10-Q

U.S. Securities and Exchange Commission

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2004

OR

o     TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from                     to                     

Commission file number 0-21021

Enterprise Bancorp, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts	04-3308902
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
222 Merrimack Street, Lowell, Massachusetts, 01852
(Address of principal executive offices) (Zip code)
(978) 459-9000
(Issuer’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

YesýNoo

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

YesoNoý

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

April 30, 2004, Common Stock - Par Value $0.01: 3,610,600 shares outstanding

ENTERPRISE BANCORP, INC.

INDEX

		Page Number
	Cover Page	1
	Index	2
PART I FINANCIAL INFORMATION
Item 1	Financial Statements
	Consolidated Balance Sheets - March 31, 2004 and December 31, 2003	3
	Consolidated Statements of Income - Three months ended March 31, 2004 and 2003	4
	Consolidated Statement of Changes in Stockholders’ Equity - Three months ended March 31, 2004	5
	Consolidated Statements of Cash Flows - Three months ended March 31, 2004 and 2003	6
	Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3	Quantitative and Qualitative Disclosures About Market Risk	23
Item 4	Controls and Procedures	23
PART II OTHER INFORMATION
Item 1	Legal Proceedings	24
Item 2	Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities	24
Item 3	Defaults upon Senior Securities	24
Item 4	Submission of Matters to a Vote of Security Holders	24
Item 5	Other Information	24
Item 6	Exhibits and Reports on Form 8-K	24
	Signature page	25

2

ENTERPRISE BANCORP, INC.

Consolidated Balance Sheets

March 31, 2004 and December 31, 2003

(unaudited)

(Dollars in thousands)	March 31, 2004		December 31, 2003
Assets
Cash and cash equivalents:
Cash and due from banks	$	32,147	$	31,102
Short-term investments	38,500		14,000
Total cash and cash equivalents	70,647		45,102
Investment securities at fair value	179,320		196,308
Loans, less allowance for loan losses of $10,329 at March 31, 2004 and $9,986 at December 31, 2003	495,402		478,853
Premises and equipment	12,218		12,429
Accrued interest receivable	3,176		3,178
Deferred income taxes, net	3,304		3,532
Prepaid expenses and other assets	5,561		5,320
Income taxes receivable	—		293
Core deposit intangible, net of amortization	841		874
Goodwill	5,656		5,656
Total assets	$	776,125	$	751,545
Liabilities and Stockholders’ Equity
Liabilities
Deposits	$	688,500	$	660,824
Borrowed funds	16,438		21,424
Junior subordinated debentures	10,825		10,825
Accrued expenses and other liabilities	2,313		3,006
Income taxes payable	407		—
Accrued interest payable	423		716
Total liabilities	718,906		696,795
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; 10,000,000 shares authorized; 3,609,063 and 3,602,023 shares issued and outstanding at March 31, 2004 and December 31, 2003, respectively	36		36
Additional paid-in capital	21,062		21,006
Retained earnings	33,184		31,469
Accumulated other comprehensive income	2,937		2,239
Total stockholders’ equity	57,219		54,750
Total liabilities and stockholders’ equity	$	776,125	$	751,545

See accompanying notes to the unaudited consolidated financial statements.

3

ENTERPRISE BANCORP, INC.

Consolidated Statements of Income

Three months ended March 31, 2004 and 2003

(unaudited)

(Dollars in thousands, except per share data)	March 31, 2004		March 31, 2003
Interest and divided income:
Loans	$	7,559	$	6,890
Investment securities	1,724		2,501
Short-term investments	14		24
Total interest income	9,297		9,415
Interest expense:
Deposits	1,456		1,852
Borrowed funds	67		26
Junior subordinated debentures	294		294
Total interest expense	1,817		2,172
Net interest income	7,480		7,243
Provision for loan losses	750		300
Net interest income after provision for loan losses	6,730		6,943
Non-interest income:
Investment management and trust service fees	516		435
Deposit service fees	549		500
Net gains on sales of investment securities	631		1,316
Gains on sales of loans	85		324
Other income	399		330
Total non-interest income	2,180		2,905
Non-interest expense:
Salaries and employee benefits	3,695		3,394
Occupancy expenses	1,237		1,250
Audit, legal and other professional fees	263		276
Advertising and public relations	170		189
Supplies and postage	221		182
Trust professional and custodial expenses	152		160
Other operating expenses	461		432
Total non-interest expense	6,199		5,883
Income before income taxes	2,711		3,965
Income tax expense	996		3,461
Net income	$	1,715	$	504
Basic earnings per share	$	0.48	$	0.14
Diluted earnings per share	$	0.45	$	0.14
Basic weighted average common shares outstanding	3,605,344		3,533,488
Diluted weighted average common shares outstanding	3,789,679		3,660,855

See accompanying notes to the unaudited consolidated financial statements.

4

ENTERPRISE BANCORP, INC.

Consolidated Statement of Changes in Stockholders’ Equity

Three months ended March 31, 2004

(unaudited)

				Additional							Accumulated Other		Total
	Common Stock			Paid-in		Retained		Comprehensive			Comprehensive		Stockholders’
	Shares	Amount		Capital		Earnings		Income			Income		Equity
(Dollars in thousands, except share data)
Balance at December 31, 2003	3,602,023	$	36	$	21,006	$	31,469				$	2,239	$	54,750
Comprehensive income
Net income						1,715		$	1,715				1,715
Other comprehensive income, net of reclassification								698			698		698
Total comprehensive income								$	2,413
Stock options exercised	7,040	—		56									56
Balance at March 31, 2004	3,609,063	$	36	$	21,062	$	33,184				$	2,937	$	57,219
Disclosure of other comprehensive income:
Net unrealized holding gains on securities during the period								$	1,813
Income tax expense								(742		)
Net unrealized holding gains, net of tax								1,071
Reclassification adjustment for gains included in net income:
Net realized gains on sales of securities during the period								(631		)
Income tax expense								258
Reclassification adjustment, net of tax								(373		)
Other comprehensive income, net of reclassification								$	698

See the accompanying notes to the unaudited consolidated financial statements

5

ENTERPRISE BANCORP, INC.

Consolidated Statements of Cash Flows

Three Months Ended March 31, 2004 and 2003

(unaudited)

(Dollars in thousands)	March 31, 2004			March 31, 2003
Cash flows from operating activities:
Net income	$	1,715		$	504
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses	750			300
Depreciation and amortization	852			1,012
Amortization of intangible assets	33			33
Net gains on sales of investment securities	(631		)	(1,316		)
Gains on sales of loans	(85		)	(324		)
(Increase) decrease in:
Loans held for sale, net of gain	(535		)	1,368
Accrued interest receivable	2			190
Income taxes receivable	293			2,193
Prepaid expenses and other assets	(241		)	2,234
Deferred income taxes	(338		)	(534		)
Increase (decrease) in:
Accrued expenses and other liabilities	(693		)	3,491
Income taxes payable	407			—
Accrued interest payable	(293		)	(332		)
Net cash provided by operating activities	1,236			8,819
Cash flows from investing activities:
Proceeds from sales of investment securities	14,045			15,534
Proceeds from maturities, calls and pay-downs of investment securities	9,725			29,307
Purchase of investment securities	(5,135		)	(15,090		)
Net increase in loans	(16,679		)	(18,442		)
Additions to premises and equipment, net	(393		)	(790		)
Net cash provided by investing activities	1,563			10,519
Cash flows from financing activities:
Net increase in deposits	27,676			13,419
Net decrease in borrowed funds	(4,986		)	(5,800		)
Proceeds from exercise of stock options	56			17
Net cash provided by financing activities	22,746			7,636
Net increase in cash and cash equivalents	25,545			26,974
Cash and cash equivalents at beginning of period	45,102			45,778
Cash and cash equivalents at end of period	$	70,647		$	72,752
Supplemental financial data:
Cash Paid For:
Interest	$	2,110		$	2,504
Income taxes	625			1,800

See accompanying notes to the unaudited consolidated financial statements.

6

ENTERPRISE BANCORP, INC.

Notes to Consolidated Financial Statements

(1)Organization of Holding Company

Enterprise Bancorp, Inc. (the “company”) is a Massachusetts corporation organized on February 29, 1996, at the direction of Enterprise Bank and Trust Company, (the “bank”), for the purpose of becoming the holding company for the bank.  The bank, a Massachusetts trust company organized in 1989, has two wholly owned subsidiaries, Enterprise Insurance Services LLC and Enterprise Investment Services LLC, organized for the purpose of engaging in insurance sales activities and offering non-deposit investment products and related securities brokerage services to its customers.

(2)Basis of Presentation

The accompanying unaudited consolidated financial statements should be read in conjunction with the company’s December 31, 2003 audited consolidated financial statements and notes thereto.  Interim results are not necessarily indicative of results to be expected for the entire year.  The company has not changed its significant accounting and reporting policies from those disclosed in its 2003 annual report.

In the opinion of management, the accompanying consolidated 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 consolidated financial statements.

Certain fiscal 2003 information has been reclassified to conform to the 2004 presentation.

(3)Accounting Rule Changes

In December 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46R (“FIN 46R”), a revision of FIN No. 46, “Consolidation of Variable Interest Entities – An Interpretation of Accounting Research Bulletin No. 51.”  FIN 46R in part specifically addressed limited purpose trusts formed to issue trust preferred securities.  The guidance required companies to deconsolidate their variable interest in these limited purpose trusts.   Enterprise (MA) Capital Trust I (the “Trust”) constitutes the only entity in which the company holds a variable interest.  The company fully and unconditionally guarantees on a subordinated basis all of the Trust’s obligations with respect to distributions and amounts payable upon liquidation, redemption or repayment with respect to the trust preferred securities issued by the Trust

Effective December 31, 2003, the company chose to adopt and apply FIN 46R.  Pursuant to FIN 46R, the company has excluded the Trust from current period financial statements and has elected to voluntarily restate prior period financial statements for comparability purposes.  At March 31, 2004, the company’s investment in the Trust was $676 thousand,  the Trust had outstanding trust preferred securities totaling $10.5 million, and the company’s junior subordinated debt obligation to the Trust amounted to $10.8 million.  This “deconsolidation” has caused the company to carry its junior subordinated debt securities, on the company’s financial statements as borrowings, with related interest expense, and to exclude the trust preferred securities, issued by the Trust, and related non-interest expense from its financial statements.  This deconsolidation did not have a material impact on the company’s financial statements.

In July 2003, due to the potential accounting changes related to trust preferred securities noted above, the Board of Governors of the Federal Reserve System issued a supervisory letter instructing bank holding companies to continue to include trust preferred securities in their Tier 1 capital, subject to applicable limits, for regulatory capital purposes until notice is given to the contrary.  The Federal Reserve is in the process of reviewing the regulatory implications of any accounting treatment changes and, if necessary or warranted, will provide further appropriate guidance.  As of March 31, 2004 the company’s Tier 1 capital, excluding trust preferred securities, exceeded the minimum required regulatory levels for capital adequacy purposes.

In March 2004, the FASB issued a draft of a proposed new Statement of Financial Accounting Standards, “Share-Based Payment”, for public comment.  The proposed new FASB standard, an amendment of FASB No. 123 and 95, would eliminate the ability for companies to account for stock-based compensation transactions using the intrinsic value method and generally would require instead that such transactions be accounted for using a fair-value based method.  Under the intrinsic value method, no compensation cost is recorded if, at the grant date, the exercise price of the options is equal to or greater than the fair market value of the company’s common stock; however, pro forma net income and earnings per share information is supplementally disclosed as if the fair-value based method of accounting had been used.  The fair

7

value method requires companies to recognize compensation expense over the service period, equal to the fair value at the grant date for stock options issued in exchange for employee services.  This proposed statement, if issued as written, would be applied to public companies prospectively for fiscal years beginning after December 15, 2004, as if all share-based compensation awards granted, modified, or settled after December 15, 1994, had been accounted for using the fair-value based method of accounting.  The company currently uses the intrinsic value method to measure compensation cost and is evaluating the impact the proposed new standard would have on future results of operations.  See note 5, “Stock Options”, below for pro forma information regarding compensation expense using the fair value method under SFAS No. 123.

(4)Critical Accounting Estimates

In preparing the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America, management is required to exercise judgment in determining many of the methodologies, assumptions and estimates to be utilized.  These estimates and assumptions affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period.  Actual results could differ from those estimates.  Certain of the critical accounting estimates are more dependent on management’s judgment and in some cases may contribute to volatility in the company’s reported financial performance should the assumptions and estimates used change over time due to changes in circumstances. As discussed in the company’s 2003 Annual Report on Form 10-K, the two 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 and impairment valuation of goodwill.

(5)Stock Options

The company measures compensation cost for stock-based compensation plans using the intrinsic value method under which no compensation cost is recorded if, at the grant date, the exercise price of the options is equal to or greater than the fair market value of the company’s common stock.

Had the company determined compensation expense based on the fair value at the grant date for its stock options under SFAS 123, the company’s net income would have been reduced to the pro forma amounts indicated in the following table:

	Three months ended March 31,
(Dollars in thousands, except per share data)	2004		2003
Net income as reported	$	1,715	$	504
SFAS 123 compensation cost, net of tax	33		22
Pro forma net income	1,682		482
Basic earnings per share as reported	0.48		0.14
Pro forma basic earnings per share	0.47		0.14
Diluted earnings per share as reported	0.45		0.14
Pro forma diluted earnings per share	0.45		0.13

There were 104,440 options granted in 2004.  There were no options granted in 2003. For options granted in 2004, the per share weighted average fair value of stock options was determined to be $3.01, or 12% of the market value of the stock at the date of grant.  The value was determined by using a binomial distribution model.  The assumptions used in the model for the 2004 grant for the risk-free interest rate, expected volatility, dividend yield and expected life in years were 3.68%, 15.00%, 1.65% and 6, respectively.

(6)Earnings Per Share

Basic earnings per share are calculated by dividing net income by the weighted average number of common shares outstanding during the year.  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 three months ended March 31st and the effect of those shares on earnings:

8

	Three months ended March 31,
	2004		2003
Basic weighted average common shares outstanding	3,605,344		3,533,488
Dilutive shares	184,335		127,367
Diluted weighted average common shares outstanding	3,789,679		3,660,855
Basic Earnings per share	$	0.48	$	0.14
Effect of dilutive shares	0.03		0.00
Diluted Earnings per share	$	0.45	$	0.14

9

(7)Dividends/Dividend Reinvestment Plan

On April 20, 2004 the board of directors of the company approved an annual dividend of $0.43 per share, payable on June 25, to shareholders of record as of June 4, 2004.

The company maintains a dividend reinvestment plan (the “DRP”).  The DRP enables stockholders, at their discretion, to elect to reinvest dividends paid on their shares of the company’s common stock by purchasing additional shares of common stock from the company at a purchase price equal to fair market value. In 2003, the company’s shareholders utilized the DRP to reinvest $0.9 million of the $1.3 million dividend paid by the company in June 2003 into 38,063 shares of the company’s common stock.

(8)Guarantees

Standby letters of credit are conditional commitments issued by the company to guarantee the performance by a customer to a third party.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.  If the letter of credit is drawn upon the bank creates a loan for the customer with the same criteria associated with similar loans.  The fair value of these commitments were estimated to be the fees charged to enter into similar agreements.  At March 31, 2004 and  2003 these amounts were not material.

(9)Income Taxes

The bank previously organized and controlled a real estate investment trust, Enterprise Realty Trust, Inc. (“ERT”), through which the bank held mortgages and mortgage-related securities.  This ownership structure enabled the company to receive favorable Massachusetts state income tax treatment on the income earned on the assets held by ERT.  This favorable tax treatment was eliminated on a retroactive basis back to 1999 by the Massachusetts legislature in March 2003.

As a result of the enactment of the legislation, in the first quarter of 2003 the company recorded income tax expense of $1.9 million, net of federal income tax benefit and deferred tax asset, for the tax years ended December 31, 1999 through 2002. The bank along with approximately sixty-five other Massachusetts banks initially disputed the retroactive assessment by the Massachusetts Department of Revenue (“DOR”).

In June 2003 the DOR and the bank settled their dispute as to the tax amount owed for the tax years 1999 through 2002.  Under the terms of the settlement the net income tax charge to the bank was approximately $1.1 million and, consequently, in June the bank recorded a credit to tax expense of approximately $0.8 million to reverse the excess reserve taken in March.

On September 30, 2003 the company dissolved ERT and all ERT assets were transferred in liquidation to the bank.  The company will continue to record state income tax liability on the income earned on these additional assets held by the bank.

10

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

Management’s discussion and analysis should be read in conjunction with the company’s consolidated financial statements and notes thereto contained in this report.

Special Note Regarding Forward-Looking Statements

This report contains certain “forward-looking statements” including statements concerning plans, objectives, future events or performance and assumptions and other statements that are other than statements of historical fact.  Enterprise Bancorp, Inc. (the “company”) wishes to caution readers that the following important factors, among others, may adversely affect the company’s future results and could cause the company’s results for subsequent periods to differ materially from those expressed in any forward-looking statement made herein: (i) the effect of unforeseen changes in interest rates; (ii) the effect of changes in the business cycle and downturns in the local, regional or national economies, including unanticipated deterioration in the local real estate market; (iii) changes in asset quality and unanticipated increases in the company’s reserve for loan losses; (iv) the effect on the company’s competitive position within its market area of the increasing competition from larger regional and out-of-state banking organizations as well as non-bank providers of various financial services; (v) the effect of technological changes and unanticipated technology-related expenses; (vi) the effect of unforeseen changes in consumer spending; (vii) the effect of changes in laws and regulations that apply to the company’s business and operations and unanticipated increases in the company’s regulatory compliance costs; (viii) unanticipated increases in employee compensation and benefit expenses; and (ix) the effect of changes in accounting standards, policies and practices, as may be adopted or established by the regulatory agencies, the Financial Accounting Standards Board or the Public Company Accounting Oversight Board.

