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 September 30, 2019

Commission File Number:  001-33912

Enterprise Bancorp, Inc.

(Exact name of registrant as specified in its charter)

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

(978) 459-9000

(Registrant's telephone number, including area code)

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

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

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 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, a smaller reporting company, or an emerging growth company. See definition for "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. 

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

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

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

o Yes x No

As of October 31, 2019, there were 11,816,492 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 (unaudited)	3
	Consolidated Balance Sheets - September 30, 2019 and December 31, 2018	3
	Consolidated Statements of Income - Three and nine months ended September 30, 2019 and 2018	4
	Consolidated Statements of Comprehensive Income - Three and nine months ended September 30, 2019 and 2018	5
	Consolidated Statement of Changes in Stockholders' Equity - Three and nine months ended September 30, 2019 and 2018	6
	Consolidated Statements of Cash Flows - Nine months ended September 30, 2019 and 2018	8
	Notes to Unaudited Consolidated Interim Financial Statements	9
Item 2	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3	Quantitative and Qualitative Disclosures About Market Risk	60
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

(Unaudited)

(Dollars in thousands, except per share data)	September 30, 2019		December 31, 2018
Assets
Cash and cash equivalents:
Cash and due from banks	$	52,927	$	43,865
Interest-earning deposits	29,482		19,255
Total cash and cash equivalents	82,409		63,120
Investments:
Debt securities at fair value	482,106		431,473
Equity securities at fair value	1,433		1,448
Total investment securities at fair value	483,539		432,921
Federal Home Loan Bank ("FHLB") stock	2,024		5,357
Loans held for sale	3,297		701
Loans, less allowance for loan losses of $33,935 at September 30, 2019 and $33,849 at December 31, 2018	2,438,195		2,353,657
Premises and equipment, net	43,519		37,588
Lease right-of-use asset	19,184		—
Accrued interest receivable	12,356		11,462
Deferred income taxes, net	8,139		11,747
Bank-owned life insurance	30,620		30,138
Prepaid income taxes	1,729		732
Prepaid expenses and other assets	8,057		11,279
Goodwill	5,656		5,656
Total assets	$	3,138,724	$	2,964,358
Liabilities and Stockholders' Equity
Liabilities
Deposits:
Customer deposits	$	2,784,393	$	2,507,999
Brokered deposits	—		56,783
Total deposits	2,784,393		2,564,782
Borrowed funds	4,177		100,492
Subordinated debt	14,869		14,860
Lease liability	18,250		—
Accrued expenses and other liabilities	25,433		27,948
Accrued interest payable	920		979
Total liabilities	2,848,042		2,709,061
Commitments and Contingencies
Stockholders' Equity
Preferred stock, $0.01 par value per share; 1,000,000 shares authorized; no shares issued	—		—
Common stock, $0.01 par value per share; 40,000,000 shares authorized; 11,816,071 shares issued and outstanding at September 30, 2019 and 11,708,218 shares issued and outstanding at December 31, 2018	118		117
Additional paid-in capital	93,459		91,281
Retained earnings	184,994		165,183
Accumulated other comprehensive income (loss)	12,111		(1,284		)
Total stockholders' equity	290,682		255,297
Total liabilities and stockholders' equity	$	3,138,724	$	2,964,358

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

3

ENTERPRISE BANCORP, INC.

Consolidated Statements of Income

(Unaudited)

	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands, except per share data)	2019		2018			2019		2018
Interest and dividend income:
Loans and loans held for sale	$	30,938	$	28,109		$	90,973	$	81,786
Investment securities	3,278		2,742			9,785		7,835
Other interest-earning assets	632		497			1,688		818
Total interest and dividend income	34,848		31,348			102,446		90,439
Interest expense:
Deposits	5,158		3,697			15,156		8,770
Borrowed funds	36		6			315		332
Subordinated debt	233		233			692		692
Total interest expense	5,427		3,936			16,163		9,794
Net interest income	29,421		27,412			86,283		80,645
Provision for loan losses	1,025		750			1,580		2,650
Net interest income after provision for loan losses	28,396		26,662			84,703		77,995
Non-interest income:
Wealth management fees	1,407		1,388			4,077		4,214
Deposit and interchange fees	1,790		1,552			5,041		4,608
Income on bank-owned life insurance, net	158		167			482		505
Net gains (losses) on sales of debt securities	—		(34		)	146		(33		)
Net gains on sales of loans	139		47			244		179
Other income	655		604			2,035		1,775
Total non-interest income	4,149		3,724			12,025		11,248
Non-interest expense:
Salaries and employee benefits	14,382		13,026			41,982		38,479
Occupancy and equipment expenses	2,034		2,110			6,342		6,304
Technology and telecommunications expenses	1,863		1,568			5,290		4,760
Advertising and public relations expenses	430		530			1,927		2,284
Audit, legal and other professional fees	528		435			1,389		1,361
Deposit insurance premiums	16		418			733		1,264
Supplies and postage expenses	232		236			718		734
Other operating expenses	1,613		1,652			5,320		5,044
Total non-interest expense	21,098		19,975			63,701		60,230
Income before income taxes	11,447		10,411			33,027		29,013
Provision for income taxes	2,445		2,429			7,566		6,632
Net income	$	9,002	$	7,982		$	25,461	$	22,381
Basic earnings per share	$	0.76	$	0.68		$	2.16	$	1.92
Diluted earnings per share	$	0.76	$	0.68		$	2.15	$	1.91
Basic weighted average common shares outstanding	11,808,603		11,697,951			11,779,629		11,671,494
Diluted weighted average common shares outstanding	11,843,497		11,770,719			11,820,388		11,745,935

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

4

ENTERPRISE BANCORP, INC.

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
(Dollars in thousands)	2019			2018			2019			2018
Net income	$	9,002		$	7,982		$	25,461		$	22,381
Other comprehensive income (loss), net of taxes:
Gross unrealized holding gains (losses) on debt securities arising during the period	2,891			(3,363		)	17,385			(12,467		)
Income tax (expense) benefit	(642		)	752			(3,876		)	2,787
Net unrealized holding gains (losses), net of tax	2,249			(2,611		)	13,509			(9,680		)
Less: reclassification adjustment for net gains (losses) included in net income
Net realized gains (losses) on sales of debt securities during the period	—			(34		)	146			(33		)
Income tax (expense) benefit	—			7			(32		)	6
Reclassification adjustment for gains (losses) realized, net of tax	—			(27		)	114			(27		)
Total other comprehensive income (loss), net	2,249			(2,584		)	13,395			(9,653		)
Comprehensive income	$	11,251		$	5,398		$	38,856		$	12,728

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

5

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders' Equity

(Unaudited)

	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
(Dollars in thousands, except per share data)	Shares		Amount
Balance at December 31, 2018	11,708,218		$	117	$	91,281		$	165,183		$	(1,284	)	$	255,297
Net income								8,696						8,696
Other comprehensive income, net											3,134			3,134
Common stock dividend paid ($0.16 per share)								(1,875		)				(1,875		)
Common stock issued under dividend reinvestment plan	9,341		—		298									298
Common stock issued, other	264		—		8									8
Stock-based compensation	62,523		1		598									599
Net settlement for employee taxes on restricted stock and options	(2,741	)	—		(240		)							(240		)
Stock options exercised, net	20,509		—		144									144
Balance at March 31, 2019	11,798,114		118		92,089			172,004			1,850			266,061
Net income								7,763						7,763
Other comprehensive income, net											8,012			8,012
Common stock dividend paid ($0.16 per share)								(1,887		)				(1,887		)
Common stock issued under dividend reinvestment plan	10,503		—		294									294
Common stock issued, other	946		—		28									28
Stock-based compensation	(347	)	—		457									457
Net settlement for employee taxes on restricted stock and options	(3,828	)	—		(113		)							(113		)
Stock options exercised, net	620		—		12									12
Balance at June 30, 2019	11,806,008		118		92,767			177,880			9,862			280,627
Net income								9,002						9,002
Other comprehensive income, net											2,249			2,249
Common stock dividend paid ($0.16 per share)								(1,888		)				(1,888		)
Common stock issued under dividend reinvestment plan	10,345		—		293									293
Common stock issued, other	634		—		19									19
Stock-based compensation	(139	)	—		411									411
Net settlement for employee taxes on restricted stock and options	(1,654	)	—		(49		)							(49		)
Stock options exercised, net	877		—		18									18
Balance at September 30, 2019	11,816,071		$	118	$	93,459		$	184,994		$	12,111		$	290,682

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

6

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders' Equity (Continued)

(Unaudited)

	Common Stock				Additional Paid-in Capital			Retained Earnings			Accumulated Other Comprehensive Income/(Loss)			Total Stockholders' Equity
(Dollars in thousands, except per share data)	Shares		Amount
Balance at December 31, 2017	11,609,853		$	116	$	88,205		$	143,073		$	416		$	231,810
Net income								6,825						6,825
Other comprehensive loss, net											(6,264		)	(6,264		)
Common stock dividend paid ($0.145 per share)								(1,686		)				(1,686		)
Common stock issued under dividend reinvestment plan	12,765		—		397									397
Common stock issued, other	1,138		—		38									38
Stock-based compensation	51,488		1		590									591
Net settlement for employee taxes on restricted stock and options	(7,561	)	—		(286		)							(286		)
Stock options exercised, net	15,231		—		215									215
Balance at March 31, 2018	11,682,914		117		89,159			148,212			(5,848		)	231,640
Net income								7,574						7,574
Other comprehensive loss, net											(805		)	(805		)
Common stock dividend paid ($0.145 per share)								(1,692		)				(1,692		)
Common stock issued under dividend reinvestment plan	9,885		—		396									396
Common stock issued, other	823		—		30									30
Stock-based compensation	(303	)	—		438									438
Net settlement for employee taxes on restricted stock and options	(1,611	)	—		(76		)							(76		)
Stock options exercised, net	4,496		—		72									72
Balance at June 30, 2018	11,696,204		117		90,019			154,094			(6,653		)	237,577
Net income								7,982						7,982
Other comprehensive loss, net											(2,584		)	(2,584		)
Common stock dividend paid ($0.145 per share)								(1,696		)				(1,696		)
Common stock issued under dividend reinvestment plan	7,601		—		268									268
Common stock issued, other	1,014		—		38									38
Stock-based compensation	(233	)	—		451									451
Net settlement for employee taxes on restricted stock and options	(1,910	)	—		(72		)							(72		)
Stock options exercised, net	1,198		—		21									21
Balance at September 30, 2018	11,703,874		$	117	$	90,725		$	160,380		$	(9,237	)	$	241,985

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

7

ENTERPRISE BANCORP, INC.

Consolidated Statements of Cash Flows

(Unaudited)

	Nine months ended September 30,
(Dollars in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	25,461		$	22,381
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	1,580			2,650
Depreciation and amortization	4,553			5,158
Stock-based compensation expense	1,405			1,386
Income on bank-owned life insurance, net	(482		)	(505		)
Net (gains) losses on sales of debt securities	(146		)	33
Mortgage loans originated for sale	(16,049		)	(8,850		)
Proceeds from mortgage loans sold	13,697			8,619
Net gains on sales of loans	(244		)	(179		)
Net gains on equity securities	(275		)	(12		)
Net gains on sales of OREO	(34		)	—
Changes in:
Increase in other assets	(2,202		)	(4,503		)
(Decrease) increase in other liabilities	(694		)	753
Net cash provided by operating activities	26,570			26,931
Cash flows from investing activities:
Proceeds from sales of debt securities	13,623			13,359
Net proceeds from sales of FHLB capital stock	3,333			2,622
Net proceeds from the sale (purchases) of equity securities	290			(1,251		)
Proceeds from maturities, calls and pay-downs of debt securities	36,150			26,664
Purchase of debt securities	(83,583		)	(90,023		)
Net increase in loans	(86,373		)	(41,619		)
Additions to premises and equipment, net	(9,368		)	(4,178		)
Proceeds from OREO sales	289			—
Net cash used in investing activities	(125,639		)	(94,426		)
Cash flows from financing activities:
Net increase in deposits	219,611			170,350
Net decrease in borrowed funds	(96,315		)	(88,503		)
Cash dividends paid	(5,650		)	(5,074		)
Proceeds from issuance of common stock	940			1,167
Net settlement for employee taxes on restricted stock and options	(402		)	(434		)
Proceeds from stock option exercises	174			308
Net cash provided by financing activities	118,358			77,814
Net increase in cash and cash equivalents	19,289			10,319
Cash and cash equivalents at beginning of period	63,120			54,806
Cash and cash equivalents at end of period	$	82,409		$	65,125

See accompanying notes to the unaudited consolidated interim financial statements.

8

ENTERPRISE BANCORP, INC.

Notes to the Unaudited Consolidated Interim Financial Statements

(1) Summary of Significant Accounting Policies

(a) Organization of the Company and Basis of Presentation

The accompanying unaudited consolidated interim financial statements and these notes should be read in conjunction with the December 31, 2018 audited consolidated financial statements and notes thereto contained in the 2018 Annual Report on Form 10-K of Enterprise Bancorp, Inc. as filed with the Securities and Exchange Commission (the "SEC") on March 13, 2019 (the "2018 Annual Report on Form 10-K").  The Company has not materially changed its significant accounting policies from those disclosed in its 2018 Annual Report on Form 10-K. See Item (f) "Recent Accounting Pronouncements," under the subheading "Accounting pronouncements adopted by the Company," below in this Note 1.

The accompanying unaudited consolidated interim financial statements of Enterprise Bancorp, Inc. (the "Company," "Enterprise," "we," or "our"), a Massachusetts corporation, include the accounts of the Company and its wholly owned subsidiary, Enterprise Bank and Trust Company, commonly referred to as Enterprise Bank (the "Bank").  The Bank is a Massachusetts trust company and state chartered commercial bank organized in 1989. Substantially all of the Company's operations are conducted through the Bank and its subsidiaries.

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

The Company's headquarters and the Bank's main office are located at 222 Merrimack Street in Lowell, Massachusetts. At September 30, 2019, the Company had 24 full service branch banking offices serving the Greater Merrimack Valley, Nashoba Valley and North Central regions of Massachusetts and Southern New Hampshire (Southern Hillsborough and Rockingham counties). The Company also has received regulatory approval to open branches in Lexington, Massachusetts and North Andover, Massachusetts, and we anticipate that these offices will open in early 2020 and summer 2020, respectively. Through the Bank and its subsidiaries, the Company offers a range of commercial, residential and consumer loan products, deposit products and cash management services, electronic and digital banking options, and insurance services.  The Company also provides a range of wealth management, wealth services and trust services delivered via two channels, Enterprise Wealth Management and Enterprise Wealth 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.

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

The accompanying unaudited consolidated interim financial statements and notes thereto have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and the instructions for SEC Form 10-Q through the rules and interpretive releases of the SEC under federal securities law. In the opinion of management, the accompanying unaudited consolidated interim financial statements reflect all necessary adjustments consisting of normal recurring accruals for a fair presentation.  All significant intercompany balances and transactions have been eliminated in the accompanying unaudited consolidated interim financial statements. Certain previous years' amounts in the audited consolidated financial statements, and notes thereto, have been reclassified to conform to the current year's presentation. Interim results are not necessarily indicative of results to be expected for the entire year, or any future period.

The Company has evaluated subsequent events and transactions from September 30, 2019 through the date this Quarterly Report on Form 10-Q (this "Form 10-Q") was filed with the SEC for potential recognition or disclosure as required by GAAP and determined that there were no material subsequent events requiring recognition or disclosure.

9

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

(b) Uses of Estimates

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

As discussed in the Company's 2018 Annual Report on Form 10-K, the three most significant areas in which management applies critical assumptions and estimates are: the estimates of the allowance for loan losses, impairment review of investment securities, and the impairment review of goodwill.  Refer to Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements included in the Company's 2018 Annual Report on Form 10-K for accounting policies related to these significant estimates.

(c) Restricted Cash and Investments

Certain of the Company's derivative agreements contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount. When the Company has pledged cash as collateral for this purpose, the cash is carried as restricted cash within "Interest-earning deposits." See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements below for more information about the Company's collateral related to its derivatives.

The Bank is also required by the Federal Reserve Bank of Boston ("FRB") to maintain in reserves certain amounts of vault cash and/or deposits with the FRB. The average daily cash balance on hand for FRB reserve requirements included in "Cash and Due from Banks" was approximately $7.5 million, based on the two-week computation period encompassing September 30, 2019.

As a member of the FHLB, the Company is required to purchase certain levels of FHLB capital stock at par value in association with outstanding advances from the FHLB.  From time to time, the FHLB may initiate the repurchase, at par value, of "excess" levels of its capital stock held by member banks. This stock is classified as a restricted investment and is carried at cost, which management believes approximates fair value.  FHLB stock represents the only restricted investment held by the Company.

Management regularly reviews its holdings of FHLB stock for other-than-temporary impairment ("OTTI"). Based on management's periodic 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.

See Note 2, "Investment Securities," to the Company's unaudited consolidated interim financial statements below for additional information on management's OTTI review.

(d) Revenue Recognition-Accounting Standard Codification ("ASC") Topic 606

While the majority of the Company's revenue is generated from contracts with customers, our primary sources of revenue, interest and dividend income (primarily loan interest income), are outside of the scope of ASC 606, "Revenue from Contracts with Customers-Topic 606," and are accounted for under other ASC topics. The core principles of this standard require an entity to recognize revenue to depict the transfer of goods and services to customers as performance obligations are satisfied.

The primary areas of income within the scope of ASC 606, wealth management fees and deposit and interchange fees, which are components of non-interest income on the Company's consolidated statements of income, are discussed below.

Wealth management fees consist of income generated through Enterprise Wealth Management and Enterprise Wealth Services. Enterprise Wealth Management income is primarily generated by managing customers' financial assets. Revenue is recognized as our performance obligation is completed each month. Enterprise Wealth Services revenue is generated through a third-party arrangement to refer, manage and service customers. For new sales and referrals along with transactional type charges, the performance obligation is based on a point in time and the payment is received and revenue is recognized in the

10

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

same month as the revenue-generating activity. For managing and servicing customers, revenue is recognized when our performance obligation is completed each month.

