below in this Item 2 under the headings “Credit Risk," "Asset Quality” and “Allowance for Loan Losses.”

The value of the investment portfolio as a whole, or individual securities held, including restricted FHLB capital stock, could be negatively impacted by any sustained volatility in the financial markets or in credit markets, or a fundamental deterioration of credit quality of the individual security, fund or issuer, which could possibly result in the recognition of other-than-temporary-impairment (“OTTI”) charges in the future.

In addition, a sustained low interest rate environment could negatively impact the Company's net interest income and results of operation. The re-pricing frequency of interest earning assets and liabilities are not identical, and, therefore, subject the Company to the risk of adverse changes in interest rates.  This is often referred to as “interest rate risk” and is reviewed in more detail under the heading Item 3, “Quantitative and Qualitative Disclosures About Market Risk,” below.

Liquidity management is the coordination of activities so that cash needs are anticipated and met, readily and efficiently.  Liquidity management is reviewed further below in this Item 2 under the heading “Liquidity.”

Federal banking agencies require the Company and the Bank to meet minimum capital requirements. For information regarding the current capital requirements applicable to the Company and the Bank and their respective capital levels at June 30, 2014, and the recently adopted changes to the regulatory capital framework, see the section entitled “Capital Resources” contained in this Item 2 below. At June 30, 2014, both the Company and the Bank were categorized as “well capitalized;” however, future unanticipated charges against capital, or changes in regulatory requirements such as Basel III discussed below, could impact those regulatory capital designations. 

In addition, any further changes in government regulation or oversight, including the implementation by the federal regulatory agencies of the various requirements contained in the Dodd-Frank Act and rules under Basel III, could affect the Company in substantial and unpredictable ways, including, but not limited to, subjecting the Company to additional operating, governance and compliance costs, or potential loss of revenue due to the impact of an enhanced regulatory structure on the banking industry, and require all U.S. banking organizations, including community banks, such as Enterprise Bank, to hold higher amounts of capital, especially common equity, against their risk-weighted assets. Although several significant aspects of the Dodd-Frank Act and the Basel III rule expressly apply only to larger, “systemically significant” institutions, they may have the potential to influence the Company's business decisions, while other parts of the legislation apply either directly, or potentially indirectly, to activities of community banks, such as Enterprise.

Many aspects of the Dodd-Frank Act are subject to rulemaking by various regulatory agencies, some of which have not yet taken effect, making it difficult at this time to anticipate the overall financial impact of this expansive legislation on the Company, its customers or the financial industry generally. Likewise, any new consumer financial protection laws enacted by the Consumer Financial Protection Bureau would apply to all banks and thrifts, and may increase the Company's compliance and operational costs in the future.

Compliance risk includes the threat of fines, civil money penalties, lawsuits and restricted growth opportunities resulting from violations and/or non-conformance with laws, rules, regulations, prescribed practices, internal policies and procedures, or ethical standards.  The Company maintains a Compliance Management Program (CMP) designed to meet regulatory and legislative requirements.  The CMP provides for tracking and implementing regulatory changes, monitoring the effectiveness of policies and procedures, conducting compliance risk assessments, and educating employees in matters relating to regulatory compliance.  The Audit Committee of the Board of Directors oversees the effectiveness of the CMP.

Operational risk includes the threat of loss from inadequate or failed internal processes, people, systems or external events, due to, among other things: fraud or error; the inability to deliver products or services; failure to maintain a competitive position; lack of information or physical security; inadequate procedures or controls followed by third-party service providers; or violations of ethical standards. Controls to manage operational risk include, but are not limited to, technology administration, information security, vendor management and business continuity planning.

The Company's technology administration includes policies and guidelines for the design, procurement, installation, management and acceptable use of hardware, software and network devices. The Company has implemented layered security approaches for all delivery channels and technology project standards that are designed to provide risk based oversight,

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coordinate and communicate ideas, and to prioritize and manage project implementation in a manner consistent with corporate objectives.

Management utilizes a combination of third party information security assessments, key technologies and ongoing internal evaluations to provide a level of protection of non-public personal information and to continually monitor and attempt to safeguard information on its operating systems and those of third party service providers.  The Company also utilizes firewall technology and a combination of software and third-party monitoring to detect intrusion, guard against unauthorized access, and continuously identify and prevent computer viruses on the Company’s information systems.

The Company has a risk-based, third-party risk management program designed to provide a mechanism to enable management to determine what risk, if any, a particular vendor or customer exposes the Company to, and to rate and mitigate that risk by properly performing initial and ongoing due diligence when selecting or maintaining relationships with significant third-party providers and customers who in turn provide financial services or products to their own customers.

The Company’s Disaster Recovery and Business Continuity Program consists of the information and procedures required to enable a rapid recovery from an occurrence that would disable the Company’s operations for an extended period, due to circumstances such as: loss of personnel; loss of information and/or loss of access to information under various scenarios; and loss of access to, or the physical destruction or damage of, facilities, infrastructure or systems. The plan, which is reviewed annually, establishes responsibility for assessing a disruption of business, contains alternative strategies for the continuance of critical business functions during an emergency situation, assigns responsibility for restoring services, and sets priorities by which critical services will be restored.  A bank-owned and maintained secondary data center location provides the Company auxiliary network processing capabilities and flexibility. 

Any system of controls or contingency plan, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the controls and procedures will be met.

This Opportunities and Risks discussion should be read in conjunction with Item 1A “Risk Factors,” and the section titled "Opportunities and Risk" contained in Item 7 "Management's Discussion and Analysis of Financial Conditions and Results of Operations" included in the Company’s 2013 Annual Report on Form 10-K, which address numerous other factors and details that could adversely affect the Company’s reputation, its future results of operations and financial condition.

Financial Condition

Total assets increased $83.3 million, or 5%, since December 31, 2013, to $1.93 billion at June 30, 2014.  The balance sheet composition and changes since December 31, 2013 are discussed below.

Cash and cash equivalents

Cash and cash equivalents is comprised of cash on hand and cash items due from banks, interest-earning deposits (deposit accounts, money market, and money market mutual funds accounts) and fed funds sold. Cash and cash equivalents amounted to 4% of total assets at June 30, 2014 and 3% of total assets at December 31, 2013.

Investments

At June 30, 2014, the carrying value of the investment portfolio amounted to $214.8 million and was relatively flat, compared to December 31, 2013. 

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The following table summarizes investments at the dates indicated:

	June 30, 2014				December 31, 2013				June 30, 2013
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Federal agency obligations(1)	$	31,967	14.9	%	$	55,543	25.8	%	$	65,252	34.2	%
Federal agency mortgage backed securities (MBS)(1)	95,430		44.4	%	79,650		37.0	%	52,157		27.4	%
Municipal securities	66,626		31.0	%	61,954		28.8	%	57,678		30.3	%
Corporate bonds	6,097		2.8	%	5,054		2.3	%	3,736		2.0	%
Certificates of deposits	—		—	%	—		—	%	855		0.4	%
Total fixed income securities	200,120		93.1	%	202,201		93.9	%	179,678		94.3	%
Equity investments	14,725		6.9	%	13,168		6.1	%	10,781		5.7	%
Total available for sale investments at fair value	$	214,845	100.0	%	$	215,369	100.0	%	$	190,459	100.0	%

__________________________________________ 

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank, or one of several Federal Home Loan Banks.  All agency MBS/CMO investments owned by the Company are backed by residential mortgages.

Included in the federal agency MBS categories above were CMOs totaling $15.4 million, $17.4 million, and $20.6 million at June 30, 2014, December 31, 2013, and June 30, 2013, respectively.

During the six months ended June 30, 2014, the total principal pay downs, calls and maturities amounted to $23.8 million.  During the period, the Company purchased $42.1 million in securities. In addition, management sold investment securities with an amortized cost of approximately $20.8 million realizing net gains on sales of $615 thousand, primarily on equity investments in the first quarter of 2014 in order to capitalize on market opportunities. 

Net unrealized gains on the investment portfolio amounted to $5.8 million at June 30, 2014 compared to $3.2 million at December 31, 2013 and $3.0 million at June 30, 2013.  Unrealized gains or losses will only be recognized in the statements of income if the investments are sold. However, should an investment be deemed “other than temporarily impaired,” the Company is required to write-down the fair value of the investment.   See Note 2, “Investment Securities,” and Note 8, “Fair Value Measurements,” to the Company’s unaudited consolidated financial statements contained in Item 1 above for further information regarding the Company’s unrealized gains and losses on debt and equity securities, including information about investments in an unrealized loss position for which an other-than-temporary impairment has or has not been recognized, and investments pledged as collateral, as well as the Company’s fair value measurements for available-for-sale securities.

Federal Home Loan Bank Stock

The Company is required to purchase stock of the FHLB in association with advances from the FHLB; this stock is classified as a restricted investment and carried at cost, which management believes approximates fair value.  The carrying amount of FHLB stock was $3.4 million for the period ended June 30, 2014, and $4.3 million at both December 31, 2013 and June 30, 2013. See Note 1, "Summary of Significant Accounting Policies," Item (d), “Restricted Investments,” to the Company’s unaudited consolidated financial statements contained in Item 1 above for further information regarding the Company’s investment in FHLB stock.

Loans

Total loans represented 82% of total assets as of June 30, 2014 and December 31, 2013.  Total loans increased $67.3 million, or 4%, compared to December 31, 2013, and $144.1 million, or 10%, since June 30, 2013.  The mix of loans within the portfolio remained relatively unchanged with commercial loans amounting to approximately 86% of gross loans, reflecting a continued focus on commercial loan growth.

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The following table sets forth the loan balances by certain loan categories at the dates indicated and the percentage of each category to gross loans.

	June 30, 2014					December 31, 2013					June 30, 2013
(Dollars in thousands)	Amount			Percent		Amount			Percent		Amount			Percent
Commercial real estate	$	838,715		52.7	%	$	820,299		53.8	%	$	785,994		54.2	%
Commercial and industrial	385,991			24.2	%	357,056			23.4	%	343,509			23.7	%
Commercial construction	144,553			9.1	%	132,507			8.6	%	116,348			8.0	%
Total commercial loans	1,369,259			86.0	%	1,309,862			85.8	%	1,245,851			85.9	%
Residential mortgages	139,134			8.7	%	132,721			8.7	%	122,704			8.5	%
Home equity loans and lines	76,234			4.8	%	74,354			4.9	%	74,639			5.2	%
Consumer	8,286			0.5	%	8,643			0.6	%	5,649			0.4	%
Total retail loans	223,654			14.0	%	215,718			14.2	%	202,992			14.1	%
Gross loans	1,592,913			100.0	%	1,525,580			100.0	%	1,448,843			100.0	%
Deferred fees, net	(1,510		)			(1,524		)			(1,497		)
Total loans	1,591,403					1,524,056					1,447,346
Allowance for loan losses	(26,528		)			(26,967		)			(25,671		)
Net loans	$	1,564,875				$	1,497,089				$	1,421,675

Commercial real estate loans increased $18.4 million, or 2%, as of June 30, 2014, compared to December 31, 2013, and increased 7% compared to June 30, 2013.  Commercial real estate loans are typically secured by one-to-four and multi-family apartment buildings, office or mixed-use facilities, strip shopping centers or other commercial or industrial property.

Commercial and industrial loans increased by $28.9 million, or 8%, since December 31, 2013, and increased 12% as compared to June 30, 2013.  These loans include seasonal revolving lines of credit, working capital loans, equipment financing (including equipment leases), and term loans.  Also included in commercial and industrial loans are loans under various SBA programs.

Commercial construction loans increased by $12.0 million, or 9%, since December 31, 2013, and increased 24% as compared to June 30, 2013. Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property and loans for the purchase and improvement of raw land.

Retail loans increased by $7.9 million, or 4%, since December 31, 2013 and increased by $20.7 million, or 10%, since June 30, 2013.  The increase was primarily within the residential mortgage portfolio.

At June 30, 2014, commercial loan balances participated out to various banks amounted to $48.3 million, compared to $52.1 million at December 31, 2013, and $53.9 million at June 30, 2013.  These balances participated out to other institutions are not carried as assets on the Company’s financial statements. Loans originated by other banks in which the Company is the participating institution are carried at the pro-rata share of ownership and amounted to $47.7 million, $34.5 million and $35.5 million at June 30, 2014, December 31, 2013, and June 30, 2013, respectively. In each case, the participating bank funds a percentage of the loan commitment and takes on the related risk. In each case in which the Company participates in a loan, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks.

See Note 3, “Loans,” to the Company’s unaudited consolidated financial statements contained in Item 1 for information on loans serviced for others and loans pledged as collateral.

Credit Risk

The Company manages its loan portfolio to avoid concentration by industry and loan size to lessen its credit risk exposure.   However, inherent in the lending process is the risk of loss due to customer non-payment, or “credit risk.”  The Company’s commercial lending focus may entail significant additional risks compared to long term financing on existing, owner-occupied residential real estate.  While the Company endeavors to minimize this risk through sound underwriting practices and the risk management function, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

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The credit risk management function focuses on a wide variety of factors, including, among others, current and expected economic conditions, the real estate market, the financial condition of borrowers, the ability of borrowers to adapt to changing conditions or circumstances affecting their business and the continuity of borrowers’ management teams.  Early detection of credit issues is critical to minimize credit losses.  Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Credit Department, an external loan review service, reviews by members of senior management and the Loan Committee of the Board of Directors.  This review includes the assessment of internal credit quality indicators such as the risk classification of loans, individual review of adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity, as well as trends in the general levels of these indicators.

The Company’s loan risk rating system classifies loans depending on risk of loss characteristics.  The classifications range from “substantially risk free” for the highest quality loans and loans that are secured by cash collateral, to the more severe adverse classifications of “substandard,” “doubtful” and “loss” based on criteria established under banking regulations.  Loans classified as "substandard" include those characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected.  Loans classified as "doubtful" have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  Loans classified as "loss" are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible.  These “loss” loans would require a specific loss reserve or charge-off.  Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as restructured and/or impaired, or some combination thereof. Loans which are evaluated to be of weaker credit quality are reviewed on a more frequent basis by management.

Loans on which the accrual of interest has been discontinued are designated as non-performing or non-accrual loans. Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days or when, in the judgment of management, the collectability of both principal and interest is reasonably assured.  Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company.

Impaired loans are individually significant loans for which management considers it probable that not all amounts due (principal and interest) in accordance with original contractual terms will be collected.  The majority of impaired loans are included within the non-accrual balances; however, not every loan in non-accrual status has been designated as impaired. Impaired loans include loans that have been modified in a troubled debt restructure ("TDR"). Impaired loans exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment and loans that are measured at fair value, unless the loan is amended in a TDR.

Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.  Management considers the payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms.

Impaired loans are individually evaluated for credit loss and a specific reserve is assigned for the amount of the estimated credit loss. When a loan is deemed to be impaired, management estimates the credit loss by comparing the loan’s carrying value against either 1) the present value of the expected future cash flows discounted at the loan’s effective interest rate; 2) the loan’s observable market price; or 3) the expected realizable fair value of the collateral, in the case of collateral dependent loans.  A specific allowance is assigned to the impaired loan for the amount of estimated credit loss. Impaired loans are charged off, in whole or in part, when management believes that the recorded investment in the loan is uncollectible.

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments (principal or interest), which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. All loans that are modified are reviewed by the Company to identify if a TDR has occurred. TDR loans are included in the impaired loan category and as such, these loans are individually reviewed and evaluated, and a specific reserve is assigned for the amount of the estimated credit loss.

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A TDR or impaired loan classification will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition, consistent with the criteria for returning non-accrual loans to accrual status, the expectation of the borrower's ability to continue to service the loan in accordance the original or modified terms and the collectability of the remaining balance, and in the case of TDR loans, an interest rate at or greater than a market rate for a similar credit at the time of modification.

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as Other Real Estate Owned ("OREO"). When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of any unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell. Any loan balance in excess of the estimated realizable fair value on the date of transfer is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.

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

Asset Quality

At June 30, 2014 and December 31, 2013, the Company had adversely classified loans (loans carrying “substandard,” “doubtful” or “loss” classifications) amounting to $27.9 million.

Adversely classified loans which were performing but possessed potential weaknesses and, as a result, could ultimately become non-performing loans amounted to $10.3 million at June 30, 2014 and $10.2 million at December 31, 2013.  The remaining balances of adversely classified loans were non-accrual loans, amounting to $17.6 million and $17.8 million at June 30, 2014 and December 31, 2013, respectively.  Non-accrual loans which were not adversely classified amounted to $267 thousand and $577 thousand at June 30, 2014 and December 31, 2013, respectively, and primarily represented the guaranteed portions of non-performing SBA loans.

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

(Dollars in thousands)	June 30, 2014			December 31, 2013			June 30, 2013
Commercial real estate	$	10,131		$	10,561		$	12,645
Commercial and industrial	5,045			5,743			5,997
Commercial construction	1,053			1,118			1,442
Residential	1,224			633			995
Home equity	381			281			477
Consumer	15			7			6
Total non-accrual loans	17,849			18,343			21,562
Overdrafts > 90 days past due	105			3			8
Total non-performing loans	17,954			18,346			21,570
Other real estate owned (“OREO”)	114			114			136
Total non-performing assets	$	18,068		$	18,460		$	21,706
Total Loans	$	1,591,403		$	1,524,056		$	1,447,346
Accruing TDR loans not included above	$	11,170		$	11,438		$	8,081
Delinquent loans 60-89 day past due	$	2,002		$	2,638		$	226
Non-performing loans to total loans	1.13		%	1.20		%	1.49		%
Non-performing assets to total assets	0.93		%	1.00		%	1.24		%
Loans 60-89 days past due to total loans	0.13		%	0.17		%	0.02		%
Adversely classified loans to total loans	1.75		%	1.83		%	1.90		%
Allowance for loan losses	$	26,528		$	26,967		$	25,671
Allowance for loan losses: Non-performing loans	147.76		%	146.99		%	119.01		%
Allowance for loan losses: Total loans	1.67		%	1.77		%	1.77		%

Total impaired loans amounted to $28.9 million and $29.8 million at June 30, 2014 and December 31, 2013, respectively.  Total accruing impaired loans amounted to $11.6 million and $11.9 million at June 30, 2014 and December 31, 2013, respectively, while non-accrual impaired loans amounted to $17.3 million and $17.9 million as of June 30, 2014 and December 31, 2013, respectively.

In management’s opinion, the majority of impaired loan balances at June 30, 2014 and December 31, 2013 were supported by expected future cash flows or, for those collateral dependent loans, the net realizable value of the underlying collateral. Based on management’s assessment at June 30, 2014, impaired loans totaling $19.7 million required no specific reserves and impaired loans totaling $9.2 million required specific reserve allocations of $2.9 million.  At December 31, 2013, impaired loans totaling $18.8 million required no specific reserves and impaired loans totaling $11.0 million required specific reserve allocations of $4.4 million.  Management closely monitors these relationships for collateral or credit deterioration.

Total TDR loans, included in the impaired loan figures above as of June 30, 2014 and December 31, 2013 were $19.5 million and $20.9 million, respectively.  TDR loans on accrual status amounted to $11.2 million and $11.4 million at June 30, 2014 and December 31, 2013, respectively. TDR loans included in non-performing loans amounted to $8.4 million and $9.5 million at June 30, 2014 and December 31, 2013, respectively.  The Company continues to work with commercial relationships and enters into loan modifications to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the current economic environment.

The carrying value of OREO at June 30, 2014 and December 31, 2013 was $114 thousand and consisted of the same single property at the end of both periods. There were no additions, sales or impairment writedowns on OREO during the current period. During the six months ended June 30, 2013, two properties were sold; there were gains of $121 thousand realized on these OREO sales.

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Management believes that the loan portfolio has experienced a level of modest credit stabilization compared to the 2013 periods, as indicated by the improving statistics related to migration of adversely classified, non-accrual and impaired loans and the level of OREO properties held as of June 30, 2014. Given the size and commercial mix of the Company's loan portfolio, management considers the current statistics to be reflective of the lagging effect that the regional economic environment has had on the local commercial markets and its impact on the credit profile of such a portfolio. 

Allowance for Loan Losses

On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated credit losses.  The allowance for loan losses is an estimate of probable credit risk inherent in the loan portfolio as of the specified balance sheet dates.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated losses from specifically known and other credit risks associated with the portfolio.

In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio including individual assessment of larger and high risk credits, delinquency trends and the level of non-performing loans, net charge-offs, the growth and composition of the loan portfolio, expansion in geographic market area, the experience level of lenders and changes in underwriting criteria, and the strength of the local and national economy, among other factors.  Except for loans specifically identified as impaired, as discussed above, the estimate is a two-tiered approach that allocates loan loss reserves to “adversely classified” loans by credit rating and to non-classified loans by credit type.  The general loss allocations take into account the quantitative historic loss experience as well as the qualitative factors identified above.  The allowance for loan losses is established through a provision for loan losses, which is a direct charge to earnings.  Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely.  Recoveries on loans previously charged off are credited to the allowance.

Management closely monitors the credit quality of individual delinquent and non-performing relationships, industry concentrations, the local and regional real estate market and current economic conditions.  The level of delinquent and non-performing assets is largely a function of economic conditions and the overall banking environment.  Despite prudent loan underwriting, adverse changes within the Company’s market area, or deterioration in the local, regional or national economic conditions could negatively impact the Company’s level of non-performing assets in the future.

For the six months ended June 30, 2014, the Company recorded net charge-offs of $839 thousand compared to net recoveries $100 thousand for the six months ended June 30, 2013. The majority of the current charge-offs were previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values. This reduction in specific reserves contributed to the decline in the overall allowance to total loan ratio at June 30, 2014. Management continues to closely monitor the non-performing assets, charge-offs and necessary allowance levels, including specific reserves. The allowance for loan losses to total loans ratio was 1.67% at June 30, 2014 and 1.77% at December 31, 2013.

Based on management’s judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the headings "Credit Risk" and "Asset Quality," management believes that the Company’s allowance for loan losses is deemed adequate to absorb probable losses from specifically known and other credit risks associated with the portfolio as of June 30, 2014.

