Enterprise Bancorp, Inc. Announces Third Quarter 2020 Financial Results

Rhea-AI Summary

Enterprise Bancorp (NASDAQ: EBTC) reported a net income of $10.3 million, or $0.87 per diluted share, for Q3 2020, up from $9.0 million, or $0.76 per share, in Q3 2019. However, net income for the first nine months of 2020 fell to $21.6 million, or $1.81 per share, compared to $25.5 million, or $2.15 per share, in the same period last year. The bank's growth was significantly driven by the Paycheck Protection Program (PPP), with loans totaling $508 million. The company will adopt CECL, estimating an increase in loan loss allowances by $8-$11 million.

Positive

• Net income for Q3 2020 increased to $10.3 million from $9.0 million YoY.
• 14% increase in net interest income due to PPP loans.
• Successful origination of 2,700 PPP loans totaling $508 million.

Negative

• Net income for the first nine months of 2020 decreased to $21.6 million from $25.5 million YoY.
• Increased loan loss provisions due to COVID-19 impact.

LOWELL, Mass., Oct. 22, 2020 (GLOBE NEWSWIRE) -- Enterprise Bancorp, Inc. (NASDAQ: EBTC), parent of Enterprise Bank, announced net income for the three months ended September 30, 2020 of $10.3 million, or $0.87 per diluted share, compared to $9.0 million, or $0.76 per diluted share, for the three months ended September 30, 2019. Net income for the nine months ended September 30, 2020 amounted to $21.6 million, or $1.81 per diluted share, compared to $25.5 million, or $2.15 per diluted share, for the nine months ended September 30, 2019.

As previously announced on October 20, 2020, the Company declared a quarterly dividend of $0.175 per share to be paid on December 1, 2020 to shareholders of record as of November 10, 2020.

Chief Executive Officer Jack Clancy commented, “Our third quarter results positively reflect our strong participation in the Paycheck Protection Program (“PPP”). In the second quarter we originated over 2,700 PPP loans for $508 million with a median loan size of $67 thousand. These loans contributed strongly to the 14% increase in net interest income in the third quarter compared to the prior year period. The PPP results were truly a bank-wide effort and we are gratified that we were able to support our customers during this time of financial uncertainty. We continue to work diligently to ensure that the PPP loan forgiveness process is an efficient and positive experience for our customers.”

Mr. Clancy added, “Our strong growth figures this year have been significantly impacted by both the outstanding PPP loans and the pandemic in general. Loan growth has been positively and substantially impacted by outstanding PPP loans. Deposit growth has also been positively and substantially impacted by the PPP, as the PPP loan monies that were distributed into deposit accounts. Additionally, deposit growth has been positively impacted by stimulus checks and by customers proactively building liquidity in response to the economic uncertainty caused by the pandemic. We anticipate that as the majority of PPP loans are forgiven or paid off, which we believe will occur principally over the next 12 months, and as customers spend down their PPP funds, we will experience a reduction in both loans and deposits.”

Mr. Clancy further commented, “In the fourth quarter we will be adopting the Financial Accounting Standards Board’s Accounting Standards Update 2016-13, Measurement of Credit Losses on Financial Instruments, including the current expected credit losses methodology for estimating the allowance for credit losses (“CECL”). If adopted as of September 30, 2020, we estimate CECL would have increased our total allowance for loan losses, including the reserve for unfunded commitments, by $8.0 million to $11.0 million and would have increased our total allowance for loan losses to total loans ratio from 1.65% to a range of 1.95% to 2.06%, excluding PPP loans. CECL will be adopted with an effective retrospective implementation date of January 1, 2020. Included in the estimated total increase in the allowance for loan losses is approximately pre-tax $3.0 million that will be recorded through equity, net of taxes, as the CECL day one implementation adjustment and pre-tax $5.0 million to $8.0 million that will be recorded through earnings and applied retrospectively to the applicable March 31, June 30, and September 30 quarterly results.”

Founder and Chairman of the Board George Duncan commented, “While the near term economic outlook remains uncertain, we remain committed to our long-term focus of serving our customers, building relationships, investing in our future, cultivating our digital evolution, expanding geographically, and further developing our services and products. Regarding branch expansion, our Lexington branch which opened in March is exceeding our expectations despite the unusual operating environment and we are looking forward to opening our North Andover site early in 2021.”

On September 10, 2020, Enterprise Bank was recognized at the Boston Business Journal's Corporate Citizenship Summit as ranking 2nd for the highest average hours of community service and 48th among the largest corporate donors in Massachusetts. Mr. Duncan said, "I am personally very proud of this team accomplishment. Our commitment to the communities we serve is entrenched in our culture and reflects our deep sense of purpose as a genuine community bank."

Paycheck Protection Program

The PPP was created by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) and instituted by the Small Business Administration (“SBA”). The PPP allowed entities to apply for a 1.00% interest rate loan with payments generally deferred until the date the lender receives the applicable forgiveness amount from the SBA. The PPP loans may be partially or fully forgiven by the SBA if the entity meets certain conditions. For most PPP loans, the maturity term for any principal portion left unforgiven is 2 years from the funding date. For PPP loans that the SBA approved on or after June 5, 2020, the loan must have a maturity of at least 5 years. All PPP loans are fully guaranteed by the SBA and are included in total loans outstanding. As of September 30, 2020, the Company had 2,758 PPP loans outstanding totaling $508.2 million.

In addition to generating interest income, the SBA pays lender’s fees for processing PPP loans. As of September 30, 2020, the Company has recorded $17.2 million in PPP related SBA fees and is accreting these fees into interest income over the life of the applicable loans. If a PPP loan is forgiven or paid off before maturity, the remaining unearned fee is recognized into income at that time. Year-to-date through September 30, 2020, the Company has recognized $3.7 million in PPP related SBA fees through accretion. The majority of the remaining $13.5 million in fees are expected to be recognized as the PPP loans are forgiven over the next several quarters.

Results of Operations

Throughout this press release we have noted certain ratios or other measures of the Company’s performance as having been adjusted to remove the impact of PPP loans, which we expect to be short-term in nature. The table on page 9 provides a reconciliation of the non-GAAP measures to the information presented under U.S. generally accepted accounting principles (“GAAP”).

The net income results for the three and nine months ended September 30, 2020 compared to the prior year periods were positively impacted by growth in net interest income, offset by increases in the provision for loan losses and operating expenses. The increases in net interest income resulted mainly from loan growth, PPP income and lower funding costs. The provision for loan losses increased over the prior year periods as the Company added to general reserves to address the impact of COVID-19 on the Company's loan portfolio and from an increase in impaired loan reserves. Operating expenses increased primarily from the Company’s strategic growth initiatives.

FAQ

What were Enterprise Bancorp's earnings for Q3 2020?

Enterprise Bancorp reported a net income of $10.3 million or $0.87 per diluted share for Q3 2020.

How much did Enterprise Bancorp earn in the first nine months of 2020?

For the first nine months of 2020, Enterprise Bancorp's net income was $21.6 million, or $1.81 per diluted share.

What impact did the Paycheck Protection Program have on Enterprise Bancorp's performance?

The Paycheck Protection Program significantly contributed to a 14% increase in net interest income and the origination of 2,700 loans totaling $508 million.

What are the expected changes due to the CECL adoption for Enterprise Bancorp?

The adoption of CECL is expected to increase the total allowance for loan losses by $8-$11 million.