Deposit and interchange fees are comprised of deposit account related charges and income generated from electronic payment interchanges. Deposit account charges consist of certain transactional analysis fees net of earning balance credits, monthly account service fees, and transactional fees such as overdraft fees. Analysis and monthly account services fees are recognized over the period the service is performed. For transactional fees, the performance obligation and the revenue are recognized at a point of time and payment is typically received as the service is rendered. Interchange income is generated primarily from retail debit card transactions processed through the card payment network. The performance obligation and the revenue are recognized when the service is performed.

The following non-interest income components are not subject to ASC 606: income on bank-owned life insurance ("BOLI"), net gains/losses on sales of investment securities, and net gains on sales of loans, and are covered under other ASC topics. The remaining revenue items in non-interest income are not material.

See also Note 1, "Summary of Significant Accounting Policies," to the Company's audited consolidated financial statements in the Company's 2018 Annual Report on Form 10-K for additional accounting policies on revenue recognition related to income generated on investments, gains and losses on debt security sales, net gains on loans held for sale, and loans.

(e) Income Taxes

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and in the states of Massachusetts and New Hampshire within the directives of the respective enacted tax legislation. 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 expense or benefit attributable to differences between the financial statement carrying amounts and the tax basis of assets and liabilities.  The deferred tax assets and liabilities are reflected at currently-enacted income tax rates applicable 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 in the period that includes the enactment date.

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

The income tax provisions will differ from the expense that would result from applying the federal statutory rate to income before taxes, due primarily to the impact of state tax expense, tax-exempt interest from certain investment securities, loans and BOLI and tax impact from equity compensation activity.

The Company did not have any unrecognized tax benefits accrued as income tax liabilities or receivables or as deferred tax items at September 30, 2019.  The Company is subject to U.S. federal and state income tax examinations by taxing authorities for the 2015 through 2018 tax years.

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(f) Recent Accounting Pronouncements

The tables below summarize recent accounting pronouncements issued by the Financial Accounting Standards Board("FASB") that were either recently adopted by the Company or have not yet been adopted. For pronouncements not yet adopted, the effective date listed below is in line with the required adoption date for public business entities, such as the Company, though certain accounting pronouncements may permit early adoption. For more detailed information regarding these pronouncements, refer to the FASB's Accounting Standards Updates("ASU").

Accounting pronouncements adopted by the Company
Standard/Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
ASU 2016-02, Leases (ASC Topic 842) January 1, 2019	This ASU supersedes previous leasing guidance in Topic 840, and lessees are now required to recognize lease (right-of-use or "ROU") assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months.	See Note 5, "Leases," to the Company's unaudited consolidated interim financial statements, contained below, for further information on the impact of the standard's adoption on the Company.
ASU 2017-02, Derivatives and Hedging (ASC Topic 815): Targeted Improvements to Accounting for Hedging Activities January 1, 2019	The objective of the ASU is to better align hedge accounting with an organization's risk management activities in the financial statements. In addition, the ASU simplifies the application of hedge accounting guidance in areas where practice issues exist. The amendments expand the strategies that qualify for hedge accounting, change how many hedging relationships are presented in the financial statements and simplify the application of hedge accounting in certain situations, reducing the operational complexities associated with certain existing strategies. New or modified disclosures are required, primarily for fair value and cash flow hedges.	The Company currently does not hold any instruments that meet hedge accounting requirements and therefore the adoption of this ASU in January 2019 did not have an impact on the Company's unaudited consolidated interim financial statements, results of operations or disclosures for the periods covered by the Form 10-Q, however, the Company may utilize hedging strategies in the future.
ASU No. 2018-07, Compensation-Stock-Based Compensation (ASU Topic 718): Improvements to Nonemployee Shared-Based Payment Accounting January 1, 2019	The amendments in the ASU expand the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from non-employees except for share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract. Additionally, Topic 718 has been updated for specific guidance on inputs to an option pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern of cost recognition over that period).	The adoption of this standard in January 2019 did not have a material impact on the Company's unaudited consolidated interim financial statements, results of operations or disclosures for the periods covered by the Form 10-Q. See Note 9, "Stockholders' Equity."

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Accounting pronouncements not yet adopted by the Company
Standard/Anticipated Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
ASU No. 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments January 1, 2020	The amendments in this ASU require a financial asset (or a group of financial assets) measured at amortized cost basis to be presented at the net amount expected to be collected. Previously, when credit losses were measured under GAAP, an entity generally only considered past events and current conditions in measuring the incurred loss and generally recognition of the full amount of credit losses was delayed until the loss was probable of occurring. The amendments in this ASU eliminate the probable initial recognition threshold in current GAAP and, instead, reflect an entity's current estimate of all expected credit losses (commonly known as "CECL"). The measurement of expected credit losses is based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the report amount. An entity must use judgment in determining the relevant information and estimation methods that are appropriate in its circumstances. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected increases or decreases of expected credit losses that have taken place during the period. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis of the financial asset(s) to present the net carrying value at the amount expected to be collected on the financial asset. Credit losses on available-for-sale debt securities should be measured in a manner similar to current GAAP. However, the amendments in this ASU require that credit losses be presented as an allowance rather than as a write-down. Unlike current GAAP, the ASU provides for reversals of credit losses in future period net income in situations where the estimate of loss declines. An entity will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period in which the guidance is effective (that is, a modified-retrospective approach).	As of September 30, 2019, the Company continues to work through the implementation plan, including reviewing and validating the methodology and assumptions to be utilized, and is on target for adoption of the new credit standard on January 1, 2020. Implementation will be recorded through a cumulative effect adjustment to retained earnings(1). The Company is still assessing the impact of the adoption of ASU No. 2016-13 on its operations, financial results, disclosures, and controls. (1) In December 2018, banking regulators issued a final rule, effective April 1, 2019, that addresses the regulatory capital treatment of credit loss allowances under the CECL methodology and allows banking organizations an option to phase in the day-one regulatory capital effects of CECL adoption over three years.  For regulatory capital purposes the Company will phase in the adoption adjustment over the allowable three-year phase in period.
ASU No. 2017-04, Intangibles-Goodwill and Other (ASU Topic 350)- Simplifying the Test for Goodwill Impairment January 1, 2020	The main provision in this ASU eliminated Step 2 of the goodwill impairment test and instead requires an entity to perform its annual, or interim, goodwill impairment test by comparing the fair value of the reporting unit with its carrying amount. An impairment charge would be recognized for the amount the carrying value exceeds the reporting unit's fair value as long as the amount recognized does not exceed the amount of goodwill allocated to the reporting unit.	Goodwill carried on the Company's consolidated financial statements was $5.7 million at both September 30, 2019 and December 31, 2018. This asset is related to the Company’s acquisition of two branch offices in July 2000. The Company does not expect the adoption of ASU No. 2017-04 to have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2018-13, Fair Value Measurement (ASU Topic 820)-Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement January 1, 2020	The amendments in this ASU modify the disclosure requirements primarily related to level 3 fair value measurements of the fair value hierarchy.	The Company does not expect the adoption of ASU No. 2018-13 to have a material impact on the Company's consolidated financial statements and results of operations because this ASU primarily relates to disclosure requirements.

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Accounting pronouncements not yet adopted by the Company (continued)
Standard/Anticipated Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
ASU No.2018-15, Intangibles-Goodwill and Other- Internal-Use Software (ASU Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract January 1, 2020	The major provision in the amendments in this ASU require an entity to capitalize certain implementation costs incurred in a hosting arrangement that is a service contract in accordance with current GAAP for internal-use software and expense these costs over the term of the hosting arrangement. Additionally, these capitalized implementation costs are required to be reviewed for impairment in accordance with current GAAP for internal-use software. The amendments in this ASU should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption.	The Company does not expect the adoption of ASU No. 2018-15 to have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General (ASU Subtopic 715-20) - Disclosure Framework- Changes to the Disclosure Requirements for Defined Benefit Plans January 1, 2021	The amendments in this ASU modify the disclosure requirements on defined benefit plans including requiring disclosures about significant gains and losses related to changes in the benefit obligation.	The adoption of ASU No. 2018-14 will not have a material impact on the Company's consolidated financial statements and results of operations because this ASU primarily relates to disclosure requirements and the balances of the benefit plans impacted by this ASU are immaterial to the Company.

(2) Investment Securities

As of September 30, 2019 and December 31, 2018, the investment portfolio was primarily comprised of debt securities, with a small portion of the portfolio invested in equity securities.

See also item (c), "Restricted Cash and Investments," contained in Note 1, "Summary of Significant Accounting Policies," to the Company's unaudited consolidated interim financial statements, contained above, for further information regarding the Company's FHLB stock. See Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for investment securities.

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Debt Securities

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

	September 30, 2019
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	999	$	5	$	—	$	1,004
Residential federal agency MBS(1)	178,494		2,792		134		181,152
Commercial federal agency MBS(1)	111,796		4,257		—		116,053
Municipal securities	160,825		8,153		—		168,978
Corporate bonds	13,985		479		1		14,463
Certificate of deposits(2) ("CDs")	454		2		—		456
Total debt securities, at fair value	$	466,553	$	15,688	$	135	$	482,106

	December 31, 2018
(Dollars in thousands)	Amortized cost		Unrealized gains		Unrealized losses		Fair Value
Federal agency obligations(1)	$	7,994	$	—	$	19	$	7,975
Residential federal agency MBS(1)	174,701		633		2,608		172,726
Commercial federal agency MBS(1)	93,800		609		430		93,979
Municipal securities	141,747		1,122		826		142,043
Corporate bonds	13,967		24		185		13,806
Certificates of deposits(2)	950		—		6		944
Total debt securities, at fair value	$	433,159	$	2,388	$	4,074	$	431,473

__________________________________________

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as, investments guaranteed by Ginnie Mae ("GNMA"), a wholly-owned government entity. 

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

Included in the residential and commercial federal agency mortgage-backed securities ("MBS") categories were collateralized mortgage obligations ("CMOs") issued by U.S. agencies with fair values totaling $272.6 million and $242.8 million at September 30, 2019 and December 31, 2018, respectively. Included in municipal securities were tax exempt municipal securities with fair values totaling $100.1 million and $107.3 million at September 30, 2019 and December 31, 2018, respectively.

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

Net unrealized appreciation and depreciation on debt securities available-for-sale, net of applicable income taxes, are reflected as a component of accumulated other comprehensive income (loss). The net unrealized gain or loss in the Company's debt security portfolio fluctuates as market interest rates rise and fall.  Due to the fixed rate nature of this portfolio, as market rates fall, the value of the portfolio rises, and as market rates rise, the value of the portfolio declines.  The unrealized gains or losses on debt securities will also decline as the securities approach maturity. Unrealized losses on debt securities that are deemed OTTI are generally charged to earnings, as described further in Note 1, "Summary of Significant Accounting Policies," under Item (e), "Investments," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K. Gains or losses will be recognized in the income statement if the securities are sold.

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The following tables summarize debt securities with unrealized losses, due to the fair values having declined below the amortized costs of the individual investments, by the duration of their continuous unrealized loss positions at September 30, 2019 and December 31, 2018: 

	September 30, 2019
	Less than 12 months				12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings
Residential federal agency MBS	$	23,095	$	63	$	5,088	$	71	$	28,183	$	134	9
Corporate bonds	—		—		1,071		1		1,071		1		6
Total temporarily impaired debt securities	$	23,095	$	63	$	6,159	$	72	$	29,254	$	135	15

	December 31, 2018
	Less than 12 months				12 months or longer				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		# of holdings
Federal agency obligations	$	997	$	1	$	6,978	$	18	$	7,975	$	19	3
Residential federal agency MBS	26,147		597		81,158		2,011		107,305		2,608		25
Commercial federal agency MBS	3,258		11		18,717		419		21,975		430		9
Municipal securities	15,036		108		41,265		718		56,301		826		83
Corporate bonds	5,277		36		5,653		149		10,930		185		63
CDs	—		—		944		6		944		6		4
Total temporarily impaired debt securities	$	50,715	$	753	$	154,715	$	3,321	$	205,430	$	4,074	187

During the nine months endedSeptember 30, 2019 and 2018, the Company did not record any fair value impairment charges OTTI on its investments in debt securities. At September 30, 2019, management did not consider any debt securities to have OTTI. Management regularly reviews the portfolio for debt securities with unrealized losses that are other-than-temporarily impaired. There have been no material changes to the Company's process for assessing investments for OTTI as reported in the Company's 2018 Annual Report on Form 10-K. For more information about the Company's assessment for OTTI, see Note 2, "Investment Securities," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K.

The contractual maturity distribution at September 30, 2019 of total debt securities was as follows:

(Dollars in thousands)	Amortized Cost		Fair Value
Due in one year or less	$	5,265	$	5,287
Due after one, but within five years	70,738		72,816
Due after five, but within ten years	173,589		182,111
Due after ten years	216,961		221,892
Total debt securities	$	466,553	$	482,106

Scheduled contractual maturities shown above may not reflect the actual maturities of the investments. The actual MBS/CMO cash flows likely will be faster than presented above due to prepayments and amortization. Similarly, included in the table above are callable securities, comprised of municipal securities and corporate bonds, with a fair value of $87.6 million, which can be redeemed by the issuers prior to the maturity presented above.  Management considers these factors when evaluating the interest-rate risk in the Company's asset-liability management program.

From time to time, the Company may pledge debt securities as collateral for deposit account balances of municipal customers, and for borrowing capacity with the FHLB and the FRB.  The fair value of debt securities pledged as collateral for these purposes was $475.3 million at September 30, 2019.

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Sales of debt securities for the three and nine months endedSeptember 30, 2019 and September 30, 2018 are summarized as follows:

	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2019		2018			2019			2018
Amortized cost of debt securities sold (1)	$	—	$	687		$	11,621		$	1,355
Gross realized gains on sales	—		—			149			3
Gross realized losses on sales	—		(34		)	(3		)	(36		)
Total proceeds from sales of debt securities	$	—	$	653		$	11,767		$	1,322

_________________________________________

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

Equity Securities

The Company held equity securities with a fair value of $1.4 million at September 30, 2019 and December 31, 2018. These investments are accounted for under ASC Topic 321, "Investments-Equity Securities," and are recorded on the Company's consolidated balance sheet at fair value with changes in fair value recognized in the Company's consolidated income statement as a component of "Other Income." The net fair value changes of equity securities recognized as a component of "Other Income" is dependent on the amount of dollars invested in equities and the magnitude of changes in equity market values. At September 30, 2019, the equity portfolio consisted primarily of investments in a diversified group of mutual funds, with a portion of the portfolio invested in common stock of individual entities in the financial services industry.

Gains and losses on equity securities at September 30, 2019 and September 30, 2018 are summarized as follows:

	Three months ended September 30,					Nine months ended September 30,
(Dollars in thousands)	2019			2018		2019		2018
Net gains recognized during the period on equity securities	$	12		$	14	$	275	$	12
Less: Net gains realized on equity securities sold during the period	36			—		36		—
Unrealized (losses) gains recognized during the reporting period on equity securities still held in the portfolio	$	(24	)	$	14	$	239	$	12

(3) Loans

The Company manages its loan portfolio to avoid concentration by industry, relationship size and source of repayment to lessen its credit risk exposure. For additional information on the Company's lending products, see the heading "Lending Products" under Item 1, "Business," contained in the Company's 2018 Annual Report on Form 10-K.

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Loan Portfolio Classifications

Major classifications of loans at the dates indicated were as follows:

(Dollars in thousands)	September 30, 2019			December 31, 2018
Commercial real estate	$	1,317,999		$	1,303,879
Commercial and industrial	511,695			514,253
Commercial construction	295,448			234,430
Total commercial loans	2,125,142			2,052,562
Residential mortgages	241,157			231,501
Home equity loans and lines	98,763			96,116
Consumer	10,037			10,241
Total retail loans	349,957			337,858
Gross loans	2,475,099			2,390,420
Deferred loan origination fees, net	(2,969		)	(2,914		)
Total loans	2,472,130			2,387,506
Allowance for loan losses	(33,935		)	(33,849		)
Net loans	$	2,438,195		$	2,353,657

Commercial loans originated by other banks in which the Company is a participating institution are carried at the pro-rata share of ownership and amounted to $68.0 million at September 30, 2019 and $63.5 million at December 31, 2018.

Loans serviced for others

At September 30, 2019 and December 31, 2018, the Company was servicing residential mortgage loans owned by investors amounting to $16.4 million and $17.2 million, respectively.  Additionally, the Company was servicing commercial loans originated by the Company and participated out to various other institutions amounting to $77.3 million and $72.1 million at September 30, 2019 and December 31, 2018, respectively.

Loans serving as collateral

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

(Dollars in thousands)	September 30, 2019		December 31, 2018
Commercial real estate	$	269,379	$	311,024
Residential mortgages	228,109		220,815
Home equity lines of credit	8,078		8,382
Total loans pledged to FHLB	$	505,566	$	540,221

See also Note 4, "Allowance for Loan Losses," to the Company's unaudited consolidated interim financial statements, contained below, for information on the Company's credit risk management, non-accrual, impaired and troubled debt restructured loans and the allowance for loan losses. See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements, contained below, for information regarding interest-rate swap agreements related to certain commercial loans, and see Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for loans.

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(4) Allowance for Loan Losses

Allowance for probable loan losses methodology

On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated probable credit losses.  The Company uses a systematic methodology to measure the amount of estimated loan loss exposure inherent in the portfolio for purposes of establishing a sufficient allowance for loan losses.  The methodology makes use of specific reserves for loans individually evaluated and deemed impaired, and general reserves for larger pools of homogeneous loans, which are collectively evaluated relying on a combination of qualitative and quantitative factors that may affect credit quality of the pool.