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

	Six months ended June 30,
(Dollars in thousands)	2014			2013
Balance at beginning of year	$	26,967		$	24,254
Provision charged to operations	400			1,317
Recoveries on charged-off loans:
Commercial real estate	—			61
Commercial and industrial	224			41
Commercial construction	30			50
Residential	—			128
Home equity	—			21
Consumer	22			6
Total recoveries	276			307
Charged-off loans
Commercial real estate	203			14
Commercial and industrial	887			133
Commercial construction	—			—
Residential	—			—
Home equity	—			44
Consumer	25			16
Total Charged off	1,115			207
Net loans (charged-off)/recovered	(839		)	100
Ending Balance	$	26,528		$	25,671
Annualized net loans (charged-off)/recovered: Average loans outstanding	(0.11		)%	0.01		%

The allowance reflects management’s estimate of loan loss reserves necessary to support the level of credit risk inherent in the portfolio during the period.  Refer to “Credit Risk," "Asset Quality” and “Allowance for Loan Losses” contained in Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," included in the Company’s 2013 Annual Report on Form 10-K for additional information regarding the Company’s credit risk management process and allowance for loan losses.

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Deposits

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

	June 30, 2014				December 31, 2013				June 30, 2013
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Non-interest bearing demand deposits	$	456,487	26.1	%	$	435,465	26.6	%	$	407,617	25.8	%
Interest bearing checking	248,377		14.2	%	222,837		13.6	%	224,051		14.2	%
Total checking	704,864		40.3	%	658,302		40.2	%	631,668		40.0	%
Savings	153,875		8.8	%	150,215		9.2	%	162,098		10.3	%
Money markets	609,568		34.9	%	575,825		35.2	%	517,365		32.8	%
Total savings/money markets	763,443		43.7	%	726,040		44.4	%	679,463		43.1	%
Certificates of deposit	193,357		11.1	%	200,083		12.2	%	215,634		13.6	%
Total non-brokered deposits	$	1,661,664	95.1	%	$	1,584,425	96.8	%	$	1,526,765	96.7	%
Brokered deposits	85,130		4.9	%	51,567		3.2	%	52,528		3.3	%
Total deposits	$	1,746,794	100.0	%	$	1,635,992	100.0	%	$	1,579,293	100.0	%

As of June 30, 2014, deposits, excluding brokered deposits, increased $77.2 million, or 5%, since December 31, 2013, and $134.9 million, or 9%, since June 30, 2013. Non-brokered deposit growth since December 31, 2013 was noted primarily within the checking and money market categories.

From time to time, management utilizes brokered deposits as cost effective wholesale funding sources to support continued loan growth and as part of the Company's asset-liability management strategy to protect against rising rates. Brokered deposits may be comprised of overnight money market deposits and selected term CDs gathered from nationwide bank networks or from large money center banks.  Brokered deposits were comprised of brokered CDs at June 30, 2014, December 31, 2013, and June 30, 2013. Brokered CDs increased $33.6 million, or 65%, during the first six months of 2014, primarily in the first quarter. Brokered CDs outstanding at June 30, 2014 had a weighted average remaining life of approximately 3.0 years.

Borrowed Funds

Borrowed funds consisted of FHLB borrowings of $484 thousand at June 30, 2014, compared to $36.5 million at December 31, 2013 and $1.9 millionJune 30, 2013, respectively. As noted above, borrowed fund balances have declined since year end as deposits have grown and the Company has utilized brokered CDs as an alternative strategic funding source.

At June 30, 2014, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $340.0 million and capacity to borrow from the FRB Discount Window of approximately $70.0 million.

The Company also had $10.8 million of outstanding junior subordinated debentures at June 30, 2014, December 31, 2013 and June 30, 2013, respectively, in addition to the borrowed funds noted above.

Liquidity

Liquidity is the ability to meet cash needs arising from, among other things, fluctuations in loans, investments, deposits and borrowings.  Liquidity management is the coordination of activities so that cash needs are anticipated and met readily and efficiently.  The Company’s liquidity policies are set and monitored by the Company’s Asset-Liability Committee of the Board of Directors.  The Company’s asset-liability objectives are to engage in sound balance sheet management strategies, maintain liquidity, provide and enhance access to a diverse and stable source of funds, provide competitively priced and attractive products to customers and conduct funding at a low cost relative to current market conditions.  Funds gathered are used to support current commitments, to fund earning asset growth, and to take advantage of selected leverage opportunities.

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The Company’s liquidity is maintained by projecting cash needs, balancing maturing assets with maturing liabilities, monitoring various liquidity ratios, monitoring deposit flows, maintaining cash flow within the investment portfolio, and maintaining wholesale funding resources. 

At June 30, 2014, the Company’s wholesale funding sources included borrowing capacity at the FHLB and brokered deposits. In addition, the Company maintains fed fund purchase arrangements with correspondent banks and access to the FRB Discount Window.

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

The Company has in the past also offered shares of the Company’s common stock for sale to the general public in order to increase its liquidity.

Capital Resources

The Company believes its current capital is adequate to support ongoing operations.  As of June 30, 2014, both the Company and the Bank qualify as “well capitalized” under applicable regulations of the Federal Reserve Board and the FDIC. 

The current regulatory requirements and the Company’s actual capital amounts and ratios are presented as of June 30, 2014 in the table below.  The Bank’s capital amounts and ratios do not differ materially from the amounts and ratios presented for the Company.

	Actual				Minimum Capital for Capital Adequacy Purposes				Minimum Capital To Be Well Capitalized
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
Total Capital (to risk weighted assets)	$	181,830	11.30	%	$	128,675	8.00	%	$	160,844	10.00	%
Tier 1 Capital (to risk weighted assets)	$	159,921	9.94	%	$	64,338	4.00	%	$	96,506	6.00	%
Tier 1 Capital (to average assets) or Leverage ratio	$	159,921	8.59	%	$	74,481	4.00	%	$	93,102	5.00	%	*

__________________________________________

* This requirement is reflected in the table merely for informational purposes with respect to the Bank, and does not apply to the Company. 

In July 2013, the Federal Reserve, the FDIC, and OCC, adopted a final rule that implements the Basel III changes to the international regulatory capital framework and revises the U.S. risk-based and leverage capital requirements for U.S. banking organizations to strengthen identified areas of weakness in the capital rules and to address relevant provisions of the Dodd-Frank Act. The final rule establishes a stricter regulatory capital framework that requires banking organizations to hold more and higher-quality capital to act as a financial cushion to absorb losses and help banking organizations better withstand periods of financial stress. The final rule emphasizes common equity tier 1 (“CET1”) capital and implements strict eligibility criteria for regulatory capital instruments while also modifying the methodology for calculating risk-weighted assets to enhance risk sensitivity. The final rule also increases capital ratios for all banking organizations and introduces a “capital conservation buffer” which is in addition to each capital ratio. If a banking organization dips into its capital conservation buffer it may be restricted in its ability to pay dividends and discretionary bonus payments to its executive officers. Although community banks must generally begin complying with the final rules on January 1, 2015, with a phase in period that extends to January 2019, management currently believes the Company would satisfy the higher capital ratios imposed by Basel III.

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The above Basel III capital ratio requirements as applicable to the Bank after the full phase-in period are summarized in the table below.⁽¹⁾ 

	Basel III Minimum for Capital Adequacy Purposes	Basel III Additional Capital Conservation Buffer	Basel III "Adequate" Ratio with Capital Conservation Buffer
Total Risk Based Capital (total capital to risk weighted assets)	8.0%	2.5%	10.5%
Tier 1 Risk Based Capital (tier 1 to risk weighted assets)	6.0%	2.5%	8.5%
Tier 1 Leverage Ratio (tier 1 to average assets)	4.0%	—%	4.0%
Common Equity Tier 1 Risk Based (CET1 to risk weighted assets)	4.5%	2.5%	7.0%

________________________________________

(1) Because the Basel III final rules modify the methodology for calculating risk-weighted assets and the deduction and adjustment to capital, the ratios above may not be comparable to the current applicable regulatory requirements, or the Company's actual capital ratios as of June 30, 2014.

Although the Company believes its current capital is adequate to support ongoing operations, on July 18, 2013, the Company filed a shelf registration of common stock, rights or preferred stock with the SEC for the flexibility to raise, over a three year period, up to $40 million in capital to position the Company to take advantage of future growth and market share opportunities. As of June 30, 2014, the Company has not utilized this shelf registration.

The Company previously maintained a dividend reinvestment plan (the "DRP").  In July 2014, that DRP was terminated and the Company adopted a new dividend reinvestment plan and direct stock purchase plan (the "DRSPP"). The former DRP enabled stockholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company’s common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value.  Shareholders utilized the DRP to invest $609 thousand of the $2.4 million in cash dividends paid through June 30, 2014, into 32,310 shares of the Company’s common stock.

Under the DRSPP, stockholders, at their discretion, will continue to be able to elect to reinvest all or a portion of cash dividends paid on their shares of the Company’s common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value.  In addition, stockholders and new investors will have the opportunity to purchase shares of the Company common stock without brokerage fees, subject to monthly minimums and maximums. For more information on the Company's DRSPP, see the Registration Statement on Form S-3 filed with the SEC on July 18, 2014.

As previously announced on July 15, 2014, the Company declared a quarterly dividend of $0.12 per share to be paid on September 2, 2014 to shareholders of record as of August 12, 2014. The quarterly dividend represents a 4.3% increase over the 2013 dividend rate.

Investment Assets Under Management

The Company provides a wide range of investment advisory and wealth management services, including brokerage, trust, and investment management (together, “investment advisory services”).  The market values of the related assets managed are affected by fluctuations in the financial markets.

Also included in the investment assets under management total are customers’ commercial sweep arrangements that are invested in third party money market mutual funds.

49

The following table sets forth the fair market value of investment assets under management by certain categories at the dates indicated.

(Dollars in thousands)	June 30, 2014		December 31, 2013		June 30, 2013
Investment advisory and management services	$	555,668	$	537,545	$	496,675
Brokerage and management services	138,869		127,472		112,652
Total investment advisory assets	694,537		665,017		609,327
Commercial sweep accounts	3,151		2,313		3,839
Investment assets under management	$	697,688	$	667,330	$	613,166

Investment assets under management increased $30.4 million, or 5%, since December 31, 2013 and $84.5 million, or 14%, since June 30, 2013. 

Total assets under management, which includes total assets, investment assets under management, and loans serviced for others amounted to $2.70 billion at June 30, 2014, $2.59 billion at December 31, 2013, and $2.44 billion at June 30, 2013. Investment assets under management and loans serviced for others are not carried as assets on the Company's balance sheet.

Results of Operations

Three Months Ended June 30, 2014 vs. Three Months Ended June 30, 2013

Unless otherwise indicated, the reported results are for the three months ended June 30, 2014 with the “comparable period,” and “prior period” being the three months ended June 30, 2013. Average yields are presented on a tax equivalent basis.

The Company’s second quarter 2014 net income amounted to $3.3 million compared to $3.1 million for the same period in 2013, an increase of $235 thousand, or 8%.  Diluted earnings per common share were $0.32 and $0.31 for the three months ended June 30, 2014 and June 30, 2013, respectively, an increase of $0.01, or 3%.

The Company's growth contributed to increases in net interest income and the level of operating expenses for the current year compared to the same 2013 period. Net income, as compared to the prior year, was also impacted by a lower loan loss provision in 2014, partially offset by a decrease in non-interest income due primarily to lower gains on sales of loans and lower net gains on sales of investment securities.

Net Interest Income

The Company’s net interest income for the quarter ended June 30, 2014 amounted to $17.5 million, compared to $16.1 million for the quarter ended June 30, 2013, an increase of $1.3 million, or 8%.  The increase in net interest income over the comparable period was primarily due to revenue generated from loan growthpartially offset by a decrease in tax equivalent net interest margin ("margin").

Net Interest Margin

The Company’s margin was 4.04% for the three months ended June 30, 2014, which is relatively consistent with the quarterly margins of 4.02% and 4.04% for the quarters ended March 31, 2014 and December 31, 2013, respectively. For the quarter ended June 30, 2013, margin was 4.08%. 

50

Rate / Volume Analysis

The following table sets forth the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended June 30, 2014 compared to the three months ended June 30, 2013.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); (2) interest rate (change in average interest rate multiplied by prior period average balance); and (3) rate and volume (the remaining difference).

				Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate			Rate/ Volume
Interest Income
Loans and loans held for sale	$	1,054		$	1,644		$	(486	)	$	(104	)
Investment securities	257			141			188			(72		)
Other interest earning assets (1)	11			3			7			1
Total interest earnings assets	1,322			1,788			(291		)	(175		)
Interest Expense
Interest checking, savings and money market	13			65			(43		)	(9		)
Certificates of deposit	(102		)	(42		)	(66		)	6
Brokered CDs	118			143			(9		)	(16		)
Borrowed funds	(32		)	(30		)	(6		)	4
Junior subordinated debentures	—			—			—			—
Total interest-bearing deposits, borrowed funds and debentures	(3		)	136			(124		)	(15		)
Change in net interest income	$	1,325		$	1,652		$	(167	)	$	(160	)

__________________________________________

(1) Other interest earning assets include dividends on FHLB stock and income on short-term investments.

51

The following table presents the Company’s average balance sheet, net interest income and average rates for the three months ended June 30, 2014 and 2013.

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Three Months Ended June 30, 2014						Three Months Ended June 30, 2013
(Dollars in thousands)	Average Balance		Interest		Average Yield(1)		Average Balance		Interest		Average Yield(1)
Assets:
Loans (2)	$	1,565,800	$	17,707	4.59	%	$	1,430,424	$	16,653	4.72	%
Investments (3)	203,871		1,051		2.76	%	179,710		794		2.34	%
Other Interest Earning Assets (4)	18,668		22		0.48	%	14,958		11		0.29	%
Total interest earnings assets	1,788,339		18,780		4.34	%	1,625,092		17,458		4.41	%
Other assets	89,322						87,777
Total assets	$	1,877,661					$	1,712,869
Liabilities and stockholders’ equity:
Int chkg, savings and money market	$	970,121	545		0.23	%	$	865,943	532		0.25	%
Certificates of deposit	195,324		284		0.58	%	219,643		386		0.70	%
Brokered CDs	85,118		196		0.92	%	29,876		78		1.04	%
Borrowed funds	9,970		8		0.32	%	41,781		40		0.38	%
Junior subordinated debentures	10,825		295		10.88	%	10,825		295		10.88	%
Total interest-bearing funding	1,271,358		1,328		0.42	%	1,168,068		1,331		0.46	%
Net interest rate spread					3.92	%					3.95	%
Demand deposits	437,559		—				390,341		—
Total deposits, borrowed funds and debentures	1,708,917		1,328		0.31	%	1,558,409		1,331		0.34	%
Other liabilities	11,234						10,841
Total liabilities	1,720,151						1,569,250
Stockholders’ equity	157,510						143,619
Total liabilities and stockholders’ equity	$	1,877,661					$	1,712,869
Net interest income			$	17,452					$	16,127
Net interest margin (tax equivalent)					4.04	%					4.08	%

(1) Average yields are presented on a tax equivalent basis.  The tax equivalent effect associated with loans and investments, which was not included in the interest amount above, was $568 thousand and $423 thousand for the quarters ended June 30, 2014 and June 30, 2013, respectively.

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

(3) Average investments are presented at amortized cost and include investment securities, interest-earning deposits, fed funds sold and FHLB stock.

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

52

Interest and Dividend Income

For the second quarter of 2014, total interest and dividend income amounted to $18.8 million, an increase of $1.3 million, or 8%, compared to the prior period.  The increase resulted primarily from an increase of $163.2 million, or 10%, in the average balance of interest earning assets for the quarter ended June 30, 2014 compared to the second quarter of 2013, primarily in loans, partially offset by a 7 basis point decline in the yield on interest earning assets due primarily to lower loan yields.

Interest income on loans and loans held for sale, which accounts for the majority of interest income, amounted to $17.7 million for the three months ended June 30, 2014, an increase of $1.1 million, or 6%, over the comparable period, due primarily to loan growth, partially offset by a decline in loan yields.  The average balances of loans and loans held for sale increased$135.4 million, or 9%, for the three months ended June 30, 2014 compared to the same period in 2013, while the average yield on these assets declined 13 basis points compared to the prior period and amounted to 4.59% for the three months ended June 30, 2014, due primarily to the current interest rate environment and commercial loan repricing.

Income on investment securities amounted to $1.1 million, an increase of $257 thousand, or 32% compared to the same period in 2013. This increase resulted from both an increase of $24.2 million, or 13%, in the average balance of investment securities and an increase in investment yields of 42 basis points due primarily to a shift in the composition of the portfolio from shorter duration agencies to longer duration mortgage backed securities as part of the Bank's asset-liability management strategy.

Interest Expense

For the three months ended June 30, 2014, total interest expense amounted to $1.3 million, and was flat compared to the prior period. 

Interest expense on CDs amounted to $284 thousand, a decrease of $102 thousand, or 26%, over the comparable period. The decrease was due to both a decline in rates over the comparable period and a decrease in average balances. The average cost of CDs decreased12 basis points, to 0.58%, for the three months ended June 30, 2014 and the average balances decreased$24.3 million, or 11%, compared to the same prior period in 2013.

Interest expense on brokered CDs amounted to $196 thousand, an increase of $118 thousand over the comparable period. The increase primarily resulted from an increase in the average balances of brokered CDs by $55.2 million compared to the 2013 period.

The interest expense and average rate on junior subordinated debentures remained the same at $295 thousand and 10.88% for both the three months ended June 30, 2014 and June 30, 2013.

For the three months ended June 30, 2014, the average balance of non-interest bearing demand deposits increased $47.2 million, or 12%, as compared to the same period in 2013.  Non-interest bearing demand deposits are an important component of the Company’s core funding strategy.  This non-interest bearing funding source represented 26% of total average deposit balances for both of the three months ended June 30, 2014 and 2013, respectively.

Provision for Loan Loss

The provision for loan losses amounted to $200 thousand for three months ended June 30, 2014 a decrease of $334 thousand compared to the same period last year.  In determining the provision to the allowance for loan losses, management takes into consideration the level of loan growth and an estimate of credit risk, which includes such items as adversely classified and non-performing loans, the estimated specific reserves needed for impaired loans, the level of net charge-offs, and the estimated impact of current economic conditions on credit quality. For further discussion regarding the provision for loan losses and management’s assessment of the adequacy of the allowance for loan losses see “Credit Risk,” “Asset Quality” ” and “Allowance for Loan Losses” under "Financial Condition" in this Item 2 above and in the Company’s 2013 Annual Report on Form 10-K, “Credit Risk,” “Asset Quality” and “Allowance for Loan Losses” in the Financial Condition section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

There have been no material changes to the Company’s underwriting practices or to the allowance for loan loss methodology used to estimate loan loss exposure as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013. The provision for loan losses is a significant factor in the Company’s operating results.

53

Non-Interest Income

Non-interest income for the three months ended June 30, 2014 amounted to $3.3 million, a decrease of $289 thousand, or 8%, as compared to the three months ended June 30, 2013.  The significant changes are discussed below.

• Investment advisory income increased$100 thousand, or 10%, primarily due to net asset growth from changes in market values due to fluctuations in the investment markets.

• Deposit and interchange fees increased$80 thousand, or 7%, mainly as a result of increases in overdraft fees and interchange fees over the prior period. Deposit and interchange fees primarily include fees received on customer deposit accounts, ATM interchange income, partially offset by the cost of the Bank's deposit rewards program.

• Net gains on sales of investment securities decreased$341 thousand, or 73%. Investment sales are typically driven by market opportunities.

• Gain on loan sales decreased$147 thousand, or 66%, due to a lower volume of mortgage origination activity, as a result of increasing residential mortgage rates that began in the latter half of 2013.

Non-Interest Expense

Non-interest expense for the three months ended June 30, 2014 amounted to $15.4 million, an increase of $984 thousand, or 7%, compared to the same period in 2013. The significant changes are discussed below.

• Salaries and employee benefits increased$673 thousand, or 8%.  The increase is primarily due to increased personnel costs necessary to support the Company’s strategic growth and market expansion initiatives since the prior period.

• Occupancy and equipment expenses increased$109 thousand, or 7%, primarily due to branch expansion and investments in maintaining our facilities.

• Technology and telecommunications expenses increased$131 thousand, or 11%, primarily as a result of investments to support our strategic growth and network infrastructure, improve our service capabilities and enhance business continuity.

• Advertising and public relations decreased$175 thousand, or 18%, primarily due to timing of the Celebration of Excellence, the Bank's community awards and recognition event.

• Other operating expenses increased$161 thousand, or 15%, primarily due to increased general and administrative costs including increases in OREO and workout expenses and outsourced costs.

Results of Operations

Six Months Ended June 30, 2014 vs. Six Months Ended June 30, 2013

Unless otherwise indicated, the reported results are for the six months ended June 30, 2014 with the “comparable period,” “prior year” and “prior period” being the six months ended June 30, 2013. Average yields are presented on a tax equivalent basis.

The Company’s year-to-date 2014 net income amounted to $6.8 million compared to $6.5 million for the same period in 2013, an increase of $308 thousand, or 5%.  Diluted earnings per share were $0.67 and $0.66 for the six months ended June 30, 2014June 30, 2013, respectively, an increase of $0.01, or 2%.

The Company's growth contributed to increases in net interest income and the level of operating expenses in the first six months of 2014 compared to the same period in the prior year. Net income, as compared to the prior year, was also impacted by a lower loan loss provision in 2014, partially offset by a decrease in non-interest income due primarily to lower gains on sales of loans and lower net gains on sales of investment securities.

54

Net Interest Income

The Company’s net interest income for the six months ended June 30, 2014 was $34.4 million compared to $31.9 million for the six months ended June 30, 2013, an increase of $2.4 million, or 8%.  The increase in net interest income over the comparable year period was primarily due to revenue generated from loan growth, partially offset by a decrease in tax equivalent net interest margin.

Net Interest Margin

The Company’s margin was 4.03% for the six months ended June 30, 2014, compared to 4.12% in the comparable 2013 period. While the margin has declined since June 30, 2013, the quarterly margin for June 30, 2014 is relatively consistent with the past two quarters.

Rate / Volume Analysis

The following table sets forth the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the six months ended June 30, 2014 compared to the six months ended June 30, 2013.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); (2) interest rate (change in average interest rate multiplied by prior period average balance); and (3) rate and volume (the remaining difference).

				Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate			Rate/ Volume
Interest Income
Loans and loans held for sale	$	1,857		$	3,529		$	(1,420	)	$	(252	)
Investment Securities	469			337			286			(154		)
Other Interest Earning Assets (1)	34			(1		)	37			(2		)
Total interest earnings assets	2,360			3,865			(1,097		)	(408		)
Interest Expense
Interest checking, savings and money market	(45		)	142			(170		)	(17		)
Certificates of deposit	(235		)	(91		)	(165		)	21
Brokered CDs	276			309			(7		)	(26		)
Borrowed funds	(56		)	(47		)	(20		)	11
Junior subordinated debentures	—			—			—			—
Total interest-bearing deposits, borrowed funds and debentures	(60		)	313			(362		)	(11		)
Change in net interest income	$	2,420		$	3,552		$	(735	)	$	(397	)

_________________________________

(1) Other interest earning assets include dividends on FHLB stock and income on short-term investments.

55

The following table presents the Company’s average balance sheet, net interest income and average rates for the six months ended June 30, 2014 and 2013. 

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Six months ended June 30, 2014						Six months ended June 30, 2013
(Dollars in thousands)	Average Balance		Interest		Average Yield(1)		Average Balance		Interest		Average Yield(1)
Assets:
Loans and loans held for sale (2)	$	1,550,454	$	34,883	4.59	%	$	1,406,414	$	33,026	4.78	%
Investments (3)	207,773		2,073		2.68	%	179,178		1,604		2.36	%
Other Interest Earning Assets(4)	15,791		55		0.71	%	16,351		21		0.26	%
Total interest earnings assets	1,774,018		37,011		4.33	%	1,601,943		34,651		4.46	%
Other assets	87,683						87,309
Total assets	$	1,861,701					$	1,689,252
Liabilities and stockholders’ equity:
Int chkg, savings and money market	$	962,309	1,087		0.23	%	$	856,389	1,132		0.27	%
Certificates of deposit	197,831		578		0.59	%	222,688		813		0.74	%
Brokered CDs	76,405		361		0.95	%	16,528		85		1.04	%
Borrowed funds	20,263		30		0.30	%	44,653		86		0.39	%
Junior subordinated debentures	10,825		589		10.88	%	10,825		589		10.88	%
Total interest-bearing funding	1,267,633		2,645		0.42	%	1,151,083		2,705		0.47	%
Net interest rate spread					3.91	%					3.99	%
Demand deposits	427,070		—				384,300		—
Total deposits, borrowed funds and debentures	1,694,703		2,645		0.31	%	1,535,383		2,705		0.35	%
Other liabilities	11,584						11,554
Total liabilities	1,706,287						1,546,937
Stockholders’ equity	155,414						142,315
Total liabilities and stockholders’ equity	$	1,861,701					$	1,689,252
Net interest income			$	34,366					$	31,946
Net interest margin (tax equivalent)					4.03	%					4.12	%

_______________________________

(1) Average yields are presented on a tax equivalent basis.  The tax equivalent effect associated with loans and investments, which was not included in the interest amount above, was $1.1 million and $841 thousand for the periods ended June 30, 2014 and June 30, 2013 respectively.

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

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

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

56

Interest and Dividend Income

Total interest and dividend income amounted to $37.0 million for the six months ended June 30, 2014, an increase of $2.4 million, or 7%, compared to the prior period.  The increase resulted primarily from an increase of $172.1 million, or 11%, in the average balance of interest earning assets, partially offset by a 13 basis point decline in the yield on interest earning assets primarily due to a decline in loan yields.

Interest income on loans and loans held for sale, which accounts for the majority of interest income, amounted to $34.9 million, an increase of $1.9 million, or 6%, over the comparable period, due primarily to loan growth, partially offset by a decline in loan yields.  The average loans and loans held for sale balances increased$144.0 million, or 10%, compared to the prior period. The average yield on loans and loans held for sale amounted to 4.59% for the six months ended June 30, 2014, a decline of 19 basis points since the same period in 2013, due primarily to the current interest rate environment and commercial loan repricing.

Income on investment securities amounted to $2.1 million, an increase of $469 thousand, or 29%, compared to the same period in 2013. This increase resulted from both an increase in the average balance of investment securities of $28.6 million, or 16%, and an increase in investment yields of 32 basis points, due primarily to a shift in the composition of the portfolio from shorter duration agencies to longer duration mortgage backed securities as part of the Bank's asset-liability management strategy.

Interest Expense

For the six months ended June 30, 2014, total interest expense amounted to $2.6 million, a decrease of $60 thousand, or 2%, compared to the prior period.  The decrease resulted primarily from a decline of 4 basis points in the average cost of funding due to the reduction in deposit market interest rates over the period, partially offset by an increase in the average balances of wholesale funding.

Interest expense on CDs amounted to $578 thousand, a decrease of $235 thousand, or 29%, over the comparable period. The decrease was primarily due to a decline in rates over the comparable period and to a lesser extent, decreased average balances. The average cost of CDs decreased15 basis points to 0.59% for the six months ended June 30, 2014 while the average balances decreased$24.9 million, or 11%, compared to the same prior period in 2013.

Interest expense on brokered CDs amounted to $361 thousand, an increase of $276 thousand over the comparable period, primarily due to increased average balances. The average balances increased by $59.9 million compared to the 2013 period.

Interest expense on borrowed funds, consisting primarily of FHLB borrowings, amounted to $30 thousand, a decrease of $56 thousand compared to the same period last year.  The decrease was primarily attributed to a decrease in average balances of approximately $24.4 million, or 55%, and to a lesser extent a decline of 9 basis points in the average costs of these borrowings.

The interest expense and average rate on junior subordinated debentures remained the same at $589 thousand and 10.88% for both the six months ended June 30, 2014 and June 30, 2013.

For the six months ended June 30, 2014, the average balance of non-interest bearing demand deposits increased$42.8 million, or 11%, as compared to the same period in 2013.  Non-interest bearing demand deposits are an important component of the Company’s core funding strategy.  This non-interest bearing funding represented 26% of total average deposit balances for both the six months ended June 30, 2014 and 2013, respectively.

Provision for Loan Loss

The provision for loan losses amounted to $400 thousand for the six months ended June 30, 2014, a decrease of $917 thousand compared to the same period last year.  In determining the provision to the allowance for loan losses, management takes into consideration the level of loan growth and an estimate of credit risk, which includes such items as adversely classified and non-performing loans, the estimated specific reserves needed for impaired loans, the level of net charge-offs, and the estimated impact of current economic conditions on credit quality. For further discussion regarding the provision for loan losses and management’s assessment of the adequacy of the allowance for loan losses see "Credit Risk," "Asset Quality” and “Allowance for Loan Losses” under "Financial Condition" in this Item 2 above and "Credit Risk," “Asset Quality” and “Allowance for Loan Losses” in the Financial Condition section of Management’s Discussion and Analysis of Financial Condition and Results of Operations in the Company’s 2013 Annual Report on Form 10-K.

57

There have been no material changes to the Company’s underwriting practices or to the allowance for loan loss methodology used to estimate loan loss exposure as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  The provision for loan losses is a significant factor in the Company’s operating results.

Non-Interest Income

Non-interest income for the six months ended June 30, 2014 amounted to $6.7 million, a decrease of $449 thousand, or 6%, as compared to the six months ended June 30, 2013.  The significant changes are discussed below.

• Investment advisory income increased$188 thousand, or 9%, compared to the same period in the prior year, primarily due to net asset growth from changes in market values due to fluctuations in the investment markets.

• Deposit and interchange fees increased$170 thousand, or 7%, mainly as a result of increases in overdraft fees and interchange fees over the prior period. Deposit and interchange fees primarily includes fees received on customer deposit accounts, ATM interchange income, partially offset by the cost of the Bank's deposit rewards program.

• Net gains on sales of investment securities decreased$333 thousand, or 35%. Investment sales are typically driven by market opportunities.

• Gains on sales of loans decreased$409 thousand, or 73%, due to a lower volume of mortgage origination activity in 2014, as a result of increasing residential mortgage rates that began in the latter half of 2013.

Non-Interest Expense

Non-interest expense for the six months ended June 30, 2014 amounted to $30.3 million, an increase of $2.4 million, or 8%, compared to the same period in 2013.  The significant changes are discussed below.

• Salaries and employee benefits increased by $1.7 million, or 10%.  The increase was primarily due to the personnel and benefit costs necessary to support the Company’s strategic growth and market expansion initiatives since the prior period.

• Occupancy and equipment expenses increased$234 thousand, or 8%, primarily due to branch expansion and investments in maintaining our facilities.

• Technology and telecommunications expense increased$240 thousand, or 10%, primarily as a result of investments to support our strategic growth and network infrastructure, improve our service capabilities and enhance business continuity.

• Advertising and public relations decreased$209 thousand, or 13%, primarily due to timing of the Celebration of Excellence, the Bank's community awards and recognition event.

• Other non-interest expense increased$316 thousand, or 15%, due to increased general and administrative costs, including deposit product costs, OREO and workout expenses, security expenses, and business development costs.

58

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

The Company’s primary market risk is interest rate risk.  Oversight of interest rate risk management is centered on the Asset-Liability Committee ("ALCO").  Annually, ALCO reviews and approves the Company’s asset-liability management policy, which provides management with guidelines for controlling interest rate risk, as measured through net interest income sensitivity to changes in interest rates, within certain tolerance levels.  ALCO also establishes and monitors guidelines for the Company’s liquidity and capital ratios.

The Company’s asset-liability management strategies and guidelines are reviewed on a periodic basis by management and presented and discussed with ALCO on at least a quarterly basis.  These strategies and guidelines are revised based on changes in interest rate levels, general economic conditions, competition in the marketplace, the current interest rate risk position of the Company, anticipated growth and other factors.

One of the principal factors in maintaining planned levels of net interest income is the ability to design effective strategies to manage the impact of interest rate changes on future net interest income.  Quarterly, management completes a net interest income sensitivity analysis, which is presented to the committee.  This analysis includes a simulation of the Company’s net interest income under various interest rate scenarios.  Variations in the interest rate environment affect numerous factors, including prepayment speeds, reinvestment rates, maturities of investments (due to call provisions), and interest rates on various asset and liability accounts.

The Company can be subject to margin compression depending on the economic environment and the shape of the yield curve.  Under the Company’s current balance sheet position, the Company’s margin generally performs slightly better over time in a rising rate environment, while it generally decreases in a declining rate environment and when the yield curve is flattening or inverted.

Under a flattening yield curve scenario, margin compression occurs as the spread between the cost of funding and the yield on interest earning assets narrows.  Under this scenario the degree of margin compression is highly dependent on the Company’s ability to fund asset growth through lower cost deposits.  However, if the curve is flattening, while short-term rates are rising, the adverse impact on margin may be somewhat delayed, as increases in the Prime Rate will initially result in the Company’s asset yields re-pricing more quickly than funding costs.

Under an inverted yield curve situation, shorter-term rates exceed longer-term rates, and the impact on margin is similar but more adverse than the flat curve scenario.  Again, however, the extent of the impact on margin is highly dependent on the Company’s balance sheet mix.

In a declining rate environment, margin compression will eventually occur as the yield on interest earning assets decreases more rapidly than decreases in funding costs.  The primary causes would be the impact of interest rate decreases (including decreases in the Prime Rate) on adjustable rate loans and the fact that decreases in deposit rates may be limited or lag decreases in the Prime Rate. 

Net interest margin has remained relatively flat over the last few quarters following a decrease in early 2013. Additional margin compression may occur if loans re-price downward while the cost of deposits remains at the same level.

There have been no material changes in the results of the Company’s net interest income sensitivity analysis as reported in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  At June 30, 2014, management continues to consider the Company’s primary interest rate risk exposure to be margin compression that may result from changes in interest rates and/or changes in the mix of the Company’s balance sheet components.  This would include the mix of fixed versus variable rate loans and investments on the asset side, and higher cost versus lower cost deposits and overnight borrowings versus term borrowings and certificates of deposit on the liability side.

59

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

The Company carried out an evaluation as of the end of the period covered by this report under the supervision and with the participation of the Company’s management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).  Based upon that evaluation, the Company’s principal executive officer and principal financial officer concluded that the Company’s disclosure controls and procedures are effective as of June 30, 2014.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting that has occurred during the Company’s most recent fiscal quarter (i.e., the three months ended June 30, 2014) that has materially affected, or is reasonably likely to materially affect, such internal controls.

60

PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

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

Item 1A - Risk Factors

Management believes that there have been no material changes in the Company’s risk factors as reported in the Annual Report on Form 10-K for the year ended December 31, 2013.

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

The Company has not sold any equity securities that were not registered under the Securities Act of 1933, as amended, during the three months ended June 30, 2014.  Neither the Company nor any “affiliated purchaser” (as defined in the SEC’s Rule 10b-18(a)(3)) has repurchased any of the Company’s outstanding shares, nor caused any such shares to be repurchased on its behalf, during the three months ended June 30, 2014.

Item 3 - Defaults upon Senior Securities

Not Applicable

Item 4 - Mine Safety Disclosures

Not Applicable

Item 5 - Other Information

Not Applicable

61

Item 6 - Exhibits

EXHIBIT INDEX

_____________

Exhibit No.Description

3.1 Amended and Restated Articles of Organization of the Company, incorporated by reference to the Company’s Form 8-K filed June 10, 2013.

3.2 Amended and Restated Bylaws of the Company, as amended as of January 15, 2013, incorporated by reference to Exhibit 3.2 to the Company’s Form 8-K filed on January 22, 2013.

4.1 Renewal Rights Agreement dated as of December 11, 2007 by and between the Company and Computershare Trust Company, N.A., as Rights Agent, including Terms of Series A Junior Participating Preferred Stock, Summary of Rights to Purchase Shares of Series A Junior Participating Preferred Stock, and Form of Rights Certificate attached as Exhibits A, B and C thereto, incorporated by reference to Exhibit 4.5 to the Company’s Form 8-K filed on December 13, 2007.

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

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

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

101* The following materials from Enterprise Bancorp, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013, (ii) Consolidated Statements of Income for the three and six months ended June 30, 2014 and 2013, (iii) Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2014 and 2013, (iv) Consolidated Statements of Changes in Equity for the six months ended June 30, 2014, (v) Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 and (vi) Notes to Unaudited Consolidated Financial Statements.

____________________

*Filed herewith

62

SIGNATURES

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

		ENTERPRISE BANCORP, INC.
DATE:	August 8, 2014	By:	/s/ James A. Marcotte
			James A. Marcotte
			Executive Vice President,
			Chief Financial Officer and Treasurer
			(Principal Financial Officer)

63

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, John P. Clancy, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Enterprise Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under  our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2014	/s/ John P. Clancy, Jr.
		John P. Clancy, Jr.
		Chief Executive Officer (Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, James A. Marcotte, Jr., certify that:

1.I have reviewed this quarterly report on Form 10-Q of Enterprise Bancorp, Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and we have:

a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under  our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	August 8, 2014	/s/ James A. Marcotte
		James A. Marcotte
		Executive Vice President, Chief Financial Officer and Treasurer, (Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER

UNDER 18 U.S.C. § 1350 FURNISHED PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(b)

In connection with the Quarterly Report of Enterprise Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended on June 30, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in his respective capacities indicated below, hereby certifies, pursuant to 18 U.S.C. § 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge and belief, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 8, 2014

/s/ John P. Clancy, Jr.

John P. Clancy, Jr.

Chief Executive Officer (Principal Executive Officer)

/s/ James A. Marcotte

James A. Marcotte

Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to Enterprise Bancorp, Inc. and will be retained by Enterprise Bancorp, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

XML

Stock-Based Compensation Restricted Stock Grants (Details) (Restricted Stock, USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards in period	58,844	78,806
Weighted Average Grant Date Fair Value, Restricted Stock	$ 20.29	$ 16.43
Employee | Four year vesting
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards in period	19,167	24,925
Employee | Performance-based vesting
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards in period	33,017	47,735
Director | Two year vesting
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock awards in period	6,660	6,146

XML

Allowance For Loan Loss - Troubled Debt Restructures (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014 restructuring	Jun. 30, 2013 restructuring	Jun. 30, 2014 restructuring	Jun. 30, 2013 restructuring	Dec. 31, 2013
Financing Receivable, Modifications [Line Items]
Total Troubled Debt Restructure (TDR) loans	$ 19,500,000		$ 19,500,000		$ 20,900,000
TDR loans on accrual status	11,200,000		11,200,000		11,400,000
TDR loans included in non-performing loans	8,400,000		8,400,000		9,500,000
Additional Funding Commitments on TDR loans	52,000		52,000
Number of restructurings	6	1	9	1
Pre-modification outstanding recorded investment	357,000	100,000	874,000	100,000
Post-modification outstanding recorded investment	354,000	62,000	853,000	62,000
Number of TDR's that defaulted	1	2	1	4
Post-modification outstanding recorded investment	66,000	715,000	66,000	883,000
Specific reserves allocated to TDRs	24,000	1,000	24,000	1,000
Interest payments received on nonaccruing TDR loans excluded from income			21,000
Charge-offs associated with TDRs			66,000	38,000
Number of TDRs transferred to OREO durng the period				2
Carry value of TDRs transferred to OREO during the period				167,000
Commercial real estate
Financing Receivable, Modifications [Line Items]
Number of restructurings	0	0	1	0
Pre-modification outstanding recorded investment	0	0	450,000	0
Post-modification outstanding recorded investment	0	0	434,000	0
Number of TDR's that defaulted	0	0	0	1
Post-modification outstanding recorded investment	0	0	0	137,000
Commercial and industrial
Financing Receivable, Modifications [Line Items]
Number of restructurings	4	1	6	1
Pre-modification outstanding recorded investment	159,000	100,000	226,000	100,000
Post-modification outstanding recorded investment	157,000	62,000	222,000	62,000
Number of TDR's that defaulted	1	0	1	0
Post-modification outstanding recorded investment	66,000	0	66,000	0
Commercial construction
Financing Receivable, Modifications [Line Items]
Number of restructurings	0	0	0	0
Pre-modification outstanding recorded investment	0	0	0	0
Post-modification outstanding recorded investment	0	0	0	0
Number of TDR's that defaulted	0	2	0	3
Post-modification outstanding recorded investment	0	715,000	0	746,000
Residential
Financing Receivable, Modifications [Line Items]
Number of restructurings	1	0	1	0
Pre-modification outstanding recorded investment	125,000	0	125,000	0
Post-modification outstanding recorded investment	124,000	0	124,000	0
Number of TDR's that defaulted	0	0	0	0
Post-modification outstanding recorded investment	0	0	0	0
Home Equity
Financing Receivable, Modifications [Line Items]
Number of restructurings	1	0	1	0
Pre-modification outstanding recorded investment	73,000	0	73,000	0
Post-modification outstanding recorded investment	73,000	0	73,000	0
Number of TDR's that defaulted	0	0	0	0
Post-modification outstanding recorded investment	0	0	0	0
Consumer
Financing Receivable, Modifications [Line Items]
Number of restructurings	0	0	0	0
Pre-modification outstanding recorded investment	0	0	0	0
Post-modification outstanding recorded investment	0	0	0	0
Number of TDR's that defaulted	0	0	0	0
Post-modification outstanding recorded investment	$ 0	$ 0	$ 0	$ 0

XML

Investments Available-for-sale (Details) (USD $)	Jun. 30, 2014 investments		Dec. 31, 2013
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Fair Value	$ 214,845,000		$ 215,369,000
Number of securities in loss position	41
Investments Temporarily Impaired, Fair Value	46,200,000
Securities pledged as collateral	200,100,000
Total fixed income securities
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	198,161,000		202,192,000
Unrealized Gains	2,970,000		2,146,000
Unrealized Losses	1,011,000		2,137,000
Fair Value	200,120,000		202,201,000
Federal Agency Obligations
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	31,851,000	[1]	55,440,000	[1]
Unrealized Gains	121,000	[1]	146,000	[1]
Unrealized Losses	5,000	[1]	43,000	[1]
Fair Value	31,967,000	[1]	55,543,000	[1]
Federal Agency mortgage backed securities (MBS)
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	95,576,000	[1]	80,997,000	[1]
Unrealized Gains	740,000	[1]	367,000	[1]
Unrealized Losses	886,000	[1]	1,714,000	[1]
Fair Value	95,430,000	[1]	79,650,000	[1]
Collateralized Mortgage Obligations (CMOs)
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Fair Value	15,400,000		17,400,000
Municipal securities
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	64,688,000		60,675,000
Unrealized Gains	2,040,000		1,604,000
Unrealized Losses	102,000		325,000
Fair Value	66,626,000		61,954,000
Corporate bonds
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	6,046,000		5,080,000
Unrealized Gains	69,000		29,000
Unrealized Losses	18,000		55,000
Fair Value	6,097,000		5,054,000
Equity investments
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	10,893,000		9,960,000
Unrealized Gains	3,836,000		3,228,000
Unrealized Losses	4,000		20,000
Fair Value	14,725,000		13,168,000
Percent of portfolio invested in financial services	15.00%
Total available for sale securities, at fair value
Available-for-sale Securities, Gross Unrealized Gain (Loss) [Abstract]
Amortized cost	209,054,000		212,152,000
Unrealized Gains	6,806,000		5,374,000
Unrealized Losses	1,015,000		2,157,000
Fair Value	214,845,000		215,369,000
Investments Temporarily Impaired,12 months or longer, Unrealized Losses	$ 985,000

[1] These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank, or one of several Federal Home Loan Banks. All agency MBS/Collateralized Mortgage Obligations ("CMOs") investments owned by the Company are backed by residential mortgages.