Accounting Policies/Critical Accounting Estimates

The company has not changed its significant accounting and reporting policies from those disclosed in its 2003 Annual Report on Form 10-K.  In applying these accounting policies, management is required to exercise judgement in determining many of the methodologies, assumptions and estimates to be utilized.   As discussed in the company’s 2003 Annual Report on Form 10-K, the two 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 and the valuation of goodwill.   Management’s estimates and assumptions affect the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the period.  Actual results could differ from those estimates.

General Overview

Results of Operations

The company’s net income amounted to $1.7 million and $0.5 million for the three months ended March 31, 2004 and 2003, respectively.  The primary factors contributing to the increase in net income in the first quarter of 2004 over the 2003 period were a decrease in income tax expense, primarily due to the $1.9 million tax provision made in 2003 (as discussed in note 9, “Income Taxes”, above), offset by decreases in net gains realized on the sales of investment securities and residential mortgage loans, and an increase in the provision for loan losses.

The company’s earnings are largely dependent on its net interest margin, which is the difference between the yield on interest earning assets (loans, investment securities and short-term investments) and the cost of interest bearing liabilities (deposits, borrowings and the company’s junior subordinated debt securities).  Consequently, the company’s earnings are subject to the risk associated with changes in the interest rate environment.  Accordingly, the management of interest rate risk is a significant component of the company’s risk management process.  In addition, the company’s earnings are also impacted by the level of its provision for loan losses, gains on the sales of investment securities and loans, investment management and trust services income, deposits and loan fees, operating expenses, and income taxes.

For the three months ended March 31, 2004, the company experienced net interest margin compression of 11 basis points compared to the same period in 2003.  This margin compression was offset by the growth of interest earning assets, particularly commercial loans, and the recovery of approximately $0.3 million in interest income upon the payoff of a previously non-performing commercial loan relationship, resulting in a $0.2 million, or 3%, increase in net interest income for the three months ended March 31, 2004 over the same period in 2003.  The sustained low interest rate environment, that began in January 2000, continued to compress margin making net interest margin growth a challenge as loans and investments continued to reprice downward, while corresponding rate reductions on deposits have been restricted due to their already low rates and competitive market forces.

The company provided $0.8 million for loan losses for the three months ended March 31, 2004.  Through ongoing assessments of the allowance and estimates of the credit risk inherent in the portfolio, including the level of net charge-offs

11

during the period, management determined it was prudent to increase the provision in 2004 as compared to the same period in 2003. The assessment of credit risk is also a significant component of the company’s risk management process and is discussed in more detail under the heading “Assessment of Allowance for Loan Losses” below.

Non interest income decreased by $0.7 million, or 25%, for the three months ended March 31, 2004 compared to the same period ended March 31, 2003.  The primary components of the decrease were declines in the net gains realized on sales of investment securities and on fixed rate residential mortgages, of $0.7 million and $0.2 million respectively, offset by increases in investment management and trust income and deposit and loan fee income. From time to time management may choose to sell investment securities in order to take advantage of certain investment opportunities and to effectively manage its exposure to interest rate risk through asset/liability repositioning. Markets rates, the composition of the investment portfolio and the company’s asset/liability position during the three months ended March 31, 2003 as compared to the same period ended March 31, 2004 resulted in the higher gains realized in 2003.  The company generally sells long-term fixed rate residential mortgage loan production to minimize interest rate risk and puts variable rate loans into the company’s portfolio in conjunction with the overall asset-liability management program of the company.  The decrease in gains on loan sales in 2004, compared to the same period in 2003, resulted from the lower volume of fixed rate mortgage loans originated for sale.  Current period originations were lower when compared to the unusually high volume of refinancing activity in 2003, which was driven by the lower market rates during that period. This refinancing activity reached a peak in the summer of 2003 and has subsequently declined due to a slight increase in residential mortgage market rates during the current period.

Non-interest expenses increased by $0.3 million for the three months ended March 31, 2004, compared to the same period ended March 31, 2003. The increase was primarily attributed to increases in health/life insurance premiums, due to general increases in insurance premium rates, and payroll taxes and salaries, attributable to additional staff hired in late 2003 and early 2004 to support the company’s strategic growth initiatives, as well as annual employee raises.

Financial Position

The company’s primary sources of funds are deposits, borrowings from the Federal Home Loan Bank, securities sold under agreements to repurchase, earnings and proceeds from the sales, maturities and paydowns on loans and investment securities.  The company uses funds to originate loans and purchase investment securities, conduct operations, expand the company’s branch network, and pay dividends to shareholders.

Total assets increased $24.6 million, or 3%, since December 31, 2003, and amounted to $776.1 million at March 31, 2004.  The increase was primarily due to inflows from deposits and repurchase agreements reinvested into short-term investments and loans.  Short-term investments increased by $24.5 million, or 175%, over December 31, 2003, primarily due to large deposit inflows at the end of March.  Loans, net of fees, increased by $16.9 million, or 4%. The growth was primarily concentrated in the construction and commercial real estate loan portfolios.  The growth of these portfolios reflects the company’s continued commitment to developing strong commercial lending relationships with growing businesses, corporations, non-profits, professionals and individuals.  This growth was offset by a decline in investment securities of $17.0 million or 9%.  The decline in the investment portfolio was primarily due to security sales and principal payments in the mortgage backed securities portfolio.  Deposits grew by $27.7 million, or 4%, since December 31, 2003 and amounted to $688.5 million, or 89% of total assets, at March 31, 2004

Assessment of the Allowance for Loan Losses

Inherent in the lending process is the risk of loss.  While the company endeavors to minimize this risk, 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.  The allowance reflects management’s estimate of the level of loan loss reserves necessary to support the level of credit risk inherent in the loan portfolio at the time.

The allowance for loan losses amounted to $10.3 million, or 2.04% of total loans, at March 31, 2004 compared to $10.0 million, or 2.04% of total loans, at December 31, 2003.  The provision for loan losses was $0.8 million for the three months ended March 31, 2004, compared to $0.3 million in the 2003 period.  Net charge-offs amounted to $0.4 million in 2004, primarily related to the $0.5 million partial charge-off of two commercial loan relationships.

In making its assessment on the adequacy of the allowance, management considers several quantitative and qualitative factors that could have an effect on the credit quality of the portfolio, including the level of delinquencies, non-performing loans, net charge-offs, loan growth, economic trends and comparison to industry peers.  Based on this assessment of the overall risk profile of the loan portfolio, management determined that the reserve level of 2.04% was adequate at March 31, 2004.

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See “Asset Quality” under “Financial Condition” below for further information on the company’s allowance for loan losses.

Opportunities and Risks

Management views the current banking landscape as an exciting and opportunistic period.  Management believes that industry consolidation, branch expansion and continued market penetration have positioned the company well to achieve success in the coming years.  The effective management of interest rate and credit risk, and establishing profitable growth in a very competitive landscape, are the key challenges for the company.

Notwithstanding the substantial competition the company faces to attract deposits and to generate loans within its market area, management believes that the company has established a market niche in the Merrimack Valley and the Leominster/Fitchburg area. Management believes that it has differentiated the company from competitors by providing customers, composed principally of growing and privately held businesses, professionals, and consumers, with prompt and personal service based on management’s familiarity and understanding of such customers’ banking needs.  The company’s past and continuing emphasis is to provide its customers with highly responsive personal and professional service.

The company’s market position has been enhanced by the ongoing consolidation within the banking industry, and in particular in Massachusetts. Additionally, management actively seeks to expand market share and grow assets by pursuing opportunities in neighboring markets.  The company opened its twelfth branch, in Andover, Massachusetts, on March 15, 2004.  The Andover facility is about one half the size of our typical branch facility.  The company opened there to create a presence in the Andover market quickly, in order to take full advantage of market opportunities presented by the current bank-acquisition turmoil. The new branch reported deposit growth in excess of original projections through March 31, 2004.   Due to the strong growth experienced, and the tremendous potential in the Andover area, the company plans to relocate into a larger, more permanent office in downtown Andover, within the next 12-18 months.  The company has also recently obtained the required regulatory approvals for a thirteenth branch office, to be located in Tewksbury, Massachusetts, and anticipates opening this facility for business in late 2004/early 2005. The company expects that operating expenses, primarily salaries, marketing, and occupancy will increase, before the company achieves the long-term benefits it anticipates from this strategic growth into new markets.

As noted above, credit risk remains a significant risk to the company’s financial results as a significant decrease in credit quality would result in increased loan loss provisions, which are a direct charge to earnings.

Currently, the company’s exposure to interest rate risk is primarily in a declining interest rate environment, as lower interest rates will lead to further margin compression.  As market rates decline, interest earning assets reprice downward and prepayments of loans and mortgage backed investment securities accelerate, forcing the company to reinvest these proceeds at lower market rates.  Such declines in the rates on earning assets cannot be fully offset by reductions in deposit rates, which are at levels that will not allow for corresponding reductions.

Management will seek to mitigate credit risk and margin compression through growth of high quality, high yielding assets and low cost checking and savings deposits.  In addition, management will pursue growth of non-interest income in the form of loan and deposit fees, investment management and trust income, and effective management of non-interest expenses, recognizing that strategic expenditures will continue to be made to support the company’s growth and expansion goals.  Gains realized on sales of investment securities are dependent on overall market conditions and the company’s management of its asset-liability position.  Gains realized on the sale of loans are dependent on the volume of fixed rate residential loans originated, which in turn is reliant on market interest rates.  There can be no assurances that market conditions will continue to support the level of gains realized on the sales of loans or securities to the extent realized through March 31, 2004, and prior periods.

Financial Condition

Short-term investments

The balance in short term investments of $38.5 million at March 31, 2004 consisted of $32.5 million in overnight federal funds sold and $6.0 million of money market preferred securities with an average maturity of one to three months. The increase in the balance of short-term investments at March 31, 2004, was primarily due to cash inflows from deposits and repurchase agreements at the end of the March.  The average balance of short-term investments during the three months ended March 31, 2004 was $4.8 million, compared to $42.5 million for the fourth quarter of 2003.

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Investments

At March 31, 2004, all of the company’s investment securities were classified as available-for-sale and carried at fair value.  At March 31, 2004, the investment portfolio’s fair market value of $179.3 million represented 23% of total assets, compared to 26% of total assets at December 31, 2003.  During the three months ended March 31, 2004 the company sold $14.0 million of securities, recognizing $0.6 million in net gains.  Principal paydowns, calls and maturities totaled $9.7 million during the period, and were primarily comprised of principal payments in the mortgage backed securities portfolio.  The proceeds from these sales and principal payments were partially utilized to purchase $5.1 million of securities, with the remainder used to payoff maturing short-term FHLB borrowings and fund additional loans.

The net unrealized gains on the portfolio at March 31, 2004 were $4.7 million compared to $3.5 million at December 31, 2003.  The increase was due to lower market rates at March 31, 2004 versus December 31, 2003, leading to higher fixed income security prices and larger unrealized gains.  The net unrealized gains/losses in the company’s fixed income portfolio fluctuates as interest rates rise and fall.  Due to the fixed rate nature of the portfolio, as rates rise, or the securities approach maturity, the value of the portfolio declines, and as rates fall the value of the portfolio rises.  The unrealized gains will only be realized if the securities are sold. If an unrealized loss is deemed to be other-than-temporary, the company would mark the investment down to its carrying value through a charge to earnings.

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Loans

Total loans, before the allowance for loan losses, were $505.7 million, or 65% of total assets, at March 31, 2004, compared to $488.8 million, or 65% of total assets, at December 31, 2003, an increase of $16.9 million, or 3%.

The following table sets forth the loan balances by certain loan categories at the dates indicated and the percentage of each category to total loans, excluding deferred fees.

	March 31, 2004					December 31, 2003					March 31, 2003
($ in thousands)	Amount			percent		Amount			percent		Amount			percent
Commercial real estate	$	213,390		42.1	%	$	209,113		42.6	%	$	181,147		41.9	%
Commercial & Industrial	133,400			26.3	%	132,313			27.0	%	124,844			28.8	%
Construction	78,345			15.4	%	69,524			14.2	%	49,023			11.3	%
Total Commercial loans	$	425,135		83.8	%	$	410,950		83.8	%	$	355,014		82.0	%
Residential mortgages	39,394			7.8	%	39,465			8.0	%	41,291			9.5	%
Home equity	37,463			7.4	%	35,139			7.2	%	30,230			7.0	%
Consumer	4,185			0.8	%	4,558			0.9	%	4,639			1.1	%
Loans held for sale	882			0.2	%	262			0.1	%	1,821			0.4	%
Gross loans	$	507,059		100.0	%	$	490,374		100.0	%	$	432,995		100.0	%
Deferred fees	(1,328		)			(1,535		)			(1,402		)
Loans, net of fees	505,731					488,839					431,593
Allowance for loan losses	(10,329		)			(9,986		)			(9,744		)
Net loans	$	495,402				$	478,853				$	421,849

Commercial real estate loans were $213.4 million at March 31, 2004, compared to $209.1 million at December 31, 2003, an increase of $4.3 million, or 2%.  Commercial real estate loans are typically secured by apartment buildings, office facilities, shopping malls, or other commercial property.

Commercial and industrial loans totaled $133.4 million at March 31, 2004, compared to $132.3 million at December 31, 2003, an increase of  $1.1 million or 1%.  Commercial loans include working capital loans, equipment financing (including equipment leases), term loans, and revolving lines of credit.  Also included in commercial loans are loans under various U.S. Small Business Administration programs amounting to $9.3 million at March 31, 2004 and $8.8 million at December 31, 2003.

Construction loans, including both residential and commercial construction loans, increased by $8.8 million, or 13%, since December 31, 2003 and amounted to $78.3 million at March 31, 2004.  Residential construction loans outstanding totaled $3.8 million and $3.5 million at March 31, 2004 and December 31, 2003, respectively.

Residential mortgage loans amounted to $39.4 million at March 31, 2004, compared to $39.5 million at December 31, 2003.  Fixed rate residential mortgage loans designated as held for sale totaled $0.9 million and $0.2 million at March 31, 2004 and December 31, 2003, respectively.

The remainder of the loan portfolio is comprised of consumer loans, primarily consisting of home equity loans and lines, secured and unsecured personal loans and overdraft protection lines on consumer checking accounts. These consumer loans as a group amounted to $41.6 million and $39.7 million, or 8% of the portfolios at March 31, 2004 and December 31, 2003, respectively.

Asset Quality

The following table sets forth non-performing assets at the dates indicated:

(Dollars in thousands)	March 31, 2004			Dec. 31, 2003			March 31, 2003
Non-accrual loans	$	2,872		$	2,983		$	1,839
Accruing loans > 90 days past due	—			—			—
Total non-performing loans	2,872			2,983			1,839
Other real estate owned	—			—			—
Total non-performing assets	$	2,872		$	2,983		$	1,839
Non-performing loans: Loans, net of fees	0.57		%	0.61		%	0.43		%
Non-performing assets: Total assets	0.37		%	0.40		%	0.25		%
Delinquent loans 30-89 days past due: Loans, net of fees	0.42		%	0.51		%	0.51		%

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Total non-performing loans decreased by $0.1 million from December 31, 2003 to March 31, 2004.  The decrease since December 2003 was primarily due to the addition of one $1.1 million commercial loan relationship, partially offset by payoffs and charge-offs of $0.7 million and $0.5 million, respectively,  on non-accruing loans in the first quarter of 2004. The ratio of non-performing loans as a percentage of total loans decreased slightly, by 4 basis points, since December and increased by 14 basis points over the prior year.  Management continues to closely monitor the credit quality of individual non-performing relationships as well as the loan portfolio in general, industry concentrations, the local real estate market and current economic conditions.  Management believes that the current level of non-performing assets and delinquent loans are reasonable given the historical growth in the loan portfolio and the substantial commercial composition of the portfolio, and are comparable with peer commercial banks.

The level of non-performing assets is largely a function of economic conditions and the overall banking environment. Despite prudent loan underwriting, adverse changes within the company’s market area, or deterioration in the local, regional or national economic conditions, could negatively impact the company’s level of non-performing assets in the future.

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

	Three months ended March 31,
(Dollars in thousands)	2004			2003
Balance at beginning of year	$	9,986		$	9,371
Loans charged off
Commercial	525			—
Commercial real estate	—			—
Construction	—			—
Residential real estate	—			—
Home equity	—			—
Consumer	8			39
Total loans charged off	533			39
Recoveries on loans previously charged off
Commercial	123			110
Commercial real estate	—			—
Construction	—			—
Residential real estate	—			—
Home equity	—			—
Other	3			2
Total recoveries	126			112
Net loans (charged off) /recovered	(407		)	73
Provision charged to operations	750			300
Balance at March 31	$	10,329		$	9,744
Annualized net loans (charged off)/recovered: Average loans outstanding	(0.33		)%	0.07		%
Allowance for loan losses: Loans, net of fees	2.04		%	2.26		%
Allowance for loan losses: Non-performing loans	359.64		%	529.85		%

The ratio of the allowance for loan losses to non-performing loans was 359.64% at March 31, 2004 compared to 529.85% at March 31, 2003.  The decrease at March 31, 2004 resulted from an increase in non-performing loans, which is discussed above.  The actual balance of the allowance for loan losses, however, increased 6% over the same period, due mainly to provisions, net of charge-offs, of $0.6 million from April 1, 2003 through March 31, 2004. During the period,

16

the company’s ratio of the allowance for loan losses to loans outstanding decreased from 2.26% at March 31, 2003 to 2.04% at March 31, 2004, due to the increase in the allowance noted, offset by 17% growth in the loan portfolio over the same period.