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K,

The balances of loans as of September 30, 2019 by portfolio classification and evaluation method are summarized as follows: 

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Gross Loans
Commercial real estate	$	17,737	$	1,300,262	$	1,317,999
Commercial and industrial	10,019		501,676		511,695
Commercial construction	1,732		293,716		295,448
Residential mortgages	1,239		239,918		241,157
Home equity loans and lines	423		98,340		98,763
Consumer	25		10,012		10,037
Total gross loans	$	31,175	$	2,443,924	$	2,475,099

The balances of loans as of December 31, 2018 by portfolio classification and evaluation method are summarized as follows:

(Dollars in thousands)	Loans individually evaluated for impairment		Loans collectively evaluated for impairment		Gross Loans
Commercial real estate	$	16,318	$	1,287,561	$	1,303,879
Commercial and industrial	12,053		502,200		514,253
Commercial construction	1,736		232,694		234,430
Residential mortgages	893		230,608		231,501
Home equity loans and lines	514		95,602		96,116
Consumer	16		10,225		10,241
Total gross loans	$	31,530	$	2,358,890	$	2,390,420

See "Financial Condition" in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," under the headings "Credit Risk" and "Allowance for Loan Losses" in this Form 10-Q for additional information about changes in the Company's credit quality indicators since December 31, 2018.

Credit quality indicators

Early detection of credit issues is critical to minimize credit losses. Accordingly, management regularly monitors internal credit quality indicators such as, among others, the risk classification of adversely classified loans, past due and non-accrual loans, impaired and restructured loans, and the level of foreclosure activity. These credit quality indicators are discussed below.

Adversely classified loans

The Company's loan risk rating system classifies loans depending on risk of loss characteristics. The classifications range

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from "substantially risk free" for the highest quality loans and loans that are secured by cash collateral, through a satisfactory range of "minimal," "moderate," "better than average," and "average" risk, to the regulatory problem-asset classifications of "criticized," for loans that may need additional monitoring, and the more severe adverse classifications of "substandard," "doubtful," and "loss" based on criteria established under banking regulations. Loans which are evaluated to be of weaker credit quality are placed on the "watch credit list" and reviewed on a more frequent basis by management.

Adversely classified loans may be accruing or in non-accrual status and may be additionally designated as impaired or restructured, or some combination thereof. 

The following tables present the Company's credit risk profile for each portfolio classification by internally assigned adverse risk rating category as of the periods indicated:

	September 30, 2019
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	16,924	$	—	$	—	$	1,301,075	$	1,317,999
Commercial and industrial	13,905		—		—		497,790		511,695
Commercial construction	2,245		—		—		293,203		295,448
Residential mortgages	1,835		—		—		239,322		241,157
Home equity loans and lines	468		—		—		98,295		98,763
Consumer	41		4		—		9,992		10,037
Total gross loans	$	35,418	$	4	$	—	$	2,439,677	$	2,475,099

	December 31, 2018
	Adversely Classified						Not Adversely
(Dollars in thousands)	Substandard		Doubtful		Loss		Classified		Gross Loans
Commercial real estate	$	17,714	$	240	$	—	$	1,285,925	$	1,303,879
Commercial and industrial	12,821		—		—		501,432		514,253
Commercial construction	2,262		—		—		232,168		234,430
Residential mortgages	1,820		—		—		229,681		231,501
Home equity loans and lines	561		—		—		95,555		96,116
Consumer	35		8		—		10,198		10,241
Total gross loans	$	35,213	$	248	$	—	$	2,354,959	$	2,390,420

Total adversely classified loans amounted to 1.43% of total loans at September 30, 2019, compared to 1.49% at December 31, 2018.

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Past due and non-accrual loans

 The following tables present an age analysis of past due loans by portfolio classification as of the dates indicated:

	Balance at September 30, 2019
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or more		Total Past Due Loans		Current Loans		Gross Loans		Non-accrual Loans
Commercial real estate	$	9,012	$	2,057	$	3,451	$	14,520	$	1,303,479	$	1,317,999	$	7,507
Commercial and industrial	3,902		325		1,603		5,830		505,865		511,695		3,064
Commercial construction	5,414		1,748		—		7,162		288,286		295,448		119
Residential mortgages	2,247		270		624		3,141		238,016		241,157		1,050
Home equity loans and lines	1,071		—		175		1,246		97,517		98,763		423
Consumer	17		7		1		25		10,012		10,037		20
Total gross loans	$	21,663	$	4,407	$	5,854	$	31,924	$	2,443,175	$	2,475,099	$	12,183

	Balance at December 31, 2018
(Dollars in thousands)	30-59 Days Past Due		60-89 Days Past Due		Past Due 90 days or more		Total Past Due Loans		Current Loans		Gross Loans		Non-accrual Loans
Commercial real estate	$	7,596	$	21	$	3,821	$	11,438	$	1,292,441	$	1,303,879	$	6,894
Commercial and industrial	619		17		2,299		2,935		511,318		514,253		3,417
Commercial construction	4,319		—		—		4,319		230,111		234,430		176
Residential mortgages	114		—		377		491		231,010		231,501		763
Home equity loans and lines	14		168		209		391		95,725		96,116		514
Consumer	23		31		6		60		10,181		10,241		20
Total gross loans	$	12,685	$	237	$	6,712	$	19,634	$	2,370,786	$	2,390,420	$	11,784

At September 30, 2019 and December 31, 2018, all loans past due 90 days or more were carried as non-accrual, in addition to those loans that were less than 90 days past due where reasonable doubt existed as to the full and timely collection of interest or principal that have also been designated as non-accrual, despite their payment due status shown in the tables above.

Non-accrual loans that were not adversely classified amounted to $120 thousand at September 30, 2019 and $81 thousand at December 31, 2018. These balances primarily represented the guaranteed portions of non-performing SBA loans. The majority of the non-accrual loan balances were also carried as impaired loans during the periods noted and are discussed further below.

The ratio of non-accrual loans to total loans amounted to 0.49% at both September 30, 2019 and December 31, 2018.

At September 30, 2019, additional funding commitments for non-accrual loans were not material. 

Impaired loans

Impaired loans are individually significant loans for which management considers it probable that not all amounts due (principal and interest) will be collected in accordance with the original contractual terms. Impaired loans include loans that have been modified in a troubled debt restructuring ("TDR"), see "Troubled Debt Restructurings" below. Impaired loans are individually evaluated and exclude large groups of smaller-balance homogeneous loans, such as residential mortgage loans and consumer loans, which are collectively evaluated for impairment, and loans that are measured at fair value, unless the loan is amended in a TDR. 

The carrying value of impaired loans amounted to $31.2 million and $31.5 million at September 30, 2019 and December 31, 2018, respectively.  Total accruing impaired loans amounted to $19.0 million and $19.7 million at September 30, 2019 and

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December 31, 2018, respectively, while non-accrual impaired loans amounted to approximately $12.2 million and $11.8 million as of September 30, 2019 and December 31, 2018, respectively.

The following tables set forth the recorded investment in impaired loans and the related specific allowance allocated by portfolio classification as of the dates indicated:

	Balance at September 30, 2019
(Dollars in thousands)	Unpaid contractual principal balance		Total recorded investment in impaired loans		Recorded investment with no allowance		Recorded investment with allowance		Related specific allowance
Commercial real estate	$	18,692	$	17,737	$	17,570	$	167	$	4
Commercial and industrial	12,037		10,019		7,835		2,184		1,088
Commercial construction	1,812		1,732		1,732		—		—
Residential mortgages	1,335		1,239		826		413		2
Home equity loans and lines	611		423		423		—		—
Consumer	26		25		—		25		25
Total	$	34,513	$	31,175	$	28,386	$	2,789	$	1,119

	Balance at December 31, 2018
(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	$	17,140	$	16,318	$	15,948	$	370	$	55
Commercial and industrial	12,538		12,053		7,752		4,301		2,140
Commercial construction	1,804		1,736		1,736		—		—
Residential mortgages	970		893		473		420		13
Home equity loans and lines	685		514		514		—		—
Consumer	16		16		—		16		16
Total	$	33,153	$	31,530	$	26,423	$	5,107	$	2,224

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

	Three months ended September 30, 2019					Three months ended September 30, 2018
(Dollars in thousands)	Average recorded investment		Interest income recognized			Average recorded investment		Interest income recognized
Commercial real estate	$	17,828	$	140		$	13,847	$	90
Commercial and industrial	10,886		85			12,975		100
Commercial construction	1,732		26			1,717		23
Residential mortgages	1,034		(2		)	615		1
Home equity loans and lines	427		—			498		—
Consumer	29		1			108		—
Total	$	31,936	$	250		$	29,760	$	214

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

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

	Nine months ended September 30, 2019				Nine months ended September 30, 2018
(Dollars in thousands)	Average recorded investment		Interest income recognized		Average recorded investment		Interest income recognized
Commercial real estate	$	16,685	$	382	$	13,689	$	279
Commercial and industrial	11,426		294		11,741		266
Commercial construction	1,735		78		1,676		68
Residential mortgages	954		16		624		1
Home equity loans and lines	457		—		491		—
Consumer	24		—		69		—
Total	$	31,281	$	770	$	28,290	$	614

At September 30, 2019, additional funding commitments for impaired loans were not material. 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 restructurings

Loans are designated as a TDR when, as part of an agreement to modify the original contractual terms of the loan as a result of financial difficulties of the borrower, the Bank grants the borrower a concession on the terms that would not otherwise be considered.  Typically, such concessions may consist of one or a combination of the following: a reduction in interest rate to a below market rate, taking into account the credit quality of the note; extension of additional credit based on receipt of adequate collateral; 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 probable credit loss. 

Total TDR loans, included in the impaired loan balances above, as of September 30, 2019 and December 31, 2018, were $22.9 million and $23.1 million, respectively. TDR loans on accrual status amounted to $19.0 million and $19.4 million at September 30, 2019 and December 31, 2018, respectively. TDR loans included in non-performing loans amounted to $3.9 million at September 30, 2019 and $3.7 million at December 31, 2018. The Company continues to work with customers and enters into loan modifications (which may or may not be TDRs) to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and future prospects of the borrower.

At September 30, 2019, additional funding commitments for TDR loans were not material.

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

Loans modified as TDRs during the three months ended September 30, 2019 and September 30, 2018 are detailed below:

	Three months ended
	September 30, 2019					September 30, 2018
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	—	$	—	$	—	1	$	10	$	—
Commercial and industrial	2	22		22		4	735		729
Commercial construction	—	—		—		—	—		—
Residential mortgages	—	—		—		—	—		—
Home equity loans and lines	—	—		—		—	—		—
Consumer	1	7		7		—	—		—
Total	3	$	29	$	29	5	$	745	$	729

Payment defaults, during the three months ended September 30, 2019 and September 30, 2018 on loans modified as TDRs within the preceding twelve months are detailed below:

	Three months ended
	September 30, 2019			September 30, 2018
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment		Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	1,400	—	$	—
Commercial and industrial	2	62		3	600
Commercial construction	—	—		—	—
Residential mortgages	1	311		—	—
Home equity loans and lines	—	—		1	92
Consumer	1	5		—	—
Total	5	$	1,778	4	$	692

Loans modified as TDRs during the nine months ended September 30, 2019 and September 30, 2018 are detailed below:

	Nine months ended
	September 30, 2019					September 30, 2018
(Dollars in thousands)	Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment		Number of restructurings	Pre-modification outstanding recorded investment		Post-modification outstanding recorded investment
Commercial real estate	3	$	2,047	$	1,623	3	$	141	$	148
Commercial and industrial	9	428		261		8	897		854
Commercial construction	—	—		—		—	—		—
Residential mortgages	1	315		311		—	—		—
Home equity loans and lines	—	—		—		2	112		104
Consumer	2	13		13		—	—		—
Total	15	$	2,803	$	2,208	13	$	1,150	$	1,106

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

There were no subsequent charge-offs associated with the new TDRs noted in the table above during the nine months endedSeptember 30, 2019. Subsequent charge-offs associated with the new TDRs noted in the table above during the nine months endedSeptember 30, 2018 were immaterial.

Payment defaults by portfolio classification during the nine months ended September 30, 2019 and September 30, 2018, on loans modified as TDRs within the preceding twelve months are detailed below:

	Nine months ended
	September 30, 2019			September 30, 2018
(Dollars in thousands)	Number of TDRs that defaulted	Post- modification outstanding recorded investment		Number of TDRs that defaulted	Post- modification outstanding recorded investment
Commercial real estate	1	$	1,400	—	$	—
Commercial and industrial	4	233		4	673
Commercial construction	—	—		—	—
Residential mortgages	1	311		—	—
Home equity loans and lines	—	—		2	104
Consumer	1	5		—	—
Total	7	$	1,949	6	$	777

The following table sets forth the post modification balances of TDRs listed by type of modification for TDRs that occurred during the periods indicated:

	Nine months ended
	September 30, 2019			September 30, 2018
(Dollars in thousands)	Number of restructurings	Amount		Number of restructurings	Amount
Temporary payment reduction and payment re-amortization of remaining principal over extended term	8	$	49	8	$	368
Temporary interest only payment plan	3	386		2	148
Other payment concessions	4	1,773		3	590
Total	15	$	2,208	13	$	1,106
Amount of specific reserves included in the allowance for loan losses associated with TDRs listed above		$	72		$	475

Other real estate owned ("OREO")

Real estate acquired by the Company through foreclosure proceedings or the acceptance of a deed in lieu of foreclosure is classified as OREO. When property is acquired, it is recorded at estimated fair value of the property acquired, less estimated costs to sell, establishing a new cost basis and carried on the consolidated balance sheet in the line item "Prepaid expenses and other assets." The estimated fair value is based on market appraisals and the Company’s internal analysis. Any loan balance in excess of the estimated realizable fair value on the date of transfer is charged to the allowance for loan losses on that date. All costs incurred thereafter in maintaining the property, as well as subsequent declines in fair value are charged to non-interest expense.

The Company had no OREO at September 30, 2019, December 31, 2018 or September 30, 2018. During the nine months endedSeptember 30, 2019, there was one property added to OREO that was subsequently sold resulting in net gains of $34 thousand. There were no sales or subsequent write downs of OREO during the nine months endedSeptember 30, 2018.

At both September 30, 2019 and December 31, 2018, the Company had no consumer mortgage loans secured by residential real estate properties for which formal foreclosure proceedings were in process according to local requirements of the applicable jurisdictions.

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

Allowance for loan loss activity

The allowance for loan losses is an estimate of probable credit losses inherent in the loan portfolio as of the specified balance sheet dates. On a quarterly basis, management prepares an estimate of the allowance necessary to cover estimated probable credit losses.  The Company maintains the allowance at a level that it deems adequate to absorb all reasonably anticipated probable losses from specifically known and other credit risks associated with the portfolio. The allowance for loan losses is established through a provision for loan losses, a direct charge to earnings.  Loan losses are charged against the allowance when management believes that the collectability of the loan principal is unlikely.  Recoveries on loans previously charged-off are credited to the allowance.

The allowance for loan losses amounted to $33.9 million at September 30, 2019, compared to $33.8 million at December 31, 2018, and $34.5 million at September 30, 2018. The allowance for loan losses to total loans ratio was 1.37% at September 30, 2019, 1.42% at December 31, 2018, and 1.49% at September 30, 2018. Based on management's judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the heading "Credit Quality Indicators," management believes that the Company's allowance for loan losses is adequate to absorb probable losses from specifically known and other probable credit risks associated with the portfolio as of September 30, 2019.

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

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr		Resid. Mortgage			Home Equity			Consumer		Total
Beginning Balance at June 30, 2019	$	17,828	$	10,731	$	3,717	$	1,187		$	629		$	259	$	34,351
Provision	174		357		491		(6		)	(3		)	12		1,025
Recoveries	—		114		—		—			2			12		128
Less: Charge offs	—		1,533		—		—			—			36		1,569
Ending Balance at September 30, 2019	$	18,002	$	9,669	$	4,208	$	1,181		$	628		$	247	$	33,935

Changes in the allowance for loan losses by portfolio classification for the nine months endedSeptember 30, 2019 are presented below: 

(Dollars in thousands)	Cmml Real Estate			Cmml and Industrial		Cmml Constr		Resid. Mortgage		Home Equity			Consumer		Total
Beginning Balance at December 31, 2018	$	18,014		$	10,493	$	3,307	$	1,160	$	629		$	246	$	33,849
Provision	(12		)	598		901		21		(8		)	80		1,580
Recoveries	—			570		—		—		7			25		602
Less: Charge offs	—			1,992		—		—		—			104		2,096
Ending Balance at September 30, 2019	$	18,002		$	9,669	$	4,208	$	1,181	$	628		$	247	$	33,935
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	4		$	1,088	$	—	$	2	$	—		$	25	$	1,119
Allocated to loans collectively evaluated for impairment	$	17,998		$	8,581	$	4,208	$	1,179	$	628		$	222	$	32,816

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

Changes in the allowance for loan losses by portfolio classification for the three months ended September 30, 2018 are presented below:

(Dollars in thousands)	Cmml Real Estate		Cmml and Industrial		Cmml Constr		Resid. Mortgage		Home Equity			Consumer		Total
Beginning Balance at June 30, 2018	$	18,414	$	11,043	$	3,544	$	939	$	645		$	212	$	34,797
Provision	49		559		131		60		(55		)	6		750
Recoveries	21		37		—		—		51			19		128
Less: Charge offs	—		1,114		—		—		—			27		1,141
Ending Balance at September 30, 2018	$	18,484	$	10,525	$	3,675	$	999	$	641		$	210	$	34,534

Changes in the allowance for loan losses by portfolio classification for the nine months endedSeptember 30, 2018 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, 2017	$	17,545	$	9,669	$	3,947		$	904	$	608		$	242	$	32,915
Provision	918		1,885		(272		)	95		(19		)	43		2,650
Recoveries	21		202		—			—		52			36		311
Less: Charge offs	—		1,231		—			—		—			111		1,342
Ending Balance at September 30, 2018	$	18,484	$	10,525	$	3,675		$	999	$	641		$	210	$	34,534
Ending allowance balance:
Allocated to loans individually evaluated for impairment	$	40	$	2,439	$	—		$	1	$	—		$	15	$	2,495
Allocated to loans collectively evaluated for impairment	$	18,444	$	8,086	$	3,675		$	998	$	641		$	195	$	32,039

(5)Leases

As of September 30, 2019, the Company had 15 operating real estate leases. The Company's leased facilities are contracted under various non-cancelable operating leases, most of which provide options to the Company to extend the lease periods and include periodic rent adjustments. While the Company typically exercises its option to extend lease terms, the lease contains provisions that allow the Company, upon notification, to terminate the lease at the end of the lease term, or any option period. Several leases also provide the Company the right of first refusal should the property be offered for sale or purchase options at specified periods mutually agreeable to the parties.  During the third quarter of 2019, the Company finalized the purchase of one of the leased buildings in its main campus.