XML

Fair Value Measurements - Quantitative (Details) (Fair Value, Inputs, Level 3, USD $) In Thousands, unless otherwise specified								6 Months Ended				6 Months Ended
	Jun. 30, 2014 Fair Value, Measurements, Recurring FHLB Stock	Dec. 31, 2013 Fair Value, Measurements, Recurring FHLB Stock	Jun. 30, 2014 Fair Value, Measurements, Recurring FHLB Stock FHLB Stated Par Value	Jun. 30, 2014 Fair Value, Measurements, Nonrecurring	Dec. 31, 2013 Fair Value, Measurements, Nonrecurring	Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Impaired loans (collateral dependent) Appraisal of collateral		Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Impaired loans (collateral dependent) Appraisal of collateral Minimum	Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Impaired loans (collateral dependent) Appraisal of collateral Maximum	Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Other real estate owned Appraisal of collateral		Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Other real estate owned Appraisal of collateral Minimum	Jun. 30, 2014 Fair Value, Measurements, Nonrecurring Other real estate owned Appraisal of collateral Maximum
Fair Value Inputs, Assets, Quantitative Information [Line Items]
Fair value of assets	$ 3,357	$ 4,324	$ 3,357
Impaired loans (collateral dependent), Fair Value				6,250	6,542	6,250	[1]
Other real estate owned, Fair Value				$ 114	$ 114					$ 114	[1]
Unobservable Input Value or Range								5.00%	50.00%			0.00%	30.00%

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

XML

Stock-Based Compensation Summary Information for Options Granted (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock option awards granted	31,229	44,175
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Term in years	10 years	10 years
Expected volatility	47.00%	48.00%
Market price on date of grant	$ 20.29	$ 16.43
Per share weighted average fair value	$ 8.32	$ 6.56
Weighted Average | Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Expected dividend yield	2.88%	2.99%
Expected life in years	7 years	7 years
Risk-free interest rate	2.19%	1.29%
Fair Value as a percentage of market value at grant date	41.00%	40.00%

XML

Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

Summary of Significant Accounting Policies

(a) Organization of Holding Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2013 audited consolidated financial statements and notes thereto contained in the 2013 Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the “Company” or “Enterprise”), a Massachusetts corporation, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2014.  The Company has not changed its reporting policies from those disclosed in its 2013 Annual Report on Form 10-K.

The Company's unaudited consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company (the “Bank”).  The Bank is a Massachusetts trust company organized in 1989. Substantially all of the Company’s operations are conducted through the Bank.

The Bank’s subsidiaries include Enterprise Insurance Services, LLC and Enterprise Investment Services, LLC, organized under the laws of the State of Delaware for the purposes of engaging in insurance sales activities and offering non-deposit investment products and services, respectively.  In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III, which hold various types of qualifying securities.  The security corporations are limited to conducting securities investment activities that the Bank itself would be allowed to conduct under applicable laws.

The Company has 22 full service branches serving the Merrimack Valley and North Central regions of Massachusetts and Southern New Hampshire. Through the Bank and its subsidiaries, the Company offers a range of commercial and consumer loan products, deposit and cash management products, investment advisory and wealth management, trust and insurance services.  The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.

Pursuant to the Accounting Standards Codification (“ASC”) Topic 810 “Consolidation of Variable Interest Entities,” issued by the Financial Accounting Standards Board (“FASB”), the Company carries Junior Subordinated Debentures as a liability on its consolidated financial statements, along with the related interest expense. The debentures were issued by a statutory business trust (the “Trust”) created by the Company in March 2000 under the laws of the State of Delaware, and the trust preferred securities issued by the Trust, and the related non-interest expense, are excluded from the Company’s consolidated financial statements.

The Federal Deposit Insurance Corporation (the “FDIC”) and the Massachusetts Division of Banks (the “Division”) have regulatory authority over the Bank.  The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department.  The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board.  The Division also retains supervisory jurisdiction over the Company.

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions for Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation.  All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated interim financial statements. Interim results are not necessarily indicative of results to be expected for the entire year.

(b) Critical Accounting Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized.  These estimates and assumptions affect the reported values of assets and liabilities as of the balance sheet date and income and expenses for the period then ended.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used change over time due to changes in circumstances.  Changes in those estimates resulting from continuing change in the economic environment and other factors will be reflected in the financial statements and results of operations in future periods.

As discussed in the Company’s 2013 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, impairment review of investment securities and the impairment review of goodwill.  Refer to Note 1,“Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s 2013 Annual Report on Form 10-K for significant accounting policies. The Company has not changed its significant accounting policies from those disclosed in its 2013 Annual Report filed on Form 10-K.

(c) Reporting Comprehensive Income

Comprehensive income is defined as all changes to equity except investments by and distributions to stockholders.  Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income.  The Company’s only other comprehensive income component is the net unrealized holding gains or losses on investments available-for-sale, net of deferred income taxes. Pursuant to Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, the Company initially excludes these unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when the securities are sold. When securities are sold, the reclassification of realized gains and losses on available-for-sale securities are included on the Consolidated Statements of Income under the “non-interest income” subheading on the line item “net gains on sales of investment securities” and the related income tax expense is included in the line item “provision for income taxes,” both of which are also detailed on the Consolidated Statements of Comprehensive Income under the subheading “reclassification adjustment for net gains included in net income.”

(d) Restricted Investments

As a member of the Federal Home Loan Bank of Boston (“FHLB”), the Company is required to purchase certain levels of FHLB capital stock in association with the Company’s borrowing relationship from the FHLB.  This stock is classified as a restricted investment and carried at cost, which management believes approximates fair value.  FHLB stock represents the only restricted investment held by the Company.

In conjunction with the other-than-temporary-impairment (“OTTI”) review on available-for-sale investments (See Note 2, "Investments," for additional information), management also regularly reviews its holdings of FHLB stock for OTTI. Based on management’s ongoing review, the Company has not recorded any OTTI charges on this investment to date. If it was determined that a write-down of FHLB stock was required, impairment would be recognized through a charge to earnings.

(e) Income Taxes

The Company uses the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes.

The Company’s policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law.  The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company’s judgment changes regarding an uncertain tax position.

The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, primarily due to the impact of tax exempt interest from certain investment securities, loans and bank owned life insurance.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at June 30, 2014.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2007 through 2013 tax years.

(f) Recent Accounting Pronouncements

In January 2014, FASB issued ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to reduce diversity of practice by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan, such that the loan should be removed, and the real estate property recognized, on the financial statements. Additionally, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in collateralized residential mortgage loans that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. As this ASU primarily offers clarification of existing standards and added disclosures, the adoption of this ASU in the first quarter of 2015 is not expected to have a material impact on the Company's financial statements, or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this ASU apply to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow through entities for tax purposes. The amendments in this ASU eliminate the effective yield election and permit reporting entities to make an accounting policy election to account for such investments using the proportional amortization method if certain conditions are met. Those not electing the proportional amortization method would account for the investment using the equity method or cost method. The decision to apply the proportional amortization method of accounting is an accounting policy decision that must be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments. The amendments in this Update are to be applied retrospectively to all periods presented. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption by the Company of this ASU, on the effective date, is not expected to have a material impact on the Company's financial statements, or results of operations.

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Fair Value Measurements - Other Guarantees and Commitments (Details) (Financial Standby Letter of Credit)	6 Months Ended
	Jun. 30, 2014
Financial Standby Letter of Credit
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Amortization period of estimated fair value on standby letters of credit	1 year

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Loans - Loans Serving as Collateral (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financial Instruments Owned and Pledged as Collateral [Line Items]
Loans pledged to the FHLB for borrowing capacity	$ 417,859	$ 436,082
Commercial Real Estate
Financial Instruments Owned and Pledged as Collateral [Line Items]
Loans pledged to the FHLB for borrowing capacity	298,401	320,908
Residential
Financial Instruments Owned and Pledged as Collateral [Line Items]
Loans pledged to the FHLB for borrowing capacity	102,464	97,626
Home Equity
Financial Instruments Owned and Pledged as Collateral [Line Items]
Loans pledged to the FHLB for borrowing capacity	$ 16,994	$ 17,548

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Loans - Loan Categories Narrative (Details) (USD $) In Millions, unless otherwise specified	6 Months Ended
	Jun. 30, 2014 payment	Dec. 31, 2013
Commercial real estate | Minimum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	15 years
Commercial real estate | Maximum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	25 years
Commercial and industrial | Minimum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	1 year
Commercial and industrial | Maximum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	7 years
Commercial construction | Minimum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	1 year
Commercial construction | Maximum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	3 years
Commercial
Schedule of Loans by Loan Classification [Line Items]
Participation loans amount	$ 47.7	$ 34.5
Participations loans sold that are still serviced amount	48.3	52.1
Residential
Schedule of Loans by Loan Classification [Line Items]
Early Payment Default Period	4
Amount of loans serviced for others	$ 19.9	$ 20.6
Residential | Maximum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	30 years
Adjustable rate mortgage | Minimum
Schedule of Loans by Loan Classification [Line Items]
Loan-to-value ratio	80.00%
Fixed rate mortgage | Maximum
Schedule of Loans by Loan Classification [Line Items]
Loan-to-value ratio	97.00%
Home Equity | Maximum
Schedule of Loans by Loan Classification [Line Items]
Loan-to-value ratio	80.00%
Home equity lines of credit
Schedule of Loans by Loan Classification [Line Items]
Term of interest only payments	10 years
Term of Principal and Interest Payments after Interest only term	15 years
Home Equity Loans | Minimum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	3 years
Period a loan has a fixed rate	3 years
Home Equity Loans | Maximum
Schedule of Loans by Loan Classification [Line Items]
Repayment period, term of loan	15 years
Period a loan has a fixed rate	15 years

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Fair Value Measurements - Balance Sheet Grouping (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Fair Value
Financial assets:
Loans held for sale	$ 2,453	[1]	$ 1,255	[1]
Loans, net	1,588,955	[1]	1,516,809	[1]
Financial liabilities:
Borrowed funds	485	[1]	36,535	[1]
Junior subordinated debentures	12,529	[1]	11,358	[1]
Fair Value, Inputs, Level 1
Financial assets:
Loans held for sale	0	[1]	0	[1]
Loans, net	0	[1]	0	[1]
Financial liabilities:
Borrowed funds	0	[1]	0	[1]
Junior subordinated debentures	0	[1]	0	[1]
Fair Value, Inputs, Level 2
Financial assets:
Loans held for sale	2,453	[1]	1,255	[1]
Loans, net	0	[1]	0	[1]
Financial liabilities:
Borrowed funds	485	[1]	36,535	[1]
Junior subordinated debentures	0	[1]	0	[1]
Fair Value, Inputs, Level 3
Financial assets:
Loans held for sale	0	[1]	0	[1]
Loans, net	1,588,955	[1]	1,516,809	[1]
Financial liabilities:
Borrowed funds	0	[1]	0	[1]
Junior subordinated debentures	12,529	[1]	11,358	[1]
Carrying Amount
Financial assets:
Loans held for sale	2,431	[1]	1,255	[1]
Loans, net	1,564,875	[1]	1,497,089	[1]
Financial liabilities:
Borrowed funds	484	[1]	36,534	[1]
Junior subordinated debentures	10,825	[1]	10,825	[1]
Certificates of deposit | Fair Value
Financial liabilities:
Certificates of deposit	277,484	[1]	250,045	[1]
Certificates of deposit | Fair Value, Inputs, Level 1
Financial liabilities:
Certificates of deposit	0	[1]	0	[1]
Certificates of deposit | Fair Value, Inputs, Level 2
Financial liabilities:
Certificates of deposit	277,484	[1]	250,045	[1]
Certificates of deposit | Fair Value, Inputs, Level 3
Financial liabilities:
Certificates of deposit	0	[1]	0	[1]
Certificates of deposit | Carrying Amount
Financial liabilities:
Certificates of deposit	$ 278,487	[1]	$ 251,650	[1]

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

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Allowance For Loan Loss - Adversely Classified Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 1,592,913	$ 1,525,580
Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Gross loans	838,715	820,299
Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Gross loans	385,991	357,056
Commercial construction
Financing Receivable, Recorded Investment [Line Items]
Gross loans	144,553	132,507
Residential
Financing Receivable, Recorded Investment [Line Items]
Gross loans	139,134	132,721
Home Equity
Financing Receivable, Recorded Investment [Line Items]
Gross loans	76,234	74,354
Consumer
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,286	8,643
Substandard
Financing Receivable, Recorded Investment [Line Items]
Gross loans	26,386	26,363
Substandard | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Gross loans	11,993	13,545
Substandard | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Gross loans	8,804	7,908
Substandard | Commercial construction
Financing Receivable, Recorded Investment [Line Items]
Gross loans	3,370	3,358
Substandard | Residential
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,599	1,012
Substandard | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Gross loans	573	500
Substandard | Consumer
Financing Receivable, Recorded Investment [Line Items]
Gross loans	47	40
Doubtful
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,311	1,317
Doubtful | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,227	1,266
Doubtful | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Gross loans	57	51
Doubtful | Commercial construction
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Doubtful | Residential
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Doubtful | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Gross loans	27	0
Doubtful | Consumer
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Loss
Financing Receivable, Recorded Investment [Line Items]
Gross loans	172	236
Loss | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Gross loans	111	0
Loss | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Gross loans	61	236
Loss | Commercial construction
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Loss | Residential
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Loss | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Loss | Consumer
Financing Receivable, Recorded Investment [Line Items]
Gross loans	0	0
Not Adversely Classified
Financing Receivable, Recorded Investment [Line Items]
Gross loans	1,565,044	1,497,664
Not Adversely Classified | Commercial real estate
Financing Receivable, Recorded Investment [Line Items]
Gross loans	825,384	805,488
Not Adversely Classified | Commercial and industrial
Financing Receivable, Recorded Investment [Line Items]
Gross loans	377,069	348,861
Not Adversely Classified | Commercial construction
Financing Receivable, Recorded Investment [Line Items]
Gross loans	141,183	129,149
Not Adversely Classified | Residential
Financing Receivable, Recorded Investment [Line Items]
Gross loans	137,535	131,709
Not Adversely Classified | Home Equity
Financing Receivable, Recorded Investment [Line Items]
Gross loans	75,634	73,854
Not Adversely Classified | Consumer
Financing Receivable, Recorded Investment [Line Items]
Gross loans	$ 8,239	$ 8,603

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Allowance For Loan Loss - Past Due and Non-Accrual Loans (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Dec. 31, 2013	Jun. 30, 2013
Schedule of Aging of Financing Receivables [Line Items]
Number of days a loan must be paid current before accrual of interest is resumed	180 days
Loans 30-59 Days Past Due	$ 8,338,000	$ 3,445,000
Loans 60-89 Days Past Due	2,002,000	2,638,000
Non-accrual loans	17,954,000	18,346,000
Total Past Due Loans	28,294,000	24,429,000
Current Loans	1,564,619,000	1,501,151,000
Gross loans	1,592,913,000	1,525,580,000
The ratio of non-accrual loans to total loans	1.13%	1.20%	1.49%
Additional funding commitments for loans on non-accrual	1,000,000
Commercial real estate
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	4,554,000	1,142,000
Loans 60-89 Days Past Due	1,590,000	1,575,000
Non-accrual loans	10,131,000	10,561,000
Total Past Due Loans	16,275,000	13,278,000
Current Loans	822,440,000	807,021,000
Gross loans	838,715,000	820,299,000
Commercial and industrial
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	1,470,000	680,000
Loans 60-89 Days Past Due	399,000	908,000
Non-accrual loans	5,045,000	5,743,000
Total Past Due Loans	6,914,000	7,331,000
Current Loans	379,077,000	349,725,000
Gross loans	385,991,000	357,056,000
Commercial construction
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	185,000	196,000
Loans 60-89 Days Past Due	0	0
Non-accrual loans	1,053,000	1,118,000
Total Past Due Loans	1,238,000	1,314,000
Current Loans	143,315,000	131,193,000
Gross loans	144,553,000	132,507,000
Residential
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	1,789,000	1,110,000
Loans 60-89 Days Past Due	0	127,000
Non-accrual loans	1,224,000	633,000
Total Past Due Loans	3,013,000	1,870,000
Current Loans	136,121,000	130,851,000
Gross loans	139,134,000	132,721,000
Home Equity
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	310,000	211,000
Loans 60-89 Days Past Due	0	10,000
Non-accrual loans	381,000	281,000
Total Past Due Loans	691,000	502,000
Current Loans	75,543,000	73,852,000
Gross loans	76,234,000	74,354,000
Consumer
Schedule of Aging of Financing Receivables [Line Items]
Loans 30-59 Days Past Due	30,000	106,000
Loans 60-89 Days Past Due	13,000	18,000
Non-accrual loans	120,000	10,000
Total Past Due Loans	163,000	134,000
Current Loans	8,123,000	8,509,000
Gross loans	8,286,000	8,643,000
Deposit liabilities reclassified as loans receivable, 90 days or more past due	105,000	3,000
Not Adversely Classified
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	1,565,044,000	1,497,664,000
Non-accrual loans not adversely classified	267,000	577,000
Not Adversely Classified | Commercial real estate
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	825,384,000	805,488,000
Not Adversely Classified | Commercial and industrial
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	377,069,000	348,861,000
Not Adversely Classified | Commercial construction
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	141,183,000	129,149,000
Not Adversely Classified | Residential
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	137,535,000	131,709,000
Not Adversely Classified | Home Equity
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	75,634,000	73,854,000
Not Adversely Classified | Consumer
Schedule of Aging of Financing Receivables [Line Items]
Gross loans	$ 8,239,000	$ 8,603,000

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Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities
Net income	$ 6,820	$ 6,512
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	400	1,317
Depreciation and amortization	2,756	2,458
Stock-based compensation expense	916	859
Mortgage loans originated for sale	(7,806)	(25,274)
Proceeds from mortgage loans sold	6,778	30,471
Net gains on sales of loans	(148)	(557)
Net gains on sales of OREO	0	(121)
Net gains on sales of investments	(615)	(948)
Income on bank-owned life insurance,net	(214)	(235)
Changes in:
Accrued interest receivable	85	(264)
Prepaid expenses and other assets	(2,375)	1,802
Accrued expenses and other liabilities	(363)	(1,319)
Accrued interest payable	(14)	(24)
Net cash provided by operating activities	6,220	14,677
Cash flows from investing activities:
Proceeds from sales of investment securities available for sale	21,415	7,361
Net proceeds (purchases) from FHLB capital stock	967	(64)
Proceeds from maturities, calls and pay-downs of investment securities	23,773	8,040
Purchase of investment securities	(41,273)	(19,297)
Net increase in loans	(68,186)	(87,759)
Additions to premises and equipment, net	(1,394)	(3,332)
Proceeds from OREO sales and payments	0	652
Net cash used in investing activities	(64,698)	(94,399)
Cash flows from financing activities:
Net increase in deposits	110,802	104,266
Net decrease in borrowed funds	(36,050)	(24,660)
Cash dividends paid	(2,415)	(2,244)
Proceeds from issuance of common stock	609	630
Proceeds from the exercise of stock options	547	716
Tax benefit from the exercise of stock options	3	7
Net cash provided by financing activities	73,496	78,715
Net increase (decrease) in cash and cash equivalents	15,018	(1,007)
Cash and cash equivalents at beginning of period	53,733	52,735
Cash and cash equivalents at end of period	68,751	51,728
Supplemental financial data:
Cash Paid For: Interest	2,659	2,729
Cash Paid For: Income Taxes	3,995	4,583
Supplemental schedule of non-cash investing activity:
Purchases of investment securities not yet settled	(1,541)	(4,978)
Transfer from loans to other real estate owned	$ 0	$ 167

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Allowance For Loan Loss - Impaired Loans (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	$ 28,908,000		$ 28,908,000		$ 29,826,000
Total accruing impaired loans	11,600,000		11,600,000		11,900,000
Impaired non-accrual loans	17,300,000		17,300,000		17,900,000
Unpaid contractual principal balance	32,732,000		32,732,000		33,910,000
Recorded investment with no allowance	19,698,000		19,698,000		18,798,000
Recorded investment with allowance	9,210,000		9,210,000		11,028,000
Related allowance	2,900,000		2,900,000		4,399,000
Average recorded investment	28,307,000	30,958,000	28,745,000	33,431,000
Interest income recognized	115,000	87,000	229,000	240,000
Additional funding commitments on impaired loans	1,000,000		1,000,000
Commercial real estate
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	14,210,000		14,210,000		15,139,000
Unpaid contractual principal balance	16,284,000		16,284,000		17,420,000
Recorded investment with no allowance	13,495,000		13,495,000		12,105,000
Recorded investment with allowance	715,000		715,000		3,034,000
Related allowance	191,000		191,000		507,000
Average recorded investment	13,357,000	17,868,000	13,758,000	20,155,000
Interest income recognized	44,000	51,000	94,000	149,000
Commercial and industrial
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	10,041,000		10,041,000		10,579,000
Unpaid contractual principal balance	11,603,000		11,603,000		12,220,000
Recorded investment with no allowance	4,342,000		4,342,000		4,902,000
Recorded investment with allowance	5,699,000		5,699,000		5,677,000
Related allowance	1,632,000		1,632,000		2,901,000
Average recorded investment	10,337,000	9,252,000	10,583,000	9,427,000
Interest income recognized	42,000	24,000	80,000	54,000
Commercial construction
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	3,287,000		3,287,000		3,358,000
Unpaid contractual principal balance	3,411,000		3,411,000		3,464,000
Recorded investment with no allowance	1,410,000		1,410,000		1,426,000
Recorded investment with allowance	1,877,000		1,877,000		1,932,000
Related allowance	827,000		827,000		830,000
Average recorded investment	3,249,000	2,906,000	3,277,000	2,902,000
Interest income recognized	26,000	9,000	52,000	33,000
Residential
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	1,040,000		1,040,000		619,000
Unpaid contractual principal balance	1,100,000		1,100,000		673,000
Recorded investment with no allowance	356,000		356,000		365,000
Recorded investment with allowance	684,000		684,000		254,000
Related allowance	171,000		171,000		107,000
Average recorded investment	1,043,000	804,000	901,000	807,000
Interest income recognized	3,000	3,000	3,000	4,000
Home Equity
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	302,000		302,000		108,000
Unpaid contractual principal balance	306,000		306,000		110,000
Recorded investment with no allowance	94,000		94,000		0
Recorded investment with allowance	208,000		208,000		108,000
Related allowance	52,000		52,000		31,000
Average recorded investment	294,000	109,000	201,000	124,000
Interest income recognized	0	0	0	0
Consumer
Financing Receivable, Impaired [Line Items]
Total recorded investment in impaired loans	28,000		28,000		23,000
Unpaid contractual principal balance	28,000		28,000		23,000
Recorded investment with no allowance	1,000		1,000		0
Recorded investment with allowance	27,000		27,000		23,000
Related allowance	27,000		27,000		23,000
Average recorded investment	27,000	19,000	25,000	16,000
Interest income recognized	$ 0	$ 0	$ 0	$ 0

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Earnings Per Share Earnings Per Share (Details)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Basic weighted average common shares outstanding	10,124,372	9,825,335	10,077,502	9,770,559
Dilutive shares	80,604	64,304	84,685	69,457
Diluted weighted average common shares outstanding	10,204,976	9,889,639	10,162,187	9,840,016
Stock options
Earnings Per Share, Diluted, by Common Class, Including Two Class Method [Line Items]
Antidilutive securities excluded from computation of earnings per share			18,392

