Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2020

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, 2019 audited consolidated financial statements and notes thereto contained in the 2019 Annual Report on Form 10-K of Enterprise Bancorp, Inc. as filed with the Securities and Exchange Commission (the "SEC") on March 10, 2020 (the "2019 Annual Report on Form 10-K"). The Company has not materially changed its significant accounting policies from those disclosed in its 2019 Annual Report on Form 10-K, other than to elect options for the temporary deferral of certain accounting guidance as allowed under the recently-enacted Coronavirus Aid, Relief, and Economic Security ("CARES") Act as discussed under Item (c), "Accounting Policies," below in this Note 1. See also Item (e), "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, to 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 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 June 30, 2020, the Company had 25 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 is also scheduled to open a branch in North Andover, Massachusetts in late 2020 or early 2021. 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 commercial 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 SEC instructions for Quarterly Reports on 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 unaudited 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.

(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 2019 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 2019 Annual Report on Form 10-K for accounting policies related to these significant estimates.

Restricted Cash and Investments

When the Company has pledged cash as collateral in relation to certain derivatives, the cash is carried as restricted cash within "Interest-earning deposits" on the Company's Consolidated Balance Sheet. See Note 8, "Derivatives and Hedging Activities," to the Company's unaudited consolidated interim financial statements below in the Quarterly Report on this Form 10-Q ("this Form 10-Q") for more information about the Company's collateral related to its derivatives.

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. This FHLB stock represents the only restricted investment held by the Company and is carried at cost, which management believes approximates fair value. Based on management's periodic review for other-than-temporary impairment ("OTTI"), the Company has not recorded any OTTI charges on this investment to date.

Other Accounting Policies

The CARES Act allows certain financial institutions the option to delay the adoption of the Financial Accounting Standards Board ("FASB") Accounting Standards Update ("ASU") No. 2016-13 (Measurement of Credit Losses on Financial Instruments), including the current expected credit loss ("CECL") methodology for estimating allowances for credit losses, during the period beginning on March 27, 2020 until the earlier of (1) the date on which the national emergency concerning the COVID-19 pandemic ("pandemic") declared under the National Emergencies Act terminates; or (2) December 31, 2020. In the first quarter of 2020, the Company has elected to delay the adoption of CECL. See Item (e) "Recent Accounting Pronouncements," under the subheading "Accounting pronouncements not yet adopted by the Company," below in this Note 1 for additional information on CECL.

In addition, Section 4013 of the CARES Act provides the option for financial institutions to suspend troubled debt restructuring ("TDR") accounting under GAAP in certain circumstances, during the period beginning March 1, 2020 and ending on the (1) earlier of December 31, 2020; or (2) the date that is 60 days after the date on which the national emergency concerning the pandemic declared under the National Emergencies Act terminates. The Company is suspending TDR accounting, which primarily impacts financial statement disclosure, for loans that have had a short-term payment deferral related to the pandemic since March 1, 2020, as long as those loans were current and risk rated as “pass” as of February 29, 2020.

(d) Subsequent Events

The Company has evaluated subsequent events and transactions from June 30, 2020 through the date this Form 10-Q was filed with the SEC for potential recognition or disclosure as required by GAAP and determined that outside of the item noted below, there were no material subsequent events requiring recognition or disclosure.

On July 7, 2020, the Company completed a private placement with registration rights of $60.0 million in fixed-to-floating rate subordinated notes due July 15, 2030 and redeemable at the Company's option on or after July 15, 2025 (the "Notes"). The Notes bear a fixed rate of 5.25% for the first five years and will reset quarterly thereafter to the then current three-month Secured Overnight Financing Rate, as published by the Federal Reserve Bank of New York, plus 5.175%. The Company is entitled to redeem the Notes, in whole or in part, on any interest payment date on or after July 15, 2025, or at any time, in whole but not in part, upon certain other specified events. The Company intends to use the net proceeds from the offering for general corporate purposes, organic growth and to support Bank regulatory capital ratios. Management anticipates contributing approximately $53.0 million of the net proceeds to the Bank in the third quarter of 2020.

(e) Recent Accounting Pronouncements

The tables below summarize recent accounting pronouncements issued by the 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 ASUs.



Accounting pronouncements adopted by the Company

Standard/Adoption Date	Description	Effect on Financial Statements or Other Significant Matters
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 related primarily to level 3 fair value measurements of the fair value hierarchy.	The adoption of ASU No. 2018-13 in January 2020 did not have a material impact on the Company's consolidated financial statements and results of operations because this ASU relates primarily to disclosure requirements and the dollar amounts of related assets held by the Company are immaterial.
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 requires 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 adoption of ASU No. 2018-15 in January 2020 did not have a material impact on the Company's consolidated financial statements and results of operations.
ASU No. 2020-04. Reference Rate Reform (Topic 848) - Facilitation of the Effects of Reference Rate Reform on Financial Reporting Upon Issuance	The amendments in the provision are effective for a limited period and mainly address accounting and reporting challenges due to the transition from LIBOR on existing contracts. The optional expedients may be applied to loans, borrowings, leases and derivatives. The standard 1) simplifies the accounting analyses for contract modifications and 2) simplifies the hedge effectiveness assessment and allows hedging relationships impacted by the LIBOR transition to continue.	This ASU was effective upon issuance and is applicable until December 31, 2022. The Company adopted this ASU prospectively and made certain optional elections related to its cashflow hedge relationships which did not materially impact our consolidated financial statements. The Company continues to assess the other implications and expedients under this standard, which allows for elections to be made at different time intervals, but does not expect that the ASU will have a material impact on the Company's consolidated financial statements, or results of operations.



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 The earlier of (1) the date on which the national emergency concerning the pandemic declared by the National Emergencies Act terminates; or (2) December 31, 2020.	The amendments in this ASU require a financial asset (or a group of financial assets) measured on an 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 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 Statement of Income 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. Based on current regulatory guidance, as of the adoption date an entity will apply the amendments in this ASU through a cumulative-effect adjustment to retained earnings as of January 1, 2020 (that is, a modified-retrospective approach).	In accordance with the CARES Act, the Company elected to defer the adoption of this standard. Upon adoption, the Company estimates a reduction to retained earnings in the range of $1.0 to $3.0 million, net of tax, with an effective date of January 1, 2020. The Company continues to monitor regulatory guidance related to this deferment. In March 2020, the regulatory banking agencies issued an interim final rule that allows banking institutions that implement CECL during 2020 to delay for two years the estimated impact of CECL on regulatory capital, followed by a three-year transition period. The Company is currently assessing its options at this time and will make its election when it adopts CECL. The foregoing observations are subject to change as management completes its analysis and adopts the standard later this year.
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 relates primarily to disclosure requirements and the balances of the benefit plans impacted by this ASU are immaterial to the Company.