17

Following September 11, 2001, the company began providing for loan loss reserves at a higher level due to management’s estimate of a prolonged and significant economic downturn, which was expected to result in deterioration of the loan portfolio’s credit quality.  Consequently, the company’s loan loss reserve to total loan ratio increased to a range of approximately 2.20% to 2.30% during 2002 and the majority of 2003, compared to 1.99% at December 31, 2000 and 2.00% at June 30, 2001, respectively.

Throughout 2003 and into 2004, economic results remained somewhat mixed but with signs of economic strength and improvement. From a credit quality perspective, the loan portfolio, as measured by non-performing loans and net charge-offs, decreased slightly. However, neither the economic results nor credit quality has deteriorated to the extent previously anticipated by management.

Consequently, management’s revised estimates on the credit risk inherent in the portfolio, an ongoing review of commercial loan peers and economic forecasts for growth, resulted in management’s assessment that a reserve level of 2.04% at December 31, 2003 was reasonable and continued to be adequate at March 31, 2004.

Deposits and Borrowed Funds

Total deposits, including escrow deposits of borrowers, increased $27.7 million, or 4%, during the first three months of 2004, to $688.5 million and 89% of total assets at March 31, 2004, from $660.8 million and 88% of total assets at December 31, 2003.  The increase consists of growth of $29.3 million in lower cost checking and savings accounts, principally during March, offset by declines of $1.6 million in certificates of deposit and tiered rate deposit products during the period.  At March 31, 2004 lower cost deposits comprised 58% of total deposits, compared to 56% at December 31, 2003.

Borrowed funds, consisting of securities sold under agreements to repurchase (“repurchase agreements”) and Federal Home Loan Bank (“FHLB”) borrowings, decreased by $5.0 million, or 23%, from $21.4 million at December 31, 2003 to $16.4 million at March 31, 2004.   The reduction is due to net payoffs in overnight FHLB advances of $18.5 million during the period, offset by an increase in repurchase agreements of $13.5 million, primarily due to new agreements entered into at the end of March.

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. Liquidity policies are set and monitored by the company’s asset-liability committee. The company’s liquidity is maintained by projecting cash needs, balancing maturing assets with maturing liabilities, monitoring various liquidity ratios, monitoring deposit flows, maintaining liquidity within the investment portfolio and maintaining borrowing capacity at the FHLB.

The company’s asset-liability management objectives are to maintain liquidity, provide and enhance access to a diverse and stable source of funds, provide competitively priced and attractive products to customers, conduct funding at a low cost relative to current market conditions and engage in sound balance sheet management strategies.  Funds gathered are used to support current asset levels and to take advantage of selected leverage opportunities.  The company funds earning assets with deposits, borrowed funds and stockholders’ equity.  At March 31, 2004, the bank had the capacity to borrow additional funds from the FHLB of up to $108.0 million, and had the ability to issue up to $80.0 million in brokered certificates of deposits through an arrangement with Merrill Lynch.  The company does not currently have any brokered deposits outstanding.  See the discussion above under the heading “Deposits and Borrowed Funds” regarding outstanding FHLB advances.   The bank also has a repurchase agreement in place with Lehman Brothers.  Under this arrangement, the bank is able to borrow funds from Lehman Brothers in return for the pledge of certain investment securities as collateral.   There were no balances outstanding or securities pledged to Lehman Brothers at March 31, 2004.    Management believes that the company has adequate liquidity to meet its commitments.

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Capital Resources

As of March 31, 2004, both the company and the bank qualify as “well capitalized” under applicable Federal Reserve Board and FDIC regulations.  To be categorized as well capitalized, the company and the bank must maintain minimum total, Tier 1 and, in the case of the bank, leverage capital ratios as set forth in the table below.

The company’s and the bank’s actual capital amounts and ratios as of March 31, 2004 are presented in the tables below.

	Actual				Minimum Capital for Capital Adequacy Purposes				Minimum Capital To Be Well Capitalized
($ in thousands)	Amount		Ratio		Amount		Ratio		Amount			Ratio
The Company
Total Capital (to risk weighted assets)	$	65,436	11.50	%	$	45,511	8.00	%	$	56,889		10.00	%
Tier 1 Capital (to risk weighted assets)	58,285		10.25	%	22,755		4.00	%	34,133			6.00	%
Tier 1 Capital (to average assets)	58,285		8.00	%	29,148		4.00	%	N/A		*	N/A	*
The Bank
Total Capital (to risk weighted assets)	$	62,158	10.99	%	$	45,239	8.00	%	$	56,549		10.00	%
Tier 1 Capital (to risk weighted assets)	55,049		9.73	%	22,620		4.00	%	33,929			6.00	%
Tier 1 Capital (to average assets)	55,049		7.59	%	29,020		4.00	%	36,275			5.00	%

* For the Bank to qualify as “well capitalized” it must maintain a leverage capital ratio (Tier 1 capital to average assets) of at least 5%.  This requirement does not apply to the company.

Results of Operations

Three Months Ended March 31, 2004 vs. Three Months Ended March 31, 2003

The company reported net income of $1.7 million for the three months ended March 31, 2004, versus $0.5 million for the three months ended March 31, 2003.  The company had basic earnings per common share of $0.48 and $0.14, and diluted earnings per common share of $0.45 and $0.14 for the three months ended March 31, 2004 and March 31, 2003, respectively.

Net Interest Income

The company’s net interest income was $7.5 million for the three months ended March 31, 2004, an increase of $0.3 million, or 4%, from $7.2 million for the three months ended March 31, 2003.  Total interest income for the 2004 period declined by $0.1 million in comparison to the 2003 period; however, the decline was offset by a reduction in total interest expense of $0.4 million, as discussed below.

Net interest margin decreased to 4.55% for the three months ended March 31, 2004 from 4.66% for the same period ended March 31, 2003. The primary reason for the 11 basis point compression in net interest margin was due to lower investment yields resulting from the reinvestment of proceeds from security sales and principal payments at lower market rates throughout 2003 and into 2004, and the reduction in loan yields, partially offset by increases in average loan balances. The resulting reduction in interest income was partially mitigated by the reduction in the cost of funds, principally on certificates of deposits. The reduction in general market interest rates, which began in 2000, has contributed to margin compression by causing interest earning assets to continue to reprice downward at market rates while corresponding rate reductions in the cost of funds have been restricted due to their already low rates and competitive market forces.

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Interest Income

Interest income declined by $0.1 million for the three months ended March 31, 2004 and was $9.3 million compared to $9.4 million for the same period ended March 31, 2003.  This decrease resulted primarily from a decrease in the average tax equivalent yield on interest earning assets of 40 basis points to 5.62% for the three months ended March 31, 2004 compared to 6.02% for the same period ended March 31, 2003, partially offset by an increase in the average balance of interest earning assets of $38.6 million, or 6%, to $683.2 million for the three months ended March 31, 2004 compared to $644.6 million for the three months ended March 31, 2003.

For the three months ended March 31, 2004, the average loan balance increased by $69.3 million, or 16%, while the average rate earned on loans declined by 43 basis points to 6.14% for the three months ended March 31, 2004, from 6.57% for the same period ended March 31, 2003.  The average investment securities and short-term investments balance decreased by $30.7 million, or 14%, compared to the same period in the prior year, and the average tax equivalent yield on investment securities and short-term investments decreased by 71 basis points to 4.26% for the three months ended March 31, 2004 from 4.97% for the same period ended March 31, 2003. This drop in investment yield is primarily due the reinvestment of proceeds of securities sales and principal payments at lower market rates.

Interest Expense

Interest expense for the three months ended March 31, 2004 was $1.8 million compared to $2.2 million for the same period ended March 31, 2003.  The decline in interest expense resulted primarily from a decrease in the average interest rate paid on interest bearing liabilities of 34 basis points to 1.32% for the three months ended March 31, 2004 compared to 1.66% for the same period ended March 31, 2003, partially offset by an increase in the average balance of interest-bearing deposits and borrowings of $21.1 million, or 4%, to $551.8 million for the three months ended March 31, 2004 as compared to $530.7 million for the same period ended March 31, 2003.

The average interest rate on savings, checking and money market deposit accounts decreased by 12 basis points for the three months ended March 31, 2004 compared to the same period ended March 31, 2003, due to lower market rates, while the average balance of such deposit accounts increased by $27.0 million, or 8%, to $386.5 million for the three months ended March 31, 2004 as compared to $359.5 million for the same period ended March 31, 2003.

The average interest rate on time deposits decreased by 72 basis points for the three months ended March 31, 2004 compared to the same period ended March 31, 2003, due to reductions in general market rates.  The average balance on time deposits decreased by $16.4 million, or 11%, to $137.7 million for the three months ended March 31, 2004 as compared to $154.1 million for the same period ended March 31, 2003.

The average interest rate on borrowed funds, consisting of repurchase agreements and FHLB borrowings, decreased 10 basis points to 1.61% for the three months ended March 31, 2004, compared to 1.71% for the three months ended March 31, 2003. The decrease in average rate paid on borrowed funds resulted primarily from decreases in market rates. The average balance of borrowed funds for the three months ended March 31, 2004 increased by $10.5 million, or 169%, to $16.7 million as compared to $6.2 million for the three months ended March 31, 2003. The increase was attributable to short-term and overnight FHLB advances taken during the 2004 period to fund loan growth, necessitated by slow deposit growth during the first two months of the period.

The average balance of non-interest bearing deposits increased by $11.6 million, or 10%, for the three months ended March 31, 2004.  The total cost of funds (interest bearing liabilities and non-interest bearing deposits) was 1.08% for the three month period ended March 31, 2004, compared to 1.36% for the same period ended March 31, 2003, a decline of 28 basis points.

The following table sets forth the extent to which changes in interest rates and changes in the average balances of interest earning assets and interest bearing liabilities affected interest income and expense during the three months ended March 31, 2004 and March 31, 2003, respectively.  For each category of interest earning assets and interest bearing liabilities, information is provided on changes attributable to: (1) volume (change in average portfolio balance multiplied by prior year average rate); (2) interest rate (change in average interest rate multiplied by prior year average balance); and (3) rate and volume (the remaining difference).

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AVERAGE BALANCES, INTEREST AND AVERAGE INTEREST RATES

	Three Months Ended March 31, 2004						Three Months Ended March 31, 2003						Changes due to
(Dollars in thousands)	Average Balance		Interest		Yield/ Rate (3)		Average Balance		Interest		Yield/ Rate(3)		Total			Volume			Rate			Rate/ Volume
Assets:
Loans (1)	$	494,941	$	7,559	6.14	%	$	425,596	$	6,890	6.57	%	$	669		$	1,133		$	(455	)	$	(9	)
Investment securities and short-term investments (2)	188,309		1,738		4.26	%	219,028		2,525		4.97	%	(787		)	(382		)	(389		)	(16		)
Total interest earnings assets	683,250		9,297		5.62	%	644,624		9,415		6.02	%	(118		)	751			(844		)	(25		)
Other assets (3)	54,299						55,783
Total assets	$	737,549					$	700,407
Liabilities and stockholders’ equity:
Savings/PIC/MMDA	$	386,551	781		0.81	%	$	359,535	828		0.93	%	(47		)	62			(107		)	(2		)
Time deposits	137,750		675		1.97	%	154,146		1,024		2.69	%	(349		)	(110		)	(276		)	37
Borrowed funds	16,691		67		1.61	%	6,166		26		1.71	%	41			45			(2		)	(2		)
Subordinated debentures	10,825		294		10.87	%	10,825		294		10.87	%	—			—			—			—
Total interest bearing deposits and borrowings	551,817		1,817		1.32	%	530,672		2,172		1.66	%	(355		)	(3		)	(385		)	33
Net interest rate spread (2)					4.30	%					4.36	%
Non-interest bearing deposits	125,485		—				113,861		—
Total deposits and borrowings	677,302		1,817		1.08	%	644,533		2,172		1.36	%
Other liabilities	3,927						5,510
Total liabilities	681,229						650,043
Stockholders’ equity	56,320						50,364
Total liabilities and stockholders’ equity	$	737,549					$	700,407
Net interest Income			$	7,480					$	7,243			$	237		$	754		$	(459	)	$	(58	)
Net interest margin (2)					4.55	%					4.66	%

(1)Average loans include non-accrual loans and are net of deferred loan fees

(2)Average investment balances are presented at average amortized cost and average yields are presented on a tax equivalent basis.  The tax  equivalent effect was $266 and $196 for the periods   ended March 31, 2004 and March 31, 2003, respectively.

(3)Other assets include cash and due from banks, FAS 115 market value adjustment, accrued interest receivable, allowance for loan losses, deferred income taxes, intangible assets, and other miscellaneous assets.

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Provision for Loan Losses

The provision for loan losses amounted to $0.8 million for the three month periods ended March 31, 2004 and $0.3 million for the same period ended March 31, 2003.

The provision reflects management’s ongoing assessments of the allowance for loan losses, estimates of the credit risk inherent in the portfolio, and the level of net charge-offs during the period.  Management determined it was prudent to increase the provision in 2004 as compared to the same period in 2003, in order to provide an adequate allowance for loan losses at March 31, 2004.

There have been no material changes to the company’s allowance for loan loss methodology used to estimate loan loss exposure as reported in the company’s Annual Report on Form 10-K for the year ended December 31, 2003. 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 “General Overview – Assessment of the Allowance for Loan Losses” and “Financial Condition – Asset Quality” above.

Non-Interest Income

Net gains on sales of investment securities amounted to $0.6 million and $1.3 million for the three months ended March 31, 2004 and March 31, 2003, respectively.  Markets rates, the composition of the investment security portfolio and management of the company’s asset/liability position resulted in higher gains realized in the 2003 period.

Gains on sales of loans amounted to $85 thousand and $324 thousand for the three months ended March 31, 2004 and March 31, 2003, respectively. The decrease in gains on loan sales in 2004 compared to the same period in 2003 resulted from the lower volume of fixed rate mortgage loans originated for sale due to the decline in mortgage refinancing activity during the 2004 period, which resulted from a slight increase in residential mortgage market rates during the period.

Investment management and trust service fees increased by $81 thousand, or 19%, for the three months ended March 31, 2004 compared to the same period in 2003. The quarterly average balance of investment assets under management (excluding the investment portion of commercial sweep accounts held in Federated Investors, Inc. money market mutual funds) increased by $63.8 million, to $325.7 million for the three months ended March 31, 2004 versus $261.9 million for the same period in 2003.  Trust assets comprised approximately 85% of the total trust and investment assets under management of $332.2 million outstanding at March 31, 2004.  Trust asset balances have increased since March 2003 due to strong sales and promotional efforts resulting in asset growth as well as increasing market values.

Non-Interest Expenses

Salaries and benefits expense totaled $3.7 million for the three months ended March 31, 2004, compared to $3.4 million for the three months ended March 31, 2003, an increase of $0.3 million or 9%.  This increase was primarily due to increases in the health/life insurance premiums, due to higher insurance premium rates, payroll taxes and salaries attributed to additional staff hired to support the company’s strategic growth initiatives, as well as annual employee raises.

Income Tax Expense

Income tax expense and the effective tax rate for the three months ended March 31, 2004 and March 31, 2003 were $1.0 million and 36.7% and $3.5 million and 87.3%, respectively.  The 2003 period reflects the $1.9 million provision for income taxes for 1999 through 2002, related to the retroactive enactment of Massachusetts tax legislation in March 2003.  Excluding this charge, the effective tax rate for the 2003 period would have been 39.4%. The higher adjusted tax rate in the prior period is due to the diminishing benefit of tax exempt interest from municipal securities due to the increase in income before taxes in that period.  For further details on the prior year tax expense, see Note (9), “Income Taxes”, to the company’s unaudited consolidated financial statements contained in Item 1 of Part I of this report and Item 9 of the company’s report on Form 8-K filed with the SEC on June 30, 2003.

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Item 3 – Quantitative and Qualitative Disclosures About Market Risk

The company’s primary market risk is interest rate risk, specifically, changes in the interest rate environment.  The company’s asset-liability committee (the “committee”) is responsible for establishing policy guidelines on acceptable exposure to interest rate risk and liquidity.  The committee is comprised of certain members of the Board of Directors and is supported by members of senior management.  The primary objectives of the company’s asset-liability policy is to monitor, evaluate and control the company’s interest rate risk, as a whole, within certain tolerance levels while ensuring adequate liquidity and adequate capital.  The committee establishes and monitors guidelines for the net interest margin sensitivity, equity to capital ratios, liquidity, FHLB borrowing capacity and loan to deposit ratio. These asset-liability strategies are reviewed regularly by management and presented to and discussed with the committee on at least a quarterly basis. The company’s asset-liability strategies may be revised periodically based on changes in interest rate levels, general economic conditions, competition in the marketplace, the current position of the company, anticipated growth and other factors.

One of the principal factors in maintaining planned levels of net interest income is the ability to design effective strategies to manage the impact of changes in interest rates on future net interest income.  The balancing of changes in interest income from interest earning assets and interest expense from interest bearing liabilities is accomplished through the asset-liability management program.  On a quarterly basis, management completes a simulation of the company’s net interest margin under various rate scenarios and presents it to the committee.  Variations in the interest rate environment affect numerous factors, including prepayment speeds, reinvestment rates, maturities of investments (due to call provisions), and interest rates on various asset and liability accounts.  The committee periodically reviews the guidelines or restrictions contained in the company’s asset-liability policy and adjusts them accordingly.

Management believes there have been no material changes in the interest rate risk reported in the company’s Annual Report on Form 10-K for the year ended December 31, 2003.

Item 4 – Controls and Procedures

Evaluation of Controls and Procedures

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

The company carried out an evaluation as of the end of the period covered by this report, under the supervision and with the participation of the company’s management, including its chief executive officer and chief 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 chief executive officer and chief financial officer concluded that the company’s disclosure controls and procedures are effective in timely alerting them to material information relating to the company (including its consolidated subsidiaries) required to be included in the company’s periodic SEC filings.