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Cash and cash equivalents:
Cash and due from banks	$ 51,637	$ 41,362
Interest-earning deposits	17,114	10,153
Fed funds sold	0	2,218
Total cash and cash equivalents	68,751	53,733
Investment securities at fair value	214,845	215,369
Federal Home Loan Bank Stock	3,357	4,324
Loans held for sale	2,431	1,255
Loans, less allowance for loan losses of $26,528 at June 30, 2014 and $26,967 at December 31, 2013	1,564,875	1,497,089
Premises and equipment	29,193	29,891
Accrued interest receivable	6,101	6,186
Deferred income taxes, net	12,984	13,927
Bank-owned life insurance	16,116	15,902
Prepaid income taxes	840	443
Prepaid expenses and other assets	8,099	6,150
Goodwill	5,656	5,656
Total assets	1,933,248	1,849,925
Liabilities
Deposits	1,746,794	1,635,992
Borrowed funds	484	36,534
Junior subordinated debentures	10,825	10,825
Accrued expenses and other liabilities	15,092	14,675
Accrued interest payable	551	565
Total liabilities	1,773,746	1,698,591
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued	0	0
Common stock $0.01 par value per share; 20,000,000 shares authorized; 10,137,443 shares issued and outstanding at June 30, 2014 (including 160,521 shares of unvested participating restricted awards) and 9,992,560 shares issued and outstanding at December 31, 2013 (including 170,365 shares of unvested participating restricted awards)	101	100
Additional paid-in-capital	55,068	52,936
Retained earnings	100,558	96,153
Accumulated other comprehensive income	3,775	2,145
Total stockholders' equity	159,502	151,334
Total liabilities and stockholders' equity	$ 1,933,248	$ 1,849,925

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Consolidated Statement of Changes in Stockholders' Equity (USD $) In Thousands, unless otherwise specified	Total	Common Stock	Additional Paid-in Capital	Retained Earnings	Accumulated Other Comprehensive Income
Balance, beginning at Dec. 31, 2013	$ 151,334	$ 100	$ 52,936	$ 96,153	$ 2,145
Increase (Decrease) in Stockholders' Equity
Net income	6,820			6,820
Other comprehensive income, net	1,630				1,630
Tax benefit from exercise of stock options	3		3
Common stock dividend paid ($0.24 per share)	(2,415)			(2,415)
Common stock issued under dividend reinvestment plan	609	0	609
Stock-based compensation	974	1	973
Stock options exercised, net	547	0	547
Balance, ending at Jun. 30, 2014	$ 159,502	$ 101	$ 55,068	$ 100,558	$ 3,775

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Allowance For Loan Loss - Allowance for Loan Losses (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Financing Receivable, Allowance for Credit Losses [Line Items]
Allowance for loan losses to total loans ratio	1.67%	1.77%	1.67%	1.77%	1.77%
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	$ 26,172	$ 25,016	$ 26,967	$ 24,254
Provision for loan losses	200	534	400	1,317
Recoveries	238	145	276	307
Less: Charge offs	82	24	1,115	207
Ending Balance	26,528	25,671	26,528	25,671
Allotted to loans individually evaluated for impairment	2,900	4,174	2,900	4,174
Allotted to loans collectively evaluated for impairment	23,628	21,497	23,628	21,497
Loans individually evaluated for impairment	28,908		28,908		29,826
Loans collectively evaluated for impairment	1,562,495		1,562,495		1,494,230
Deferred loan origination fees, net	(1,510)		(1,510)		(1,524)
Gross loans	1,592,913		1,592,913		1,525,580
Total loans	1,591,403		1,591,403		1,524,056
Commercial real estate
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	12,870	12,359	13,174	11,793
Provision for loan losses	195	614	94	1,180
Recoveries	0	61	0	61
Less: Charge offs	0	14	203	14
Ending Balance	13,065	13,020	13,065	13,020
Allotted to loans individually evaluated for impairment	191	915	191	915
Allotted to loans collectively evaluated for impairment	12,874	12,105	12,874	12,105
Loans individually evaluated for impairment	14,210		14,210		15,139
Loans collectively evaluated for impairment	824,505		824,505		805,160
Gross loans	838,715		838,715		820,299
Commercial and industrial
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	7,697	7,396	8,365	7,297
Provision for loan losses	(270)	207	(152)	428
Recoveries	198	31	224	41
Less: Charge offs	75	1	887	133
Ending Balance	7,550	7,633	7,550	7,633
Allotted to loans individually evaluated for impairment	1,632	2,302	1,632	2,302
Allotted to loans collectively evaluated for impairment	5,918	5,331	5,918	5,331
Loans individually evaluated for impairment	10,041		10,041		10,579
Loans collectively evaluated for impairment	375,950		375,950		346,477
Gross loans	385,991		385,991		357,056
Commercial construction
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	3,589	3,486	3,493	3,456
Provision for loan losses	122	(382)	218	(352)
Recoveries	30	50	30	50
Less: Charge offs	0	0	0	0
Ending Balance	3,741	3,154	3,741	3,154
Allotted to loans individually evaluated for impairment	827	739	827	739
Allotted to loans collectively evaluated for impairment	2,914	2,415	2,914	2,415
Loans individually evaluated for impairment	3,287		3,287		3,358
Loans collectively evaluated for impairment	141,266		141,266		129,149
Gross loans	144,553		144,553		132,507
Residential
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	1,176	975	1,057	854
Provision for loan losses	90	58	209	51
Recoveries	0	0	0	128
Less: Charge offs	0	0	0	0
Ending Balance	1,266	1,033	1,266	1,033
Allotted to loans individually evaluated for impairment	171	163	171	163
Allotted to loans collectively evaluated for impairment	1,095	870	1,095	870
Loans individually evaluated for impairment	1,040		1,040		619
Loans collectively evaluated for impairment	138,094		138,094		132,102
Gross loans	139,134		139,134		132,721
Home Equity
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	634	672	653	728
Provision for loan losses	51	10	32	(23)
Recoveries	0	0	0	21
Less: Charge offs	0	0	0	44
Ending Balance	685	682	685	682
Allotted to loans individually evaluated for impairment	52	36	52	36
Allotted to loans collectively evaluated for impairment	633	646	633	646
Loans individually evaluated for impairment	302		302		108
Loans collectively evaluated for impairment	75,932		75,932		74,246
Gross loans	76,234		76,234		74,354
Consumer
Allowance for Loan and Lease Losses [Roll Forward]
Beginning Balance	206	128	225	126
Provision for loan losses	12	27	(1)	33
Recoveries	10	3	22	6
Less: Charge offs	7	9	25	16
Ending Balance	221	149	221	149
Allotted to loans individually evaluated for impairment	27	19	27	19
Allotted to loans collectively evaluated for impairment	194	130	194	130
Loans individually evaluated for impairment	28		28		23
Loans collectively evaluated for impairment	8,258		8,258		8,620
Gross loans	$ 8,286		$ 8,286		$ 8,643

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Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Weighted Average Number of Shares

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

	Three months ended June 30,		Six months ended June 30,
	2014	2013	2014	2013
Basic weighted average common shares outstanding	10,124,372	9,825,335	10,077,502	9,770,559
Dilutive shares	80,604	64,304	84,685	69,457
Diluted weighted average common shares outstanding	10,204,976	9,889,639	10,162,187	9,840,016

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Supplemental Retirement Plan and Other Postretirement Benefit Obligations (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014 officer	Jun. 30, 2013	Jun. 30, 2014 officer	Jun. 30, 2013
Supplemental Retirement Plan
Defined Benefit Plan Disclosures [Line Items]
Defined Benefit Plan, Number of Active Executive Officers under Plan	2		2
Defined Benefit Plan, Number of Former Executive Officers under Plan	1		1
Term of SERP benefits			20 years
Net Periodic Benefit Cost, Interest Only	$ 35	$ 34	$ 71	$ 67
Benefits Paid	69	69	138	138
Remaining accrual for benefit obligation in current year			71
Supplemental Life Insurance Plan
Defined Benefit Plan Disclosures [Line Items]
Net Periodic Benefit Cost, Interest Only	$ 18	$ 18	$ 36	$ 36

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Summary of Significant Accounting Policies (Details)	6 Months Ended
	Jun. 30, 2014 segment branches
Accounting Policies [Abstract]
Number of branches	22
Reportable operating segments	1

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Consolidated Statement of Changes in Stockholders' Equity (Parenthetical) (USD $)	6 Months Ended
	Jun. 30, 2014
Statement of Stockholders' Equity [Abstract]
Common stock dividend paid, per share	$ 0.24

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Allowance for loan losses	$ 26,528	$ 26,967
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	20,000,000	20,000,000
Common stock, shares issued	10,137,443	9,992,560
Common stock, shares outstanding	10,137,443	9,992,560
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	1,000,000	1,000,000
Preferred stock, shares issued	0	0
Unvested participating restricted stock awards	160,521	170,365

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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Principles of Consolidation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2013 audited consolidated financial statements and notes thereto contained in the 2013 Annual Report on Form 10-K of Enterprise Bancorp, Inc. (the “Company” or “Enterprise”), a Massachusetts corporation, as filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2014.  The Company has not changed its reporting policies from those disclosed in its 2013 Annual Report on Form 10-K.

The Company's unaudited consolidated interim financial statements include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company (the “Bank”).  The Bank is a Massachusetts trust company organized in 1989. Substantially all of the Company’s operations are conducted through the Bank.

The Bank’s subsidiaries include Enterprise Insurance Services, LLC and Enterprise Investment Services, LLC, organized under the laws of the State of Delaware for the purposes of engaging in insurance sales activities and offering non-deposit investment products and services, respectively.  In addition, the Bank has the following subsidiaries that are incorporated in the Commonwealth of Massachusetts and classified as security corporations in accordance with applicable Massachusetts General Laws: Enterprise Security Corporation; Enterprise Security Corporation II; and Enterprise Security Corporation III, which hold various types of qualifying securities.  The security corporations are limited to conducting securities investment activities that the Bank itself would be allowed to conduct under applicable laws.

The Company has 22 full service branches serving the Merrimack Valley and North Central regions of Massachusetts and Southern New Hampshire. Through the Bank and its subsidiaries, the Company offers a range of commercial and consumer loan products, deposit and cash management products, investment advisory and wealth management, trust and insurance services.  The services offered through the Bank and its subsidiaries are managed as one strategic unit and represent the Company’s only reportable operating segment.

Pursuant to the Accounting Standards Codification (“ASC”) Topic 810 “Consolidation of Variable Interest Entities,” issued by the Financial Accounting Standards Board (“FASB”), the Company carries Junior Subordinated Debentures as a liability on its consolidated financial statements, along with the related interest expense. The debentures were issued by a statutory business trust (the “Trust”) created by the Company in March 2000 under the laws of the State of Delaware, and the trust preferred securities issued by the Trust, and the related non-interest expense, are excluded from the Company’s consolidated financial statements.

The Federal Deposit Insurance Corporation (the “FDIC”) and the Massachusetts Division of Banks (the “Division”) have regulatory authority over the Bank.  The Bank is also subject to certain regulatory requirements of the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”) and, with respect to its New Hampshire branch operations, the New Hampshire Banking Department.  The business and operations of the Company are subject to the regulatory oversight of the Federal Reserve Board.  The Division also retains supervisory jurisdiction over the Company.

Basis of Accounting

The accompanying unaudited consolidated interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the instructions for Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation.  All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated interim financial statements.

Interim results are not necessarily indicative of results to be expected for the entire year.

Critical Accounting Estimates

Critical Accounting Estimates

In preparing the consolidated financial statements in conformity with GAAP, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized.  These estimates and assumptions affect the reported values of assets and liabilities as of the balance sheet date and income and expenses for the period then ended.  As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates should the assumptions and estimates used change over time due to changes in circumstances.  Changes in those estimates resulting from continuing change in the economic environment and other factors will be reflected in the financial statements and results of operations in future periods.

As discussed in the Company’s 2013 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates that are particularly susceptible to change relate to the determination of the allowance for loan losses, impairment review of investment securities and the impairment review of goodwill.  Refer to Note 1,“Summary of Significant Accounting Policies,” to the Company’s consolidated financial statements included in the Company’s 2013 Annual Report on Form 10-K for significant accounting policies. The Company has not changed its significant accounting policies from those disclosed in its 2013 Annual Report filed on Form 10-K.

Reporting Comprehensive Income

Reporting Comprehensive Income

Comprehensive income is defined as all changes to equity except investments by and distributions to stockholders.  Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income.  The Company’s only other comprehensive income component is the net unrealized holding gains or losses on investments available-for-sale, net of deferred income taxes. Pursuant to Accounting Standards Update (“ASU”) No. 2013-02, Comprehensive Income (Topic 220): Reporting Amounts Reclassified Out of Accumulated Other Comprehensive Income, the Company initially excludes these unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when the securities are sold. When securities are sold, the reclassification of realized gains and losses on available-for-sale securities are included on the Consolidated Statements of Income under the “non-interest income” subheading on the line item “net gains on sales of investment securities” and the related income tax expense is included in the line item “provision for income taxes,” both of which are also detailed on the Consolidated Statements of Comprehensive Income under the subheading “reclassification adjustment for net gains included in net income.”

Restricted Investments

Restricted Investments

As a member of the Federal Home Loan Bank of Boston (“FHLB”), the Company is required to purchase certain levels of FHLB capital stock in association with the Company’s borrowing relationship from the FHLB.  This stock is classified as a restricted investment and carried at cost, which management believes approximates fair value.  FHLB stock represents the only restricted investment held by the Company.

In conjunction with the other-than-temporary-impairment (“OTTI”) review on available-for-sale investments (See Note 2, "Investments," for additional information), management also regularly reviews its holdings of FHLB stock for OTTI. Based on management’s ongoing review, the Company has not recorded any OTTI charges on this investment to date. If it was determined that a write-down of FHLB stock was required, impairment would be recognized through a charge to earnings.

Income Taxes

Income Taxes

The Company uses the asset and liability method of accounting for income taxes.  Under this method, deferred tax assets and liabilities are recognized for the future tax attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled.  As changes in tax laws or rates are enacted, deferred tax assets and liabilities will be adjusted accordingly through the provision for income taxes.

The Company’s policy is to classify interest resulting from underpayment of income taxes as income tax expense in the first period the interest would begin accruing according to the provisions of the relevant tax law.  The Company classifies penalties resulting from underpayment of income taxes as income tax expense in the period for which the Company claims or expects to claim an uncertain tax position or in the period in which the Company’s judgment changes regarding an uncertain tax position.

The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, primarily due to the impact of tax exempt interest from certain investment securities, loans and bank owned life insurance.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at June 30, 2014.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2007 through 2013 tax years.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In January 2014, FASB issued ASU No. 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40) - Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure. The amendments are intended to reduce diversity of practice by clarifying when a creditor should be considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan, such that the loan should be removed, and the real estate property recognized, on the financial statements. Additionally, the amendments require interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in collateralized residential mortgage loans that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. As this ASU primarily offers clarification of existing standards and added disclosures, the adoption of this ASU in the first quarter of 2015 is not expected to have a material impact on the Company's financial statements, or results of operations.

In January 2014, the FASB issued ASU No. 2014-01, Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects. The amendments in this ASU apply to all reporting entities that invest in qualified affordable housing projects through limited liability entities that are flow through entities for tax purposes. The amendments in this ASU eliminate the effective yield election and permit reporting entities to make an accounting policy election to account for such investments using the proportional amortization method if certain conditions are met. Those not electing the proportional amortization method would account for the investment using the equity method or cost method. The decision to apply the proportional amortization method of accounting is an accounting policy decision that must be applied consistently to all qualifying affordable housing project investments rather than a decision to be applied to individual investments. The amendments in this Update are to be applied retrospectively to all periods presented. The amendments in this ASU are effective for public business entities for annual periods and interim reporting periods beginning after December 15, 2014. Early adoption is permitted. The adoption by the Company of this ASU, on the effective date, is not expected to have a material impact on the Company's financial statements, or results of operations.

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 04, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	ENTERPRISE BANCORP INC /MA/
Entity Central Index Key	0001018399
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2
Amendment Flag	false
Entity Common Stock, Shares Outstanding		10,138,268

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Investments (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation

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

	June 30, 2014
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations (1)	$	31,851	$	121	$	5	$	31,967
Federal agency mortgage backed securities (MBS) (1)	95,576		740		886		95,430
Municipal securities	64,688		2,040		102		66,626
Corporate bonds	6,046		69		18		6,097
Total fixed income securities	198,161		2,970		1,011		200,120
Equity investments	10,893		3,836		4		14,725
Total available for sale securities, at fair value	$	209,054	$	6,806	$	1,015	$	214,845

	December 31, 2013
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	55,440	$	146	$	43	$	55,543
Federal agency mortgage backed securities (MBS) (1)	80,997		367		1,714		79,650
Municipal securities	60,675		1,604		325		61,954
Corporate bonds	5,080		29		55		5,054
Total fixed income securities	202,192		2,146		2,137		202,201
Equity investments	9,960		3,228		20		13,168
Total available for sale securities, at fair value	$	212,152	$	5,374	$	2,157	$	215,369

__________________________________________

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank, or one of several Federal Home Loan Banks.  All agency MBS/Collateralized Mortgage Obligations ("CMOs") investments owned by the Company are backed by residential mortgages.

Investments Classified by Contractual Maturity Date

The contractual maturity distribution at June 30, 2014 of total fixed income investments is as follows:

	Within One Year				After One, But Within  Five Years				After Five, But Within Ten Years				After Ten Years
	Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields
At amortized cost:
Federal agency obligations	$	7,011	0.79	%	$	20,997	1.30	%	$	3,843	2.09	%	$	—	—	%
MBS	11		1.42	%	2,706		2.48	%	6,454		3.00	%	86,405		2.18	%
Municipal securities	4,195		2.02	%	21,531		2.86	%	28,860		4.35	%	10,102		5.59	%
Corporate bonds	101		1.26	%	4,195		1.60	%	1,750		2.99	%	—		—	%
Total fixed income securities	$	11,318	1.25	%	$	49,429	2.07	%	$	40,907	3.86	%	$	96,507	2.54	%
At fair value:
Total fixed income securities	$	11,364			$	50,145			$	42,006			$	96,605

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Consolidated Statements of Income (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest and dividend income:
Loans and loans held for sale	$ 17,707	$ 16,653	$ 34,883	$ 33,026
Investment securities	1,051	794	2,073	1,604
Other interest-earning assets	22	11	55	21
Total interest and dividend income	18,780	17,458	37,011	34,651
Interest expense:
Deposits	1,025	996	2,026	2,030
Borrowed funds	8	40	30	86
Junior subordinated debentures	295	295	589	589
Total interest expense	1,328	1,331	2,645	2,705
Net interest income	17,452	16,127	34,366	31,946
Provision for loan losses	200	534	400	1,317
Net interest income after provision for loan losses	17,252	15,593	33,966	30,629
Non-interest income:
Investment advisory fees	1,145	1,045	2,249	2,061
Deposit and interchange fees	1,261	1,181	2,459	2,289
Income on bank-owned life insurance,net	106	119	214	235
Net gains on sales of investment securities	127	468	615	948
Gains on sales of loans	75	222	148	557
Other income	550	518	1,058	1,102
Total non-interest income	3,264	3,553	6,743	7,192
Non-interest expense:
Salaries and employee benefits	9,324	8,651	18,398	16,699
Occupancy and equipment expenses	1,597	1,488	3,293	3,059
Technology and telecommunications expenses	1,334	1,203	2,596	2,356
Advertising and public relations expenses	771	946	1,357	1,566
Audit, legal and other professional fees	492	411	841	825
Deposit insurance premiums	289	284	554	533
Supplies and postage expenses	255	250	519	487
Investment advisory and custodial expenses	128	134	266	260
Other operating expenses	1,255	1,094	2,446	2,130
Total non-interest expense	15,445	14,461	30,270	27,915
Income before income taxes	5,071	4,685	10,439	9,906
Provision for income taxes	1,757	1,606	3,619	3,394
Net income	$ 3,314	$ 3,079	$ 6,820	$ 6,512
Basic earnings per share	$ 0.33	$ 0.31	$ 0.68	$ 0.67
Diluted earnings per share	$ 0.32	$ 0.31	$ 0.67	$ 0.66
Basic weighted average common shares outstanding	10,124,372	9,825,335	10,077,502	9,770,559
Diluted weighted average common shares outstanding	10,204,976	9,889,639	10,162,187	9,840,016

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Allowance For Loan Loss

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Allowance for Loan Loss

Allowance for Loan Loss

While the Company manages its loan portfolio to avoid concentration by industry and loan size to lessen its credit risk exposure, inherent in the lending process is the risk of loss due to customer non-payment, or “credit risk.”  The Company endeavors to minimize this risk through sound underwriting practices and the risk management function, however, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

The allowance for loan losses is an estimate of probable credit risk inherent in the loan portfolio as of the specified balance sheet dates.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated losses from specifically known and other credit risks associated with the portfolio.  In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio including, individual assessment of larger and high risk credits, delinquency trends and the level of non-performing loans, impaired and restructured loans, net charge-offs, the growth and composition of the loan portfolio, expansion in geographic market area and the strength of the local and national economy, among other factors.

Credit Quality Indicators

The level of adversely classified loans, and delinquent and non-performing assets is largely a function of economic conditions, the overall banking environment, the Company's underwriting, and credit risk management standards. The Company’s commercial lending focus may entail significant additional risks compared to long term financing on existing, owner-occupied residential real estate.  The Company endeavors to minimize this risk through sound underwriting practices and the risk management function. The credit risk management function focuses on a wide variety of factors, including, among others, current and expected economic conditions, the real estate market, the financial condition of borrowers, the ability of borrowers to adapt to changing conditions or circumstances affecting their business and the continuity of borrowers’ management teams.  Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors these factors, among others, through ongoing credit reviews by the Credit Department, an external loan review service, reviews by members of senior management and the Loan Committee of the Board of Directors. This review includes the assessment of internal credit quality indicators such as the risk classification of individual loans, adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity, as well as trends in the general levels of these indicators. However, despite prudent loan underwriting and ongoing credit risk management, adverse changes within the Company's market area or deterioration in the local, regional or national economic conditions could negatively impact the portfolio's credit risk profile and the Company's asset quality in the future.