On January 1, 2019, the Company adopted ASU No. 2016-02, "Leases (Topic 842)." Under this ASU, as amended, lessees are required to recognize lease ROU assets and lease liabilities on the balance sheet for all leases with terms longer than 12 months. The lease liability represents the present value of the future lease payments. The ROU asset includes the lease liability, lease prepayments and initial direct costs, less fixed payment lease liabilities. For the Company, this ASU primarily impacted operating leases on our facilities, mainly branch leases, and as a result the Company recorded, on its consolidated balance sheet a lease liability of $18.0 million and ROU asset of $19.0 million on January 1, 2019 related to these leases.

Upon adoption of this ASU, the Company elected the following practical expedients:

• to not reassess, among other things, the historical lease classification, and

• to use hindsight to assess lease terms and impairment of the initial ROU asset.

The Company excludes leases with a term of 12 months or less from the recorded lease liability and ROU asset and accounts for lease and non-lease components (such as common area maintenance) separately. In order to calculate the lease liability, the Company used its incremental borrowing rate as the discount rate to determine the net present value of the lease liability. In determining the term of a lease, the Company included options renewal periods that it considered reasonably certain to exercise, which generally resulted in the inclusion of all lease option periods.

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

The Company recognizes lease expense on a straight-line basis in the "Occupancy and Equipment Expenses" line item within the non-interest expense section of the consolidated income statement. Lease expenses for the three and nine months endedSeptember 30, 2019 were $322 thousand and $1.0 million, respectively. Variable lease costs and short-term lease expenses included in lease expense during this period were immaterial.

The weighted average remaining lease term for operating leases at September 30, 2019 was 27.5 years, and the weighted average discount rate was 3.79%.

At September 30, 2019, the remaining undiscounted cash flows by year of these lease liabilities were as follows:

(Dollars in thousands)	Operating Leases
2019 (three remaining months)	$	330
2020	1,242
2021	1,242
2022	1,245
2023	1,252
Thereafter	24,599
Total lease payments	$	29,910
Less: Imputed interest	11,660
Total lease liability	$	18,250

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

(6) Deposits

Deposits are summarized as follows:

(Dollars in thousands)	September 30, 2019		December 31, 2018
Non-interest checking	$	804,051	$	765,029
Interest-bearing checking	447,421		403,497
Savings	201,504		193,214
Money market	1,022,344		862,028
CDs $250,000 or less	222,091		215,200
CDs greater than $250,000	86,982		69,031
Total customer deposits	2,784,393		2,507,999
Brokered deposits (1)	—		56,783
Total deposits	$	2,784,393	$	2,564,782

___________________________________

(1) Brokered CDs which are $250,000 and under.

Total customer deposits include reciprocal balances from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Company offered programs which allow for enhanced FDIC insurance. Essentially, the equivalent of the customers' original deposited funds comes back to the Company and are carried within the appropriate category under total customer deposits. The Company's balances in these reciprocal products were $404.4 million and $342.4 million at September 30, 2019 and December 31, 2018, respectively.

See Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding the Company's fair value measurements for deposits.

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

(7) Borrowed Funds and Subordinated Debt

The Company had $4.2 million in borrowed funds at September 30, 2019 linked to outstanding commercial loans under various community reinvestment programs of the FHLB. At December 31, 2018, borrowed funds consisted of FHLB borrowings, primarily overnight advances, amounting to $100.5 million.

The Company had outstanding subordinated debt (net of deferred issuance costs) of $14.9 million at both September 30, 2019 and December 31, 2018, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes (the "Notes") issued in January 2015, with a 15-year term. Original debt issuance costs were $190 thousand and have been netted against the subordinated debt on the consolidated balance sheet in accordance with accounting guidance. These costs are being amortized to interest expense over the life of the Notes.

The Notes are intended to qualify as Tier 2 capital for regulatory purposes and pay interest at a fixed rate of 6.00% per annum through January 30, 2025, after which floating rates apply. Refer to Note 7, "Borrowed Funds and Subordinated Debt," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K for additional information about the Company's subordinated debt.

See Note 2, "Investments," and Note 3, "Loans," to the Company's unaudited consolidated interim financial statements, contained above, for further information regarding securities and loans pledged for borrowed funds. Refer to the "Liquidity" and "Borrowed Funds" sections in the "Financial Condition" section in Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operation," for additional information about other sources of funding available to the Company and the Company's borrowing capacity.

(8) Derivatives and Hedging Activities

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

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

Back-to-Back swaps are not speculative; rather, the transactions result from a service the Company provides to certain commercial customers. Back-to-Back swaps do not meet hedge accounting requirements and therefore changes in the fair value of both the customer swaps and the counterparty swaps, which have an offsetting relationship, are recognized directly in earnings. As a result of this offsetting relationship, there were no net gains or losses recognized in income on Back-to-Back swaps during the nine months endedSeptember 30, 2019 or September 30, 2018.

Each Back-to-Back swap transaction consists of two interest-rate swaps (a customer swap and offsetting counterparty swap) and amounted to a total number of eight interest-rate swaps outstanding at both September 30, 2019 and December 31, 2018, with an aggregate notional amount of $36.9 million and $37.7 million on those respective dates.

Asset derivatives are included in the line item "Prepaid expenses and other assets," and liability derivatives are included in the "Accrued expenses and other liabilities" line item on the consolidated balance sheets, respectively. Interest-rate swaps with the counterparty are subject to master netting agreements, while interest-rate swaps with customers are not.

The table below presents the fair value and classification of the Company's derivative financial instruments for the periods presented:

	As of September 30, 2019				As of December 31, 2018
(Dollars in thousands)	Asset Derivatives		Liability Derivatives		Asset Derivatives		Liability Derivatives
Interest-rate contracts - pay floating, receive fixed	$	893	$	52	$	45	$	723
Interest-rate contracts - pay fixed, receive floating	—		841		678		—
Total interest-rate swaps	$	893	$	893	$	723	$	723

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

By using derivative financial instruments, the Company exposes itself to counterparty-credit risk. Credit risk is the risk of failure by the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is positive, the counterparty owes the Company, which creates credit risk for the Company. When the fair value of a derivative is negative, the Company owes the counterparty and, therefore, it does not possess credit risk. The credit risk in derivative instruments is mitigated by entering into transactions with highly-rated counterparties that management believes to be creditworthy. Additionally, counterparty interest rate swaps contain provisions for collateral to be posted if the derivative exposure exceeds a threshold amount.

The Company has one counterparty and it was rated A and A2 by Standard & Poor's and Moody's, respectively, at September 30, 2019. The Company had no credit risk exposure at September 30, 2019 and $678 thousand at December 31, 2018, respectively, relating to interest-rate swaps with counterparties.  When the Company has credit risk exposure, collateral is received from the counterparty and held by the Company. Collateral held by the Company is restricted and not considered an asset of the Company; therefore, it is not carried on the Company's consolidated balance sheet. If the Company posts collateral, the cash is restricted, it is considered an asset of the Company and is carried on the Company's consolidated balance sheet. The Company posted cash collateral of $940 thousand at September 30, 2019, while at December 31, 2018, the Company held cash collateral of $850 thousand.

The table below presents the Company's liability derivative position and the potential effect of the netting arrangement on its financial position, as of the period presented. As noted above, interest-rate swaps with customers are not subject to master netting agreements and therefore are not included in the table below.

	As of September 30, 2019
(Dollars in thousands)	Gross Amounts of Recognized Liabilities		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Liabilities Presented in the Statement of Financial Position
Liabilities Derivatives
Interest-rate contracts - pay fixed, receive floating	$	893	$	52	$	841

The table below presents the Company's asset derivative position and the potential effect of the netting arrangement on its financial position, as of the period presented. As noted above, interest-rate swaps with customers are not subject to master netting agreements and therefore are not included in the table below.

	As of December 31, 2018
(Dollars in thousands)	Gross Amounts of Recognized Assets		Gross Amounts Offset in the Statement of Financial Position		Net Amounts of Assets Presented in the Statement of Financial Position
Asset Derivatives
Interest-rate contracts - pay fixed, receive floating	$	723	$	45	$	678

The Company's interest-rate swaps with counterparties contain credit-risk-related contingent provisions. These provisions provide the counterparty with the right to terminate its derivative positions and require the Company to settle its obligations under the agreements if the Company defaults on certain of its indebtedness.

The Company also participates in loans originated by third party banks, where the originating bank utilizes a back-to-back interest-rate swap structure; however, the Company is not a party to the swap agreements. Under the terms of the loan participations, the Company has accepted contingent liabilities that would only be realized if the swaps were terminated early and there were outstanding losses not covered by the underlying borrowers and the borrowers' pledged collateral.  If applicable, the Company's swap-loss exposure would be equal to a percentage of the originating bank's swap loss based on the ratio of Company's loan participation to the underlying loan.  At both September 30, 2019 and December 31, 2018, the Company had one participation loan where the originating bank utilizes a back-to-back interest-rate swap structure. At September 30, 2019, management considers the risk of material swap-loss exposure related to this participation loan to be unlikely based on the swap market value, as well as the borrower's financial and collateral strength.

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

Interest-rate lock commitments related to the origination of mortgage loans that will be sold are considered derivative instruments.  The commitments to sell loans are also considered derivative instruments. The Company generally does not pool mortgage loans for sale, but instead sells the loans on an individual basis. To reduce the net interest-rate exposure arising from its loan sale activity, the Company enters into the commitment to sell these loans at essentially the same time that the interest-rate lock commitment is quoted on the origination of the loan. The Company estimates the fair value of these derivatives based on current secondary mortgage market prices. At September 30, 2019 and December 31, 2018, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

The Company may use interest-rate swaps as part of its interest rate risk management strategy. Interest-rate swap agreements may be entered into as hedges against future interest-rate fluctuations on specifically identified assets or liabilities. The Company had no derivative fair value hedges or derivative cash flow hedges at September 30, 2019 or December 31, 2018.

(9) Stockholders' Equity

Shares Authorized and Share Issuance

The Company's authorized capital is divided into common stock and preferred stock. The Company is authorized to issue 40,000,000 shares of common stock, with a par value of $0.01 per share, and as of September 30, 2019 had 11,816,071 shares of common stock issued and outstanding. Holders of common stock are entitled to one vote per share and are entitled to receive dividends if, as and when declared by the Company's Board of Directors (the "Board"). Dividend and liquidation rights of the common stock may be subject to the rights of any outstanding preferred stock. The Company is also authorized to issue 1,000,000 shares of preferred stock, with a par value of $0.01 per share. No preferred stock has been issued as of the date of this Form 10-Q.

The Company has a shareholders' rights plan. Under the plan, each share of common stock includes a right to purchase under certain circumstances one one-hundredth of a share of the Company's Series A Junior Participating Preferred Stock, par value $0.01 per share, at a purchase price of $122.50 per one one-hundredth of a preferred share, subject to adjustment, or, in certain circumstances, to receive cash, property, shares of common stock or other securities of the Company. The rights are not presently exercisable and remain attached to the shares of common stock until the occurrence of certain triggering events that would ordinarily be associated with an unsolicited acquisition or attempted acquisition of 10% or more of the Company's outstanding shares of common stock. The rights have no voting or dividend privileges, and unless and until they become exercisable, have no dilutive effect on the earnings of the Company. The rights will expire, unless earlier redeemed, exchanged, or otherwise rescinded by the Company, on January 13, 2028.

The Company's stock incentive plans permit the Board to grant, under various terms, stock options (for the purchase of newly issued shares of common stock), common stock, restricted stock awards, restricted stock units and stock appreciation rights to officers and other employees, non-employee directors and consultants.

The Company issues stock options and restricted stock awards to officers and other employees and restricted stock awards and stock compensation in lieu of cash fees to non-employee directors. The restricted stock awards allow for the non-forfeitable receipt of dividends, and the voting of all shares, whether or not vested, throughout the vesting periods at the same proportional level as common shares outstanding. The unvested restricted stock awards are the Company's only participating securities and are included in shares outstanding. Unvested participating restricted awards amounted to 102,849 shares and 91,708 shares as of September 30, 2019 and December 31, 2018, respectively. See Note 12, "Earnings per Share," to the Company's unaudited consolidated interim financial statements, contained below, for additional information regarding unvested participating restricted awards and the Company's earnings per share calculation.

Upon vesting, restricted stock awards may be net share-settled to cover payment for employee tax obligations, resulting in shares of common stock being reacquired by the Company and returned to the pool of shares reserved for issuance under the incentive plans. In accordance with Massachusetts law, shares reacquired by the Company will be treated as authorized but unissued shares.

The Company's stock incentive plans also allow for newly issued shares of common stock to be issued without restrictions to officers and other employees, non-employee directors and consultants. From time to time, the Company issues shares to community members for consulting on regional advisory councils and grants shares of fully vested stock as employee anniversary awards. These shares vest immediately and the cost, which is based on the market price on the date of grant and

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

deemed to be immaterial, is expensed in the period in which the services are rendered. See Note 11, "Stock-Based Compensation," to the Company's unaudited consolidated interim financial statements, contained below, for additional information regarding the Company's stock incentive plans.

In addition, the Company maintains a dividend reinvestment and direct stock purchase plan ("DRSPP") which enables stockholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value. Under the DRSPP, stockholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums.

Comprehensive Income

Comprehensive income is defined as all changes to stockholders' equity except investments by and distributions to stockholders.  Net income is one component of comprehensive income, with other components referred to in the aggregate as other comprehensive income.  At September 30, 2019 and September 30, 2018, the Company's only other comprehensive income component is the net unrealized holding gains or losses on available-for-sale debt securities, net of deferred income taxes. Pursuant to GAAP, the Company initially excludes these unrealized holding gains and losses from net income; however, they are later reported as reclassifications out of accumulated other comprehensive income into net income when the debt securities are sold.

See "Capital Resources" in Item 2, "Management's Discussion and Analysis," of this Form 10-Q for the Company's capital ratios and capital adequacy assessment as of September 30, 2019. Refer to Note 10, "Stockholders' Equity," to the Company's audited consolidated financial statements included in the Company's 2018 Annual Report on Form 10-K for additional information relating to capital adequacy requirements, dividends and the DRSPP.

(10) Supplemental Retirement Plans and Other Post-Retirement Benefit Obligations

Supplemental Employee Retirement Plan ("SERP")

The Company has salary continuation agreements with two of its current executive officers and one former executive officer. These salary continuation agreements provide for predetermined fixed-cash supplemental retirement benefits to be provided for a period of 20 years after each individual reaches a defined "benefit age." The individuals covered under the SERP have reached the defined benefit age and are receiving payments under the plan. Additionally, the Company has not recognized service costs in the current or prior year as each officer had previously attained their individually defined benefit age and was fully vested under the plan.

This non-qualified plan represents a direct liability of the Company, and as such has no specific assets set aside to settle the benefit obligation.  The aggregate amount accrued, or the "accumulated benefit obligation," is equal to the present value of the benefits to be provided to the employee or any beneficiary.  Because the Company's benefit obligations provide for predetermined fixed-cash payments, the Company does not have any unrecognized costs to be included as a component of accumulated other comprehensive income. Benefits paid under the plan amounted to $69 thousand and $207 thousand for both the respective three and nine months endedSeptember 30, 2019 and September 30, 2018.

Additionally, on December 11, 2018, the Board approved and adopted the Enterprise Bank Supplemental Executive Retirement and Deferred Compensation Plan.  The plan is unfunded and is maintained for the purpose of providing deferred compensation to a certain group of management employees. Please refer to Exhibit 10.17 attached to the Company's 2018 Annual Report on Form 10-K and our Current Report on Form 8-K filed with the SEC on March 22, 2019 for a more complete description of the plan.

Total expenses for both these plans were $105 thousand and $324 thousand for the three and nine months endedSeptember 30, 2019, respectively, compared to $56 thousand and $168 thousand for the three and nine months endedSeptember 30, 2018, respectively. The Company anticipates accruing an additional $105 thousand in total for these SERPs during the remainder of 2019.

Supplemental Life Insurance

The Company has provided supplemental life insurance through split-dollar life insurance arrangements for certain executive and senior officers on whom the Bank owns BOLI.

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

These arrangements provide a death benefit to the officer's designated beneficiaries that extend to postretirement periods for some of the supplemental life insurance plans. The Company has recognized a liability for these future postretirement benefits.

These non-qualified plans represent a direct liability of the Company and, as such, the Company has no specific assets set aside to settle the benefit obligation.  The funded status is the aggregate amount accrued, or the "accumulated postretirement benefit obligation," which is the present value of the post-retirement benefits associated with this arrangement.

Total net periodic post-retirement benefit cost for supplemental life insurance plans, which consisted mainly of interest costs, were $50 thousand and $149 thousand for the three and nine months endedSeptember 30, 2019, respectively, compared to $45 thousand and $134 thousand for the three and nine months endedSeptember 30, 2018, respectively.

See also Note 11, "Stock-Based Compensation," to the Company's unaudited consolidated interim financial statements, contained below, for further information regarding employee benefits offered in the form of stock options and stock awards.

(11) Stock-Based Compensation

The Company currently has one active individual stock incentive plan: The Enterprise Bancorp, Inc. 2016 Stock Incentive Plan, as amended. As of September 30, 2019, there remained 273,074 shares available for future grants under this plan.