Changes in Controls and Procedures

There has been no change in the company’s internal controls over financial reporting that has occurred during the company’s most recent fiscal quarter (i.e., the three months ended March 31, 2004) that has materially affected, or is reasonably likely to materially affect, such internal controls.

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PART II  OTHER INFORMATION

Item 1 - Legal Proceedings

Not Applicable

Item 2 - Changes in Securities, Use of Proceeds and Issuer Purchase of Equity Securities

Not Applicable

Item 3 - Defaults upon Senior Securities

Not Applicable

Item 4 - Submission of Matters to a Vote of Security Holders

Not Applicable

Item 5 - Other Information

Not Applicable

Item 6 - Exhibits and Reports on Form 8-K

Exhibits

Exhibit No. and Description

10.31	Lease agreement dated January 28, 2004, between the bank and Lally 11 Realty Trust related to premises located at 8 and 8R High Street, Andover, Massachusetts.
10.32	Employment Agreement dated April 1, 2004 by and among the company, the bank and John P. Clancy, Jr.
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)

(b)  Reports on Form 8-K

Current Report on Form 8-K filed on January 28, 2004 providing disclosure under Item 9 (Regulation FD Disclosure) and Item 12 (Results of Operations and Financial Condition), including the company’s statements of income for the three and twelve months ended December 31, 2003 and 2002 and balance sheets at December 31, 2003 and December 31, 2002.

Current Report on Form 8-K filed on April 27, 2004 providing disclosure under Item 9 (Regulation FD Disclosure) and Item 12 (Results of Operations and Financial Condition), including the company’s statements of income for the three months ended March 31, 2004 and 2003 and balance sheets at March 31, 2004, December 31, 2003 and March 31, 2003.

[Remainder of Page Intentionally Blank]

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SIGNATURES

In accordance with 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:  May 10, 2004	By:	/s/ James A. Marcotte
			James A. Marcotte
			Senior Vice President and Chief Financial Officer (Principal Financial Officer)

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EX-10.31

Exhibit 10.31

LEASE

Basic Lease Provisions

Section  1.

1.01Date and Parties.  This Indenture of Lease made as of the 28^th day of January 2004, is between John J. McArdle  III, Trustee of the Lally 11 Realty Trust, 78 Main Street, Andover, Massachusetts and recorded in the Essex North District Registry of Deeds in Book           on Page         (hereinafter called the “Lessor”) and Enterprise Bank and Trust. Company, having its principal place of business at 222 Merrimack Street, Lowell, Massachusetts 01852 (hereinafter called the “Lessee”). Lessee  is a Massachusetts corporation with a principal office at 222 Merrimack Street, Lowell, Massachusetts 01852.

1.02Premises. Witnesseth, that in consideration of the rents and covenants herein reserved and contained on the part of the Lessee to be paid, performed and observed, the Lessor  does hereby lease and demise unto the Lessee the premises  known as 8 and 8R High Street, Andover, Massachusetts consisting of one two story building as well as a one story building at the rear of the property (hereinafter called the ‘Premises”). which premises are more particularly described in Exhibit A attached hereto and incorporated by reference.

1.03Use.  The Lessee shall use the premises for a commercial bank or  trust company or for any financial services use or other commercial or professional  office use which shall be permitted by the zoning by-law  of the Town of Andover as the same is from time to time amended.

1.04Term.  The initial term of this lease shall be the period of Ten (10) Years commencing on the commencement date (hereafter defined) and ending ten  (10) years after the commencement date. The commencement date of this lease shall be the first day of the following month after the date the Town of Andover issues a certificate of occupancy.

1.05Extended Term.  Provided this lease is in full force and effect without notice of default to Lessee, or if such notice of default has been given and the Lessee is acting  promptly and diligently  to cure the same, the Lessee may extend the term of this  lease for  up to five (5) consecutive option terms of five years each  (Extended Terms).  The term and all extended terms, if any, shall automatically be extended for each extended term unless Lessee shall notify Lessor of its intention to terminate this lease at six (6) months prior to the expiration of the then existing term.(Notice Date).

1.06Intentionally omitted

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1.07Confirmation of Commencement. Within thirty (30) days after the commencement date, the parties shall confirm in writing the Lease’s commencement date and termination date. The declaration in recordable form shall set forth the specific date of commencement. The cost of recording and preparation shall be the obligation of the Lessee.

Section 2.RENT AND SECURITY

2.01Basic Rent  For years One (1) through Ten (10),  Lessee will pay $110,000.00 in Yearly Fixed Rent (“Rent”) in monthly installments of $9,166.67 on the First Monthly Payment Due Date and thereafter on the first day of each month in advance. All rent payments shall he made to the Lessor or the Lessor’s  agent and at such place as the Lessor shall from time to time in writing designate. The first monthly payment shall be paid on the commencement date.

2.03.Renewal Rent.   In the event the Lessee exercises its option to extend the term of this lease, after the Initial Term, the annual basic rent which the Lessee shall pay for  years 11 through 15 (the First Option Term)  shall be $240,000.00 in Yearly Fixed Rent (“Rent”) in monthly installments of $20,000.00 on the First Monthly Payment Due Date and thereafter on the first day of each month in advance. All rent payments shall he made to the Lessor or the Lessor’s agent and at such place as the Lessor shall from time to time in writing designate. The first monthly payment shall be paid on the  commencement date of the first option period.

2.03 A.In the event the Lessee exercises its option to extend the term of this lease, after the Initial Term, and after the First Option Term the annual basic rent which the Lessee shall pay during the each subsequent five year option term  shall be  (a) the amount  of the annual basic rent paid during the last month of the Previous  Term plus (b) the product of (I) the said  Annual Basic Rent being charged during the last month of the prior  term multiplied by (ii) the amount, expressed as a percentage equal to 100% percent of the increase, if any, in the index now known as the Producer Price Index for the Boston Area as published by the Bureau of Labor Statistics, United States Department of Labor (“PPI”) for the sixty  month period next preceding the commencement of the current extended term or the preceding month period of the Initial Term.  The Initial PPI shall be the PPI published on or most recently prior to the commencement date of the applicable term and the PPI utilized to calculate the increase shall be the PPI published on or most recently prior to the commencement of the current extended term or the preceding sixty  month period .In no event shall the basic rent be less than the said rent for the prior period.

2.04.Annual Basic Rent shall be payable in advance, in equal monthly installments of 1/12th of the Annual Basic Rent on the first day of each calendar month from and after the Commencement Date.

2.05Additional Rent.  The Lessee shall pay as additional rent the real estate taxes for the premises beginning on  the commencement date.  The real estate  taxes shall be paid to the Town of Andover  in or within twenty days after the tax bill for the same is presented to the Lessee. The Lessor agrees to furnish the tax bill to the Lessee within ten (10) business days after the same is

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received.  All such tax payments shall be made to the municipality by Lessee with proof of payment being furnished to the Lessor on each occasion that a payment is made.

2.06Abatement of Taxes.  The Lessor at the request of the Lessee shall authorize the Lessee to apply for a tax abatement in the name of the Lessor for any tax year.  The Lessee shall pay for all expenses including the cost of appraisals and all legal expenses.  All legal documents shall be prepared and paid for by the Lessee.  Copies of all documents filed in connection with the abatement, shall be sent to the Lessor. All such abated taxes shall belong to the Lessee.

Section 3.AFFIRMATIVE OBLIGATIONS

3.01Utilities.  Lessee shall pay to the proper authority charged with the collection thereof, all charges for the consumption of electricity, gas, water, sewer, rubbish removal, telephone and other such services separately metered or billed to Lessee for the Premises.  All such charges shall be paid as the same from time to time become due.  The Lessor acknowledges that all utilities which presently  service the building have been brought directly to the premises and to the building,  and that the Lessee shall only need to make arrangements for any upgrades to the current utilities and to turn on such utilities and  make arrangements for billing for any such services.  The Lessee shall make its own arrangements for such utility billing.  The Lessor shall not be liable for any interruption or failure in the supply of such utilities to the premises.

3.02Repairs and Maintenance.  The Lessee shall keep the premises in good order; make repairs and replacement to the premises needed because of Lessee’s use of the premises; and  repair and replace special equipment installed by or at Lessee’s request.  The Lessee shall be responsible for repair, replacement and general maintenance of the roof, foundation, exterior walls, interior walls, all structural components, and all systems such as mechanical, electrical, HVAC, and plumbing.  Removal of snow and ice from the sidewalks bordering the Premises and from the parking areas of the Premises shall be the Lessees responsibility.

3.03Time for Repairs and Replacement.  Repairs or replacements required under Section 3 shall be made within a reasonable time after receiving notice or having actual knowledge for the need for repair or replacement.

3.04Lessor has no obligation to alter, remodel or improve the Premises in any way.  Lessee agrees to accept the Premises in an “as is” condition subject to the terms of this lease.   The foregoing notwithstanding, the Lessor shall be responsible for the repair and maintenance of  a stone wall located on the premises if in fact owned by the Lessor  and shown on Exhibit A attached hereto and the removal of the underground  fuel storage tank.

3.05Lessee shall have the right, at its sole cost and expense, to alter, remodel or improve the Premises and the buildings thereon in any way which in its sole discretion will be necessary for it to conduct its business on the premises.  The Lessee is given the right to tear down any portion of the rear building or any additions to the main building now located on the premises and to

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rebuild or replace the same in such a manner as it deems necessary to conduct its business.  The main building may be altered and remodeled and improved, but except for additions to the main building, it may not be torn down and replaced.  If the lease is assigned by the Lessee, then any subsequent Lessee may not tear down and rebuild a structure without the consent of the Lessor which consent shall not be unreasonably withheld or delayed.  The repair or replacement or remodeling shall not be performed unless the plans and specifications of the Lessee shall be approved by the Lessor, which approval Lessor agrees not to delay or withhold unreasonably.  In any event, the approval or disapproval shall be given to Lessee within thirty (30) days after the same is submitted to Lessor by Lessee.

3.06Drawings.  Lessee shall submit to Lessor, on or before thirty (30) days prior to its commencement of any major work on the premises,  the Lessee’s drawings and plans for the work to be performed on the premises.  Lessor, by notice in writing addressed to Lessee, shall indicate Lessor’s approval of them or clearly specify any objections to them, the objections in all events to be reasonable.  The work to be performed by Lessee as described in the drawings   therefor are herein referred to as “Lessee’s Work.” The Lessor and the Lessee shall discuss in good faith any reasonable objection made by the Lessor.  If the parties are unable to agree, the Lessee may commence its work provided the work complies with the applicable laws and regulations. A copy of all plans and drawings will be given to the Lessor for his records.

3.07Lessee shall bear all costs of preparing the drawings.  Lessor’s approval of the drawings shall not constitute an opinion or agreement that they are in compliance with law (it being agreed that such compliance is solely Lessee’s responsibility), nor shall such approval impose any present or future liability on Lessor or waive any of Lessor’s rights under the Lease.

3.08Workmanship.  Lessee shall, to the reasonable satisfaction of Lessor, commence, construct, perform and complete all Lessee’s Work in a good and workmanlike manner, in  accordance with the drawings submitted to the  Lessor.

3.09Permits.  Prior to commencement of construction of Lessee’s Work, Lessee shall obtain, at its sole cost and expense, any appropriate insurance, all permits and licenses and other consents and approvals of all governmental authorities as may be required in connection with Lessee’s Work and shall deliver copies thereof to Lessor.  Lessee shall, at its sole cost and expense, furnish to Lessor copies of  all certificates and approvals with respect to work done by Lessee or on Lessee’s behalf that may be required from any governmental authority for the issuance of a certificate of occupancy for the Premises and shall obtain such certificate and furnish Lessor with a copy of such certificate prior to the commencement of construction. Lessor shall execute any and all documents required by the appropriate authorities to enable the Lessee to obtain its approvals and permits.  All policies of insurance required to be maintained by the Lessee shall be in full force and effect with the commencement of the construction phase and shall remain in full force and effect thereafter throughout the term or terms of this lease.

3.10Compliance with law.  Lessee’s Work shall be performed, constructed and installed in

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accordance and in full compliance with all applicable governmental  requirements, including without limitation all applicable laws, statutes, codes, ordinances and governmental rules, regulations and orders.

3.11All improvements constructed by the Lessee shall become part of the Leased Premises and title thereto shall vest in Lessor upon installation except as otherwise set forth in this lease.  All costs of Lessee’s Work shall be paid by Lessee.

3:12It is agreed that any and all improvements made under this Section 3 shall in no way affect the amount of basic rent or additional rent set forth in this lease in Section 2.

Section 4Lessee’s  Obligation.  Surrender.

4.01Upon the ending date of the initial term or upon the date of the last extension term, ends, whichever is later, Lessee shall surrender the Premises to the Lessor.

4.02On surrender, Lessee shall remove from the Premises, its personal property, trade fixtures and repair any damage to the Premises caused by the removal.  Any items not removed by Lessee as required above, shall be considered abandoned.  Lessor may dispose of abandoned items as Lessor chooses and bill Lessee for the cost of disposal, minus any revenues received by Lessor for the disposal.  It is understood that all personal property and trade fixtures brought onto the premises by the Lessee even if affixed to the building,  including but not limited to vaults and vault components; security systems,  ATM machines, night deposit systems, antenna(s) drive-up  teller components, teller  counter and under-counter equipment  computer equipment and related cabling and wiring, furniture, furnishings and the like, shall be considered personal property for which the Lessee shall have the absolute right to remove same, subject to its obligations to repair in paragraph 3.02. Lessee shall not be required to remove any other improvements made by it during the term of this lease except for the drive up canopy which shall be removed at the request of the Lessor.

4.03The Lessee shall have the right to assign or sublet part of the premises without the Lessor’s prior consent.  Notwithstanding such assignment or subleasing, the Lessee shall at all times remain liable to the Lessor for the payment of all rent and for the full performance of the terms and conditions of this Lease.  Further, the Lessee shall at all times occupy the premises as a Lessee and shall occupy not less than a minimum of twenty-five hundred ( 2500) square feet of the building on the premises.

4.04Compliance  With Law.  Lessee’s use of the Premises shall, at its own expense conform to and comply with all zoning, building, environmental, fire, health,  and other codes, regulations, ordinances, or laws.

4.05Lessor Access.  The Lessor or agents of  the Lessor may, at reasonable times, enter to view the  Premises.  No visit of the Lessor or its agents shall take place at times other than

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normal business hours of the Lessee.

4.06Signs.  The Lessee shall be permitted signage on the Premises provided the same are placed  and constructed in accordance with any sign or zoning by-law  of the Town of Andover.  Lessee shall pay for the cost of erecting and maintaining any and all such signs  Lessee shall remove the same upon the termination of this lease.

4.07Satellite Dish.  Lessee shall be allowed to install and maintain a satellite dish and antenna or any like item on the roof of the Building.  All costs of installation and maintenance shall be borne by the Lessee.  The installation shall be made so as  not to damage the Building or Building systems.  Lessee shall indemnify Lessor for any and all damages caused to the building or building systems by the dish or antenna or the maintenance thereof.

SECTION 5.NEGATIVE OBLIGATIONS

5.01Overloading  and Nuisance.   The  Lessee shall not injure, overload, deface or permit to be injured, overloaded or  defaced,  and the Lessee shall not permit, allow or suffer any waste or any unlawful, improper or  offensive  use of the Premises or any occupancy thereof that would be injurious to any person, property, or invalidate or increase the premiums for any insurance on the building.

SECTION 6INSURANCE

6.01Fire Insurance.  Lessee shall  be required to keep the Building insured against damage and destruction by fire, earthquake, vandalism, and other perils and its personal property and trade fixtures with “all risks” insurance in an amount to cover one hundred (100) percent of the replacement cost of the building and fixtures.  Lessee shall  also  keep any non-Building-standard improvements made to the premises at Lessor’s request insured to the same degree as Lessee’s personal  property.

6.02Liability Insurance.  Lessee  shall maintain contractual and comprehensive general liability insurance, including public liability and property damage, with a minimum combined single limit of liability of not less than one million dollars ($1,000,000.00) nor more than two million dollars ($2,000,000.00)  for personal injuries or deaths of persons occurring in or about the Building or Premises and shall name the Lessor as an additional insured.  The Bank shall also maintain a Ten Million Dollar ($10,000,000.00) policy.

6.03Waiver of Subrogation.  All insurance which is carried by either party with respect to the premises and building or to furniture, furnishings, fixtures or equipment therein or alterations or improvements thereto, whether or not required, if either party so requests and it can be so written, and it does not result  in additional premium, or if the requesting party agrees to pay any additional premium, shall include  provisions which either designate the requesting party as one of the insured or deny to the insurer acquisition by subrogation rights of recovery against the

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requesting party.  Each party waives all rights of recovery against the other for loss or injury against which the waiving party is protected by insurance containing said provisions, reserving however, any rights with respect to any excess of loss or injury over the amount recovered by such insurance.  The policies of insurance required under section six (6 ) to be maintained by Lessee shall name as insured parties Lessor and or Lessee, as their respective interests may appear, and they may be carried under blanket policies maintained by Lessee if such policies comply with the provisions of section six (6).

6.04Evidence of Insurance.  During the construction phase and on the commencement Date and upon each renewal of its insurance policies, Lessee  shall give certificates of insurance to the Lessor.  The certificate shall specify amounts, types of coverage, the waiver of subrogation, and the insurance criteria listed in the lease.  The policies shall be renewed or replaced and maintained by the party responsible for that policy.  If Lessee  fails to give the required certificate within thirty (30) days after notice for demand for it, the Lessor  may obtain and pay for that insurance and  receive reimbursement from the Lessee.  Further all deductibles relating to insurance policies are the responsibility of the Lessee.