The loan portfolio continued to show improving statistics related to migration of adversely classified, non-accrual, and impaired loans and the low level of Other Real Estate Owned ("OREO") properties held during the quarter ended June 30, 2014. However, management believes that the general credit profile of the portfolio and individual commercial relationships will continue to be affected by lagging effects that the economic environment has had on the regional and local commercial markets.

Adversely Classified Loans

The Company’s loan risk rating system classifies loans depending on risk of loss characteristics.  The classifications range from “substantially risk free” for the highest quality loans and loans that are secured by cash collateral, to the more severe adverse classifications of “substandard,” “doubtful” and “loss” based on criteria established under banking regulations.

Loans classified as substandard include those loans characterized by the distinct possibility that the Company will sustain some loss if deficiencies are not corrected.  These loans are inadequately protected by the sound net worth and paying capacity of the borrower; repayment has become increasingly reliant on collateral liquidation or reliance on guaranties; credit weaknesses are well-defined; and, borrower cash flow is insufficient to meet required debt service specified in loan terms and to meet other obligations, such as trade debt and tax payments.

Loans classified as doubtful have all the weaknesses inherent in a substandard rated loan with the added characteristic that the weaknesses make collection or full payment from liquidation, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.  The probability of loss is extremely high, but because of certain important and reasonably specific pending factors which may work to the advantage and strengthening of the loan, its classification as an estimated loss is deferred until more exact status may be determined.

Loans classified as loss are generally considered uncollectible at present, although long term recovery of part or all of loan proceeds may be possible.  These “loss” loans would require a specific loss reserve or charge-off.

Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof.  Loans which are evaluated to be of weaker credit quality are reviewed on a more frequent basis by management.

The following tables present the Company's credit risk profile for each class of loan in its portfolio by internally assigned risk rating category at the periods indicated. 

	June 30, 2014
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	11,993	$	1,227	$	111	$	825,384	$	838,715
Commercial and industrial	8,804		57		61		377,069		385,991
Commercial construction	3,370		—		—		141,183		144,553
Residential	1,599		—		—		137,535		139,134
Home equity	573		27		—		75,634		76,234
Consumer	47		—		—		8,239		8,286
Total gross loans	$	26,386	$	1,311	$	172	$	1,565,044	$	1,592,913

	December 31, 2013
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	13,545	$	1,266	$	—	$	805,488	$	820,299
Commercial and industrial	7,908		51		236		348,861		357,056
Commercial construction	3,358		—		—		129,149		132,507
Residential	1,012		—		—		131,709		132,721
Home equity	500		—		—		73,854		74,354
Consumer	40		—		—		8,603		8,643
Total gross loans	$	26,363	$	1,317	$	236	$	1,497,664	$	1,525,580

The minor shift in adversely classified loan balances amongst the categories since the prior period was due to a variety of activity including: credit rating upgrades, primarily in commercial real estate; payoffs; the foreclosure sale of underlying collateral with payoff on a larger commercial real estate relationship; and charge-offs, primarily commercial real estate and C&I loans; partially offset by additional credit downgrades, particularly in residential mortgage loans during the period.

Past Due and Non-Accrual Loans

Loans on which the accrual of interest has been discontinued are designated as non-accrual loans.  Accrual of interest on loans is generally discontinued when a loan becomes contractually past due, with respect to interest or principal, by 90 days, or when reasonable doubt exists as to the full and timely collection of interest or principal. When a loan is placed on non-accrual status, all interest previously accrued but not collected is reversed against current period interest income. Interest accruals are resumed on such loans only when payments are brought current and have remained current for a period of 180 days and when, in the judgment of management, the collectability of both principal and interest is reasonably assured. Interest payments received on loans in a non-accrual status are generally applied to principal on the books of the Company. Additionally, deposit accounts overdrawn for 90 or more days are included in the consumer non-accrual numbers below.

 The following tables present age analysis of past due loans as of the dates indicated. 

Balance at June 30, 2014
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	4,554	$	1,590	$	10,131	$	16,275	$	822,440	$	838,715
Commercial and industrial	1,470		399		5,045		6,914		379,077		385,991
Commercial construction	185		—		1,053		1,238		143,315		144,553
Residential	1,789		—		1,224		3,013		136,121		139,134
Home equity	310		—		381		691		75,543		76,234
Consumer	30		13		120		163		8,123		8,286
Total gross loans	$	8,338	$	2,002	$	17,954	$	28,294	$	1,564,619	$	1,592,913

Balance at December 31, 2013
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	1,142	$	1,575	$	10,561	$	13,278	$	807,021	$	820,299
Commercial and industrial	680		908		5,743		7,331		349,725		357,056
Commercial construction	196		—		1,118		1,314		131,193		132,507
Residential	1,110		127		633		1,870		130,851		132,721
Home equity	211		10		281		502		73,852		74,354
Consumer	106		18		10		134		8,509		8,643
Total gross loans	$	3,445	$	2,638	$	18,346	$	24,429	$	1,501,151	$	1,525,580

At June 30, 2014 and December 31, 2013, all loans 90 days or more past due were carried as non-accrual. Included in the consumer non-accrual numbers in the table above were $105 thousand and $3 thousand of overdraft deposit account balances 90 days or more past due at June 30, 2014 and December 31, 2013, respectively. Total non-performing loans amounted to $18.0 million and $18.3 million at June 30, 2014 and December 31, 2013, respectively. Non-accrual loans which were not adversely classified amounted to $267 thousand at June 30, 2014 and $577 thousand at December 31, 2013. These balances primarily represented the guaranteed portions of non-performing U.S. Small Business Administration loans. The majority of the non-accrual loan balances were also carried as impaired loans during the periods noted, and are discussed further below. The increase in loans 30-59 days past due occurred primarily within the commercial real estate and commercial and industrial portfolios at June 30, 2014, with the majority of these loans having subsequent payments made by mid-July.

The ratio of non-accrual loans to total loans amounted to 1.13% at June 30, 2014, 1.20% at December 31, 2013, and 1.49% at June 30, 2013.

At June 30, 2014, additional funding commitments for loans on non-accrual status totaled $1.0 million. The Company’s obligation to fulfill the additional funding commitments on non-accrual loans is generally contingent on the borrower’s compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company’s discretion.

Impaired Loans

Impaired loans are individually significant loans for which management considers it probable that not all amounts due (principal and interest) in accordance with the original contractual terms will be collected.  The majority of impaired loans are included within the non-accrual balances; however, not every loan in non-accrual status has been designated as impaired.  Impaired loans include troubled debt restructured ("TDR") loans.  Impaired loans exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment and loans that are measured at fair value, unless the loan is amended in a TDR. 

Management does not set any minimum delay of payments as a factor in reviewing for impaired classification.  Management considers the individual payment status, net worth and earnings potential of the borrower, and the value and cash flow of the collateral as factors to determine if a loan will be paid in accordance with its contractual terms. An impaired or TDR loan classification will be considered for upgrade based on the borrower's sustained performance over time and their improving financial condition, consistent with the criteria for returning non-accrual loans to accrual status, the expectation of the borrower's ability to continue to service the loan in accordance the original or modified terms and the collectability of the remaining balance, and in the case of TDR loans, an interest rate at, or greater than, a market rate for a similar credit at the time of modification. 

Impaired loans are individually evaluated for credit loss and a specific reserve is assigned for the amount of the estimated credit loss.  Refer to heading “Allowance for probable loan losses methodology” contained in Note 4 “Allowance For Loan Losses,” to the Company’s consolidated financial statements contained in the Company’s 2013 Annual Report on Form 10-K for further discussion of management’s methodology used to estimate specific reserves for impaired loans.

Total impaired loans amounted to $28.9 million and $29.8 million, at June 30, 2014 and December 31, 2013, respectively.  Total accruing impaired loans amounted to $11.6 million and $11.9 million at June 30, 2014 and December 31, 2013, respectively, while non-accrual impaired loans amounted to $17.3 million and $17.9 million as of June 30, 2014 and December 31, 2013, respectively.  

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dated indicated.

Balance at June 30, 2014
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	16,284	$	14,210	$	13,495	$	715	$	191
Commercial and industrial	11,603		10,041		4,342		5,699		1,632
Commercial construction	3,411		3,287		1,410		1,877		827
Residential	1,100		1,040		356		684		171
Home equity	306		302		94		208		52
Consumer	28		28		1		27		27
Total	$	32,732	$	28,908	$	19,698	$	9,210	$	2,900

Balance at December 31, 2013
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	17,420	$	15,139	$	12,105	$	3,034	$	507
Commercial and industrial	12,220		10,579		4,902		5,677		2,901
Commercial construction	3,464		3,358		1,426		1,932		830
Residential	673		619		365		254		107
Home equity	110		108		—		108		31
Consumer	23		23		—		23		23
Total	$	33,910	$	29,826	$	18,798	$	11,028	$	4,399

The reduction in related specific reserves on impaired loans was due primarily to increases in estimated current realizable collateral values and current charge-offs of previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values.

The following table presents the average recorded investment in impaired loans and the related interest recognized during the three month periods indicated.

	Three Months Ended June 30, 2014				Three Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	13,357		44		17,868		51
Commercial and industrial	10,337		42		9,252		24
Commercial construction	3,249		26		2,906		9
Residential	1,043		3		804		3
Home equity	294		—		109		—
Consumer	27		—		19		—
Total	$	28,307	$	115	$	30,958	$	87

The following table presents the average recorded investment in impaired loans and the related interest recognized during the six month periods indicated.

	Six Months Ended June 30, 2014				Six Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	$	13,758	$	94	$	20,155	$	149
Commercial and industrial	10,583		80		9,427		54
Commercial construction	3,277		52		2,902		33
Residential	901		3		807		4
Home equity	201		—		124		—
Consumer	25		—		16		—
Total	$	28,745	$	229	$	33,431	$	240

At June 30, 2014, additional funding commitments for impaired loans totaled $1.0 million. The Company's obligation to fulfill the additional funding commitments on impaired loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.

Troubled Debt Restructures

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan, the Bank grants the borrower a concession on the terms, that would not otherwise be considered, as a result of financial difficulties of the borrower.  Typically, such concessions may consist of a reduction in interest rate to a below market rate, taking into account the credit quality of the note, or a deferment or reduction of payments (principal or interest) which materially alters the Bank’s position or significantly extends the note’s maturity date, such that the present value of cash flows to be received is materially less than those contractually established at the loan’s origination. All loans that are modified are reviewed by the Company to identify if a TDR has occurred. TDR loans are included in the impaired loan category and, as such, these loans are individually evaluated and a specific reserve is assigned for the amount of the estimated credit loss. 

Total TDR loans, included in the impaired loan figures above, as of June 30, 2014 and December 31, 2013, were $19.5 million and $20.9 million, respectively. TDR loans on accrual status amounted to $11.2 million and $11.4 million at June 30, 2014 and December 31, 2013, respectively. TDR loans included in non-performing loans amounted to $8.4 million and $9.5 million at June 30, 2014 and December 31, 2013, respectively. The Company continues to work with commercial relationships and enters into loan modifications to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the current economic environment.

At June 30, 2014, additional funding commitments for TDR loans totaled $52 thousand. The Company's obligation to fulfill the additional funding commitments on TDR loans is generally contingent on the borrower's compliance with the terms of the credit agreement. If the borrower is not in compliance, additional funding commitments may or may not be made at the Company's discretion.

Loans modified as trouble debt restructurings during the three month period ended June 30, 2014 are detailed below. 

	Three months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	4	159		157
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	6	$	357	$	354

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the periods noted are detailed below.

	Three months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

Loans modified as troubled debt restructurings during the six month period ended June 30, 2014 are detailed below. 

	Six months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	1	$	450	$	434
Commercial and industrial	6	226		222
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	9	$	874	$	853

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

At June 30, 2014, there were specific reserves of $24 thousand allocated to the TDRs entered into during the 2014 period as management considered it likely the majority of principal would ultimately be collected. Interest payments received on non-accruing TDRs in the table above which were applied to principal and not recognized in interest income during the six months ended June 30, 2014 amounted to $21 thousand.

There were subsequent charge-offs of $66 thousand associated with the TDRs noted in the table above during the six months ended June 30, 2014.

Loans modified as troubled debt restructurings during the three month period ended June 30, 2013 are detailed below. 

	Three months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Three months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	—	—
Commercial construction	2	715
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	2	$	715

Loans modified as troubled debt restructurings during the six month period ended June 30, 2013 are detailed below. 

	Six months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

Loans modified as troubled debt restructuring within the twelve month period previous to June 30, 2013 for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	137
Commercial and industrial	—	—
Commercial construction	3	746
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	4	$	883

There were subsequent charge-offs of $38 thousand associated with the TDRs noted in the table above during the six months ended June 30, 2013.  Included in the table above were two TDRs which defaulted, with total post modification outstanding balances of $167 thousand, and were subsequently transferred to OREO during the June 30, 2013 period. At June 30, 2013, specific reserves allocated to the TDRs entered into during the 2013 period amounted to $1 thousand, as management considered it likely the principal would ultimately be collected.

Other Real Estate Owned

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of any unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell. Any loan balance in excess of the estimated realizable fair value on the date of transfer is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.

The carrying value of OREO at June 30, 2014 and December 31, 2013 was $114 thousand and consisted of the same single property at the end of both periods. There were no sales of OREO during the six months ended June 30, 2014. There were $121 thousand of gains realized on OREO sales during the six months ended June 30, 2013.

Allowance for probable loan losses methodology

On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated credit losses.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated losses from specifically known and other credit risks associated with the portfolio.  The Company uses a systematic methodology to measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses.  The methodology makes use of specific reserves, for loans individually evaluated and deemed impaired and general reserves, for larger groups of homogeneous loans, which rely on a combination of qualitative and quantitative factors that could have an impact on the credit quality of the portfolio.

There have been no material changes in the Company’s underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in the Company’s most recent Annual Report on Form 10-K.  Refer to heading “Allowance for probable loan losses methodology” contained in Note 4 “Allowance For Loan Losses,” to the Company’s consolidated financial statements contained in the Company’s 2013 Annual Report on Form 10-K for further discussion of management’s methodology used to estimate the loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance.

Allowance for loan loss activity

The allowance for loan losses is established through a provision for loan losses, a direct charge to earnings.  Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely.  Recoveries on loans previously charged-off are credited to the allowance.

The allowance for loan losses amounted to $26.5 million at June 30, 2014 compared to $27.0 million at December 31, 2013. The allowance for loan losses to total loans ratio was 1.67% at June 30, 2014 compared to 1.77% at both December 31, 2013 and June 30, 2013. The decline in the overall allowance to total loan ratio at June 30, 2014 primarily resulted from a reduction in specific reserves. Specific reserves declined due to current charge-offs, the majority of which were previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values.

Based on management’s judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the heading "Credit Quality Indicators," management believes that the Company’s allowance for loan losses is adequate to absorb probable losses from specifically known and other credit risks associated with the portfolio as of June 30, 2014.

Changes in the allowance for loan losses by segment for the three months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2014	$	12,870	$	7,697		$	3,589	$	1,176	$	634	$	206	$	26,172
Provision	195		(270		)	122		90		51		12		200
Recoveries	—		198			30		—		—		10		238
Less: Charge offs	—		75			—		—		—		7		82
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221	$	26,528

Changes in the allowance for loan losses by segment for the six months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer			Total
Beginning Balance at December 31, 2013	$	13,174	$	8,365		$	3,493	$	1,057	$	653	$	225		$	26,967
Provision	94		(152		)	218		209		32		(1		)	400
Recoveries	—		224			30		—		—		22			276
Less: Charge offs	203		887			—		—		—		25			1,115
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221		$	26,528
Ending allowance balance:
Allotted to loans individually evaluated for impairment	$	191	$	1,632		$	827	$	171	$	52	$	27		$	2,900
Allotted to loans collectively evaluated for impairment	$	12,874	$	5,918		$	2,914	$	1,095	$	633	$	194		$	23,628

Changes in the allowance for loan losses by segment for the three months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr			Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2013	$	12,359	$	7,396	$	3,486		$	975	$	672	$	128	$	25,016
Provision	614		207		(382		)	58		10		27		534
Recoveries	61		31		50			—		—		3		145
Less: Charge offs	14		1		—			—		—		9		24
Balance at June 30, 2013	$	13,020	$	7,633	$	3,154		$	1,033	$	682	$	149	$	25,671

Changes in the allowance for loan losses by segment for the six months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate	Cmml and Industrial	Cmml Constr		Resid. Mortgage	Home Equity		Consumer	Total
Beginning Balance at December 31, 2012	11,793	7,297	3,456		854	728		126	24,254
Provision	1,180	428	(352	)	51	(23	)	33	1,317
Recoveries	61	41	50		128	21		6	307
Less: Charge offs	14	133	—		—	44		16	207
Ending Balance at June 30, 2013	13,020	7,633	3,154		1,033	682		149	25,671
Ending allowance balance:
Allotted to loans individually evaluated for impairment	915	2,302	739		163	36		19	4,174
Allotted to loans collectively evaluated for impairment	12,105	5,331	2,415		870	646		130	21,497

The balances of loans as of June 30, 2014 by segment and evaluation method are summarized as follows: 

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	14,210	$	824,505		$	838,715
Commercial and industrial	10,041		375,950			385,991
Commercial construction	3,287		141,266			144,553
Residential	1,040		138,094			139,134
Home equity	302		75,932			76,234
Consumer	28		8,258			8,286
Deferred Fees	—		(1,510		)	(1,510		)
Total loans	$	28,908	$	1,562,495		$	1,591,403

The balances of loans as of December 31, 2013 by segment and evaluation method are summarized as follows:

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	15,139	$	805,160		$	820,299
Commercial and industrial	10,579		346,477			357,056
Commercial construction	3,358		129,149			132,507
Residential	619		132,102			132,721
Home equity	108		74,246			74,354
Consumer	23		8,620			8,643
Deferred Fees	—		(1,524		)	(1,524		)
Total loans	$	29,826	$	1,494,230		$	1,524,056

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Loans

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Loans

Loans

The Company specializes in lending to business entities, non-profit organizations, professionals and individuals. The Company’s primary lending focus is on the development of high quality commercial relationships achieved through active business development efforts, long-term relationships with established commercial developers, strong community involvement and focused marketing strategies.  Loans made to businesses include commercial mortgage loans, construction and land development loans, secured and unsecured commercial loans and lines of credit, and standby letters of credit.  The Company also originates equipment lease financing for businesses. Loans made to individuals include conventional residential mortgage loans, home equity loans and lines, residential construction loans on primary and secondary residences, and secured and unsecured personal loans and lines of credit. The Company manages its loan portfolio to avoid concentration by industry and loan size to lessen its credit risk exposure.

See Note 4, "Allowance for Loan Losses," for Information on the Company's credit risk management, non-accrual, impaired and troubled debt restructured loans and the allowance for loan losses.

Major classifications of loans at the periods indicated, are as follows:

(Dollars in thousands)	June 30, 2014			December 31, 2013
Commercial real estate	$	838,715		$	820,299
Commercial and industrial	385,991			357,056
Commercial construction	144,553			132,507
Total commercial loans	1,369,259			1,309,862
Residential mortgages	139,134			132,721
Home equity loans and lines	76,234			74,354
Consumer	8,286			8,643
Total retail loans	223,654			215,718
Gross loans	1,592,913			1,525,580
Deferred loan origination fees, net	(1,510		)	(1,524		)
Total loans	1,591,403			1,524,056
Allowance for loan losses	(26,528		)	(26,967		)
Net loans	$	1,564,875		$	1,497,089

Loan Categories

- Commercial loans:

Commercial real estate loans include loans secured by both owner-use and non-owner occupied real estate.  These loans are typically secured by a variety of commercial and industrial property types including one-to-four and multi-family apartment buildings, office or mixed-use facilities, strip shopping centers, or other commercial property and are generally guaranteed by the principals of the borrower. Commercial real estate loans generally have repayment periods of approximately fifteen to twenty-five years.  Variable interest rate loans have a variety of adjustment terms and indices, and are generally fixed for an initial period before periodic rate adjustments begin.

Commercial and industrial loans include seasonal revolving lines of credit, working capital loans, equipment financing (including equipment leases), and term loans.  Also included in commercial and industrial loans are loans partially guaranteed by the U.S. Small Business Administration ("SBA"), loans under various programs issued in conjunction with the Massachusetts Development Finance Agency and other agencies.  Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally guaranteed by the principals of the borrower.  Variable rate loans and lines in this portfolio have interest rates that are periodically adjusted, with loans generally having fixed initial periods.  Commercial and industrial loans have average repayment periods of one to seven years.

Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property, and loans for the purchase and improvement of raw land.  These loans are secured in whole or in part by the underlying real estate collateral and are generally guaranteed by the principals of the borrowers.  Construction lenders work to cultivate long-term relationships with established developers. The Company limits the amount of financing provided to any single developer for the construction of properties built on a speculative basis.  Funds for construction projects are disbursed as pre-specified stages of construction are completed.  Regular site inspections are performed, either by experienced construction lenders on staff or by independent outside inspection companies, at each construction phase, prior to advancing additional funds.  Commercial construction loans generally are variable rate loans and lines with interest rates that are periodically adjusted and generally have terms of one to three years.

From time to time, the Company participates with other banks in the financing of certain commercial projects.  In some cases, the Company may act as the lead lender, originating and servicing the loans, but participating out a portion of the funding to other banks.  In other cases, the Company may participate in loans originated by other institutions. In each case, the participating bank funds a percentage of the loan commitment and takes on the related risk.  In each case in which the Company participates in a loan, the rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks.  The balances participated out to other institutions are not carried as assets on the Company’s financial statements.  Loans originated by other banks in which the Company is the participating institution are carried in the loan portfolio at the Company’s pro rata share of ownership.  The Company performs an independent credit analysis of each commitment and a review of the participating institution prior to participation in the loan.  Loans originated by other banks in which the Company is the participating institution amounted to $47.7 million at June 30, 2014 and $34.5 million at December 31, 2013.

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance by a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  If the letter of credit is drawn upon, a loan is created for the customer, generally a commercial loan, with the same criteria associated with similar commercial loans.