Additionally, the Enterprise Bancorp, Inc 2009 Stock Incentive Plan, as amended, expired in March 2019 with 87,849 unissued shares. As such, this plan is closed for future grants, although awards previously granted under this plan remain outstanding and may be exercised through 2028.

The Company's stock-based compensation expense related to these plans includes stock options and stock awards to officers and other employees included in salary and benefits expense, and stock awards and stock compensation in lieu of cash fees to non-employee directors both included in other operating expenses.  Total stock-based compensation expense was $461 thousand and $1.4 million for the three and nine months endedSeptember 30, 2019, respectively, compared to $501 thousand and $1.4 million for the three and nine months endedSeptember 30, 2018, respectively.

A tax benefit associated with employee exercises and vesting of stock compensation of approximately $3 thousand and $131 thousand was recorded as a reduction of the Company's income tax expense for the three and nine months endedSeptember 30, 2019, respectively, compared with $39 thousand and $274 thousand for the three and nine months endedSeptember 30, 2018, respectively. These amounts, treated as discrete tax items in the period in which they occur, will vary from year to year as a function of the volume of share-based payments vested or exercised and the then-current market price of the Company's stock in comparison to the compensation cost recognized in the Company's unaudited consolidated interim financial statements.

Stock Option Awards

The Company recognized stock-based compensation expense related to stock option awards of $48 thousand and $144 thousand for the three and nine months endedSeptember 30, 2019, respectively, compared to $48 thousand and $150 thousand for the three and nine months endedSeptember 30, 2018, respectively.

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

The table below provides a summary of the options granted, including the weighted average fair value, the fair value as a percentage of the market value of the stock at the date of grant and the average assumptions used in the model for the periods indicated:

	Nine Months Ended September 30,
	2019			2018
Options granted	23,218			14,755
Term in years	10			10
Weighted average assumptions used in the fair value model:
Expected volatility	33		%	37		%
Expected dividend yield	2.75		%	2.10		%
Expected life in years	6.5			6.5
Risk-free interest rate	2.58		%	2.86		%
Weighted average market price on date of grants	$	29.84		$	34.33
Per share weighted average fair value	$	8.70		$	11.98
Fair value as a percentage of market value at grant date	29		%	35		%

Options granted during the first nine months of 2019 and 2018 generally vest 50% in year two and 50% in year four, on or about the anniversary date of the awards.

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

Restricted Stock Awards

Stock-based compensation expense recognized in association with stock awards, mainly restricted stock awards, amounted to $363 thousand and $1.1 million for the three and nine months endedSeptember 30, 2019, respectively, compared to $403 thousand and $1.0 million for the three and nine months endedSeptember 30, 2018, respectively.

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

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

	Nine Months Ended September 30,
Restricted Stock Awards (number of underlying shares)	2019		2018
Two-year vesting	8,368		7,280
Four-year vesting	22,403		16,666
Performance-based vesting	24,427		20,559
Total restricted stock awards granted	55,198		44,505
Weighted average grant date fair value	$	29.84	$	34.33

Stock in Lieu of Directors' Fees

In addition to restricted stock awards discussed above, the non-employee members of the Company's Board 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 these directors' fees amounted to $50 thousand and $188 thousand for the three and nine months endedSeptember 30, 2019, respectively, compared to $50 thousand and $187 thousand for the three and nine months endedSeptember 30, 2018, respectively, and is included in other operating expenses. In January 2019, non-employee directors were issued 7,470 shares of common stock in lieu of 2018 annual cash fees of $250 thousand at a

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

market value price of $33.50 per share, the market value of the common stock on the opt-in measurement date of January 2, 2018.

For further information regarding the Company's stock awards, see Note 9, "Stockholders' Equity," to the Company's unaudited consolidated interim financial statements, contained above, under the caption "Shares Authorized and Share Issuance." There have been no material changes to the terms of the Company's stock incentive plans or the terms for vesting, forfeiture and settlement for options and restricted stock awards granted and outstanding under such plans as reported in the 2018 Annual Report on Form 10-K. Refer to Note 12, "Stock-Based Compensation Plans," to the Company's audited consolidated financial statements in the Company's 2018 Annual Report on Form 10-K for further information on the Company's stock incentive plans, stock options and restricted awards including descriptions of the assumptions used in the valuation model for stock options.

(12) Earnings per Share

Basic earnings per share are calculated by dividing net income available to common stockholders by the weighted average number of common shares outstanding (including participating securities) during the year.  The Company's only participating securities are unvested restricted stock awards that contain non-forfeitable rights to dividends. See Note 9, "Stockholders' Equity," under the caption "Shares Authorized and Share Issuance," to the Company's unaudited consolidated interim financial statements above for further information regarding the Company's participating securities. Diluted earnings per share reflects the effect on weighted average shares outstanding of the number of additional shares outstanding if dilutive stock options were converted into common stock using the treasury stock method.

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

	Three months ended September 30,		Nine months ended September 30,
	2019	2018	2019	2018
Basic weighted average common shares outstanding	11,808,603	11,697,951	11,779,629	11,671,494
Dilutive shares	34,894	72,768	40,759	74,441
Diluted weighted average common shares outstanding	11,843,497	11,770,719	11,820,388	11,745,935

There were 52,571 stock options for both the three and nine months endedSeptember 30, 2019 that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for those periods. There were 29,260 stock options for both the three and nine months endedSeptember 30, 2018 that were determined to be anti-dilutive and therefore excluded from the calculation of dilutive shares for those periods. These stock options, which were not dilutive at those dates, may potentially dilute earnings per share in subsequent periods.

(13) Fair Value Measurements

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

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

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

	September 30, 2019
			Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	482,106	$	—	$	482,106	$	—
Equity securities	1,433		1,433		—		—
FHLB stock	2,024		—		—		2,024
Interest-rate swaps	893		—		893		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	2,034		—		—		2,034
Liabilities measured on a recurring basis:
Interest-rate swaps	$	893	$	—	$	893	$	—

	December 31, 2018
			Fair Value Measurements using:
(Dollars in thousands)	Fair Value		(Level 1)		(Level 2)		(Level 3)
Assets measured on a recurring basis:
Debt securities	$	431,473	$	—	$	431,473	$	—
Equity securities	1,448		1,448		—		—
FHLB stock	5,357		—		—		5,357
Interest-rate swaps	723		—		723		—
Assets measured on a non-recurring basis:
Impaired loans (collateral dependent)	2,574		—		—		2,574
Liabilities measured on a recurring basis:
Interest-rate swaps	$	723	$	—	$	723	$	—

The Company did not transfer any assets between the fair value measurement levels during the nine months endedSeptember 30, 2019 or the year ended December 31, 2018.

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

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

The Bank is required to purchase FHLB stock at par value in association with advances from the FHLB. This 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. 

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

Impaired loan balances in the table above represent those collateral dependent commercial loans where management has estimated the probable credit loss by comparing the loan's carrying value against the expected realizable fair value of the collateral (appraised value, or internal analysis, less estimated cost to sell, adjusted as necessary for changes in relevant valuation factors subsequent to the measurement date).  Certain inputs used in these assessments, and possible subsequent adjustments, are not always observable, and therefore, collateral dependent loans are categorized as Level 3 within the fair value hierarchy.  A specific allowance is assigned to the collateral dependent loan for the amount of management's estimated probable credit loss.  The specific allowances assigned to the collateral dependent loans amounted to $576 thousand at September 30, 2019 and $1.6 million at December 31, 2018.

The fair values for the interest-rate swap assets and liabilities represent a FASB Level 2 measurement and are based on settlement values adjusted for credit risks and observable market interest rate curves. The settlement values are based on discounted cash flow analysis, a widely accepted valuation technique, reflecting the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves. Credit risk adjustments consider factors such as the likelihood of default by the Company and its counterparties, its net exposures and remaining contractual life. The change in value of interest-rate swap assets and liabilities attributable to credit risk was not significant during the reported periods. Refer also to Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements, contained above, for additional information on the Company's interest-rate swaps.

Letters of credit are conditional commitments issued by the Company to guarantee the financial obligation or performance of a customer to a third party.  The fair value of these commitments was estimated to be the fees charged to enter into similar agreements, and accordingly these fair value measures are deemed to be FASB Level 2 measurements.  In accordance with the FASB, the estimated fair values of these commitments are carried on the consolidated balance sheet as a liability and amortized to income over the life of the letters of credit, which are typically one year.  The estimated fair value of these commitments carried on the consolidated balance sheet at September 30, 2019 and December 31, 2018 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 are accounted for in accordance with FASB guidance.  The fair values of the Company's derivative instruments are deemed to be FASB Level 2 measurements.  At September 30, 2019 and December 31, 2018, the estimated fair value of the Company's interest-rate lock commitments and commitments to sell these mortgage loans were deemed immaterial.

The following table presents additional quantitative information about assets measured at fair value on a recurring and non-recurring basis for which the Company utilized Level 3 inputs (significant unobservable inputs for situations in which there is little, if any, market activity for the asset or liability) to determine fair value as of September 30, 2019 and December 31, 2018:

	Fair Value
(Dollars in thousands)	September 30, 2019		December 31, 2018		Valuation Technique	Unobservable Input	Unobservable Input Value or Range
Assets measured on a recurring basis:
FHLB stock	$	2,024	$	5,357	Stated Par Value	N/A	N/A
Assets measured on a non-recurring basis:
Impaired loans(collateral dependent)	$	2,034	$	2,574	Appraisal of collateral	Appraisal adjustments (1)	5% - 50%

__________________________________________

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

Estimated Fair Values of Assets and Liabilities

In addition to disclosures regarding the measurement of assets and liabilities carried at fair value on the consolidated balance sheet, 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 consolidated balance sheet. 

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

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

	September 30, 2019
					Fair value measurement
(Dollars in thousands)	Carrying Amount		Fair Value		Level 1 Inputs		Level 2 Inputs		Level 3 Inputs
Financial assets:
Loans held for sale	$	3,297	$	3,319	$	—	$	3,319	$	—
Loans, net	2,438,195		2,455,762		—		—		2,455,762
Financial liabilities:
CDs (including brokered)	309,073		309,986		—		309,986		—
Borrowed funds	4,177		4,052		—		4,052		—
Subordinated debt	14,869		15,471		—		—		15,471

	December 31, 2018
					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	$	701	$	710	$	—	$	710	$	—
Loans, net	2,353,657		2,331,076		—		—		2,331,076
Financial liabilities:
CDs (including brokered)	341,014		339,308		—		339,308		—
Borrowed funds	100,492		100,312		—		100,312		—
Subordinated debt	14,860		14,300		—		—		14,300

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

Also excluded from these tables are the fair values of commitments for unused portions of lines of credit and commitments to originate loans that were short-term, at current market rates and estimated to have no significant change in fair value.

(14) Supplemental Cash Flow Information

The supplemental cash flow information for the nine months endedSeptember 30, 2019 and September 30, 2018 is as follows:

	Nine months ended September 30, 2019
(Dollars in thousands)	2019		2018
Supplemental financial data:
Cash paid for: interest	$	16,222	$	8,957
Cash paid for: income taxes	8,760		6,818
Cash paid for: lease liability	875		—
Supplemental schedule of non-cash activity:
Net purchases of investment securities not yet settled	6,348		995
Transfer from loans to other real estate owned	255		—
ROU lease assets: operating leases(1)	19,635		—

_________________________________________

(1) This represents the ROU lease asset that was recorded upon adoption of ASC 842 and new leases added in the current year.

38

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

Special Note Regarding Forward-Looking Statements

Management's discussion and analysis should be read in conjunction with the Company's unaudited consolidated interim financial statements and notes thereto contained in this Quarterly Report on Form 10-Q (this "Form 10-Q") and the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2018 (the "2018 Annual Report on Form 10-K").

This Form 10-Q contains certain forward-looking 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 "will," "should," "could," "anticipates," "believes," "expects," "intends," "may," "plans," "pursue," "views" and similar terms or expressions.

Various statements contained in Item 2 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 3 - "Quantitative and Qualitative Disclosures About Market Risk" of this Form 10-Q are forward-looking statements, including, but not limited to statements related to management's views on:

• 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;

• expansion strategy; and

• borrowing capacity.

The Company (also referred to herein as "Enterprise," "us," "we," or "our") cautions readers that such forward-looking statements reflect numerous assumptions and involve a number of risks and uncertainties that could cause the Company's actual results to differ materially from those expressed in, or implied by, the forward-looking statement. Any forward-looking statements in this Form 10-Q are based on information available to the Company as of the date of this Form 10-Q, and the Company undertakes no obligation to publicly update or otherwise revise any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. The following important factors, among others, could cause the Company's results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein:

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

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

(iii) changes in consumer spending could negatively impact the Company's credit quality and financial results;

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

(vii) cybersecurity risk including security breaches and identity theft could impact the Company's reputation, increase regulatory oversight and impact the financial results of the Company;

(viii) increases in employee compensation and benefit expenses could adversely affect the Company's financial results;

(ix) changes in laws and regulations that apply to the Company's business and operations, and any additional regulations, or repeals that may be forthcoming as a result thereof, could cause the Company to incur additional costs and adversely affect the Company's business environment, operations and financial results;

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

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

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

(xiii) the risks and uncertainties described in the documents that the Company files or furnishes to the SEC, including those discussed under Item 1A, "Risk Factors" of the Company's 2018 Annual Report on Form 10-K, which could have a material adverse effect on the Company's business, financial condition and results of operations. 

Therefore, the Company cautions readers not to place undue reliance on any such forward-looking information and statements.

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Overview

Executive Summary

Net income for the three months ended September 30, 2019 amounted to $9.0 million, an increase of $1.0 million, or 13%, compared to the three months ended September 30, 2018. Diluted earnings per share were $0.76 for the three months ended September 30, 2019, an increase of 12%, compared to $0.68 for the three months ended September 30, 2018. Net income for the nine months endedSeptember 30, 2019 amounted to $25.5 million, an increase of $3.1 million, or 14%, compared to the nine months endedSeptember 30, 2018. Diluted earnings per share were $2.15 for the nine months endedSeptember 30, 2019, an increase of 13%, compared to $1.91 for the nine months endedSeptember 30, 2018.

Over the past twelve months, assets, loans, and customer deposits increased by 9%, 7%, and 12%, respectively, compared to September 30, 2018. Loan and deposit growth, along with a reduction in the loan loss provision, were the key drivers to our earnings increase as compared to the nine months endedSeptember 30, 2018. Strategically, we remain focused on organic growth and continually planning for and investing in our future with an emphasis on people, technological advancements, digital transformation, branch transformation and consistent market expansion. Our 25th and 26th branches in Lexington and North Andover, Massachusetts, are anticipated to open in early 2020 and summer 2020, respectively.

Composition of Earnings

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

Net interest income for the three months ended September 30, 2019 amounted to $29.4 million, an increase of $2.0 million, or 7%, compared to the same period in 2018. Net interest income for the nine months endedSeptember 30, 2019 amounted to $86.3 million, an increase of $5.6 million, or 7%, compared to the nine months endedSeptember 30, 2018. The increase in net interest income was due largely to interest-earning asset growth, primarily in loans. Average loan balances increased $132.4 million, or 6%, for the three months ended September 30, 2019 and $110.4 million, or 5%, for the nine months endedSeptember 30, 2019, compared to the same respective 2018 period averages. Tax equivalent net interest margin ("TE Margin") was 3.93% for the three months ended September 30, 2019, compared to 3.89% for the three months ended September 30, 2018. TE Margin was 3.96% for the nine months endedSeptember 30, 2019, compared to 3.95% for the nine months endedSeptember 30, 2018.

For the three months ended September 30, 2019, the provision to the allowance for loan losses amounted to $1.0 million, compared to $750 thousand during the three months ended September 30, 2018. The increase in the provision in the third quarter of 2019 was due primarily to the higher levels of loan growth, compared to the same three-month period in 2018.

For the nine months endedSeptember 30, 2019, the provision to the allowance for loan losses was $1.6 million, compared to the provision of $2.7 million for the nine months endedSeptember 30, 2018. The decrease compared to the prior year was due primarily to generally improved credit metrics compared to the prior year period, partially offset by the impact of loan growth in the current period.

The allowance for loan losses to total loans ratio was 1.37% at September 30, 2019, compared to 1.42% at December 31, 2018 and 1.49% at September 30, 2018.

Affecting the provision for loan losses for the three and nine month periods ended September 30, 2019 compared to the same periods in the prior year were:

• The ratio of classified loans to total loans amounted to 2.37% at September 30, 2019, compared to 2.54% at September 30, 2018.

• Loan growth for the nine months endedSeptember 30, 2019 was $84.6 million, compared to $40.6 million during the nine months endedSeptember 30, 2018. Loan growth was $58.0 million and $11.9 million for the three-month periods ended September 30, 2019 and September 30, 2018, respectively.

• Net charge-offs were $1.5 million for the nine months endedSeptember 30, 2019, compared to net charge-offs of $1.0 million for the nine months endedSeptember 30, 2018.

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• The provision for loan losses in the 2018 periods were impacted by an increase in specific reserves for impaired loans, which did not occur in the 2019 period.

• After foreclosure proceedings in 2019, one previously classified commercial loan relationship was transferred to Other Real Estate Owned ("OREO") with a net carry value of $255 thousand and the property was sold during the third quarter of 2019. The Company carried no OREO during 2018.

Non-interest income for the three months ended September 30, 2019 amounted to $4.1 million, an increase of $425 thousand, or 11%, compared to the three months ended September 30, 2018. Non-interest income for the nine months endedSeptember 30, 2019 amounted to $12.0 million, an increase of $777 thousand, or 7%, compared to the nine months endedSeptember 30, 2018. Non-interest income increased in 2019 primarily due to increases in deposit and interchange fees. Year-to-date non-interest income was also impacted by net gains on sales of investments, and net fair value gains on equity securities, which is included in other income, partially offset by lower wealth management income.