6.05Indemnification . Lessee agrees to indemnify and save Lessor harmless from all claims, actions, damages, liability, cost or expenses at the Premises arising (other than injury, loss or damage caused by or result from the fault of Lessor or its agents), (unless otherwise determined by a Court or administrative tribunal), on account of  (i) any injury or damage to any person or property on the premises or otherwise resulting from the Lessee’s use and  maintenance and occupancy of the Premises or any part thereof or the Lessee’s keeping or storing of anything or facility thereon; (ii) any violation of this Lease by Lessee; or (iii) any act, omission or misconduct of Lessee or its agents, contractors, employees, licensees, sub-lessees or invitees, and for any hazardous waste placed on the premises by Lessee and arising out of its use of the premises.

Section 7.LOSS TO PREMISES

7.01.FIRE AND CASUALTY LOSS

If the demised premises or any part thereof, shall be damaged or destroyed by fire, the elements or other casualty, then Lessee shall give notice thereof to Lessor, and except as hereinafter otherwise provided, Lessee shall, promptly thereafter, repair or restore the demised premises to substantially the same condition they were in immediately prior to the casualty. The repair or restoration shall not be performed unless the plans and specifications prepared by Lessee shall be approved in writing by Lessor, which approval Lessor agrees not to delay or withhold unreasonably.  In any event, Lessor’s approval or disapproval thereof shall be given to Lessee within fifteen (15)days after the same shall be submitted by Lessee to Lessor. Lessee shall not be entitled to any abatement or reduction in rent. All insurance proceeds recovered on account of any damage or destruction by fire, the elements or other casualty shall be made available for the payment of the cost of the aforesaid repair or restoration.

If the insurance proceeds shall be less than the cost of repair or restoration, Lessee shall pay the

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excess cost. If the insurance proceeds shall be greater than the cost of repair or restoration the excess shall belong to Lessee.

7.02At any time during the term or terms in the event of fire or other casualty, Lessee shall not be required to restore or repair premises if it is unable (after using its best efforts) to obtain a building permit for same under the then present zoning laws from the building inspector or equivalent. In such event, this lease may terminate at the option of the Lessee sixty days after notice to Lessor. Provided, however, Lessee at its option may seek a variance or special permit or appeal the denial of such building permit.

7.03In the event of any termination of the term or extended terms of this lease whereby the Lessee is not required to rebuild or repair or to restore any damage or destruction caused by fire or other casualty, the insurance proceeds shall belong to the Lessor.  

7.03EMINENT DOMAIN

If during the term of any part thereof an eminent domain taking shall occur and, if pursuant to the exercise of the right of condemnation or eminent domain (I) the Premises is taken or conveyed under threat of the exercising of such right, or (ii) only a portion of the Premises, is so taken or conveyed and Lessee determines that the remainder of the Premises is inadequate or unsatisfactory for its purposes, which determination shall not be arbitrarily or capriciously made, or (iii) Lessee’s access to the Premises is reduced by such taking or conveyance and Lessee determines that its access to the Premises is inadequate or unsatisfactory for its purposes, which determination shall not be arbitrarily or capriciously made, Lessee shall have the right to terminate this Lease, subject to Lessee’s rights as set forth below.  Such termination shall be effective on the date Lessee is required to give up its occupancy, use, or access whichever is earlier.  The termination of this Lease as provided above shall not operate to deprive Lessee of the right, and Lessor expressly grants to Lessee the right to make a claim for an award in condemnation or participate in an award for loss of business  goodwill, relocation expenses, Lessee’s leasehold interest and/or lease bonus value, loss or damage to Fixtures and improvements made by Lessee to the Premises, the value of Lessee’s unexpired options to extend the Term, or any other claims that Lessee is permitted or elects to make, or to receive notices and participate in the condemnation proceedings, including any settlement negotiations, whether conducted prior to or after the filing of a condemnation proceedings.  The Lessor reserves any and all rights to make a claim for condemnation.

7.04In the case of any taking by Eminent Domain, if this Lease is not terminated as provided herein, Lessor and Lessee shall agree upon an equitable reduction in the rent, if any.   If the parties fail to agree upon such reduction within sixty (60) days from the date Lessee is required to give up such occupancy, use or access, whichever is earlier, Lessor and Lessee shall each choose one arbitrator and the two arbitrators so chosen shall choose a third arbitrator.  The decision of any two of the arbitrators concerning the rent reduction, if any, shall be binding on Lessor and Lessee and any expense of the arbitration shall be divided equally between Lessor and Lessee.  Any such reduction in rent shall not constitute an election or remedies by Lessee nor deprive

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Lessee of the right to make a claim for an award in condemnation as set forth above or receive notices and participate in the condemnation proceedings, including any settlement negotiations.

7.05Rebuild Last 24 Months .  If the premises are so damaged by fire or other casualty at any time during the last twenty-four months of any Term and the cost to repair such damage is reasonably estimated to exceed one-half of the total Annual Fixed Rent payable hereunder for the period from the estimated completion date of repair until the end of the Term, and Lessee  determines not to repair such damage , then and in any event, this Lease and the term thereof may be terminated at the election of Lessee by a notice to  the Lessor from the Lessee within sixty (60) days following such fire or other casualty.  In the event of any termination, this Lease and the Term hereof shall expire as of such effective termination date as though that were the date originally stipulated in Section 1 for the end of the Term and the fixed rent shall be apportioned as of such date and the fire insurance proceeds less any Lessee expenditures shall be turned over to the lessor.  Except for the final twenty-four months of the final extended term, the Lessee, unless the lease is terminated, may extend the term if the loss occurs during any term but the final term so as to allow the Lessee  to rebuild according to this lease.

Section 8.Defaults- Remedies

8.01Events of Default.  If Lessee shall default in performance of any of its obligations to pay rent, additional rent or extension rent, and if such default shall  continue for fifteen business days after written notice from Lessor  then, and in any such case, Lessor lawfully may, in addition to and not in derogation of any remedies for any preceding breach of  covenant,  mail a notice of termination addressed to Lessee at Lessee’s Original Address as specified in Section 1 or such other address as noticed in writing to Lessor  and repossess the same as of Lessor’s former estate and expel Lessee and those claiming through or under Lessee without prejudice to any remedies which  might otherwise be used for arrears of rent or preceding breach of covenant, and upon such entry or mailing as aforesaid this Lease shall terminate.

8.02If  within thirty business days after written notice from Lessor to Lessee specifying any other default or defaults, Lessee has not commenced diligently to correct the default or defaults so specified or has not thereafter diligently pursued such correction to completion, in either case subject to the provisions of Article 7, then, and in any such case, Lessor lawfully may, in addition to and not in derogation of any remedies for any preceding breach of  covenant, mail a notice of termination addressed to Lessee at Lessee’s Original Address as specified in Article I, or as changed by written notice to Lessor and repossess the same as of Lessor’s former estate and expel Lessee and those claiming through or under Lessee without prejudice to any remedies which   might otherwise be used for arrears of rent or preceding breach of covenant, and upon such entry or mailing as aforesaid this Lease shall terminate.  There shall be due to Lessor a late charge for failure of Lessee to pay , annual basic rent, at the rate of 10% computed until the date the default is cured and commencing on the date the payment is due.

8.03Remedies.  In the event that this Lease is terminated under any of the provisions

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contained in Section 8  or shall be otherwise terminated for breach of any obligation of Lessee, Lessee covenants to pay punctually to Lessor all  sums and perform all the obligations which Lessee covenants in this Lease to pay and to perform in the same manner and to the same extent and at the same time as if this Lease had not been terminated.  In calculating the amounts to be paid by Lessee under the next foregoing covenant, Lessee shall be credited with any amount paid to Lessor as net proceeds of any rent obtained by Lessor by re-letting the Leased Premises, after deducting all Lessor’s expenses in connection with such re-letting, including, without limitation, all repossession costs, brokerage commissions, fees for legal services and expenses of repairing the Leased Premises for such re-letting, it being agreed by Lessee that Lessor may but is not obligated to  (i) rel-let the Leased Premises or any part or parts thereof, for a term or terms which may, at Lessor’s option, be equal to or less than or exceed the period which would otherwise have constituted the balance of the Lease Term, and (ii) make such removals and repairs in the Leased Premises as Lessor in its reasonable judgment considers advisable or necessary to rel-let the same, and no action of Lessor in accordance with the foregoing or failure to rel-let or to collect rent under any re-letting shall operate or be construed, to the extent permitted by law, to release or reduce the Lessee’s liability as aforesaid.

Nothing contained in this Lease shall, however, limit or prejudice the right of Lessor to prove for and obtain in proceedings for bankruptcy or insolvency by reason of the termination of this Lease, an amount equal to the maximum allowed by any statute or rule of law in effect at the time when, and governing the proceedings in which, the damages are to be proved, whether or not the amount be greater, equal to, or less than the amount of the loss or damages referred to above.

8.04Remedies Cumulative.  The specific rights or remedies to which Lessor or Lessee may resort under the terms of this Lease are cumulative and are not intended to be exclusive of any other remedies or means of redress to which Lessor or Lessee, as the case may be, may be lawfully entitled to in case of  any breach or threatened breach by either of them of any provisions of this Lease.  No mention in this Lease of any specific right or remedy shall preclude either party from exercising any other right or from having any other remedy or from maintaining any other action to which it may otherwise be entitled either at law or equity.

8.05Lessor’s Right to Cure Defaults.  Lessor may, but shall not be obligated to, cure, at any time, following thirty business days’ prior written notice to Lessee, except in cases of emergency when no notice shall be required, any default by Lessee under this Lease; and whenever Lessor so elects, all costs and expenses incurred by Lessor, including reasonable attorneys’ fees, in curing a default shall be paid by Lessee to Lessor on demand.

8.06Effect of Waivers of Default.  The failure of either party to seek redress for violation of, or to insist upon the strict and literal performance of any term, covenant or condition of this Lease, shall not be deemed a waiver of such violation or a relinquishment for the future of such covenant, right or option, nor prevent a subsequent act, which would have originally constituted a violation, from having all the force and effect of an original violation, but the same shall remain

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in full force and effect.  The receipt by Lessor of rent, with or without knowledge of  the breach of any term, covenant or condition hereof shall not be deemed a waiver of such breach.  No provisions of this Lease shall be deemed to have been waived by either party unless such waiver be in writing.

8.07.Lessor’s Defaults.  If the Lessor fails to pay any liens or encumbrances affecting the property and to which this lease may be subordinate when any of the same may be due or in any other respects fails to perform any covenant or agreement in this lease contained on the part of the Lessor, to be performed, then and in such event, after the continuance of any such failure or default for thirty (30) days after notice has been given by the Lessee to the Lessor, Lessee may pay said lien or encumbrance and cure such defaults.  Lessee, after such thirty (30) day period, may make all necessary payments in connection therein, including but not limited to the payment of any reasonable attorneys fees, costs and charges incurred, in connection with any legal action which’.h may have been brought.  If all such indebtedness of Lessor is :not fully paid within thirty (30) days after Lessee has paid the same and Lessor has been given notice same has been paid, Lessee may elect (1) to deduct such amount from rent subsequently becoming due hereunder, or (2) extend this lease on the same covenants and conditions as herein provided until such indebtedness is fully paid by application to rents.  Encumbrance shall include mortgage payments where an uncured default exists.

SECTION 9.NON DISTURBANCE

9.01SUBORDINATION AND NON DISTURBANCE.  This Lease and all rights of the Lessee hereunder are and shall be subject and subordinate to the lien of any and all mortgages which may now or hereafter affect the property or any part thereof and to all renewals, modifications, consolidations, replacements and extensions thereof, provided that any such mortgage placed upon the property shall provide that so long as there shall be no outstanding or continuing event of default in any of the terms, conditions, covenants or agreements of this lease on the part of the Lessee to be performed, the Leasehold  estate of the Lessee  created by this Lease and Lessee’s peaceful and quiet possession of the property shall be undisturbed by any foreclosure of any such mortgage and the mortgagee shall recognize this lease and all its terms and conditions including but not limited to any rights to extend this lease. The mortgagee shall also consent to the use of all insurance proceeds for the restoration of the building in the event of fire or other casualty as herein set forth. The Lessee shall pay all reasonable costs, expenses and reasonable  attorney’s fees in connection with the document review under this section of the lease.

9.02ESTOPPEL  CERTIFICATE.  Either party shall from time to time, within ten (10) business days after receiving a written request by the other party, execute and deliver to the Asking Party a written statement  in recordable form.  This written statement, which may be relied upon  by  the Asking Party and any third party with whom the asking party  is dealing shall certify:

(I) the accuracy of the Lease document;

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(ii) the Beginning and Ending Dates of the Lease;

(iii) that the Lease is unmodified and in full effect or in full effect as modified stating the date and nature of the modification;

(iv) whether to the answering party’s  knowledge the asking party  is in default or whether the Answering Party has any claims or demands  against the Asking Party, and if so, specifying the Default, claim, or demand; and  (v) to  correct any  reasonably ascertainable facts that are covered by the Lease terms. The Lessee shall pay all reasonable costs expenses and reasonable attorney’s fees in connection with the document review under this section of the lease.

SECTION 10Intentionally Omitted

SECTION 11Miscellaneous

11.01Notices.  Any notices from the Lessor to the Lessee or from the Lessee to the Lessor relating to the Premises or the occupancy thereof shall be deemed duly served if forwarded  by Certified Mail, Return Receipt Requested, or by federal express or other such like carrier as follows:

To Lessee at

Enterprise Bank and Trust Company

222 Merrimack  Street,

Lowell, Massachusetts 01852

and to the Lessor at:

John J. McArdle, III, Trustee

Lally II Realty Trust

78 Main Street

Andover, Massachusetts 01810

Either party may change the addresses by giving notice as provided above.

11.02Broker Warranty.  Each party warrants that there has been no real estate broker involved in connection with this lease.  The party who breaches this warranty shall defend, hold harmless and indemnify the non-breaching party from any claims or liability arising from the breach.

11.03Partial Invalidity.  If any Lease provision is invalid or unenforceable to any extent, then that provision shall be excised from the agreement and the remainder of this Lease shall continue in effect and be enforceable to the fullest extent permitted by law.

11.04Waiver.  The failure of either party to exercise  any of its rights is not a waiver of those rights.  A party waives only those rights specified in writing signed by the party waiving its

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rights.

11.05Binding  on Successors.  This Lease shall bind the  parties, their successors, representatives, heirs, executors  and permitted assigns.

11.06Governing   Law.  This lease shall be governed by the laws of the Commonwealth of Massachusetts .

11.07Recording.   As soon as practical after the effective date of this lease, the parties shall execute a Notice of Lease in a form suitable for recording in the Essex  North District Registry of Deeds.  The Lessee shall deliver to the Lessor at the termination of the lease a  discharge of the Notice of Lease in a form suitable for recording in the said Registry of Deeds.  The cost of  preparation and the cost of recording shall be borne by the Lessee.

11.08Survival of Remedies.  The parties’ remedies shall survive the ending of this lease when the ending is caused by the Default of the other party.

11.09Authority of Parties.  Each party warrants that it is authorized  to enter into the Lease, that the person signing on its behalf is duly authorized to execute the Lease, that no other signatures are necessary.

11.10Entire Agreement.  This Lease contains the entire agreement between the parties about the Premises.  This Lease shall be modified only by a writing signed by both parties.

11.11Quiet enjoyment   Lessor agrees that upon Lessee’s paying the rent and performing and observing the agreements, conditions and other provisions on its part to be performed and observed, Lessee shall and may peaceably and quietly have, hold and enjoy the demised premises during the term of this Lease without any manner of hindrance or molestation from Lessor or anyone claiming under Lessor, subject, however, to the terms of this Lease and the encumbrances listed in Exhibit B.

SECTION 12.Contingencies

12.01Lessee’s Contingency. The  Lessee’s obligations under this lease shall be contingent upon (i) its obtaining all approvals from the Commissioner of Banks of the Commonwealth of Massachusetts and (ii) the Federal Deposit Insurance Corporation, and (iii) the Lessee obtaining all of the necessary approvals, including  any required curb cuts including any variance or change in zoning from the Town of Andover and the Commonwealth of Massachusetts to allow Lessee to rehabilitate and use the demised premises to its satisfaction, including but not limited to, a full service financial services building with drive up facilities for a commercial  bank and trust company.  The Lessee’s obligations under this Lease shall be further contingent upon its obtaining all the necessary approvals and permits from the Town of Andover to erect its required improvements upon the demised premises in order to operate the commercial bank and trust

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company thereon.

12.02Lessor’s Obligations.   Not later than five (5) days after receipt of notice that Lessee has submitted its permit applications and prior to the commencement date, the Lessor at its sole cost and expense shall remove from the leased premises an underground fuel storage tank located on the premises.  The tank shall be removed as required by Section 38A of General Laws, Chapter 148.  The Lessor agrees to indemnify and hold harmless the Lessee from any and all claims for damages arising out of the tank having been located on the premises and from the removal of the tank.  The Lessor shall indemnify the lessee from any such damages, costs or expenses, including legal expenses incurred by the presence of such underground tank and its removal.

12.03Any claim or controversy between the Lessor and the Lessee regarding their respective rights duties or obligations under this lease shall be determined by arbitration. Such  arbitration shall be before one disinterested arbitrator or if one cannot be agreed upon before three disinterested arbitrators one named by the Lessor, one named by the Lessee and one by the two thus chosen. The arbitrator or arbitrators shall determine the controversy according to the laws of Massachusetts. All  arbitration proceedings shall occur in Lowell, Massachusetts or Andover, Massachusetts.  Each arbitrator shall be an attorney with at least ten years of experience in the real estate field.  The decision of the arbitrator or arbitrators shall be final. Land lord and the Lessee shall each pay one half of the cost of such arbitration and each shall separately pay for its own attorneys fees and expenses.