- Residential loans:

Enterprise originates conventional mortgage loans on one-to-four family residential properties.  These properties may serve as the borrower’s primary residence, vacation homes, or investment properties.  Loan to value limits vary, generally from 80% for adjustable rate and multi-family, owner occupied properties, up to 97% for fixed rate loans on single family, owner occupied properties, with mortgage insurance coverage required for loan-to-value ratios greater than 80% based on program parameters.  In addition, financing is provided for the construction of owner occupied primary and secondary residences.  Residential mortgage loans may have terms of up to 30 years at either fixed or adjustable rates of interest.  Fixed and adjustable rate residential mortgage loans are generally originated using secondary market underwriting and documentation standards.

Depending on the current interest rate environment, management projections of future interest rates and the overall asset-liability management program of the Company, management may elect to sell those fixed and adjustable rate residential mortgage loans which are eligible for sale in the secondary market, or hold some or all of this residential loan production for the Company’s portfolio.  Mortgage loans are generally not pooled for sale, but instead sold on an individual basis. The Company may retain or sell the servicing when selling the loans.  Loans sold are subject to standard secondary market underwriting and eligibility representations and warranties over the life of the loan and are subject to an early payment default period covering the first four payments for certain loan sales. Loans classified as held for sale are carried as a separate line item on the balance sheet.

- Home equity loans and lines of credit:

Home equity term loans are originated for one-to-four family residential properties with maximum original loan to value ratios generally up to 80% of the assessed or appraised value of the property securing the loan.  Home equity loan payments consist of monthly principal and interest based on amortization ranging from three to fifteen years.  The rates may also be fixed for three to fifteen years.

The Company originates home equity revolving lines of credit for one-to-four family residential properties with maximum original loan to value ratios generally up to 80% of the appraised value of the property securing the loan.  Home equity lines generally have interest rates that adjust monthly based on changes in the Prime Rate, although minimum rates may be applicable.  Some home equity line rates may be fixed for a period of time and then adjusted monthly thereafter. The payment schedule for home equity lines requires interest only payments for the first ten years of the lines. Generally at the end of ten years, the line may be frozen to future advances, and principal plus interest payments are collected over a fifteen-year amortization schedule or, for eligible borrowers meeting certain requirements, the line availability may be extended for an additional interest only period.

- Consumer loans:

Consumer loans primarily consist of secured or unsecured personal loans, loans under energy efficiency financing programs in conjunction with Massachusetts public utilities, and overdraft protection lines on checking accounts extended to individual customers. The aggregate amount of overdrawn deposit accounts are reclassified as loan balances.

Loans serviced for others

At June 30, 2014 and December 31, 2013, the Company was servicing residential mortgage loans owned by investors amounting to $19.9 million and $20.6 million, respectively.  Additionally, the Company was servicing commercial loans participated out to various other institutions amounting to $48.3 million and $52.1 million at June 30, 2014 and December 31, 2013, respectively. See the discussion above for further information regarding commercial participations.

Loans serving as collateral

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

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commercial real estate	$	298,401	$	320,908
Residential mortgages	102,464		97,626
Home equity	16,994		17,548
Total loans pledged to FHLB	$	417,859	$	436,082

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Fair Value Measurements (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, Assets Measured on Recurring and Nonrecurring Basis

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

	June 30, 2014		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	200,120	$	—	$	200,120	$	—
Equity securities	14,725		14,725		—		—
FHLB Stock	3,357		—		—		3,357
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,250		—		—		6,250
Other real estate owned	114		—		—		114

	December 31, 2013		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	202,201	$	—	$	202,201	$	—
Equity securities	13,168		13,168		—		—
FHLB Stock	4,324		—		—		4,324
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,542		—		—		6,542
Other real estate owned	114		—		—		114

Quantitative Information About Significant Unobservable Inputs for Fair Value Measurements

The following table presents additional quantitative information about assets measured at fair value on a recurring and non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of June 30, 2014.

(Dollars in thousands)	Fair Value	Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
FHLB Stock	$3,357	FHLB Stated Par Value	N/A	N/A
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	$6,250	Appraisal of collateral	Appraisal adjustments (1)	5% - 50%
Other real estate owned	$114	Appraisal of collateral	Appraisal adjustments (1)	0% - 30%

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

Fair Value, by Balance Sheet Grouping

The carrying values, estimated fair values and placement in the fair value hierarchy of the Company’s financial instruments⁽¹⁾ for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2014				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	2,431	$	2,453	$	—	$	2,453	—
Loans, net	1,564,875		1,588,955		—		—		1,588,955
Financial liabilities:
Certificates of deposit (including brokered)	278,487		277,484		—		277,484		—
Borrowed funds	484		485		—		485		—
Junior subordinated debentures	10,825		12,529		—		—		12,529

	December 31, 2013				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	1,255	$	1,255	$	—	$	1,255	—
Loans, net	1,497,089		1,516,809		—		—		1,516,809
Financial liabilities:
Certificates of deposit (including brokered)	251,650		250,045		—		250,045		—
Borrowed funds	36,534		36,535		—		36,535		—
Junior subordinated debentures	10,825		11,358		—		—		11,358

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

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Loans (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Schedule of Loans by Loan Classification

Major classifications of loans at the periods indicated, are as follows:

(Dollars in thousands)	June 30, 2014			December 31, 2013
Commercial real estate	$	838,715		$	820,299
Commercial and industrial	385,991			357,056
Commercial construction	144,553			132,507
Total commercial loans	1,369,259			1,309,862
Residential mortgages	139,134			132,721
Home equity loans and lines	76,234			74,354
Consumer	8,286			8,643
Total retail loans	223,654			215,718
Gross loans	1,592,913			1,525,580
Deferred loan origination fees, net	(1,510		)	(1,524		)
Total loans	1,591,403			1,524,056
Allowance for loan losses	(26,528		)	(26,967		)
Net loans	$	1,564,875		$	1,497,089

Schedule of Loans Pledged as Collateral

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

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commercial real estate	$	298,401	$	320,908
Residential mortgages	102,464		97,626
Home equity	16,994		17,548
Total loans pledged to FHLB	$	417,859	$	436,082

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Earnings Per Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

Earnings per share

Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding (including participating securities) during the year.  The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.

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

	Three months ended June 30,		Six months ended June 30,
	2014	2013	2014	2013
Basic weighted average common shares outstanding	10,124,372	9,825,335	10,077,502	9,770,559
Dilutive shares	80,604	64,304	84,685	69,457
Diluted weighted average common shares outstanding	10,204,976	9,889,639	10,162,187	9,840,016

For the six months ended June 30, 2014, there were an additional 18,392 average stock options outstanding, which were excluded from the year-to-date calculation of diluted earnings per share due to the exercise price of these options exceeding the average market price of the Company’s common stock for the period.  These options, which were not dilutive at that date, may potentially dilute earnings per share in the future.

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Supplemental Retirement Plan and Other Postretirement Benefit Obligations

6 Months Ended

Jun. 30, 2014

Compensation and Retirement Disclosure [Abstract]

Supplemental Retirement Plan and Other Postretirement Benefit Obligations

Supplemental Retirement Plan and Other Postretirement Benefit Obligations

Supplemental Retirement Plan (SERPs)

The Company has salary continuation agreements with two of its active executive officers, and one former executive officer who currently works on a part time basis. These agreements provide for predetermined fixed-cash supplemental retirement benefits to be provided for a period of 20 years after each individual reaches a defined “benefit age.” The Company has not recognized service cost in the current or prior year as each officer had previously attained their individually defined benefit age and was fully vested under the plan.

This non-qualified plan represents a direct liability of the Company, and as such has no specific assets set aside to settle the benefit obligation.  The funded status is the aggregate amount accrued, or the “Accumulated Benefit Obligation,” which is equal to the present value of the benefits to be provided to the employee or any beneficiary in exchange for the employee’s service rendered to that date.  Because the Company’s benefit obligations provide for predetermined fixed-cash payments, the Company does not have any unrecognized costs to be included as a component of accumulated other comprehensive income.

The total net periodic benefit cost, which was comprised of interest cost only, was $35 thousand for the three months ended June 30, 2014 compared to $34 thousand for the three months ended June 30, 2013, and $71 thousand for the six months ended June 30, 2014 compared to $67 thousand for the six months ended June 30, 2013.

Benefits paid amounted to $69 thousand and $138 thousand for the three and six months ended June 30, 2014 and June 30, 2013, respectively. The Company anticipates accruing an additional $71 thousand to the plan during the remainder of 2014.

Supplemental Life Insurance

For certain senior and executive officers on whom the Bank owns bank owned life insurance ("BOLI"), the Company has provided supplemental life insurance, through split-dollar life insurance arrangements, which provides a death benefit to the officer’s designated beneficiaries.

The Company has recognized a liability for future benefits associated with supplemental life insurance plan, which is a non-qualified plan, which provides a benefit to an employee that extends to postretirement periods. This plan represents a direct liability of the Company, and as such has no specific assets set aside to settle the benefit obligation.  The funded status is the aggregate amount accrued, or the “Accumulated Postretirement Benefit Obligation,” which is the present value of the post- retirement benefits associated with this arrangement.

The total net periodic benefit cost, which was comprised of interest cost only, amounted to $18 thousand and $36 thousand for the three and six months ended June 30, 2014 and June 30, 2013, respectively.

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Stock-Based Compensation

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock-Based Compensation

Stock-Based Compensation

The Company has individual stock incentive plans and has not changed the general terms and conditions of these plans from those disclosed in the Company’s 2013 Annual Report on Form 10-K.

The Company’s stock-based compensation expense includes stock option awards and stock awards to officers, other employees and directors, and stock compensation in lieu of cash fees to directors.  Total stock-based compensation expense was $435 thousand and $916 thousand for the three and six months ended June 30, 2014, respectively, compared to $520 thousand and $859 thousand for the three and six months ended June 30, 2013, respectively.

Stock Option Awards

The Company recognized stock-based compensation expense related to stock option awards of $86 thousand and $190 thousand for the three and six months ended June 30, 2014, respectively, compared to $202 thousand and $269 thousand for the three and six months ended June 30, 2013, respectively.

The table below provides a summary of the options granted, fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the options granted in 2014 and 2013.

	Six Months Ended June 30,
	2014			2013
Options granted	31,229			44,175
Term in years	10			10
Average assumptions used in the model:
Expected volatility	47		%	48		%
Expected dividend yield	2.88		%	2.99		%
Expected life in years	7			7
Risk-free interest rate	2.19		%	1.29		%
Market price on date of grant	$	20.29		$	16.43
Per share weighted average fair value	$	8.32		$	6.56
Fair value as a percentage of market value at grant date	41		%	40		%

Options granted during the first six months of 2014 and 2013 vest 50% in year two and 50% in year four, on the anniversary date of the awards. Vested options are only exercisable while the employee remains employed with the Bank and for a limited time thereafter. If a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any stock options granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.

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

Refer to Note 11 “Stock-Based Compensation Plans” in the Company’s 2013 Annual Report on Form 10-K for a further description of the assumptions used in the valuation model.

Stock Awards

Stock-based compensation expense recognized in association with stock awards amounted to $282 thousand and $590 thousand for the three and six months ended June 30, 2014, respectively, compared to $264 thousand and $481 thousand for the three and six months ended June 30, 2013, respectively.

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

The table below provides a summary of stock awards granted in 2014 and 2013.

	Six Months Ended June 30,
Restricted Stock Awards	2014		2013
Two Year Vesting	6,660		6,146
Four Year Vesting	19,167		24,925
Performance-Based Vesting	33,017		47,735
Total Restricted Stock Awards	58,844		78,806
Weighted average grant date fair value	$	20.29	$	16.43

If a grantee’s employment or other service relationship, such as service as a director, is terminated for any reason, then any shares of restricted stock granted that have not vested as of the time of such termination generally must be forfeited, unless the Compensation Committee or the Board of Directors, as the case may be, waives such forfeiture requirement.

The restricted stock awards allow for the receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding.

In January 2014, the Company also granted 2,142 shares of fully vested stock to employees as anniversary awards at a fair market value of $20.95 per share.

Stock in Lieu of Directors’ Fees

In addition to restricted stock awards discussed above, the members of the Company’s Board of Directors may opt to receive newly issued shares of the Company’s common stock in lieu of cash compensation for attendance at Board and Board Committee meetings.  Stock-based compensation expense related to directors’ election to receive shares of common stock in lieu of cash fees for meetings amounted to $67 thousand and $136 thousand for the three and six months ended June 30, 2014, respectively, compared to $54 thousand and $109 thousand for the three and six months ended June 30, 2013, respectively. In January 2014, directors were issued 11,136 shares of common stock in lieu of cash fees based on their 2013 annual stock-based compensation expense of $194 thousand and a market value price of $17.43 per share, the market value of the common stock on the opt-in measurement date of January 2, 2013.

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Fair Value Measurements

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

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

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

	June 30, 2014		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	200,120	$	—	$	200,120	$	—
Equity securities	14,725		14,725		—		—
FHLB Stock	3,357		—		—		3,357
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,250		—		—		6,250
Other real estate owned	114		—		—		114

	December 31, 2013		Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(level 1)		(level 2)		(level 3)
Assets measured on a recurring basis:
Fixed income securities	$	202,201	$	—	$	202,201	$	—
Equity securities	13,168		13,168		—		—
FHLB Stock	4,324		—		—		4,324
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	6,542		—		—		6,542
Other real estate owned	114		—		—		114

The Company did not have cause to transfer any assets between the fair value measurement levels during the six months ended June 30, 2014 or the year ended December 31, 2013. There were no liabilities measured at fair value on a recurring or non-recurring basis as of June 30, 2014 or December 31, 2013.

All of the Company's fixed income investments and equity securities that are considered “available for sale” are carried at fair value.  The fixed income category above includes federal agency obligations, federal agency MBS, municipal securities and corporate bonds as held at those dates.  The Company utilizes third-party pricing vendors to provide valuations on its fixed income securities.  Fair values provided by the vendors were generally determined based upon pricing matrices utilizing observable market data inputs for similar or benchmark securities in active markets and/or based on a matrix pricing methodology which employs The Bond Market Association’s standard calculations for cash flow and price/yield analysis, live benchmark bond pricing and terms/condition data available from major pricing sources.  Therefore, management regards the inputs and methods used by third party pricing vendors to be “Level 2 inputs and methods” as defined in the “fair value hierarchy.” The Company periodically obtains a second price from an impartial third party on fixed income securities to assess the reasonableness of prices provided by the primary independent pricing vendor.

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

Net unrealized appreciation and depreciation on investments available for sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income.

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

Impaired loan balances in the table above represent those collateral dependent impaired commercial loans where management has estimated the credit loss by comparing the loan’s carrying value against the expected realizable fair value of the collateral (appraised value or internal analysis less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date).  Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent impaired loans are categorized as Level 3 within the fair value hierarchy.  A specific allowance is assigned to the collateral dependent impaired loan for the amount of management’s estimated credit loss.  The specific allowances assigned to the collateral dependent impaired loans at June 30, 2014 amounted to $2.2 million compared to $3.2 million at December 31, 2013.

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO.  When property is acquired, it is generally recorded at the lesser of the loan’s remaining principal balance, net of unamortized deferred fees, or the estimated fair value of the property acquired, less estimated costs to sell.  The estimated fair value is based on market appraisals and the Company’s internal analysis.  Certain inputs used in appraisals or the Company's internal analysis, are not always observable, and therefore, OREO may be categorized as Level 3 within the fair value hierarchy. There were no sales of OREO during the six months ended June 30, 2014. There were $121 thousand of gains realized on OREO sales during the six months ended June 30, 2013.

The following table presents additional quantitative information about assets measured at fair value on a recurring and non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of June 30, 2014.

(Dollars in thousands)	Fair Value	Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
FHLB Stock	$3,357	FHLB Stated Par Value	N/A	N/A
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	$6,250	Appraisal of collateral	Appraisal adjustments (1)	5% - 50%
Other real estate owned	$114	Appraisal of collateral	Appraisal adjustments (1)	0% - 30%

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

Other Guarantees and Commitments

Standby letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance by a customer to a third party.  The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements.  In accordance with the FASB, the estimated fair values of these commitments are carried on the balance sheet as a liability and amortized to income over the life of the letters of credit, which are typically one year.  The estimated fair value of these commitments carried on the balance sheet at June 30, 2014 and December 31, 2013 were deemed immaterial.

Interest rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments.  The commitments to sell loans are also considered derivative instruments. The Company generally does not pool mortgage loans for sale, but instead, sells the loans on an individual basis. To reduce the net interest rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest rate lock commitment is quoted on the origination of the loan. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices.  These commitments represent the Company’s only derivative instruments and are accounted for in accordance with FASB guidance.  The fair values of the Company’s derivative instruments are deemed to be FASB Level 2 measurements. At June 30, 2014 and December 31, 2013, the estimated fair value of the Company’s derivative instruments was considered to be immaterial.

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the balance sheet, the Company is also required to disclose fair value information about financial instruments for which it is practicable to estimate that value, whether or not recognized on the balance sheet.  In cases where quoted fair values are not available, fair values are based upon estimates using various valuation techniques.  Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.  The following methods and assumptions were used by the Company in estimating fair values of its financial instruments:

Loans held for sale: Loans held for sale are recordedat the lower of aggregate amortized cost or market value. The fair value is based on comparable market prices for loans with similar rates and terms.

Loans: The fair value of loans was determined using discounted cash flow analysis, using interest rates currently being offered by the Company.  The incremental credit risk for adversely classified loans was considered in the determination of the fair value of the loans.  This method of estimating fair value does not incorporate the exit price concept of fair value.

Commitments: The fair values of the unused portion of lines of credit and letters of credit were estimated to be the fees currently charged to enter into similar agreements.  Commitments to originate non-mortgage loans were short-term and were at current market rates and estimated to have no significant change in fair value.

Financial liabilities: The fair values of certificates of deposit and borrowings were estimated using discounted cash flow analysis using rates offered by the Bank, or advance rates offered by the FHLB on June 30, 2014 and December 31, 2013 for similar instruments.  The fair value of junior subordinated debentures was estimated using discounted cash flow analysis using a market rate of interest at June 30, 2014 and December 31, 2013.

Limitations:  The estimates of fair value of financial instruments were based on information available at June 30, 2014 and December 31, 2013 and are not indicative of the fair market value of those instruments as of the date of this report.  These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. The fair value of the Company's time deposit liabilities do not take into consideration the value of the Company's long-term relationships with depositors, which may have significant value.

Because no active market exists for a portion of the Company’s financial instruments, fair value estimates were based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors.  These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision.  Changes in assumptions could significantly affect the estimates.

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

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

The carrying values, estimated fair values and placement in the fair value hierarchy of the Company’s financial instruments⁽¹⁾ for which fair value is only disclosed but not recognized on the balance sheet at the dates indicated are summarized as follows:

	June 30, 2014				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	2,431	$	2,453	$	—	$	2,453	—
Loans, net	1,564,875		1,588,955		—		—		1,588,955
Financial liabilities:
Certificates of deposit (including brokered)	278,487		277,484		—		277,484		—
Borrowed funds	484		485		—		485		—
Junior subordinated debentures	10,825		12,529		—		—		12,529

	December 31, 2013				Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	1,255	$	1,255	$	—	$	1,255	—
Loans, net	1,497,089		1,516,809		—		—		1,516,809
Financial liabilities:
Certificates of deposit (including brokered)	251,650		250,045		—		250,045		—
Borrowed funds	36,534		36,535		—		36,535		—
Junior subordinated debentures	10,825		11,358		—		—		11,358

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

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Allowance For Loan Loss - Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Accounts, Notes, Loans and Financing Receivable [Line Items]
Carry value of OREO	$ 114		$ 114
Net gains on sales of OREO	$ 0	$ 121
Other real estate owned
Accounts, Notes, Loans and Financing Receivable [Line Items]
Number of OREO properties owned	1		1

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Stock-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The table below provides a summary of the options granted, fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the options granted in 2014 and 2013.

	Six Months Ended June 30,
	2014			2013
Options granted	31,229			44,175
Term in years	10			10
Average assumptions used in the model:
Expected volatility	47		%	48		%
Expected dividend yield	2.88		%	2.99		%
Expected life in years	7			7
Risk-free interest rate	2.19		%	1.29		%
Market price on date of grant	$	20.29		$	16.43
Per share weighted average fair value	$	8.32		$	6.56
Fair value as a percentage of market value at grant date	41		%	40		%

Schedule of Restricted Stock Awards Granted

The table below provides a summary of stock awards granted in 2014 and 2013.