Non-interest expense for the three months ended September 30, 2019 amounted to $21.1 million, an increase of $1.1 million, or 6%, compared to the three months ended September 30, 2018. For the nine months endedSeptember 30, 2019, non-interest expense amounted to $63.7 million, an increase of $3.5 million, or 6%, compared to the nine months endedSeptember 30, 2018. Increases in non-interest expense in 2019 primarily related to the Company's strategic growth initiatives, particularly salaries and employee benefit expenses, partially offset by a reduction in deposit insurance premiums resulting from a Small Bank Assessment Credit from the FDIC Deposit Insurance Fund ("DIF") of $376 thousand. The Company expects to receive an additional available credit of $307 thousand to offset future assessments, provided the DIF ratio exceeds the targeted reserve ratio of 1.38%.

Sources and Uses of Funds

The Company's primary sources of funds are customer deposits, 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. Additionally, funding for the Company may be generated through equity transactions, including the dividend reinvestment and direct stock purchase plan or exercise of stock options, and occasionally the issuance of debt securities or the sale of new stock. The Company's sources of funds are intended to be used to conduct operations and to support growth, by funding loans and investing in securities, to expand the branch network, and to pay dividends to stockholders.

The investment portfolio is primarily used to provide liquidity, manage the Company's asset-liability position and to invest excess funds providing additional sources of revenue. Total investments, a component of interest-earning assets, amounted to $483.5 million at September 30, 2019, an increase of $50.6 million, or 12%, since December 31, 2018, and comprised 15% of total assets at both September 30, 2019 and December 31, 2018.

Enterprise's main asset strategy is to grow loans, the largest component of interest-earning assets, with a focus on high quality commercial lending relationships.  Total loans, comprising 79% and 81% of total assets at September 30, 2019 and December 31, 2018, respectively, amounted to $2.47 billion at September 30, 2019, compared to $2.39 billion at December 31, 2018, an increase of $84.6 million, or 4%. Total commercial loans amounted to $2.13 billion, or 86% of gross loans, at September 30, 2019, which was consistent with the composition at December 31, 2018.

Management's preferred strategy for funding asset growth is to grow relationship-based deposit balances, preferably transactional deposits (comprised of non-interest checking accounts, interest-bearing checking accounts and traditional savings accounts).  Asset growth in excess of transactional deposits is typically funded through non-transactional deposits (comprised of money market accounts, commercial tiered rate or "investment savings" accounts and term CDs) and wholesale funding (brokered deposits and borrowed funds).

At September 30, 2019, customer deposits (total deposits excluding brokered deposits) amounted to $2.78 billion, or 89% of total assets, compared to $2.51 billion, or 85% of total assets, at December 31, 2018. Since December 31, 2018, customer deposits increased $276.4 million, or 11%, primarily in checking and money market accounts.

Wholesale funding amounted to $4.2 million at September 30, 2019, compared to $157.3 million at December 31, 2018. At September 30, 2019, wholesale funding consisted of FHLB advances linked to outstanding commercial loans under various community reinvestment programs of the FHLB. At December 31, 2018, wholesale funding included brokered CDs of $56.8 million and FHLB advances of $100.5 million. The Company's level of wholesale funding has decreased $153.1 million since December 31, 2018 as increases in customer deposit balances have exceeded loan growth.

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The re-pricing frequency of the Company's assets and liabilities are not identical and therefore subject the Company to the risk of adverse changes in interest rates. This is often referred to as "interest-rate risk" and is reviewed in more detail in Part I, Item 3, "Quantitative and Qualitative Disclosures About Market Risk," of this Form 10-Q and in Item 7A, "Quantitative and Qualitative Disclosures About Market Risk," of the Company's 2018 Annual Report on Form 10-K.

Culture and Organic Growth Strategy

The Company actively seeks to increase market share and strengthen its competitive position through the continuous review and technological enhancements to product offerings and delivery channels, by maximizing customer service levels and employee training, and fostering a consistent and unwavering commitment to our core values of Excellence, Integrity, Teamwork, Professionalism, and Community. The Company's business model is to provide a full range of diversified financial products and services through a highly-trained staff of knowledgeable banking professionals, with in-depth understanding of our markets, and a commitment to open and honest communication with clients. Management believes the Company has differentiated itself from the competition by building a solid reputation within the local market as a convenient, dependable commercial-focused community bank, delivering consistent and exceptional customer service, offering competitive products, and taking an active role in support of the communities we serve. The Company's banking professionals are committed to upholding the Company's core values, including significant and active involvement in many charitable and civic organizations, and community development programs throughout our service area. This long-held commitment to community not only contributes to the welfare of the communities we serve, it also helps to fuel the local economy and has led to a strong referral network with local businesses, non-profit organizations and community leaders. Management believes the Company's community service culture and reputation makes the Enterprise team stand out among the competition and positions the Company to be a leading banking provider of commercial and residential loans, deposits and cash management services, wealth management and wealth services, and trust and insurance services in its growing market area.

Management believes that Enterprise is well equipped to capitalize on market potential to grow both the commercial and residential loan portfolios through strong business development and referral efforts, while utilizing a disciplined and consistent lending approach and credit review practices, which have served to provide consistent 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 growth initiatives, including investments in employee hiring, training and development; marketing and public relations; technology and digital transformation; electronic delivery methods; ongoing improvements, renovations or strategic relocation of existing facilities; and the continued cultivation of recently added branches.  The Company is in the process of renovating several branches and relocated the Leominster, Massachusetts branch in the first half of 2018 to a larger and custom-designed state-of-the-art branch in a prime Main Street location to better serve and attract customers. The Company also continually looks to develop branch locations within, and to complement, our existing footprint and expects to open two new branches in Massachusetts. The new Lexington and North Andover locations are anticipated to open in early 2020 and summer 2020, respectively. Our consistent branch expansion is aimed at achieving not only deposit market share growth, but also is intended to contribute to loan originations and generate referrals for wealth management, wealth services, trust and insurance services, and cash management products. Management also seeks out opportunities to recruit experienced key banking professionals with insightful 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 potential of the Company and will help the Company to capitalize on current opportunities in the marketplace for community banks such as Enterprise. However, lower than expected returns on these investments, such as slower than anticipated loan and deposit growth in new branches and/or lower than expected adoption rates or income generated from new technology or initiatives, could decrease anticipated revenues and net income on such investments in the future.

Financial Condition

Total assets increased $174.4 million, or 6%, since December 31, 2018, to $3.14 billion at September 30, 2019.  The balance sheet composition and changes since December 31, 2018 are discussed below.

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Cash and cash equivalents

Cash and cash equivalents may be comprised of cash on hand and cash items due from banks, interest-earning deposits (deposit accounts, excess reserve cash balances, money markets, and money market mutual funds accounts) and federal funds sold ("fed funds"). Cash and cash equivalents amounted to 3% of total assets at September 30, 2019, an increase of $19.3 million, or 31%, since December 31, 2018. At December 31, 2018, cash and cash equivalents amounted to 2% of total assets. Balances in cash and cash equivalents will fluctuate due primarily to the timing of net cash flows from deposits, borrowings, loan and investments, and the immediate liquidity needs of the Company.

Investments

At September 30, 2019, the fair value of the investment portfolio amounted to $483.5 million, an increase of $50.6 million, or 12%, since December 31, 2018. The investment portfolio represented 15% of total assets at September 30, 2019 and December 31, 2018.  As of September 30, 2019 and December 31, 2018, the investment portfolio was primarily comprised of debt securities, with a small portion of the portfolio invested in equity securities.

See also Note 2, "Investment Securities," and Note 13, "Fair Value Measurements," to the Company's unaudited consolidated interim financial statements contained in Item 1 above for further information regarding the Company's unrealized gains and losses on debt securities, including information about investments in an unrealized loss position for which an OTTI has not been recognized, and investments pledged as collateral, as well as the Company's fair value measurements for investment securities.

Debt Securities

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

	September 30, 2019				December 31, 2018				September 30, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Federal agency obligations(1)	$	1,004	0.2	%	$	7,975	1.9	%	$	48,277	11.1	%
Residential federal agency MBS(1)	181,152		37.6	%	172,726		40.0	%	156,123		36.1	%
Commercial federal agency MBS(1)	116,053		24.1	%	93,979		21.8	%	76,187		17.6	%
Municipal securities	168,978		35.0	%	142,043		32.9	%	139,137		32.1	%
Corporate bonds	14,463		3.0	%	13,806		3.2	%	12,349		2.9	%
CDs(2)	456		0.1	%	944		0.2	%	944		0.2	%
Total debt securities	$	482,106	100.0	%	$	431,473	100.0	%	$	433,017	100.0	%

__________________________________________ 

(1) These categories may include investments issued or guaranteed by government sponsored enterprises such as Fannie Mae ("FNMA"), Freddie Mac ("FHLMC"), Federal Farm Credit Bank ("FFCB"), or one of several Federal Home Loan Banks, as well as, investments guaranteed by Ginnie Mae ("GNMA"), a wholly-owned government entity.  

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

Included in the residential and commercial federal agency MBS categories were collateralized mortgage obligations ("CMOs") issued by U.S. agencies totaling $272.6 million, $242.8 million, and $198.7 million at September 30, 2019, December 31, 2018 and September 30, 2018, respectively. Included in municipal securities were tax exempt municipal securities with fair values totaling $100.1 million, $107.3 million and $115.7 million at September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

Net unrealized gains on the debt securities portfolio amounted to $15.6 million at September 30, 2019, compared to net unrealized losses of $1.7 million at December 31, 2018 and net unrealized losses of $11.9 million at September 30, 2018. The Company attributes the increase in net unrealized gains as compared to the net unrealized losses of 2018 to decreases in market yields and a restructuring of the debt security portfolio in the fourth quarter of 2018, which overall raised portfolio yields.

Unrealized gains or losses on debt securities are carried on the balance sheet and will be recognized in the consolidated statements of income if the investments are sold. Should an investment be deemed OTTI, the Company is required to write-down the fair value of the investment.  See Note 1, "Summary of Significant Accounting Policies," under Item (e), "Investments," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on

43

Form 10-K for additional information on accounting for OTTI. For more information about the Company's assessment for OTTI, see Note 2, "Investment Securities," to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K.

During the nine months endedSeptember 30, 2019, the Company purchased $82.3 million in debt securities. The Company had principal pay downs, calls and maturities totaling $36.2 million during the nine months endedSeptember 30, 2019.

During the nine months endedSeptember 30, 2019, management sold debt securities with an amortized cost of approximately $11.6 million realizing net gains on sales of $146 thousand.

Equity Securities

The Company held equity securities with a fair value of $1.4 million at September 30, 2019 and December 31, 2018, and $1.3 million at September 30, 2018. During the nine months endedSeptember 30, 2019, the Company's net fair value gains on equity securities recorded in the consolidated statement of income were $275 thousand. During the nine months endedSeptember 30, 2018, the net fair value losses on equity securities were immaterial. The net fair value changes of equity securities that will be recognized in the Company's consolidated income statement in the future will depend on the amount of dollars invested in equities and the magnitude of changes in equity markets.

Federal Home Loan Bank Stock

The Bank is required to purchase stock of the FHLB at par value in association with advances from the FHLB; this stock is classified as a restricted investment and carried at cost, which management believes approximates fair value.  The Company's investment in FHLB stock was $2.0 million at September 30, 2019, $5.4 million at December 31, 2018 and $2.6 million at September 30, 2018.

See Note 1, "Summary of Significant Accounting Policies," Item (c), "Restricted Cash and Investments," to the Company's unaudited consolidated interim financial statements contained in Item 1 above for further information regarding the Company's investment in FHLB stock.

Loans

Total loans represented 79% of total assets at September 30, 2019 and 81% of total assets at December 31, 2018.  Total loans increased by $84.6 million, or 4%, compared to December 31, 2018, and increased $161.6 million, or 7%, since September 30, 2018. The mix of loans within the portfolio remained relatively unchanged with commercial loans amounting to approximately 86% of gross loans at September 30, 2019, reflecting a continued focus on commercial loan growth.

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:

	September 30, 2019					December 31, 2018					September 30, 2018
(Dollars in thousands)	Amount			Percent		Amount			Percent		Amount			Percent
Commercial real estate	$	1,317,999		53.3	%	$	1,303,879		54.6	%	$	1,254,066		54.2	%
Commercial and industrial	511,695			20.7	%	514,253			21.5	%	477,897			20.7	%
Commercial construction	295,448			11.9	%	234,430			9.8	%	252,868			10.9	%
Total commercial loans	2,125,142			85.9	%	2,052,562			85.9	%	1,984,831			85.8	%
Residential mortgages	241,157			9.7	%	231,501			9.7	%	220,015			9.5	%
Home equity loans and lines	98,763			4.0	%	96,116			4.0	%	98,369			4.3	%
Consumer	10,037			0.4	%	10,241			0.4	%	9,725			0.4	%
Total retail loans	349,957			14.1	%	337,858			14.1	%	328,109			14.2	%
Gross loans	2,475,099			100.0	%	2,390,420			100.0	%	2,312,940			100.0	%
Deferred fees, net	(2,969		)			(2,914		)			(2,448		)
Total loans	2,472,130					2,387,506					2,310,492
Allowance for loan losses	(33,935		)			(33,849		)			(34,534		)
Net loans	$	2,438,195				$	2,353,657				$	2,275,958

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As of September 30, 2019, commercial real estate loans increased $14.1 million, or 1%, compared to December 31, 2018, and increased $63.9 million, or 5%, compared to September 30, 2018. Commercial real estate loans are typically secured by a variety of owner-use and non-owner occupied (investor) commercial and industrial property types including one-to-four and multi-family apartment buildings, office, industrial or mixed-use facilities, strip shopping centers or other commercial properties and are generally guaranteed by the principals of the borrower.

As of September 30, 2019, commercial and industrial loan balances declined by $2.6 million, or 0.5%, compared to December 31, 2018 and increased $33.8 million, or 7%, compared to September 30, 2018.  These loans include seasonal and formula-based revolving lines of credit, working capital loans, equipment financing, and term loans.  Also included in commercial and industrial loans are loans partially guaranteed by the U.S. Small Business Administration ("SBA"), and loans under various programs and agencies. Commercial and industrial credits may be unsecured loans and lines to financially strong borrowers, loans secured in whole or in part by real estate unrelated to the principal purpose of the loan or secured by inventories, equipment, or receivables, and are generally guaranteed by the principals of the borrower. 

Commercial construction loans increased by $61.0 million, or 26%, since December 31, 2018, and increased $42.6 million, or 17%, compared to September 30, 2018. Commercial construction loans include the development of residential housing and condominium projects, the development of commercial and industrial use property and loans for the purchase and improvement of raw land. These loans are secured in whole or in part by underlying real estate collateral and are generally guaranteed by the principals of the borrowers. In many cases, these loans move into the permanent commercial real estate portfolio when the construction phase is completed. The increase since December 31, 2018 was due primarily to funding across a variety of projects including residential housing and condominium projects, and development of commercial use property.

Total retail loan balances increased by $12.1 million, or 4%, since December 31, 2018, and increased $21.8 million, or 7%, since September 30, 2018. Residential secured one-to-four family mortgage loans continue to make up the largest portion of the retail segment. The increase since December 31, 2018 was due primarily to an increase in originations of adjustable rate residential mortgages which are typically held in our portfolio rather than sold.

At September 30, 2019, commercial loan balances participated out to various banks amounted to $77.3 million, compared to $72.1 million at December 31, 2018, and $74.8 million at September 30, 2018.  These balances participated out to other institutions are not carried as assets on the Company's financial statements. Commercial loans originated by other banks in which the Company is a participating institution are carried at the pro-rata share of ownership and amounted to $68.0 million, $63.5 million and $69.7 million at September 30, 2019, December 31, 2018, and September 30, 2018, respectively. In each case, the participating bank funds a percentage of the loan commitment and takes on the related pro-rata risk. The rights and obligations of each participating bank are divided proportionately among the participating banks in an amount equal to their share of ownership and with equal priority among all banks. Each participation is governed by individual participation agreements executed by the lead bank and the participant at loan origination. Participating loans with other institutions provide banks the opportunity to retain customer relationships and reduce credit risk exposure among each participating bank, while providing customers with larger credit vehicles than the individual bank might be willing or able to offer independently.

See Note 3, "Loans," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q for information on loans serviced for others and loans pledged as collateral.

Credit Risk

Inherent in the lending process is the risk of loss due to customer non-payment, or "credit risk." The Company's commercial lending focus may entail significant additional credit risks compared to long-term financing on existing, owner-occupied residential real estate.  The Company seeks to lessen its credit risk exposure by managing its loan portfolio to avoid concentration by industry, relationship size, and source of repayment, and through sound underwriting practices and the credit risk management function; however, management recognizes that loan losses will occur and that the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio and economic conditions.

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

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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

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

(Dollars in thousands)	September 30, 2019			December 31, 2018			September 30, 2018
Non-accrual loan summary:
Commercial real estate	$	7,507		$	6,894		$	7,180
Commercial and industrial	3,064			3,417			3,123
Commercial construction	119			176			185
Residential	1,050			763			482
Home equity	423			514			535
Consumer	20			17			106
Total non-accrual loans	12,183			11,781			11,611
Overdrafts > 90 days past due	—			3			10
Total non-performing loans	12,183			11,784			11,621
OREO	—			—			—
Total non-performing assets	$	12,183		$	11,784		$	11,621
Total Loans	$	2,472,130		$	2,387,506		$	2,310,492
Accruing TDR loans not included above	$	18,990		$	19,389		$	17,870
Delinquent loans 60-89 days past due and still accruing	$	3,126		$	205		$	1,787
Loans 60-89 days past due and still accruing to total loans	0.13		%	0.01		%	0.08		%
Adversely classified loans to total loans	1.43		%	1.49		%	1.54		%
Non-performing loans to total loans	0.49		%	0.49		%	0.50		%
Non-performing assets to total assets	0.39		%	0.40		%	0.40		%
Allowance for loan losses	$	33,935		$	33,849		$	34,534
Allowance for loan losses to non-performing loans	278.54		%	287.25		%	297.17		%
Allowance for loan losses to total loans	1.37		%	1.42		%	1.49		%

The majority of non-accrual loans were also carried as adversely classified during the periods and the changes since December 31, 2018 are discussed further below. The increase in loans 60–89 days past due at September 30, 2019 is primarily attributable to one commercial relationship in which the underlying project is in the process of being sold by the borrower. Excluding this relationship, the loans 60-89 days past due and still accruing to total loans ratio was 0.03% at September 30, 2019.