12.04Representations. The Lessor represents that it is the owner of the premises and that the premises are encumbered only by those liens and mortgages  set forth in Schedule B attached hereto.

12.05Preparation  for Permits.   Within ninety (90) days following the date of execution of the Lease, the Lessee shall submit applications for all approvals from the Commissioner of Banks and the Federal Deposit Insurance Corporation, and all approvals deemed necessary to it from the appropriate agencies of the Town of Andover.  (Preparation Period).  The Lessee shall notify the Lessor one week in advance prior to the filing of any application.  During the preparation period, the Lessee and its agents and engineers shall have access to the leased premises.   Lessee shall prosecute the applications process diligently. All work performed under this Section 12.05 shall be performed  in a manner to cause a minimum of disturbance to the existing tenants  and occupants of the premises.

12.06The Construction Period.  At the conclusion of the preparation period and upon the filing of the permit application(s)  and during the construction period, the Lessee shall pay to the Lessor the monthly sum of Five Thousand Dollars ($5,000.00) plus 1/12 of the annual real estate taxes assessed against the demised premises.

12.07When the Lessee receives all the approvals referenced in Paragraph

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12.01, it shall diligently commence to perform all work deemed necessary by it to rehabilitate and rebuild the land and the buildings on the demised premises so as to be able to use the premises for its commercial bank purposes.  (Construction Period).  The Lessee shall notify the Lessor of the date upon which it is ready to commence the construction period.

12.08Not later than five (5) days after receipt of notice from the Lessee of the submitting of the application for permits,  the Lessor at its sole cost and expense shall take all necessary steps to vacate the premises of all its current Lessees.  When the premises are fully vacated, the Lessor shall notify the Lessee and within seven (7) business days following receipt of such notice, the Lessee shall commence to construct its renovations to the premises.  At all times prior to the building, the Lessee, its agents, employees and contractors may enter the premises provided there is no disturbance of the current Lessees.  The Lessee, after giving 30 days notice to Lessor, may terminate this Lease if it is unable to begin its construction work in or within ninety  (90) days from the date of the submission of the application for permits.

Executed as a sealed instrument on the day and date first above  written.

Lessor:

Lally II Realty Trust

By:

 /s/ John J. McArdle, III

John J. McArdle, III Trustee

Lessee:

Enterprise Bank and Trust Company

By:

 /s/ Robert R. Gilman

Robert R. Gilman

Its Senior Vice-President

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EX-10.32

Exhibit 10.32

EMPLOYMENT AGREEMENT

This Employment Agreement (this “Agreement”), dated as of April 1, 2004 (the “Effective Date”), is made by and among Enterprise Bancorp, Inc., a Massachusetts corporation (the “Company”), and its wholly owned subsidiary, Enterprise Bank and Trust Company, a Massachusetts trust company with its main office in Lowell, Massachusetts (the “Bank”) (the Bank and the Company being collectively referred to herein as the “Employers”), and John P. Clancy Jr., an individual residing at 11 Tanglewood Drive, Chelmsford, Massachusetts (the “Executive”).  This Agreement shall be effective as of the date hereof (the “Effective Date”).

WHEREAS, the Employers desire to continue to employ the Executive as President and Treasurer of the Company and Executive Vice President and Treasurer of the Bank and to enter into an employment agreement embodying the terms of such relationship;

AND WHEREAS, the Executive is willing to continue to be employed as President and Treasurer of the Company and Executive Vice President and Treasurer of the Bank on the terms set forth herein;

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, and for other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the Employers and the Executive hereby agree as follows:

1.Definitions.

1.1“Affiliate” means any Person effectively controlling, effectively controlled by or effectively under common control with the Employers.

1.2“Board” means the board of directors of the Company or the Bank, as the case may be.

1.3“Cause” means, when used with respect to the termination of the employment of the Executive by the Employers, termination due to (a) the Executive’s willful and continued failure to substantially perform his employment duties (other than any such failure resulting from the Executive’s incapacity due to physical or mental illness) or (b) the Executive’s willfully engaging in conduct which is demonstrably and materially injurious to the Company or the Bank, monetarily or otherwise.  For purposes of this definition, no act, or failure to act, on the part of the Executive shall be deemed “willful” unless done, or omitted to be done, by the Executive not in good faith and without reasonable belief that his action or omission was in the best interests of the Company or the Bank.

1.4“Change in Control” has the same meaning as defined in the Company’s 2003 Stock Incentive Plan, as may be amended and in effect from time to time.

1.5“Code” means the Internal Revenue Code of 1986, as amended, and as in effect from time to time, and/or any successor code thereto.

1.6“Date of Termination” means the date specified in the Notice of Termination (as such term is defined in Section 6.8 of this Agreement) or such date that the

Executive’s employment terminates if such termination does not require or otherwise depend upon a prior written notice by the Employers or the Executive, as the case may be, under the terms of this Agreement; provided, however, that if, within thirty (30) calendar days after any Notice of Termination is given, the party receiving such Notice of Termination notifies the other party in writing that a dispute exists concerning the termination of employment that is the subject of such Notice of Termination, then the Date of Termination shall be the date on which such dispute is finally resolved, either by mutual written agreement of the parties, by a binding arbitration award, or by a final judgment, order or decree of a court of competent jurisdiction, including all appeals, unless the time for appeal therefrom has expired and no appeal has been perfected; provided, further, however, that the Date of Termination shall (a) in no case be later than the date on which the Term of Employment (as such term is defined in Section 3 of this Agreement) expires, and (b) be extended by a notice of dispute as provided above only if such notice is given in good faith and the party giving such notice pursues the resolution of such dispute with reasonable diligence.

1.7“Good Reason” means, and shall be deemed to exist if, (a) without the written consent of the Executive, (i) the Employers fail to appoint or reappoint the Executive as President and Treasurer of the Company or Executive Vice President and Treasurer of the Bank, (ii) there occurs any material change by the Employers to the Executive’s function, duties or responsibilities as set forth in Section 4.1 of this Agreement, which change would cause the Executive’s position with the Employers to become one of lesser responsibility, importance or scope from the position and attributes thereof as set forth in Section 4.1 of this Agreement, (iii) there occurs any material breach of this Agreement by the Employers or (iv) the Employers fail to obtain a satisfactory agreement from any successor(s) to assume and agree to perform the Employers obligations under this Agreement, or (b) a Change in Control occurs, whether or not the Executive has consented , in writing or otherwise, to such Change in Control.

1.8“Highest Annual Compensation” means, as determined as of any Date of Termination, the sum of (a) the highest per annum rate of base salary paid by the Employers to the Executive at any time during the Term of Employment prior to such Date of Termination, (b) the highest amount of commission or other compensation (which is not otherwise included in the base salary and bonus amounts referred in clauses (a) and (c) hereof) paid by the Employers to the Executive with respect to any fiscal year of the Employers during the Term of Employment prior to such  Date of Termination, and (c) the highest annual incentive compensation or other bonus amount paid by the Employers to the Executive (or which would have been paid but for an election by the Executive to defer payment to a later period) with respect to any fiscal year of the Employers during the Term of Employment prior to such Date of Termination.

1.9“Parent” means any Person which has a direct or indirect legal or beneficial ownership interest in the Employers, but only if any such Person owns or controls, directly or indirectly, securities possessing at least 50 percent of the total combined voting power of all classes of securities of the Employers.

1.10“Person” means any natural person or any bank, trust company, credit union, corporation, firm, unincorporated organization, association, partnership, limited liability company, trust, estate, joint venture or other business organization or entity.

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1.11“Subsidiary” means any Person (other than the Company or the Bank) in which the Employers or any Parent has a direct or indirect legal or beneficial ownership interest, but only if the Company or the Parent, as the case may be, owns or controls, directly or indirectly, securities possessing at least 50 percent of the total combined voting power of all classes of securities in any such Person.

1.12“Retirement” means the termination of the Executive’s employment with the Employers upon the initiative of the Executive at any time after the Executive attains the age of 65 years old, other than (a) a termination due to death, (b) a termination for Good Reason or (c) a termination upon the expiration of the Term of Employment.

2.Employment.  Subject to the terms and provisions set forth in this Agreement, the Employers, during the Term of Employment, agree to employ the Executive as President and Treasurer of the Company and Executive Vice President and Treasurer of the Bank and the Executive hereby accepts such employment. The parties acknowledge and agree that the Executive’s employment by the Employers under this Agreement may not be terminated for any reason other than as set forth in Section 6 below prior to the expiration of the Term of Employment.

3.Term of Employment.  The term of employment under this Agreement shall commence as of the Effective Date and, subject to extension as provided in this Section 3 or earlier termination as provided under Section 6 of this Agreement, shall continue through March 31, 2006 (the “Term of Employment”).  As of the first day of each month of April during which this Agreement remains in effect (each such day a “Renewal Date”), a one-year extension of the then current Term of Employment shall automatically be effected (for example, on April 1, 2005, the Term of Employment shall be extended from a term ending on March  31, 2006 to a term ending on March 31, 2007).  Either the Employers or the Executive may give written notice to the other on or prior to any given Renewal Date of the intent of the party giving such notice to terminate this Agreement at the expiration of the two-year period commencing on such Renewal Date.  Upon the delivery by either party of any such notice, the Term of Employment shall no longer be subject to the automatic one-year extension provided for herein, but rather shall expire upon the conclusion of such final two-year period.

4.Positions, Responsibilities and Duties.

4.1Positions and Duties.  During the Term of Employment, the Executive shall be employed and shall serve as President and Treasurer of the Company and Executive Vice President and Treasurer of the Bank.  In such positions, the Executive shall have the duties, responsibilities and authorities as determined and designated from time to time by the Chairman and Chief Executive Officer of the Employers or the Board and as otherwise provided in the bylaws of the Employers.  The Executive shall serve under the direction of, and report only to, the Chairman and Chief Executive Officer of the Employers.  Notwithstanding the above, the Executive shall not be required to perform any duties and responsibilities which would result in the Employers’ or the Executive’s noncompliance with, or any other violation of, any applicable law, regulation, regulatory policy or other regulatory requirement.

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4.2Attention to Duties and Responsibilities.  During the Term of Employment, the Executive shall, except for periods of absence occasioned by illness, vacation in accordance with Section 5.6 of this Agreement, and any other reasonable leaves of absence in accordance with any applicable policies, programs, procedures or practices of the Employers, devote substantially all of his business time to the business and affairs of the Employers and the Executive shall use his best efforts, business skills, ability and fidelity to perform faithfully and efficiently the duties and responsibilities contemplated by this Agreement; provided, however, that the Executive shall be allowed, to the extent such activities do not present a conflict of interest or significantly interfere with the performance by the Executive of his duties and responsibilities hereunder, (a) to manage the Executive’s personal financial affairs, including his personal investment portfolio, and (b)(i) to serve on boards of directors or trustees or committees of civic or charitable organizations or trade associations, and (ii) after obtaining the consent of the Board, as evidenced by a formally adopted vote or resolution of the Board and under the terms and conditions specified in any such vote or resolution, to serve on the board of directors or trustees or other governing body of any company or other organization or  association or to serve as a general partner or other type of active manager in any partnership or other type of business venture; provided, further, however, that all offices or positions which the Executive currently holds or has held prior to the date of this Agreement and any other that may be set forth in a schedule attached to this Agreement are hereby acknowledged by the Employers and designated as currently consented to positions.

5.Compensation and Other Benefits.

5.1Base Salary.  During the Term of Employment, the Executive shall receive a base salary of One Hundred Fifty-Eight Thousand Four Hundred and 00/100 Dollars ($158,400.00) per annum (such per annum amount being referred to herein as the Executive’s “Base Salary”), payable in accordance with the Employers’ normal payroll practices.  The Executive’s Base Salary shall be reviewed annually by the Board for increase (but not any decrease) in the Board’s sole discretion.  The Executive’s Base Salary as may be so increased from time to time during the Term of Employment shall then constitute the Executive’s “Base Salary” for purposes of this Agreement.

5.2Annual Bonus.  During the Term of Employment, the Executive shall be entitled to participate in an equitable manner with other executive officers of the Employers in such discretionary bonus payment or awards as may be authorized, declared and paid by the Board to the Employers’ executive employees.  No other compensation or additional benefits provided for in this Agreement shall be deemed to be a substitute for the Executive’s right to receive such bonuses if, when and as declared and paid by the Board.

5.3Incentive, Retirement, and Savings Plans.  During the Term of Employment, the Executive shall participate in all incentive, pension, retirement, savings, stock option and other stock grant and equity compensation plans, as well as all other employee benefit plans and programs, which may be maintained from time to time by the Employers for the benefit of senior executives and/or other employees of the Employers.

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5.4Welfare Benefit Plans.  During the Term of Employment, the Executive and his spouse and other eligible dependents shall participate in, and be covered by, all of the health and other welfare benefit plans and programs that may be maintained from time to time by the Employers for the benefit of senior executives and/or other employees of the Employers.

5.5Expense Reimbursement.  During the Term of Employment, the Executive shall be entitled to receive prompt reimbursement for all reasonable expenses, including reasonable business travel expenses, incurred by the Executive in performing his duties and responsibilities under this Agreement in accordance with the policies, programs, procedures and practices of the Employers as in effect at the time the expense was incurred, as the same may be changed from time to time.

5.6           Fringe Benefits; Automobile.  During the Term of Employment, the Executive shall be eligible to benefit from such fringe benefits and perquisites, in accordance with the policies, programs,  procedures and practices of the Employers, as may be in effect and provided from time to time to senior executives and/or other employees of the Employers, and shall be entitled to the use of an automobile, of a type commensurate with the Executive’s office and standing, at the Employers’ expense.

6.Termination.

6.1Termination Due to Death.  In the event of the Executive’s death during the Term of Employment, the Term of Employment shall thereupon end and his estate or other legal representative, as the case may be, shall, subject to Section 6.11 of this Agreement, only be entitled to:

(a)Base Salary continuation at the rate in effect (as provided in Section 5.1 of this Agreement) on the Date of Termination for a period of six months commencing on such Date of Termination or, if the Board so determines in its sole discretion and in lieu of such six-month salary continuation, a lump sum payment equal in amount to such six-month Base Salary continuation; provided, however, that if the Executive’s death during the Term of Employment occurs after, or within one year prior to, a Change in Control, then the Executive’s estate or other legal representative shall receive, in lieu of the payments required under this Section 6.1(a) and subject to Section 6.9 below, the full lump sum payment required under Section 6.4(a) below in the event of a termination of the Executive’s employment after, or within one year prior to, a Change in Control (and, in the case of the Executive’s death within one year prior to a Change in Control, any amounts paid under this Section 6.1(a) prior to the Change in Control shall be taken into account in determining the total amount payable to the Executive’s estate or other legal representative as a result of the Change in Control);

(b)any Base Salary accrued but not yet paid as of the Date of Termination;

(c)any bonus actually awarded or commissions actually earned, but not yet paid, as of the Date of Termination;

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(d)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination;

(e)payment of the per diem value of any unused vacation days that have accrued during the Term of Employment prior to the Date of Termination and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year in which the Date of Termination occurs;

(f)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans, programs, procedures and practices of the Employers;

(g)continuation of all health and other welfare benefits provided under Section 5.4 of this Agreement for the benefit of the Executive’s spouse and other eligible dependents at the level in effect on the Date of Termination and at no cost to the Executive’s spouse and such other eligible dependents for a period commencing on the Date of Termination and ending, with respect to the Executive’s spouse, on the earlier of her death or remarriage and, with respect to any other eligible dependent of the Executive, on such date as such dependent reaches the age of legal emancipation in accordance with the laws of the Commonwealth of Massachusetts (or, if such continuation of health or other welfare benefits is not permitted by applicable law, the Employers shall provide the economic equivalent in lieu thereof); and

(h)any rights to indemnification in accordance with Section 10 of this Agreement.

6.2Suspension for Disability.

(a)If, during the Term of Employment, the Executive shall either qualify to receive disability benefits under any group long-term disability plan then maintained by the Employers or, if no such plan is maintained by the Employers, have been absent from his duties with the Employers on a full-time basis due to physical or mental illness for six (6) consecutive months, and in either case shall not have returned to the full-time performance of his duties within thirty (30) days after written notice of potential suspension has been given to the Executive by the Employers, then the Executive’s employment shall be deemed to be suspended on the basis of disability (a “Suspension for Disability”).

(b)If a Suspension for Disability occurs during the Term of Employment, the Employers shall pay the Executive an amount equal, on a per annum basis, to seventy-five percent (75%) of the Executive’s Highest Annual Compensation as determined on the effective date of the Suspension for Disability (assuming, for purposes of such determination, that the effective date of the Suspension for Disability is the Date of Termination as referred to in the definition of Highest Annual Compensation), such amount to be paid out in equal periodic installments in accordance with the Employers’ ordinary payroll practices during the period that such payments are required to be made

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under this Section 6.2(b).  These payments shall commence on the first ordinary payroll payment date of the Employers after the effective date of the Executive’s Suspension for Disability and will end on the earliest to occur of the following:  (i) the date on which the Executive returns to full-time employment with the Employers; (ii) the Executive’s death; or (iii) the termination by either party, or the expiration, of the Term of Employment in accordance with the terms of this Agreement.  After a Suspension for Disability occurs, the Employers shall be free to fill the Executive’s positions.  Upon the Executive being able to return to full-time employment before any termination or the expiration of the Term of Employment, the Executive shall, at his option, (i) assume the President and Treasurer position of the Company and Executive Vice President and Treasurer position of the Bank or, if another individual is then holding either of such positions and the Executive is not reappointed to both such positions, assume such other position(s) as may be available with the Employers at the same Base Salary as was in effect at the time the Suspension for Disability had commenced and otherwise continue in the employ of the Employers in accordance with the terms of this Agreement or (ii) if another individual is then holding either of such positions and the Executive is not reappointed to both such positions, exercise his right to terminate this Agreement for Good Reason under Section 6.4 of this Agreement.  The disability payments to be paid to the Executive during a Suspension for Disability under this Section 6.2(b) shall be in addition to any payments or other benefits payable to the Executive under any qualified or nonqualified retirement plans or programs maintained by the Employers but shall be reduced by any payments received by the Executive during such Suspension for Disability under any group long-term disability plan maintained by the Employers.  Notwithstanding any other provision contained in this Agreement to the contrary, the occurrence of a Suspension of Disability shall not in any way prevent or otherwise limit the parties’ exercising any of their respective rights to terminate the Term of Employment at any time in accordance with the terms of this Agreement.