	Six Months Ended June 30,
Restricted Stock Awards	2014		2013
Two Year Vesting	6,660		6,146
Four Year Vesting	19,167		24,925
Performance-Based Vesting	33,017		47,735
Total Restricted Stock Awards	58,844		78,806
Weighted average grant date fair value	$	20.29	$	16.43

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Investments Maturities (Details) (USD $)	Jun. 30, 2014
Schedule of Available-for-sale Securities [Line Items]
Callable Securities, Fair Value Disclosure	$ 37,500,000
Total fixed income securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost, Within One Year	11,318,000
Amortized Cost, Within One Year, Yield	1.25%
Fair Value, Within One Year	11,364,000
Amortized Cost Basis, After One, But Within Five Years	49,429,000
Amortized Cost Basis, After One, But Within Five Years, Yield	2.07%
Fair Value, After One, But Within Five Years	50,145,000
Amortized Cost, After Five, But Within Ten Years	40,907,000
Amortized Cost, After Five, But Within Ten Years, Yield	3.86%
Fair Value, after Five but Within Ten Years	42,006,000
Amortized Cost Basis, After Ten Years	96,507,000
Amortized Cost after Ten Years, Yield	2.54%
Fair Value, After Ten Years	96,605,000
Federal agency obligations
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost, Within One Year	7,011,000
Amortized Cost, Within One Year, Yield	0.79%
Amortized Cost Basis, After One, But Within Five Years	20,997,000
Amortized Cost Basis, After One, But Within Five Years, Yield	1.30%
Amortized Cost, After Five, But Within Ten Years	3,843,000
Amortized Cost, After Five, But Within Ten Years, Yield	2.09%
Amortized Cost Basis, After Ten Years	0
Amortized Cost after Ten Years, Yield	0.00%
MBS
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost, Within One Year	11,000
Amortized Cost, Within One Year, Yield	1.42%
Amortized Cost Basis, After One, But Within Five Years	2,706,000
Amortized Cost Basis, After One, But Within Five Years, Yield	2.48%
Amortized Cost, After Five, But Within Ten Years	6,454,000
Amortized Cost, After Five, But Within Ten Years, Yield	3.00%
Amortized Cost Basis, After Ten Years	86,405,000
Amortized Cost after Ten Years, Yield	2.18%
Municipal securities
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost, Within One Year	4,195,000
Amortized Cost, Within One Year, Yield	2.02%
Amortized Cost Basis, After One, But Within Five Years	21,531,000
Amortized Cost Basis, After One, But Within Five Years, Yield	2.86%
Amortized Cost, After Five, But Within Ten Years	28,860,000
Amortized Cost, After Five, But Within Ten Years, Yield	4.35%
Amortized Cost Basis, After Ten Years	10,102,000
Amortized Cost after Ten Years, Yield	5.59%
Corporate bonds
Schedule of Available-for-sale Securities [Line Items]
Amortized Cost, Within One Year	101,000
Amortized Cost, Within One Year, Yield	1.26%
Amortized Cost Basis, After One, But Within Five Years	4,195,000
Amortized Cost Basis, After One, But Within Five Years, Yield	1.60%
Amortized Cost, After Five, But Within Ten Years	1,750,000
Amortized Cost, After Five, But Within Ten Years, Yield	2.99%
Amortized Cost Basis, After Ten Years	$ 0
Amortized Cost after Ten Years, Yield	0.00%

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Fair Value Measurements - Recurring and Nonrecurring Basis (Details) (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Specific allowance for collateral dependent impaired loans	$ 2,200,000		$ 3,200,000
Net gains on sales of OREO	0	121,000
Fair Value, Measurements, Recurring | Fair Value | Fixed income securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	200,120,000		202,201,000
Fair Value, Measurements, Recurring | Fair Value | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	14,725,000		13,168,000
Fair Value, Measurements, Recurring | Fair Value | FHLB Stock
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	3,357,000		4,324,000
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 1 | Equity securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	14,725,000		13,168,000
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 2 | Fixed income securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	200,120,000		202,201,000
Fair Value, Measurements, Recurring | Fair Value, Inputs, Level 3 | FHLB Stock
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Fair value of assets	3,357,000		4,324,000
Fair Value, Measurements, Nonrecurring | Fair Value
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (collateral dependent), Fair Value	6,250,000		6,542,000
Other real estate owned, Fair Value	114,000		114,000
Fair Value, Measurements, Nonrecurring | Fair Value, Inputs, Level 3
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Impaired loans (collateral dependent), Fair Value	6,250,000		6,542,000
Other real estate owned, Fair Value	$ 114,000		$ 114,000

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Consolidated Statements of Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 3,314	$ 3,079	$ 6,820	$ 6,512
Other comprehensive income (loss), net of taxes:
Gross unrealized holding gains (losses) on investments arising during the period	1,700	(2,744)	3,188	(2,386)
Income tax (expense) benefit	(620)	999	(1,162)	884
Net unrealized holding gains (losses), net of tax	1,080	(1,745)	2,026	(1,502)
Less: Reclassification adjustment for net gains included in net income
Net realized gains on sales of securities during the period	127	468	615	948
Income tax expense	(49)	(163)	(219)	(339)
Reclassification adjustment for gains realized, net of tax	78	305	396	609
Total other comprehensive income (loss)	1,002	(2,050)	1,630	(2,111)
Comprehensive income	$ 4,316	$ 1,029	$ 8,450	$ 4,401

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Investments

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investments

Investments

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

	June 30, 2014
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations (1)	$	31,851	$	121	$	5	$	31,967
Federal agency mortgage backed securities (MBS) (1)	95,576		740		886		95,430
Municipal securities	64,688		2,040		102		66,626
Corporate bonds	6,046		69		18		6,097
Total fixed income securities	198,161		2,970		1,011		200,120
Equity investments	10,893		3,836		4		14,725
Total available for sale securities, at fair value	$	209,054	$	6,806	$	1,015	$	214,845

	December 31, 2013
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	55,440	$	146	$	43	$	55,543
Federal agency mortgage backed securities (MBS) (1)	80,997		367		1,714		79,650
Municipal securities	60,675		1,604		325		61,954
Corporate bonds	5,080		29		55		5,054
Total fixed income securities	202,192		2,146		2,137		202,201
Equity investments	9,960		3,228		20		13,168
Total available for sale securities, at fair value	$	212,152	$	5,374	$	2,157	$	215,369

__________________________________________

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae (FNMA), Freddie Mac (FHLMC), Ginnie Mae (GNMA), Federal Farm Credit Bank, or one of several Federal Home Loan Banks.  All agency MBS/Collateralized Mortgage Obligations ("CMOs") investments owned by the Company are backed by residential mortgages.

Included in the carrying amount of the federal agency MBS category were CMOs totaling $15.4 million and $17.4 million at June 30, 2014 and December 31, 2013, respectively.

At June 30, 2014, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a small portion of the portfolio (approximately 15%) invested in individual common stock of entities in the financial services industry.

Net unrealized appreciation and depreciation on investments available for sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income.

The net unrealized gain or loss in the Company's fixed income portfolio fluctuates as market interest rates rise and fall.  Due to the fixed rate nature of this portfolio, as market rates fall the value of the portfolio rises, and as market rates rise, the value of the portfolio declines.  The unrealized gains or losses on fixed income investments will also decline as the securities approach maturity, or if the issuer is credit impaired. Unrealized gains or losses will be recognized in the statements of income if the securities are sold. However, if an unrealized loss on a fixed income investment is deemed to be other than temporary, the credit loss portion is charged to earnings and the noncredit portion is recognized in accumulated other comprehensive income.

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

Management regularly reviews the portfolio for securities with unrealized losses that are other-than-temporarily impaired.  During the six months ended June 30, 2014 and 2013, the Company did not record any fair value impairment charges on its investments. As of June 30, 2014, there were a total of 41 investments (fixed income and equity), with a fair market value of $46.2 million, in an unrealized loss position totaling $1.0 million, including unrealized losses of $985 thousand that have been temporarily impaired for 12 months or longer. Management attributes these unrealized losses to increases in current market yields compared to the yields at the time the investments were purchased by the Company. Management does not consider these investments to be other-than-temporarily impaired at June 30, 2014, because (1) the decline in market value is not attributable to credit quality for fixed income securities or a fundamental deterioration in the equity fund or issuers, and (2) the Company does not intend to, and it is more likely than not that it will not be required to, sell those investments prior to a market price recovery or maturity.  

In assessing MBS investments and federal agency obligations, the contractual cash flows of these investments are guaranteed by an agency of the U.S. Government, and the agency that issued these securities is sponsored by the U.S. Government. Accordingly, it is expected that the securities would not be settled at a price less than the par value of the Company's investments. Management's assessment of other fixed income investments within the portfolio includes reviews of market pricing, ongoing credit quality evaluations, assessment of the investment's materiality, and duration of the unrealized loss position. In addition, the Company utilizes an outside registered investment adviser to manage the corporate and municipal bond portfolios, within prescribed guidelines set by management. At June 30, 2014, the Company's corporate and municipal bond portfolios did not contain any securities below investment grade, as reported by major credit rating agencies. For equities and funds, management's assessment includes the severity of the declines, whether it is unlikely that the security or fund will completely recover its unrealized loss within a reasonable time period and if the equity security or fund exhibits fundamental deterioration.

The contractual maturity distribution at June 30, 2014 of total fixed income investments is as follows:

	Within One Year				After One, But Within  Five Years				After Five, But Within Ten Years				After Ten Years
	Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields		Amortized Cost		Yields
At amortized cost:
Federal agency obligations	$	7,011	0.79	%	$	20,997	1.30	%	$	3,843	2.09	%	$	—	—	%
MBS	11		1.42	%	2,706		2.48	%	6,454		3.00	%	86,405		2.18	%
Municipal securities	4,195		2.02	%	21,531		2.86	%	28,860		4.35	%	10,102		5.59	%
Corporate bonds	101		1.26	%	4,195		1.60	%	1,750		2.99	%	—		—	%
Total fixed income securities	$	11,318	1.25	%	$	49,429	2.07	%	$	40,907	3.86	%	$	96,507	2.54	%
At fair value:
Total fixed income securities	$	11,364			$	50,145			$	42,006			$	96,605

Scheduled contractual maturities may not reflect the actual maturities of the investments. However, due to prepayments and amortization the actual MBS/CMO cash flows likely will be faster than presented above. Similarly, included in the carrying value of fixed income investments above are callable securities, comprised of municipal securities, federal agency obligations and corporate bonds totaling $37.5 million, which can be redeemed by the issuer prior to the maturity presented above.  Management considers these early payment factors when evaluating the interest rate risk in the Company’s asset-liability management program.

From time to time, the Company may pledge securities as collateral against deposit account balances of municipal deposit customers, and for borrowing capacity with the FHLB and the Federal Reserve Bank of Boston (the "FRB").  The fair value of securities pledged as collateral for these purposes was $200.1 million at June 30, 2014. 

See Note 8, “Fair Value Measurements” below for further information regarding the Company’s fair value measurements for available-for-sale securities.

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Loans - Balance by Class of Loans (Details) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2013	Mar. 31, 2013	Dec. 31, 2012
Schedule of Loans by Loan Classification [Line Items]
Gross loans	$ 1,592,913		$ 1,525,580
Deferred loan origination fees, net	(1,510)		(1,524)
Total loans	1,591,403		1,524,056
Allowance for loan losses	(26,528)	(26,172)	(26,967)	(25,671)	(25,016)	(24,254)
Net Loans	1,564,875		1,497,089
Commercial
Schedule of Loans by Loan Classification [Line Items]
Gross loans	1,369,259		1,309,862
Commercial real estate
Schedule of Loans by Loan Classification [Line Items]
Gross loans	838,715		820,299
Allowance for loan losses	(13,065)	(12,870)	(13,174)	(13,020)	(12,359)	(11,793)
Commercial and industrial
Schedule of Loans by Loan Classification [Line Items]
Gross loans	385,991		357,056
Allowance for loan losses	(7,550)	(7,697)	(8,365)	(7,633)	(7,396)	(7,297)
Commercial construction
Schedule of Loans by Loan Classification [Line Items]
Gross loans	144,553		132,507
Allowance for loan losses	(3,741)	(3,589)	(3,493)	(3,154)	(3,486)	(3,456)
Retail
Schedule of Loans by Loan Classification [Line Items]
Gross loans	223,654		215,718
Residential
Schedule of Loans by Loan Classification [Line Items]
Gross loans	139,134		132,721
Allowance for loan losses	(1,266)	(1,176)	(1,057)	(1,033)	(975)	(854)
Home Equity
Schedule of Loans by Loan Classification [Line Items]
Gross loans	76,234		74,354
Allowance for loan losses	(685)	(634)	(653)	(682)	(672)	(728)
Consumer
Schedule of Loans by Loan Classification [Line Items]
Gross loans	8,286		8,643
Allowance for loan losses	$ (221)	$ (206)	$ (225)	$ (149)	$ (128)	$ (126)

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Stock-Based Compensation Stock Options, Restricted Stock Awards, and Stock in Lieu of Directors' Fees (Details) (USD $) In Thousands, except Share data, unless otherwise specified	1 Months Ended	3 Months Ended		6 Months Ended			3 Months Ended		6 Months Ended		3 Months Ended		6 Months Ended				1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended	6 Months Ended
	Jan. 31, 2014	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jan. 02, 2013	Jun. 30, 2014 Stock options	Jun. 30, 2013 Stock options	Jun. 30, 2014 Stock options	Jun. 30, 2013 Stock options	Jun. 30, 2014 Restricted Stock	Jun. 30, 2013 Restricted Stock	Jun. 30, 2014 Restricted Stock	Jun. 30, 2013 Restricted Stock	Jun. 30, 2014 Restricted Stock Employee	Jun. 30, 2014 Restricted Stock Director	Jan. 31, 2014 Common Stock	Jun. 30, 2014 Common stock in lieu of cash Director	Jun. 30, 2013 Common stock in lieu of cash Director	Jun. 30, 2014 Common stock in lieu of cash Director	Jun. 30, 2013 Common stock in lieu of cash Director	Dec. 31, 2013 Common stock in lieu of cash Director	Jun. 30, 2014 Year Two Stock options	Jun. 30, 2013 Year Two Stock options	Jun. 30, 2014 Vesting, Year Four Stock options	Jun. 30, 2013 Vesting, Year Four Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Stock-based compensation expense		$ 435	$ 520	$ 916	$ 859		$ 86	$ 202	$ 190	$ 269	$ 282	$ 264	$ 590	$ 481				$ 67	$ 54	$ 136	$ 109	$ 194
Options granted, vesting percentage																							50.00%	50.00%	50.00%	50.00%
Award vesting period															4 years	2 years
Stock awards in period													58,844	78,806			2,142
Weighted Average Grant Date Fair Value, Restricted Stock													$ 20.29	$ 16.43			$ 20.95
Number of shares issued in lieu of cash to directors	11,136
Fair market share price						$ 17.43

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Allowance For Loan Loss (Tables)

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Financing Receivable Credit Quality Indicators

The following tables present the Company's credit risk profile for each class of loan in its portfolio by internally assigned risk rating category at the periods indicated. 

	June 30, 2014
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	11,993	$	1,227	$	111	$	825,384	$	838,715
Commercial and industrial	8,804		57		61		377,069		385,991
Commercial construction	3,370		—		—		141,183		144,553
Residential	1,599		—		—		137,535		139,134
Home equity	573		27		—		75,634		76,234
Consumer	47		—		—		8,239		8,286
Total gross loans	$	26,386	$	1,311	$	172	$	1,565,044	$	1,592,913

	December 31, 2013
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	13,545	$	1,266	$	—	$	805,488	$	820,299
Commercial and industrial	7,908		51		236		348,861		357,056
Commercial construction	3,358		—		—		129,149		132,507
Residential	1,012		—		—		131,709		132,721
Home equity	500		—		—		73,854		74,354
Consumer	40		—		—		8,603		8,643
Total gross loans	$	26,363	$	1,317	$	236	$	1,497,664	$	1,525,580

Past Due Financing Receivables

The following tables present age analysis of past due loans as of the dates indicated. 

Balance at June 30, 2014
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	4,554	$	1,590	$	10,131	$	16,275	$	822,440	$	838,715
Commercial and industrial	1,470		399		5,045		6,914		379,077		385,991
Commercial construction	185		—		1,053		1,238		143,315		144,553
Residential	1,789		—		1,224		3,013		136,121		139,134
Home equity	310		—		381		691		75,543		76,234
Consumer	30		13		120		163		8,123		8,286
Total gross loans	$	8,338	$	2,002	$	17,954	$	28,294	$	1,564,619	$	1,592,913

Balance at December 31, 2013
(Dollars in thousands)	Loans 30-59 Days Past Due		Loans 60-89 Days Past Due		Loans 90 or More Days Past Due (non- accrual)		Total Past Due Loans		Current Loans		Gross Loans
Commercial real estate	$	1,142	$	1,575	$	10,561	$	13,278	$	807,021	$	820,299
Commercial and industrial	680		908		5,743		7,331		349,725		357,056
Commercial construction	196		—		1,118		1,314		131,193		132,507
Residential	1,110		127		633		1,870		130,851		132,721
Home equity	211		10		281		502		73,852		74,354
Consumer	106		18		10		134		8,509		8,643
Total gross loans	$	3,445	$	2,638	$	18,346	$	24,429	$	1,501,151	$	1,525,580

Impaired Financing Receivables

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated as of the dated indicated.

Balance at June 30, 2014
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	16,284	$	14,210	$	13,495	$	715	$	191
Commercial and industrial	11,603		10,041		4,342		5,699		1,632
Commercial construction	3,411		3,287		1,410		1,877		827
Residential	1,100		1,040		356		684		171
Home equity	306		302		94		208		52
Consumer	28		28		1		27		27
Total	$	32,732	$	28,908	$	19,698	$	9,210	$	2,900

Balance at December 31, 2013
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	17,420	$	15,139	$	12,105	$	3,034	$	507
Commercial and industrial	12,220		10,579		4,902		5,677		2,901
Commercial construction	3,464		3,358		1,426		1,932		830
Residential	673		619		365		254		107
Home equity	110		108		—		108		31
Consumer	23		23		—		23		23
Total	$	33,910	$	29,826	$	18,798	$	11,028	$	4,399

The reduction in related specific reserves on impaired loans was due primarily to increases in estimated current realizable collateral values and current charge-offs of previously allocated specific reserves on commercial relationships for which management deemed collectability of amounts due was unlikely based on current realizable collateral values.

The following table presents the average recorded investment in impaired loans and the related interest recognized during the three month periods indicated.

	Three Months Ended June 30, 2014				Three Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	13,357		44		17,868		51
Commercial and industrial	10,337		42		9,252		24
Commercial construction	3,249		26		2,906		9
Residential	1,043		3		804		3
Home equity	294		—		109		—
Consumer	27		—		19		—
Total	$	28,307	$	115	$	30,958	$	87

The following table presents the average recorded investment in impaired loans and the related interest recognized during the six month periods indicated.

	Six Months Ended June 30, 2014				Six Months Ended June 30, 2013
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	$	13,758	$	94	$	20,155	$	149
Commercial and industrial	10,583		80		9,427		54
Commercial construction	3,277		52		2,902		33
Residential	901		3		807		4
Home equity	201		—		124		—
Consumer	25		—		16		—
Total	$	28,745	$	229	$	33,431	$	240

Troubled Debt Restructurings on Financing Receivables

Loans modified as troubled debt restructurings during the three month period ended June 30, 2013 are detailed below. 

	Three months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Three months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	—	—
Commercial construction	2	715
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	2	$	715

Loans modified as troubled debt restructurings during the six month period ended June 30, 2013 are detailed below. 

	Six months ended June 30, 2013
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	1	100		62
Commercial construction	—	—		—
Residential	—	—		—
Home equity	—	—		—
Consumer	—	—		—
Total	1	$	100	$	62

Loans modified as troubled debt restructuring within the twelve month period previous to June 30, 2013 for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2013
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	137
Commercial and industrial	—	—
Commercial construction	3	746
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	4	$	883

Loans modified as trouble debt restructurings during the three month period ended June 30, 2014 are detailed below. 

	Three months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—
Commercial and industrial	4	159		157
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	6	$	357	$	354

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the periods noted are detailed below.

	Three months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

Loans modified as troubled debt restructurings during the six month period ended June 30, 2014 are detailed below. 

	Six months ended June 30, 2014
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	1	$	450	$	434
Commercial and industrial	6	226		222
Commercial construction	—	—		—
Residential	1	125		124
Home equity	1	73		73
Consumer	—	—		—
Total	9	$	874	$	853

Loans modified as troubled debt restructurings within the preceding twelve month period for which there was a subsequent payment default during the period noted are detailed below.

	Six months ended June 30, 2014
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	—	$	—
Commercial and industrial	1	66
Commercial construction	—	—
Residential	—	—
Home Equity	—	—
Consumer	—	—
Total	1	$	66

Allowance for Credit Losses on Financing Receivables

Changes in the allowance for loan losses by segment for the three months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2014	$	12,870	$	7,697		$	3,589	$	1,176	$	634	$	206	$	26,172
Provision	195		(270		)	122		90		51		12		200
Recoveries	—		198			30		—		—		10		238
Less: Charge offs	—		75			—		—		—		7		82
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221	$	26,528

Changes in the allowance for loan losses by segment for the six months ended June 30, 2014, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial			Cmml Constr		Resid. Mortgage		Home Equity		Consumer			Total
Beginning Balance at December 31, 2013	$	13,174	$	8,365		$	3,493	$	1,057	$	653	$	225		$	26,967
Provision	94		(152		)	218		209		32		(1		)	400
Recoveries	—		224			30		—		—		22			276
Less: Charge offs	203		887			—		—		—		25			1,115
Ending Balance at June 30, 2014	$	13,065	$	7,550		$	3,741	$	1,266	$	685	$	221		$	26,528
Ending allowance balance:
Allotted to loans individually evaluated for impairment	$	191	$	1,632		$	827	$	171	$	52	$	27		$	2,900
Allotted to loans collectively evaluated for impairment	$	12,874	$	5,918		$	2,914	$	1,095	$	633	$	194		$	23,628

Changes in the allowance for loan losses by segment for the three months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr			Resid. Mortgage		Home Equity		Consumer		Total
Beginning Balance at March 31, 2013	$	12,359	$	7,396	$	3,486		$	975	$	672	$	128	$	25,016
Provision	614		207		(382		)	58		10		27		534
Recoveries	61		31		50			—		—		3		145
Less: Charge offs	14		1		—			—		—		9		24
Balance at June 30, 2013	$	13,020	$	7,633	$	3,154		$	1,033	$	682	$	149	$	25,671

Changes in the allowance for loan losses by segment for the six months ended June 30, 2013, are presented below: 

(Dollars in thousands)	Cmml Real Estate	Cmml and Industrial	Cmml Constr		Resid. Mortgage	Home Equity		Consumer	Total
Beginning Balance at December 31, 2012	11,793	7,297	3,456		854	728		126	24,254
Provision	1,180	428	(352	)	51	(23	)	33	1,317
Recoveries	61	41	50		128	21		6	307
Less: Charge offs	14	133	—		—	44		16	207
Ending Balance at June 30, 2013	13,020	7,633	3,154		1,033	682		149	25,671
Ending allowance balance:
Allotted to loans individually evaluated for impairment	915	2,302	739		163	36		19	4,174
Allotted to loans collectively evaluated for impairment	12,105	5,331	2,415		870	646		130	21,497

Financing Receivables by Evaluation Method for Impairment

The balances of loans as of June 30, 2014 by segment and evaluation method are summarized as follows: 

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	14,210	$	824,505		$	838,715
Commercial and industrial	10,041		375,950			385,991
Commercial construction	3,287		141,266			144,553
Residential	1,040		138,094			139,134
Home equity	302		75,932			76,234
Consumer	28		8,258			8,286
Deferred Fees	—		(1,510		)	(1,510		)
Total loans	$	28,908	$	1,562,495		$	1,591,403

The balances of loans as of December 31, 2013 by segment and evaluation method are summarized as follows:

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment			Total Loans
Commercial real estate	$	15,139	$	805,160		$	820,299
Commercial and industrial	10,579		346,477			357,056
Commercial construction	3,358		129,149			132,507
Residential	619		132,102			132,721
Home equity	108		74,246			74,354
Consumer	23		8,620			8,643
Deferred Fees	—		(1,524		)	(1,524		)
Total loans	$	29,826	$	1,494,230		$	1,524,056