At September 30, 2019 and December 31, 2018, the Company had adversely classified loans (loans carrying "substandard," "doubtful" or "loss" classifications) amounting to $35.4 million and $35.5 million, respectively. Total adversely classified loans amounted to 1.43% of total loans at September 30, 2019, compared to 1.49% at December 31, 2018. Adversely classified loans that were performing but possessed potential weaknesses and, as a result, could ultimately become non-performing loans amounted to $23.4 million at September 30, 2019 and $23.8 million at December 31, 2018.  The remaining balances of adversely classified loans were non-accrual loans, amounting to $12.1 million at September 30, 2019 and $11.7 million at December 31, 2018.  Non-accrual loans that were not adversely classified amounted to $120 thousand and $81 thousand at September 30, 2019 and December 31, 2018, respectively, and primarily represented the guaranteed portions of non-performing SBA loans.

Total impaired loans amounted to $31.2 million and $31.5 million at September 30, 2019 and December 31, 2018, respectively.  Total accruing impaired loans amounted to $19.0 million and $19.7 million at September 30, 2019 and December 31, 2018, respectively, while non-accrual impaired loans amounted to $12.2 million and $11.8 million as of September 30, 2019 and December 31, 2018, respectively.

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In management's opinion, the majority of impaired loan balances at September 30, 2019 and December 31, 2018 were supported by expected future cash flows or, for those collateral dependent loans, the net realizable value of the underlying collateral. Based on management's assessment at September 30, 2019, impaired loans totaling $28.4 million required no specific reserves and impaired loans totaling $2.8 million required specific reserve allocations of $1.1 million.  At December 31, 2018, impaired loans totaling $26.4 million required no specific reserves and impaired loans totaling $5.1 million required specific reserve allocations of $2.2 million.  The decline in specific reserves since December 31, 2018 was due primarily to the charge-off of a previously impaired commercial relationship. Management closely monitors impaired relationships for the individual business circumstances, and underlying collateral or credit deterioration to determine if additional reserves are necessary.

Total TDR loans included in the impaired loan amounts above as of September 30, 2019 and December 31, 2018 were $22.9 million and $23.1 million, respectively.  TDR loans on accrual status amounted to $19.0 million and $19.4 million at September 30, 2019 and December 31, 2018, respectively. TDR loans included in non-performing loans amounted to $3.9 million at September 30, 2019 and $3.7 million at December 31, 2018.  The Company continues to work with customers and enters into loan modifications (which may or may not be TDRs) to the extent deemed to be necessary or appropriate while attempting to achieve the best mutual outcome given the individual financial circumstances and prospects of the borrower.

The Company carried no OREO property at September 30, 2019, December 31, 2018 or September 30, 2018. There was one property added to OREO in 2019 that was subsequently sold resulting in net gains of $34 thousand. There were no sales or subsequent write downs of OREO during the nine months endedSeptember 30, 2018.

Allowance for Loan Losses

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

There have been no material changes to the Company's underwriting practices, credit risk management system, or to the allowance assessment methodology used to estimate loan loss exposure as reported in Note 4, "Allowance for Loan Losses," to the Company's audited consolidated financial statements contained the 2018 Annual Report on Form 10-K. 

The allowance for loan losses to total loans ratio was 1.37% at September 30, 2019, 1.42% at December 31, 2018, and 1.49% at September 30, 2018. General improvement in credit metrics and the 2019 charge-off of a previously reserved commercial relationship during the current period, partially offset by individual loan downgrades to adversely classified and impaired status, have contributed to the decline in the allowance to total loans ratio since the prior year. Based on the foregoing, as well as management's judgment as to the existing credit risks inherent in the loan portfolio, as discussed above under the headings "Credit Risk" and "Asset Quality," management believes that the Company's allowance for loan losses is adequate to absorb probable losses from specifically known and other probable credit risks associated with the portfolio as of September 30, 2019.

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

	Nine Months Ended September 30,
(Dollars in thousands)	2019			2018
Balance at beginning of year	$	33,849		$	32,915
Provision charged to operations	1,580			2,650
Recoveries on charged-off loans:
Commercial real estate	—			21
Commercial and industrial	570			202
Commercial construction	—			—
Residential mortgages	—			—
Home equity	7			52
Consumer	25			36
Total recovered	602			311
Charged-off loans
Commercial real estate	—			—
Commercial and industrial	1,992			1,231
Commercial construction	—			—
Residential mortgages	—			—
Home equity	—			—
Consumer	104			111
Total charged-off	2,096			1,342
Net loans charged-off	1,494			1,031
Ending balance	$	33,935		$	34,534
Annualized net loans charged-off to average loans outstanding	0.08		%	0.06		%

See Note 4, "Allowance for Loan Losses," to the Company's unaudited consolidated interim financial statements, contained in Item 1 in this Form 10-Q, for further information regarding the allowance for loan losses and credit quality.

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Deposits

Total deposits amounted to $2.78 billion as of September 30, 2019, an increase of $219.6 million, or 9%, compared to December 31, 2018. Total deposits as a percentage of total assets were 89% at September 30, 2019 and 87% at December 31, 2018.

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

	September 30, 2019				December 31, 2018				September 30, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Non-interest checking	$	804,051	28.9	%	$	765,029	29.8	%	$	735,828	28.2	%
Interest-bearing checking	447,421		16.1	%	403,497		15.8	%	401,138		15.4	%
Total checking	1,251,472		45.0	%	1,168,526		45.6	%	1,136,966		43.6	%
Savings	201,504		7.2	%	193,214		7.5	%	196,793		7.5	%
Money markets	1,022,344		36.7	%	862,028		33.6	%	899,120		34.4	%
Total savings/money markets	1,223,848		43.9	%	1,055,242		41.1	%	1,095,913		41.9	%
Certificates of deposit (CDs)	309,073		11.1	%	284,231		11.1	%	254,994		9.8	%
Total customer deposits	2,784,393		100.0	%	2,507,999		97.8	%	2,487,873		95.3	%
Brokered deposits (1)	—		—	%	56,783		2.2	%	123,839		4.7	%
Total deposits	$	2,784,393	100.0	%	$	2,564,782	100.0	%	$	2,611,712	100.0	%

__________________________________________

(1) Brokered CDs $250,000 and under.

As of September 30, 2019, customer deposits increased $276.4 million, or 11%, since December 31, 2018, and $296.5 million, or 12%, since September 30, 2018. Since December 31, 2018, the largest growth occurred in checking and money market accounts.

Total customer deposits include reciprocal deposits from checking, money market deposits and CDs received from participating banks in nationwide deposit networks as a result of our customers electing to participate in Company offered programs which allow for enhanced FDIC insurance. Essentially, the equivalent of the original customers' deposited funds comes back to the Company and are carried within the appropriate category under total customer deposits. The Company's balances in these reciprocal products were $404.4 million, $342.4 million and $284.8 million at September 30, 2019, December 31, 2018 and September 30, 2018, respectively.

Management may, from time-to-time utilize brokered deposits as cost effective wholesale funding sources to support continued loan growth. Brokered deposits may be comprised of non-reciprocal insured overnight or selected term funding gathered from nationwide bank networks or from large money center banks; however, at December 31, 2018, and September 30, 2018 brokered deposits were comprised only of brokered CDs. As of September 30, 2019, the Company had no brokered deposits. See also "Wholesale Funding" below.

Borrowed Funds

The Company had borrowed funds outstanding of $4.2 million at September 30, 2019 linked to outstanding commercial loans under various community reinvestment programs of the FHLB. At December 31, 2018 and September 30, 2018, borrowed funds outstanding, comprised wholly of FHLB borrowings, amounted to $100.5 million and $497 thousand, respectively.

At September 30, 2019, the Bank had the capacity to borrow additional funds from the FHLB of up to approximately $630.0 million and the capacity to borrow from the FRB Discount Window approximately $160.0 million.

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Wholesale Funding

Wholesale funding includes brokered deposits and borrowed funds as discussed above. Since December 31, 2018, wholesale funding has decreased $153.1 million, as customer deposit growth has exceeded loan growth.

The following table sets forth the breakout of wholesale funding by composition at the dates indicated and the percentage of each category to total wholesale funding:

	September 30, 2019				December 31, 2018				September 30, 2018
(Dollars in thousands)	Amount		Percent		Amount		Percent		Amount		Percent
Brokered deposits	$	—	—	%	$	56,783	36.1	%	$	123,839	99.6	%
Borrowed funds	4,177		100.0	%	100,492		63.9	%	497		0.4	%
Wholesale funding	$	4,177	100.0	%	$	157,275	100.0	%	$	124,336	100.0	%

See "Liquidity," below, for additional information.

Subordinated Debt

The Company had outstanding subordinated debt of $14.9 million (net of deferred issuance costs) at September 30, 2019, December 31, 2018 and September 30, 2018, which consisted of $15.0 million in aggregate principal amount of Fixed-to-Floating Rate Subordinated Notes issued in January 2015, in a private placement to an accredited investor. See also Note 7, "Borrowed Funds and Subordinated Debt," to the Company's unaudited consolidated interim financial statements contained in Item 1 above, for further information regarding the Company's subordinated debt.

Liquidity

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

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

At September 30, 2019, the Company's wholesale funding sources primarily included borrowing capacity at the FHLB and brokered deposits. In addition, the Company maintains overnight fed fund purchase arrangements with correspondent banks and has access to the FRB Discount Window.

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

The Company has in the past also increased capital and liquidity by offering shares of the Company's common stock for sale to its existing stockholders and new investors and through the issuance of subordinated debt. See "Capital Resources," below, for information on the Company's capital planning.

Capital Resources

Capital planning by the Company and the Bank considers current needs and anticipated future growth. Ongoing sources of capital include the retention of earnings, less dividends paid, proceeds from the exercise of employee stock options and proceeds from purchases of shares pursuant to the Company's dividend reinvestment plan and direct stock purchase plan (together, the "DRSPP"). Additional sources of capital for the Company and the Bank have been proceeds from the issuance of

50

common stock and proceeds from the issuance of subordinated debt. The Company believes its current capital is adequate to support ongoing operations.

Management believes, as of September 30, 2019, that the Company and the Bank met all capital adequacy requirements to which they were subject. As of September 30, 2019, the Company met the definition of "well capitalized" under the applicable Federal Reserve Board regulations and the Bank qualified as "well capitalized" under the prompt corrective action regulations of Basel III and the FDIC.

The Company's and the Bank's actual capital amounts and ratios are presented as of September 30, 2019 in the tables below:

	Actual				Minimum Capital for Capital Adequacy Purposes(1)				Minimum Capital To Be Well Capitalized(2)
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
The Company
Total Capital (to risk weighted assets)	$	321,123	12.04	%	$	213,321	8.00	%	N/A		N/A
Tier 1 Capital (to risk weighted assets)	$	272,915	10.23	%	$	159,991	6.00	%	N/A		N/A
Tier 1 Capital (to average assets) or Leverage ratio	$	272,915	8.68	%	$	125,791	4.00	%	N/A		N/A
Common equity tier 1 capital (to risk weighted assets)	$	272,915	10.23	%	$	119,993	4.50	%	N/A		N/A
The Bank
Total Capital (to risk weighted assets)	$	320,759	12.03	%	$	213,321	8.00	%	$	266,651	10.00	%
Tier 1 Capital (to risk weighted assets)	$	287,420	10.78	%	$	159,991	6.00	%	$	213,321	8.00	%
Tier 1 Capital (to average assets) or Leverage ratio	$	287,420	9.14	%	$	125,780	4.00	%	$	157,224	5.00	%
Common equity tier 1 capital (to risk weighted assets)	$	287,420	10.78	%	$	119,993	4.50	%	$	173,323	6.50	%

_________________________________________

(1) Before application of the capital conservation buffer of 2.50% as of September 30, 2019, see discussion below.

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

The Company is subject to the Basel III capital ratio requirements which include a "capital conservation buffer" of 2.50% above the regulatory minimum risk-based capital adequacy requirements shown above. The capital conservation buffer requirement, which had a phase-in implementation period, was fully implemented on January 1, 2019. 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. Both the Company's and the Bank's actual ratios, as outlined in the table above, exceeded the Basel III risk-based capital requirement with the capital conservation buffer as of September 30, 2019.

The Basel III minimum capital ratio requirements as applicable to the Company and the Bank at September 30, 2019 are summarized in the table below:

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

The Company's DRSPP enables stockholders, at their discretion, to elect to reinvest cash dividends paid on their shares of the Company's common stock by purchasing additional shares of common stock from the Company at a purchase price equal to fair market value.  Under the DRSPP, stockholders and new investors also have the opportunity to purchase shares of the Company's common stock without brokerage fees, subject to monthly minimums and maximums.

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For the nine months endedSeptember 30, 2019, the Company paid $5.7 million in cash dividends. Stockholders utilized the dividend reinvestment portion of the DRSPP to purchase an aggregate of 30,189 shares of the Company's common stock, totaling $885 thousand. The direct purchase component of the DRSPP was used by stockholders to purchase 1,304 shares of the Company's common stock, totaling $39 thousand, during the nine months endedSeptember 30, 2019.

On October 15, 2019, the Company announced a quarterly dividend of $0.16 per share to be paid on December 2, 2019 to stockholders of record as of November 11, 2019.

For further information about the Company's capital, see Note 9 and Note 10, both titled "Stockholders' Equity," to the Company's unaudited consolidated interim financial statements contained in Item 1 of this Form 10-Q and to the Company's audited consolidated financial statements contained in the Company's 2018 Annual Report on Form 10-K, respectively.

Assets Under Management

Total assets under management includes total assets, loans serviced for others and investment assets under management. Loans serviced for others and investment assets under management are not carried as assets on the Company's consolidated balance sheet, and as such, total assets under management is not a financial measurement recognized under GAAP, however management believes its disclosure provides information useful in understanding the trends in total assets under management.

The Company provides a wide range of wealth management and wealth services, including brokerage, trust, and investment management.  Also included in the investment assets under management total are customers' commercial sweep arrangements that are invested in third-party money market mutual funds.

As of September 30, 2019, investment assets under management, which are reflected at fair market value, increased $74.3 million, or 9%, since December 31, 2018, while since September 30, 2018, balances have decreased $8.0 million, or 1%. 

As of September 30, 2019, total assets under management increased $253.1 million, or 7%, since December 31, 2018 and $241.9 million, or 6%, since September 30, 2018.

The following table sets forth the value of assets under management and its components at the dates indicated: 

(Dollars in thousands)	September 30, 2019		December 31, 2018		September 30, 2018
Total assets	$	3,138,724	$	2,964,358	$	2,890,604
Loans serviced for others	93,672		89,232		91,931
Investment assets under management	875,049		800,751		883,032
Total assets under management	$	4,107,445	$	3,854,341	$	3,865,567

Results of Operations

Three Months Ended September 30, 2019 vs. Three Months Ended September 30, 2018

Unless otherwise indicated, the reported results are for the three months ended September 30, 2019 with the "same period," the "comparable period," and "prior period" being the three months ended September 30, 2018. Average yields are presented on an annualized tax equivalent basis.

The Company's net income for the third quarter of 2019 amounted to $9.0 million, compared to $8.0 million for the same period in 2018, an increase of $1.0 million, or 13%.  Diluted earnings per share were $0.76 and $0.68 for the three months ended September 30, 2019 and September 30, 2018, respectively, an increase of 12%.

Net Interest Income and Margin

The Company's net interest income for the quarter ended September 30, 2019 amounted to $29.4 million, compared to $27.4 million for the quarter ended September 30, 2018, an increase of $2.0 million, or 7%.  The increase in net interest income over the comparable period was due largely to interest-earning asset growth, primarily in loans.

The Company's net interest margin was 3.88% for three months ended September 30, 2019, compared to 3.83% for the quarter ended September 30, 2018. Margin was 3.91% for the quarter ended June 30, 2019. Since June 30, 2019, the decline in yield on interest–earning assets exceeded the reduction in the cost of funds.

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Tax equivalent net interest income for the three months ended September 30, 2019 was $29.8 million compared to $27.9 million for the three months ended September 30, 2018, an increase of $1.9 million, or 7%. TE Margin was 3.93% for the three months ended September 30, 2019 compared to 3.89% for the three months ended September 30, 2018. The quarter-to-date June 30, 2019 TE Margin was 3.96%.

Interest and Dividend Income

For the third quarter of 2019, total interest and dividend income amounted to $34.8 million, an increase of $3.5 million, or 11%, compared to the prior period.  The increase resulted primarily from an increase of $132.4 million, or 6%, in average loan balances and a 20 basis point increase in the average tax equivalent loan yield. The increase in loan yields is attributable to market rate increases, including the prime rate, throughout 2018, which positively impacted yields in 2019, including the quarter ended September 30, 2019. Declines in market rates in 2019, including two recent reductions in the prime rate, have lowered loan yields relative to earlier in the year but they remain at levels that exceed the comparable prior year quarter.

Interest Expense

For the three months ended September 30, 2019, total interest expense amounted to $5.4 million, an increase of $1.5 million over the same period in 2018, due primarily to increases in the deposit market rates. The average cost of checking, saving and money markets increased 31 basis points and the average cost of CDs increased 54 basis points. The Company did not have any brokered CDs during the three months ended September 30, 2019, this partially offset the increase in interest expense from higher deposit market rates and growth in deposits.

Non-interest bearing checking accounts are an important component of the Company's core funding strategy.  For the three months ended September 30, 2019, the average balance of non-interest bearing checking accounts increased $64.3 million, or 9%, as compared to the same period in 2018, and represented 29% and 28% of total average deposit balances for the three months ended September 30, 2019 and September 30, 2018, respectively.

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

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Rate / Volume Analysis

The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the three months ended September 30, 2019 compared to the three months ended September 30, 2018.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); and (2) interest rate (change in average interest rate multiplied by prior period average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.

				Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate
Interest Income
Loans and loans held for sale (tax-equivalent)	$	2,808		$	1,612		$	1,196
Investment securities (tax-equivalent)	481			188			293
Other interest-earning assets (1)	135			78			57
Total interest-earning assets (tax-equivalent)	3,424			1,878			1,546
Interest Expense
Interest checking, savings and money market	1,567			269			1,298
Certificates of deposit	623			239			384
Brokered CDs	(729		)	(365		)	(364		)
Borrowed funds	30			27			3
Total interest-bearing funding	1,491			170			1,321
Change in net interest income (tax-equivalent)	$	1,933		$	1,708		$	225

__________________________________________

(1) Income on other interest-earning assets includes interest on deposits and fed funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the three months ended September 30, 2019 and 2018:

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Three months ended September 30, 2019						Three months ended September 30, 2018
(Dollars in thousands)	Average Balance		Interest(1)		Average Yield(1)		Average Balance		Interest(1)		Average Yield(1)
Assets:
Loans and loans held for sale (2) (tax equivalent)	$	2,444,806	$	31,075	5.05	%	$	2,312,367	$	28,267	4.85	%
Investments (3) (tax equivalent)	465,411		3,524		3.03	%	438,812		3,043		2.77	%
Other interest-earning assets (4)	106,296		632		2.36	%	92,602		497		2.13	%
Total interest-earning assets (tax equivalent)	3,016,513		35,231		4.64	%	2,843,781		31,807		4.44	%
Other assets	144,453						96,663
Total assets	$	3,160,966					$	2,940,444
Liabilities and stockholders' equity:
Interest checking, savings and money market	$	1,699,714	3,590		0.84	%	$	1,516,177	2,023		0.53	%
Certificates of deposit	302,776		1,568		2.05	%	247,709		945		1.51	%
Brokered CDs	—		—		—	%	151,520		729		1.91	%
Borrowed funds	6,683		36		2.10	%	1,585		6		1.59	%
Subordinated debt (5)	14,867		233		6.22	%	14,855		233		6.23	%
Total interest-bearing funding	2,024,040		5,427		1.06	%	1,931,846		3,936		0.81	%
Net interest-rate spread (tax equivalent)					3.58	%					3.63	%
Non-interest checking	811,942		—				747,642		—
Total deposits, borrowed funds and subordinated debt	2,835,982		5,427		0.76	%	2,679,488		3,936		0.58	%
Other liabilities	38,740						20,565
Total liabilities	2,874,722						2,700,053
Stockholders' equity	286,244						240,391
Total liabilities and stockholders' equity	$	3,160,966					$	2,940,444
Net interest income (tax equivalent)			29,804						27,871
Net interest margin (tax equivalent)					3.93	%					3.89	%
Less tax equivalent adjustment			383						459
Net interest income			$	29,421					$	27,412
Net interest margin					3.88	%					3.83	%

__________________________________________

(1) Average yields and interest income are presented on a tax equivalent basis, calculated using a U.S federal income tax rate of 21% in both 2019 and 2018, based on tax equivalent adjustments associated with tax exempt loans and investments interest income.

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

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

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

(5) The subordinated debt is net of average deferred debt issuance costs.

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Provision for Loan Loss

The provision for loan losses amounted to $1.0 million for the three months ended September 30, 2019, an increase of $275 thousand, compared to the prior period.  The increase in the provision in the third quarter of 2019 was due to the higher levels of loan growth, compared to the same three-month period in 2018.

The provision for loan losses is a significant factor in the Company's operating results. For further discussion regarding the provision for loan losses and management's assessment of the adequacy of the allowance for loan losses see "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" under "Financial Condition" in this Item 2 above, and "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" in the Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2018 Annual Report on Form 10-K.

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 2018 Annual Report on Form 10-K.

Non-Interest Income

Non-interest income for the three months ended September 30, 2019 amounted to $4.1 million, an increase of $425 thousand, or 11%, as compared to the same period in 2018. The primary component of the quarter over quarter change related to an increase in deposit and interchange fees.

Non-Interest Expense

Non-interest expense for the three months ended September 30, 2019 amounted to $21.1 million, an increase of $1.1 million, or 6%, compared to the prior period. The increase primarily related to the Company's strategic growth initiatives, including salaries and employee benefit expenses, and to a lesser extent technology and telecommunications expenses. Partially offsetting these increases was a reduction in deposit insurance premiums, primarily resulting from a Small Bank Assessment Credit from the FDIC Deposit Insurance Fund of $376 thousand.

Income Taxes

The effective tax rate for the three months ended September 30, 2019 was 21.4%, compared to 23.3% for the three months ended September 30, 2018.

Results of Operations

Nine Months Ended September 30, 2019 vs. Nine Months Ended September 30, 2018

Unless otherwise indicated, the reported results are for the nine months endedSeptember 30, 2019 with the "same period," the "comparable period," "prior year," and "prior period" being the nine months endedSeptember 30, 2018. Average yields are presented on an annualized tax equivalent basis.

The Company's net income for the nine months endedSeptember 30, 2019 amounted to $25.5 million, compared to $22.4 million for the same period in 2018, an increase of $3.1 million, or 14%.  Diluted earnings per share were $2.15 and $1.91 for the nine months endedSeptember 30, 2019 and September 30, 2018, respectively, an increase of 13%.

Net Interest Income and Margin

The Company's net interest income for the nine months endedSeptember 30, 2019 was $86.3 million, compared to $80.6 million for the nine months endedSeptember 30, 2018, an increase of $5.6 million, or 7%.  The increase in net interest income over the comparable period was due largely to interest-earning asset growth, primarily in loans.

The Company's margin was 3.90% for the nine months endedSeptember 30, 2019 compared to 3.89% for the nine months endedSeptember 30, 2018.

Tax equivalent net interest income for the nine months endedSeptember 30, 2019 was $87.5 million compared to $82.0 million for the nine months endedSeptember 30, 2018, an increase of $5.5 million, or 7%.  TE Margin was 3.96% for the nine months endedSeptember 30, 2019 compared to 3.95% for the nine months endedSeptember 30, 2018.

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Interest and Dividend Income

Total interest and dividend income amounted to $102.4 million for the nine months endedSeptember 30, 2019, an increase of $12.0 million, or 13%, compared to the prior period.  The increase was primarily attributed to loans and loans held for sale including a 29 basis point increase in average tax equivalent loan yields, as well as a $110.4 million, or 5%, increase in average loan balances. The increase in loan yields since the prior period is primarily attributable to market rate increases, including the prime rate throughout 2018, which positively impacted yields in 2019. Declines in market rates in 2019, including two recent reductions in the prime rate, have lowered loan yields relative to earlier in the year but they remain at levels that exceed the comparable prior year period.

Interest Expense

For the nine months endedSeptember 30, 2019, total interest expense amounted to $16.2 million, an increase of $6.4 million over the same period in 2018 due primarily to increases in the deposit market rates. The average cost of checking, saving and money markets increased 45 basis points and the average cost of CDs increased 61 basis points. Partially offsetting the increase in interest expense were lower average balances on brokered CDs as the remaining maturing balances were not renewed in 2019 due to increases in lower-costing deposits.

Non-interest checking accounts are an important component of the Company's core funding strategy. For the nine months endedSeptember 30, 2019, the average balance of non-interest checking accounts increased$49.0 million, or 7%, as compared to the same period in 2018, and represented 28% of total average deposit balances for both the nine months endedSeptember 30, 2019 and September 30, 2018.

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

Rate / Volume Analysis

The following table sets forth, on a tax-equivalent basis, the extent to which changes in interest rates and changes in the average balances of interest-earning assets and interest-bearing liabilities have affected interest income and expense during the nine months endedSeptember 30, 2019, compared to the nine months endedSeptember 30, 2018.  For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior period average rate); and (2) interest rate (change in average interest rate multiplied by prior period average balance). Changes attributable to the combined impact of volume and rate have been allocated proportionately based on absolute value to the changes due to volume and the changes due to rate.

				Increase (decrease) due to
(Dollars in thousands)	Net Change			Volume			Rate
Interest Income
Loans and loans held for sale (tax equivalent)	$	9,141		$	3,808		$	5,333
Investment securities (tax equivalent)	1,814			679			1,135
Other interest-earning assets (1)	870			732			138
Total interest-earning assets (tax equivalent)	11,825			5,219			6,606
Interest Expense
Interest checking, savings and money market	6,136			693			5,443
Certificates of deposit	2,023			784			1,239
Brokered CDs	(1,773		)	(2,016		)	243
Borrowed funds	(17		)	(161		)	144
Total interest-bearing funding	6,369			(700		)	7,069
Change in net interest income (tax equivalent)	$	5,456		$	5,919		$	(463	)

_________________________________

(1) Income on other interest-earning assets includes interest on deposits and fed funds sold, and dividends on FHLB stock.

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The following table presents the Company's average balance sheet, net interest income and average rates for the nine months endedSeptember 30, 2019 and 2018: 

AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS

	Nine months ended September 30, 2019						Nine months ended September 30, 2018
(Dollars in thousands)	Average Balance		Interest(1)		Average Yield(1)		Average Balance		Interest(1)		Average Yield(1)
Assets:
Loans and loans held for sale(2) (tax equivalent)	$	2,404,443	$	91,389	5.08	%	$	2,294,006	$	82,248	4.79	%
Investment securities(3) (tax equivalent)	458,433		10,564		3.07	%	426,108		8,750		2.74	%
Other interest-earning assets(4)	92,593		1,688		2.44	%	51,535		818		2.12	%
Total interest-earnings assets (tax equivalent)	2,955,469		103,641		4.69	%	2,771,649		91,816		4.43	%
Other assets	134,401						97,808
Total assets	$	3,089,870					$	2,869,457
Liabilities and stockholders' equity:
Interest checking, savings and money market	$	1,649,758	10,468		0.85	%	$	1,442,949	4,332		0.40	%
CDs	297,580		4,397		1.98	%	232,145		2,374		1.37	%
Brokered CDs	20,678		291		1.88	%	166,579		2,064		1.66	%
Borrowed funds	16,415		315		2.56	%	27,094		332		1.64	%
Subordinated debt(5)	14,864		692		6.22	%	14,852		692		6.23	%
Total interest-bearing funding	1,999,295		16,163		1.08	%	1,883,619		9,794		0.70	%
Net interest-rate spread (tax equivalent)					3.61	%					3.73	%
Non-interest checking	780,632		—				731,664		—
Total deposits, borrowed funds and subordinated debt	2,779,927		16,163		0.78	%	2,615,283		9,794		0.50	%
Other liabilities	37,369						19,313
Total liabilities	2,817,296						2,634,596
Stockholders' equity	272,574						234,861
Total liabilities and stockholders' equity	$	3,089,870					$	2,869,457
Net interest income (tax equivalent)			87,478						82,022
Net interest margin (tax equivalent)					3.96	%					3.95	%
Less tax equivalent adjustment			1,195						1,377
Net interest income			$	86,283					$	80,645
Net interest margin					3.90	%					3.89	%

_______________________________

(1) Average yields and interest income are presented on a tax equivalent basis, calculated using a U.S federal income tax rate of 21% in both 2019 and 2018, based on tax equivalent adjustments associated with tax exempt loans and investments interest income.

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

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

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

(5) The subordinated debt is net of average deferred debt issuance costs.

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Provision for Loan Loss

For the nine months endedSeptember 30, 2019, the provision for loan losses amounted to $1.6 million, a decrease of $1.1 million, compared to the same period in 2018.  The decrease compared to the prior year was due primarily to generally improved credit metrics compared to the prior year period, partially offset by the impact of loan growth in the current period.

The provision for loan losses is a significant factor in the Company's operating results. For further discussion regarding the provision for loan losses and management's assessment of the adequacy of the allowance for loan losses see "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" under "Financial Condition" in this Item 2, above, and "Credit Risk," "Asset Quality," and "Allowance for Loan Losses" in the Financial Condition section of Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's 2018 Annual Report on Form 10-K.

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 2018 Annual Report on Form 10-K.

Non-Interest Income

Non-interest income for the nine months endedSeptember 30, 2019 amounted to $12.0 million, an increase of $777 thousand, or 7%, compared to the nine months endedSeptember 30, 2018. Non-interest income increased in 2019 due primarily to increases in deposit and interchange fees, net gains on sales of investments, and net fair value gains on equity securities, which is included in other income, partially offset by lower wealth management income.

Non-Interest Expense

Non-interest expense for the nine months endedSeptember 30, 2019 amounted to $63.7 million, an increase of $3.5 million, or 6%, compared to the same period in 2018. The increase primarily related to the Company's strategic growth initiatives, including salaries and employee benefit expenses, and to a lesser extent technology and telecommunications expenses. Partially offsetting the increase were reductions in both deposit insurance premiums, resulting from a Small Bank Assessment Credit from the FDIC Deposit Insurance Fund of $376 thousand, and advertising and public relations expenses, mainly due to the Company's community recognition event last held in the second quarter of 2018.

Income Taxes

The effective tax rate was 22.9% for both the nine months endedSeptember 30, 2019 and September 30, 2018.

Risk Factors and Risk Management Framework

This Form 10-Q outlines certain key risks facing the Company including credit risk, liquidity management and interest-rate risk. Credit risk management is reviewed in detail in this Item 2 under the heading "Credit Risk." Liquidity management is the coordination of activities so that cash needs are anticipated and met, readily and efficiently. Liquidity management is reviewed in this Item 7 under the heading "Liquidity, " above. Interest-rate risk is reviewed under Item 3, "Quantitative and Qualitative Disclosures About Market Risk," below. In addition to the risks outlined in this Form 10-Q, numerous other factors that could adversely affect the Company's future results of operations and financial condition, and its reputation and business model are addressed in Item 1A, "Risk Factors," of the Company's 2018 Annual Report on Form 10-K.

Management utilizes a comprehensive risk management framework which enables the aggregation of risks across the Company and provides reasonable assurance that management has the tools, programs and processes in place to support informed decision making, anticipate risks before they materialize and maintain the Company's risk profile consistent with its strategic planning, and applicable laws and regulations.

The Company's enterprise risk management and operational risk management framework provides a structured approach for identifying, assessing and managing risks in a coordinated manner, which includes, but is not limited to: credit risk, market and interest-rate risk, legal and regulatory compliance risk, reputational risk, strategic risk, liquidity management, information security, internal controls over financial reporting, physical security, loss and fraud prevention, policy reviews, third party vendor management and contract management, business continuity planning, short and long-term capital projects and facility planning, and corporate governance. See Item 1, "Business," under the "Risk Management Framework," section of the Company's 2018 Annual Report on Form 10-K for additional information.

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Accounting Policies/Critical Accounting Estimates

As discussed in the Company's 2018 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 materially changed its significant accounting and reporting policies from those disclosed in its 2018 Annual Report on Form 10-K.

Recent Accounting Pronouncements

See Note 1, Item (f), "Recent Accounting Pronouncements" to the Company's unaudited consolidated interim financial statements in this Form 10-Q for information regarding recent accounting pronouncements.

Item 3 - Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes in the results of the Company's net interest income sensitivity analysis as reported in the Company's 2018 Annual Report on Form 10-K. 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. At September 30, 2019, the Company's primary interest-rate risk exposure continues to be margin compression that may result from changes in interest rates and/or changes in the mix of the Company's balance sheet components. This would include the mix of fixed versus variable rate loans and investments within assets, and higher cost versus lower cost deposits and overnight borrowings versus term borrowings and certificates of deposit within liabilities. Refer to heading "Results of Operations" contained within Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this Form 10-Q for further discussion of margin.

Item 4 - Controls and Procedures

Evaluation of Disclosure Controls and Procedures

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

The Company carried out an evaluation as of the end of the period covered by this Form 10-Q under the supervision and with the participation of the Company's management, including its principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company's disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b).  Based upon that evaluation, the Company's principal executive officer and principal financial officer concluded that the Company's disclosure controls and procedures are effective as of September 30, 2019.

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 September 30, 2019) that has materially affected, or is reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II - OTHER INFORMATION

Item 1 - Legal Proceedings

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

Item 1A - Risk Factors

Management believes that there have been no material changes in the Company's risk factors as reported in the Company's 2018 Annual Report on Form 10-K.

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

The following table represents information with respect to repurchases of common stock made by the Company during the three months ended September 30, 2019:

	Total number of shares repurchased (1)	Average Price Paid Per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Announced	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs
July	1,654	$29.47	—	—
August	—	—	—	—
September	—	—	—	—

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

Item 3 - Defaults upon Senior Securities

Not Applicable.

Item 4 - Mine Safety Disclosures

Not Applicable.

Item 5 - Other Information

Not Applicable.

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Item 6 - Exhibits

EXHIBIT INDEX

_____________

Exhibit No.Description

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

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

3.1.3 Articles of Amendment to the Amended and Restated Articles of Organization of the Company, as amended as of January 5, 2018, incorporated by reference to the Company’s Current Report on Form 8-K filed January 11, 2018 (File No. 001-33912).

3.2 Amended and Restated Bylaws of the Company, as amended as of January 15, 2013, incorporated by reference to Exhibit 3.2 to the Company's Current Report on Form 8-K filed on January 22, 2013 (File No. 001-33912).

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 September 30, 2019 were formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets as of September 30, 2019 and December 31, 2018; (ii) Consolidated Statements of Income for the three and nine months endedSeptember 30, 2019 and 2018; (iii) Consolidated Statements of Comprehensive Income for the three and nine months endedSeptember 30, 2019 and 2018; (iv) Consolidated Statements of Changes in Equity for the three and nine months endedSeptember 30, 2019 and 2018; (v) Consolidated Statements of Cash Flows for the nine months endedSeptember 30, 2019 and 2018; and (vi) Notes to Unaudited Consolidated Interim Financial Statements.

____________________

*Filed herewith

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SIGNATURES

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

		ENTERPRISE BANCORP, INC.
DATE:	November 7, 2019	By:	/s/ Joseph R. Lussier
			Joseph R. Lussier
			Executive Vice President, Treasurer
			and Chief Financial Officer

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