(c)The Employers shall cause to be continued during any Suspension for Disability all life, health and other welfare coverages and benefits as were maintained by the Employers for the benefit of the Executive and his spouse and other eligible dependents prior to the occurrence of such Suspension for Disability, such continuation to continue, subject to Section 6.2(d) of this Agreement, until the expiration of the Term of Employment.

(d)Notwithstanding any other provision to the contrary in this Section 6.2, there shall be no reduction in the compensation (except as otherwise provided in Section 6.2(b) above), accrued benefits or pension granted or accruing to the Executive during the period of any Suspension for Disability and there shall be no abrogation or limitation of any of the other provisions of this Agreement that grant rights to the Executive or the Executive’s spouse or other eligible dependents or the Executive’s estate following the Executive’s death, Retirement or other applicable termination of employment during the Term of Employment as a result of any Suspension for  Disability.

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6.3Termination by the Board for Cause.

(a)The Board may terminate the Executive’s employment hereunder for Cause, as provided in Section 6.3(b) below.  If the Board terminates the Executive’s employment under this Section 6.3 for Cause, the Term of Employment shall thereupon end as set forth below and the Executive shall, subject to Section 6.11 of this Agreement, only be entitled to:

(i)any Base Salary accrued but not yet paid as of the Date of Termination;

(ii)any bonus actually awarded or commissions actually earned, but not yet paid, as of the Date of Termination;

(iii)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination; and

(iv)payment of the per diem value of any unused vacation days that    have accrued during the Term of Employment prior to the Date of Termination and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year in which the Date of Termination occurs.

(b)In determining Cause, the alleged acts or omissions of the Executive must be confirmed beyond a reasonable doubt by not less than two-thirds of the Board (meaning, for purposes of this Section 6.3(b), the Board excluding the Executive and any other directors of the Employers who are alleged to have been involved or otherwise to have an interest in any of such alleged acts or omissions of the Executive) at a meeting duly called and held for the purpose of the Board’s making such determination (the “Determination Meeting”). In the event of such a confirmation by  the Board, the Employers shall notify the Executive that the Employers intend to terminate the Executive’s employment for Cause under this Section 6.3 (the “Confirmation Notice”).  The Confirmation Notice shall specify the act(s), or omission(s), upon the basis of which the Board has confirmed the existence of Cause and must be delivered to the Executive within ten (10) days after the date on which the Determination Meeting has been held.  If the Executive notifies the Employers in writing (the “Opportunity Notice”) within ten (10) days after the Executive has received the Confirmation Notice, the Executive (together with counsel) shall be provided one opportunity to meet with the Board (or a sufficient quorum thereof) to discuss such act(s) or omission(s).  Such opportunity to meet with the Board shall be fixed and shall occur on a date selected by the Board (such date being not less than ten (10) nor more than thirty (30) days after the Employers receive the Opportunity Notice from the Executive).  Such meeting (the “Final Meeting”) shall take place at the principal offices of the Employers or such other location as agreed to by the Executive and the Employers.  During the period commencing on the date on which notice of the Determination Meeting is duly given to the Board and ending either on the date of the Determination Meeting, if no determination of Cause is made at the Determination Meeting, or on the Date of Termination, and not withstanding anything to

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the contrary in this Agreement, the Executive shall be suspended from employment with the Employers (with continuing payment of Base Salary and continuation of benefits in accordance with Section 5 of this Agreement, to the extent such payments and benefits are not prohibited by applicable law, regulation, regulatory policy or other regulatory requirement), and the Board may, during such suspension period, reasonably limit the Executive’s access to the principal offices and any other premises of the Employers and/or the Executive’s access to any of the Employers’ assets or personnel.  If the Board properly sets the date of the Final Meeting and if the Board (or a sufficient quorum thereof) attends the Final Meeting and in good faith does not rescind its confirmation of Cause at the Final Meeting or if the Executive fails to attend the Final Meeting for any reason, the Executive’s employment by the Employers shall, immediately upon the closing of the Final Meeting and the delivery to the Executive of the Notice of Termination, be terminated for Cause under this Section 6.3.  If the Executive does not respond in writing to the Confirmation Notice in the manner and within the time period specified in this Section 6.3, the Executive’s employment with the Employers shall, on the eleventh day after the receipt by the Executive of the Confirmation Notice, be terminated for Cause under this Section 6.3.  In the event of any dispute hereunder, the Executive shall be entitled, to the extent not prohibited by applicable law, regulation, regulatory policy or other regulatory requirement, until the earliest to occur of (i) the Date of Termination, (ii) the expiration of the then current Term of Employment or (iii) the resolution of such dispute, to be paid his Base Salary in accordance with the Employers’ ordinary payroll practices and continue to receive all other benefits to be provided to the Executive pursuant to Section 5 hereof, and there shall be no reduction whatsoever of any amounts subsequently paid to the Executive upon resolution of such dispute as a result of, or in respect to, such interim payments or coverage.  The procedure set forth in this Section 6.3 to determine the existence of Cause shall at all times be subject to the requirements of applicable law, regulation, regulatory policy or other regulatory requirements.

6.4Termination by Employers Without Cause or by Executive for Good Reason.  The Employers may terminate the Executive’s employment for any reason and without Cause, or for no reason at all, at any time during the Term of Employment upon sixty (60) days prior written notice to the Executive.  The Executive may terminate his employment for Good Reason at any time during the Term of Employment upon sixty (60) days prior written notice to the Employers.  If the Employers terminate the Executive’s employment hereunder without Cause or the Executive terminates his employment hereunder for Good Reason, then the Term of Employment shall thereupon end and the Executive shall, subject to Section 6.11 of this Agreement, only be entitled to:

(a)an aggregate amount equal to two times the Executive’s Highest Annual Compensation, such amount to be paid out in equal periodic installments in accordance with the Employers’ ordinary payroll practices over the two-year period commencing on the first payroll payment date after the Date of Termination; provided, however, that if such termination by either the Employers or the Executive occurs at any time during the Term of Employment after, or within one year prior to, a Change in Control, then the Executive shall, subject to Section 6.9 below, be entitled to a cash lump sum payment

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equal to two (2) times the Executive’s Highest Annual Compensation, which lump sum shall be paid within thirty (30) days following the later of the Date of Termination or the date of the Change in Control (and, in the case of any such termination within one year prior to a Change in Control, any amounts paid under this Section 6.4(a) prior to the Change in Control shall be taken into account in determining the total amount payable to the Executive as a result of the Change in Control);

(b)any Base Salary accrued but not yet paid as of the Date of Termination;

(c)any bonus actually awarded or commissions actually earned, but not yet paid, as of the Date of Termination;

(d)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination;

(e)payment of the per diem value of any unused vacation days that have accrued during the Term of Employment prior to the Date of Termination and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year in which the Date of Termination occurs;

(f)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans, programs, procedures or practices of the Employers;

(g)continuation of the welfare benefits of the Executive and his spouse and other eligible dependents at the level in effect (as provided for by Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the Date of Termination for the two-year period commencing on the Date of Termination (or, if such continuation is not permitted by applicable law or if the Board so determines in its sole discretion, the Employers shall provide the economic equivalent in lieu thereof);

(h)reimbursement for the reasonable fees of a professional out-placement service selected by the Executive within ninety (90) days after the Date of Termination; and

(i)any rights to indemnification in accordance with Section 10 of this Agreement.

In the event of any dispute hereunder, the Executive shall be entitled until the earliest to occur of (i) the Date of Termination, (ii) the expiration of the then current Term of Employment, or (iii) the resolution of such dispute, to be paid his Base Salary in accordance with the Employers’ ordinary payroll practices and continue to receive all other benefits to be provided to the Executive pursuant to Section 5 hereof, and there shall be no reduction whatsoever of any amounts subsequently paid to the Executive upon resolution of such dispute as a result of, or in respect to, such interim payments or coverage.

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6.5Voluntary Termination.

(a)During the Term of Employment, the Executive may effect, upon sixty (60) days prior written notice to the Employers, a Voluntary Termination of his employment hereunder and thereupon the Term of Employment shall end.  A “Voluntary Termination” shall mean a termination of employment by the Executive on his own initiative other than (i) a termination due to death, (ii) a termination for Good Reason, (iii) a termination due to Retirement, or (iv) a termination upon expiration of the Term of Employment.

(b)Upon a Voluntary Termination, the Executive shall, subject to Section 6.11 of this Agreement, only be entitled to:

(i)Base Salary accrued but not yet paid as of the Date of Termination;

(ii)any bonus actually awarded or commissions actually earned, but not yet paid, as of the Date of Termination;

(iii)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination;

(iv)payment of the per diem value of any unused vacation days that have accrued during the Term of Employment prior to the Date of Termination and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year in which the Date of Termination occurs;

(v)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans, programs, procedures or practices of the Employers; and

(vi)any rights to indemnification in accordance with Section 10 of this Agreement;

provided, however, that if a Voluntary Termination occurs within one year prior to a Change in Control, then the Executive shall receive, in addition to all of the payments and benefits required under this Section 6.5(b) and subject to Section 6.9 below, the full lump sum payment required under Section 6.4(a) above in the event of a termination of the Executive’s employment after, or within one year prior to, a Change in Control, which lump sum shall be paid within thirty (30) days following the date of the Change in Control.

6.6Termination Due to Retirement.  The Executive may terminate his employment hereunder on the basis of his Retirement upon sixty (60) days prior written notice to the Employers.  If, during the Term of Employment, the Executive’s employment is so terminated due to Retirement, the Term of Employment shall thereupon end and the Executive shall, subject to Section 6.11 of this Agreement, only be entitled to:

(a)Base Salary accrued but not yet paid as of the Date of Termination;

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(b)any bonus actually awarded or commissions actually earned, but not yet paid, as of the Date of Termination;

(c)reimbursement for all expenses (under Section 5.5) incurred as of the Date of Termination, but not yet paid as of the Date of Termination;

(d)payment of the per diem value of any unused vacation days that have accrued during the Term of Employment prior to the Date of Termination and the unused, unaccrued portion of any vacation days available through the end (but not beyond) of the calendar year in which the Date of Termination occurs;

(e)any other compensation and benefits as may be provided in accordance with the terms and provisions of any applicable plans, programs, procedures or practices of the Employers;

(f)continuation of the welfare benefits of the Executive, his spouse and other eligible dependants, if any, at the level in effect (as described in Section 5.4 of this Agreement) on, and at the same out-of-pocket cost to the Executive as of, the Date of Termination for the one-year period commencing on the Date of Termination (or, if such continuation of benefits is not permitted by applicable law or if the Board so determines in its sole discretion, the Employers shall provide the economic equivalent in lieu thereof); and

(g)any rights to indemnification in accordance with Section 10 of this Agreement;

provided, however, that if a termination due to Retirement occurs within one year prior to a Change in Control, then the Executive shall receive, in addition to all of the payments and benefits required under this Section 6.6 and subject to Section 6.9 below, the full lump sum payment required under Section 6.4(a) above in the event of a termination of the Executive’s employment after, or within one year prior to, a Change in Control, which lump sum shall be paid within thirty (30) days following the date of the Change in Control.

6.7No Obligation to Mitigate; Offset Under Certain Circumstances.  In the event of any termination of the Executive’s employment under this Section 6, the Executive shall be under no obligation to seek other employment or to mitigate damages.  If any termination of the Executive’s employment occurs after a Change in Control, then there shall be no offset against any amounts due the Executive under this Agreement for any reason, including, without limitation, on account of any remuneration attributable to any subsequent employment that the Executive may obtain.  If any termination of the Executive’s employment occurs prior to a Change in Control, then the amounts that may be payable by the Employers to the Executive during any applicable period following the Date of Termination and prior to the date of any Change in Control under Sections 6.4(a) or 7.3 of this Agreement may be adjusted, so that any payment paid to the Executive by the Employers during any such period shall equal the difference between the total amount that the Employers would otherwise be required to pay to

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the Executive for such period pursuant to Sections 6.4(a) or 7.3, as applicable, and the total amount of any payments received by the Executive from any third party(ies) during such period.

6.8Notice of Termination.  Any termination of the Executive’s employment under this Section 6 requiring advance written notice shall be communicated by a notice of termination to the other party hereto given in accordance with Section 11.3 of this Agreement (the “Notice of Termination”).  The Notice of Termination, in the case of a termination by the Employers for Cause, or a termination by the Executive for Good Reason, shall indicate the specific termination provision in this Agreement relied upon and set forth in reasonable detail the dates, facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated.

6.9Code Section 280G Reduction.  Anything in this Agreement or in any other agreement, contract, understanding, plan or program entered into or maintained by the Employers to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Employers to or for the benefit of the Executive, whether paid or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise (collectively, the “Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, and/or any successor provision or section thereto (such excise tax, together with any interest or penalties incurred by the Executive with respect to such excise tax, collectively, the “Excise Tax”), and if the Payments less the Excise Tax would be less than the amount of the Payments that would otherwise be payable to the Executive without imposition of the Excise Tax, then, to the extent necessary to eliminate the imposition of the Excise Tax (and taking into account any reduction in the Payments provided by reason of Section 280G of the Code in any such other agreement, contract, understanding, plan or program), the cash and non-cash payments and benefits payable to the Executive shall be reduced (with the executive being provided with the amount of each payment and benefit as calculated by the Employers and given ten (10) business days in which to prioritize the order of reduction of each such payment or benefit); but only if, by reason of any such reduction, the Payments with any such reduction shall exceed the Payments less the Excise Tax without any such reduction.  For purposes of this Section 6.9, (i) no portion of the Payments, the receipt or enjoyment of which the Executive shall have effectively waived in writing prior to the Date of Termination, shall be taken into account, (ii) no portion of the Payments shall be taken into account that, in the opinion of tax counsel selected in good faith by the Employers, does not constitute a “parachute payment” within the meaning of Section 280G(b)(2) of the Code, including without limitation by reason of Section 280G(b)(4)(A) of the Code, (iii) any payments and/or benefits under this Agreement or otherwise for services to be rendered on or after the effective date of a Change in Control shall be reduced only to the extent necessary so that such payments and/or benefits in their entirety constitute reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4)(B) of the Code or are otherwise not subject to disallowance as deductions, in the opinion of the tax counsel referred to in the immediately preceding clause (ii) of this sentence, and (iv) the value of any non-cash payment or benefit or any deferred payment or benefit included in the Payments shall be determined by the Employers’ independent auditors in accordance with the principles of Sections 280G(d)(3) and 280G(d)(4) of the Code and the applicable regulations or proposed regulations under the Code.  Except as otherwise provided in this Section 6.9, the foregoing calculations and determinations shall be made in good faith by the Employers and shall be conclusive and binding

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upon the parties.  The Employers shall pay all costs and expenses incurred in connection with any such calculations or determinations.

6.10Payment.  Except as otherwise provided in this Agreement, any payments to which the Executive shall be entitled to under this Section 6, including, without limitation, any economic equivalent of any benefit, shall be made, to the extent practicable, within five (5) business days following the Date of Termination.

6.11Bank Regulatory Limitations.  Any payments made to the Executive pursuant to this Agreement, or otherwise, are subject to and conditioned upon their compliance with 12 U.S.C. § 1828(k) and any applicable regulations promulgated thereunder.  In addition, to the extent required by applicable law, regulation, regulatory policy  or other regulatory requirement, the aggregate amount and/or value of the compensation paid as a result of any termination of the Executive’s employment with the Employers, regardless of the reason for any such termination of employment, shall not exceed the limit prescribed by such applicable law, regulation, regulatory policy or other regulatory requirement.

6.12Option to Serve as Consultant.

(a)In lieu of the Employers terminating the Term of Employment without Cause or the Executive terminating the Term of Employment for any reason, the parties may agree that the Executive shall serve as a consultant to the Employers for the balance of the Term of Employment (as such may be extended pursuant to Section 3 of this Agreement) in accordance with the terms set forth in this Section 6.12.  If the Employers and the Executive so agree that the Executive shall serve as a consultant to the Employers hereunder, the Executive shall render such services of an advisory or consultative nature as the Employers may reasonably require of him from time to time and he shall assist the Employers in their relations with their employees and customers, such that the Employers shall have the benefit of the Executive’s experience and knowledge of the Employers’ business and operations, his reputation and contacts in the industry generally as well as in the Employers’ market area and his general business experience.

(b)During the period of the Executive’s providing the consulting services contemplated by Section 6.12(a) above (the “Consulting Period”), the Executive shall devote approximately one-half of his time during normal business hours to the business and affairs of the Employers, and shall receive as compensation therefor an amount equal, on a per annum basis, to fifty percent (50%) of the Executive’s Highest Annual Compensation as determined as of the date upon which the Consulting Period commences (assuming, for purposes of such determination, that the date upon which the Consulting Period commences is the Date of Termination as referred to in the definition of Highest Annual Compensation), such amount to be paid out in equal periodic installments in accordance with the Employers’ ordinary payroll practices during the Consulting Period.

(c)During the Consulting Period, the Executive shall be deemed to be an employee of the Employers and, on this basis, the Executive shall be entitled to a

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continuation of all of the compensation, payments and other benefits provided to him, his spouse and other eligible dependents pursuant to Sections 5.3 through 5.6 of this Agreement in accordance with the terms thereof.  During the Consulting Period, there shall be no affirmative obligation on the part of the Executive to serve or to continue to serve as a member of the Board, and any such membership shall be in accordance with the mutual agreement of the Executive and the Employers.

(d)The Consulting Period may be terminated at any time by either the Employers or the Executive for any reason, or for no reason at all, upon sixty (60) days prior written notice to the other party.  If the Consulting Period is terminated by either the Employers or the Executive prior to the occurrence of a Change in Control, then, so long as the Consulting Period has not been terminated by the Employers for Cause and subject to any applicable provisions of Section 6.12(e) below, such termination shall be deemed to have occurred, effective as of the date on which the Consulting Period terminates, on the grounds that would have applied at the time of the parties’ first entering into the consulting arrangement provided for in this Section 6.12, if the Employers or the Executive, as the case may be, had exercised the right of termination then available to such party, and the Executive shall be entitled to receive all of the payments and benefits set forth in the applicable provisions of Section 6 of this Agreement on account of such termination, except that any reference to Base Salary in any such applicable provision shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above; provided, however, notwithstanding the grounds for termination that may have applied at the time of the parties’ first entering into the consulting arrangement provided for in this Section 6.12, if the Employers terminate the Consulting Period without Cause or the Executive terminates the Consulting Period for Good Reason (to the extent that the principle of Good Reason may apply to the Executive’s termination of the Consulting Period pursuant to clauses (a)(iii) and (a)(iv) of the definition of Good Reason contained above), then the Executive shall be entitled to receive all of the payments and benefits set forth in Section 6.4 of this Agreement (including without limitation Section 6.4(a) above) on account of such termination, except that the reference to Base Salary in Section 6.4(b) above shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above.  If the Consulting Period is terminated by either the Employers or the Executive for any reason, or for no reason at all, following the occurrence of a Change in Control, then, subject to any applicable provisions of Section 6.12(e) below, the Executive shall be deemed to have exercised his right to terminate this Agreement for Good Reason, where such Good Reason is the occurrence of such Change in Control, effective as of the date on which the Consulting Period terminates, and the Executive shall be entitled to all of the payments and benefits set forth in Section 6.4 of this Agreement (including without limitation Section 6.4(a) above) on account of such termination, except that the reference to Base Salary in Section 6.4(b) above shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above.  For purposes of calculating the amount payable to the Executive under Section 6.4(a) of this Agreement if the Consulting Period is terminated hereunder, to the extent that any such payment is required, the Executive’s Highest Annual Compensation shall be determined as of the date on which

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the Employers and the Executive first entered into the consulting arrangement provided for under this Section 6.12.

(e)If the Consulting Period is terminated as a result of the Executive’s death, then the Executive’s estate or other legal representative, as the case may be, shall be entitled to receive the payments and benefits set forth in Section 6.1 of this Agreement, including the payments provided for in Section 6.1(a) above if the Executive’s death occurs after, or within one year prior to, a Change in Control, except that the references to Base Salary in Sections 6.1(a) above, in the case of the Executive’s death prior to a Change in Control, and 6.1(b) above shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above.  If the Executive becomes disabled during the Consulting Period, as such disability is contemplated under Section 6.2(a) of this Agreement, then all of the terms of Section 6.2 above shall apply, except that the amount that may be paid to the Executive during any Suspension for Disability shall equal seventy-five percent (75%) of the amount of the compensation required to be paid to the Executive under Section 6.12(b) above, the reference to Base Salary in Section 6.2(b) above shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above, and any and all references in Section 6.2 to the Executive’s employment, offices, titles, positions or other functions with the Employers shall mean the consulting arrangement entered into between the Employers and the Executive pursuant to this Section 6.12.  If the Consulting Period is terminated by the Employers for Cause, then the Executive shall be entitled to all of the payments set forth in Section 6.3 of this Agreement, except that the reference to Base Salary in Section 6.3(a)(i) above shall mean the amount of annual compensation required to be paid to the Executive under Section 6.12(b) above.

7.Confidential Information; Noncompetition.

7.1Confidentiality.  The Executive shall not, during or after the period during which he is employed by the Employers, disclose any Confidential Information (as such term is defined herein) to any Person for any reason or purpose whatsoever.  The term “Confidential Information” shall mean all confidential information of or relating to the Employers and any of their Affiliates, including without limitation financial information and data, business plans and information regarding prospects and opportunities (such as, by way of example only, client and customer lists and acquisition, disposition, expansion, product development and other strategic plans), but does not include any information that is or becomes public knowledge by means other than the Executive’s breach or nonobservance of his obligations described in this Section 7.1.  Notwithstanding the foregoing, the Executive may disclose such Confidential Information as he may be legally required to do so on the advice of counsel in connection with any legal or regulatory proceeding; provided, however, that the Executive shall provide the Employers with prior written notice of any such required or potentially required disclosure and shall cooperate with the Employers and use his best efforts under such circumstances to obtain appropriate confidential treatment of any such Confidential Information that may be so required to be disclosed in connection with any such legal or regulatory proceeding.  The Executive’s obligation to refrain from disclosing any Confidential Information under this Section 7.1 shall

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continue in effect in accordance with its terms following any termination of this Agreement pursuant to Section 6 above.

7.2Noncompetition.  If the Executive’s employment with the Employers (including without limitation any employment during a Consulting Period) is terminated by the Employers or the Executive for any reason, other than due to death, or for no reason at all or otherwise terminates as a result of the expiration of the Term of Employment, in any such case prior to a Change in Control, then during the two-year period following the Date of Termination or, if a Change in Control occurs at any time during such two-year period, such shorter period from the Date of Termination up to the date of such Change in Control, and subject to Section 7.3 hereof, the Executive shall not:  (a) directly or indirectly, whether as owner, partner, shareholder (other than the holder of 1% or less of the common stock of any company the common stock of which is listed on a national stock exchange or quoted on the Nasdaq Stock Market),  be engaged as a consultant, agent, employee or otherwise, engage in competition with the Employers or any of their Affiliates within a ten (10) mile radius of any city or town in which the Bank or any Affiliate has a branch or other office; or (b) hire or attempt to hire, or assist in hiring, any employees of the Employers or any of their Affiliates, or solicit, encourage or induce any such employee to terminate his or her relationship with the Employers or any such Affiliate; or (c) solicit, encourage or induce any customer or client of the Employers or any of their Affiliates to terminate his or its relationship with the Employers or any such Affiliate or to do business with anyone other than the Employers and their Affiliates.

7.3Payments.  During the two years or such shorter period during which the restrictions of Section 7.2 above apply, the Executive shall be paid, subject to Section 6.7 above, a per annum amount equal to seventy percent (70%) of the per annum amount required under Section 6.4(a) of this Agreement in the event of a termination of the Executive’s employment prior to a Change in Control; provided, however, that, if the termination of the Executive’s employment that precedes such period of restriction required under Section 7.2 above has occurred pursuant to Section 6.4 above, then the Executive shall be paid during such period the full per annum amount required under Section 6.4(a).  If the period of the restrictions required under Section 7.2 above follows any termination of a Consulting Period, then the payments required under this Section 7.3 shall be reduced to a per annum amount equal to fifty percent (50%) of the per annum amount specified in Section 6.4(a) of this Agreement, subject to Section 6.7 above and subject further to any requirement that the full per annum amount under Section 6.4(a) be paid during such period pursuant to Sections 6.12(d) or 6.12(e) above.  The amount payable under this Section 7.3 is only payable during the period of restriction that is the subject of Section 7.2 of this Agreement.  Inasmuch as such period of restriction shall not apply under any circumstances after a Change in Control, no amount shall be paid to the Executive under this Section 7.3 under any circumstances after a Change in Control (although amounts may otherwise be paid to the Executive, his estate or other legal representative after a Change in Control under other applicable provisions of this Agreement).  The amounts to be paid to the Executive under this Section 7.3 shall be paid out in equal periodic installments in accordance with the Employers’ ordinary payroll practices over the two-year or such shorter  period commencing on the first payroll date after the Date of Termination.

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7.4Injunctive Relief.  The Executive acknowledges and agrees that the Employers will have no adequate remedy at law, and would be irreparably harmed, if the Executive breaches or threatens to breach any of the provisions of this Section 7.  The Executive agrees that the Employers shall be entitled to equitable and/or injunctive relief to prevent any breach or threatened breach of this Section 7, and to specific performance of each of the terms of this Section 7 in addition to any other legal or equitable remedies that the Employers may have.  The Executive further agrees that he shall not, in any equity proceeding relating to the enforcement of the terms of this Section 7, raise the defense that the Employers have an adequate remedy at law.

7.5Special Severability.  The terms and provisions of this Section 7 are intended to be separate and divisible provisions and if, for any reason, any one or more of them is held to be invalid or unenforceable, neither the validity nor the enforceability of any other provision of this Agreement shall thereby be affected.

8.Arbitration of Disputes.  Any controversy or claim arising out of or relating to this Agreement or the breach hereof, other than an action brought by the Employers for injunctive or other equitable relief in the enforcement of the Employers’ rights under Section 7 above, in which case such action may be brought in any court of competent jurisdiction, shall be settled by arbitration in accordance with the laws of the Commonwealth of Massachusetts by three arbitrators, one of whom shall be appointed by the Employers, one by the Executive and the third by the first two arbitrators.  If the first two arbitrators cannot agree on the appointment of a third arbitrator, then the third arbitrator shall be appointed by the American Arbitration Association in the City of Boston, Massachusetts.  Such arbitration shall be conducted in the City of Boston, Massachusetts in accordance with the rules of the American Arbitration Association, except with respect to the selection of arbitrators which shall be as provided in this Section 8.  Judgment upon the award rendered by the arbitrators may be entered in any court having jurisdiction thereof.  In the event that it shall be necessary or desirable for the Executive to retain legal counsel and/or incur other costs and expenses in connection with the enforcement of any or all of Executive’s  rights under this Agreement, the Employers shall pay (or the Executive shall be entitled to recover from the Employers, as the case may be) the Executive’s reasonable attorneys’ fees and other reasonable costs and expenses in connection with the enforcement of said rights (including the enforcement of any arbitration award in court) regardless of the final outcome, unless and to the extent that the arbitrators shall determine that the Executive has not acted in good faith or that under the circumstances recovery by the Executive of all or part of any such fees and costs and expenses would be inequitable or otherwise unjust.

9.Successors.

9.1The Executive.  This Agreement is personal to the Executive and, without the prior written consent of the Employers, shall not be assignable by the Executive, except that the Executive’s rights to receive any compensation or benefits under this Agreement may be transferred or disposed of pursuant to testamentary disposition, intestate succession or pursuant to a qualified domestic relations order.  This Agreement shall inure to the benefit of and be enforceable by the Executive’s heirs, beneficiaries and/or legal representatives.  In the event of the Executive’s death prior to the completion by the Employers of all payments due to the

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Executive under this Agreement, the Employers shall continue to make such payments to the Executive’s beneficiary(ies) as designated in writing by the Executive to the Employers prior to his death (or to his estate, if he fails to make such designation).

9.2The Employers.  This Agreement shall inure to the benefit of and be binding upon the Employers and their successors and assigns.  Each of the Company and the Bank shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of its businesses and/or assets to assume expressly and agree to perform this Agreement in the same manner and to the same extent as if no such succession had taken place.  Failure of either the Company or the Bank to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle the Executive to compensation in the same amount and on the same terms as he would be entitled to hereunder if he terminated this Agreement for Good Reason following a Change in Control, except that for purposes of implementing the foregoing, the date on which any such succession becomes effective shall be deemed to be the Date of Termination.  As used in this Agreement, “Company,” “Bank” and “Employers” shall mean the Company, the Bank and the Employers as hereinbefore defined and any successor to the business and/or assets of either the Company or the Bank as aforesaid which successor assumes and agrees to perform this Agreement by operation of law or otherwise.

10.Indemnification.  The Executive (and his heirs, executors and administrators) shall be indemnified and held harmless by the Employers to the fullest extent permitted by applicable law, regulation, regulatory policy or other regulatory requirement, against all expenses, liabilities and losses (including, without limitation, all reasonable attorneys’ fees and all judgments, fines, excise taxes or penalties and amounts paid or to be paid in settlement) incurred or suffered by the Executive as a consequence of the Executive being or having been made a party to, or being or having been involved in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that the Executive is or was a trustee, director or officer of the Employers or is or was serving at the request of the Employers as a trustee, director or officer of another corporation or other entity (including, but not limited to, a Subsidiary or an Affiliate of the Employers), and such indemnification shall continue after the Executive shall cease to be an officer, director or trustee.  The right to indemnification conferred hereby shall be a contract right and shall also include, to the extent permitted by applicable law, regulation, regulatory policy or other regulatory requirement, the right to be paid by the Employers the expenses incurred in defending any such proceeding in advance of the final disposition upon receipt by the Employers of an undertaking by or on behalf of the Executive to repay such amount or a portion thereof, if it shall ultimately be determined that the Executive is not entitled to be indemnified by the Employers pursuant hereto or as otherwise authorized by law, regulation, regulatory policy or other regulatory requirement, but such repayment by the Executive shall only be in an amount ultimately determined to exceed the amount to which the Executive was entitled to be indemnified.  The Employers’ acceptance of any such undertaking by or on behalf of the Executive may not be conditioned upon any evidence or demonstration by or on behalf of the Executive of any financial capacity to make any such repayment at the time such undertaking is delivered.

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11.Miscellaneous.

11.1Applicable Law.  This Agreement shall, to the extent not superseded by federal law, be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts, without regard to principles of conflict of laws.

11.2Amendments/Waiver.  This Agreement may not be amended, waived, or modified otherwise than by a written agreement executed by the parties to this Agreement or their respective successors and legal representatives.  No waiver by any party to this Agreement of any breach of any term, provision or condition of this Agreement by the other party shall be deemed a waiver of a similar or dissimilar condition or provision at the same time, or any prior or subsequent time.

11.3Notices.  All notices and other communications hereunder shall be in writing and shall be deemed given when received by hand-delivery to the other party, by facsimile transmission, by overnight courier, or by registered or certified mail, return receipt requested, postage prepaid, addressed, if to the Executive, to the Executive at his last address on file with the Employers and, if to the Employers, to the Employers at their then current executive offices or to such other address as either party shall have furnished to the other in writing in accordance herewith.  Notices and communications shall be effective when actually received by the addressee (which receipt shall be deemed to have occurred at any time that the addressee refuses or otherwise attempts to avoid delivery of any such notice or communication).

11.4Withholdings.  The Employers may withhold from any amounts payable under this Agreement such taxes as shall be required to be withheld pursuant to any applicable law or regulation.

11.5Enforceability.  If any portion or provision of this Agreement shall to any extent be declared illegal or unenforceable by a court of competent jurisdiction, then the remainder of this Agreement, or the application of such portion or provision in circumstances other than those as to which it is so declared illegal or unenforceable, shall not be affected thereby, and each portion and provision of this Agreement shall be valid and enforceable to the fullest extent permitted by law.

11.6Captions.  The captions of this Agreement are for convenience of reference only, are not part of the terms of this Agreement and shall have no force or effect in the application or interpretation thereof.

11.7Entire Agreement.  This Agreement contains the entire agreement between the parties to this Agreement concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations and undertakings, whether written or oral, between the parties.

11.8Survivorship.  The respective rights and obligations of the parties to this Agreement, including, without limitation, any of their respective rights and obligations under Section 10 of this Agreement, shall survive any termination of this Agreement or any termination

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of the Executive’s employment hereunder for any reason to the extent necessary to accomplish the intended preservation of such rights and obligations.

IN WITNESS WHEREOF, the Executive has hereunto set his hand and each of the Employers has caused this Agreement to be executed in its name and on its behalf by a duly authorized officer, in each case as an instrument under seal and as of the date set forth above.

ATTEST:	ENTERPRISE BANCORP, INC.
/s/ Arnold S. Lerner	By:	/s/ George L. Duncan
Arnold S. Lerner	George L. Duncan.
Vice Chairman	Chairman and Chief Executive Officer
ATTEST:	ENTERPRISE BANK AND TRUST COMPANY
/s/ Arnold S. Lerner	By:	/s/ George L. Duncan
Arnold S. Lerner	George L. Duncan
Vice Chairman	Chairman and Chief Executive Officer
WITNESS:	EXECUTIVE
/s/ Robert R. Gilman	/s/ John P. Clancy, Jr.
	John P. Clancy Jr.

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EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, George L. Duncan, certify that:

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

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

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

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and we have:

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

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

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

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

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

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

Date:  May 10, 2004	/s/ George L. Duncan
	George L. Duncan
	Chairman and CEO
	(Principal Executive Officer)

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
UNDER SECURITIES EXCHANGE ACT RULE 13a-14(a)

I, James A. Marcotte, certify that:

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

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

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

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) for the registrant and we have:

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

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

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

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

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

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

Date:  May 10, 2004	/s/ James A. Marcotte
	James A. Marcotte
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)

EX-32

EXHIBIT 32

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER
UNDER 18 U.S.C. § 1350 FURNISHED PURSUANT TO SECURITIES EXCHANGE ACT RULE 13a-14(b)

In connection with the Quarterlyl Report of Enterprise Bancorp, Inc. (the “Company”) on Form 10-Q for the period ended on March 31, 2004, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned, in his respective capacities indicated below, hereby certifies, pursuant to 18 U.S.C. § 1350, as enacted by Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge and belief, (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ George L. Duncan
	George L. Duncan
	Chairman and Chief Executive Officer
	(Principal Executive Officer)
	/s/ James A. Marcotte
	James A. Marcotte
	Senior Vice President and Chief Financial Officer
	(Principal Financial Officer)
Date:  May 10, 2004

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