================================================================================ United States Securities and Exchange Commission Washington, D. C. 20549 FORM 10-K [x] Annual Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the fiscal year ended December 31, 2000 Transition Report Pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934 For the transition period from to Commission file number 000-24131 Enterbank Holdings, Inc. (Exact Name of Registrant as Specified in its Charter) Delaware 43-1706259 (State or other jurisdiction of incorporation (I.R.S. Employer or organization) Identification Number) 150 North Meramec, Clayton, MO 63105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 314-725-5500 _____________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of Form 10-K [X] State the aggregate market value of the voting stock held by non-affiliates of the Registrant as of March 1, 2001: Common Stock, par value $.01, $97,249,410 Indicate the number of shares outstanding of each of the Registrant's classes of common stock as of March 1, 2001: Common Stock, par value $ .01, 9,135,344 shares outstanding ================================================================================
Enterbank Holdings, Inc. 2000 Annual Report on Form 10-K Page ---- Business................................................................. 1 Properties............................................................... 5 Legal Proceedings........................................................ 6 Submission of Matters to Vote of Security Holders........................ 6 Market for Common Stock and Related Stockholder Matters.................. 6 Selected Financial Data.................................................. 8 Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................. 9 Quantitative and Qualitative Disclosures About Market Risk............... 22 Financial Statements and Supplementary Data.............................. 31 Management............................................................... 31 Directors and Executive Officers of the Registrant....................... 31 Executive Compensation. Security Ownership of Certain Beneficial Owners and Management......................................................... 31 Certain Relationships and Related Party Transactions..................... 32 Exhibits, Financial Statement Schedules and Reports on Form 8-K............................................................ 32 Independent Auditors' Report............................................. 33 Consolidated Financial Statements........................................ 34 Signatures............................................................... 63 Exhibit Index............................................................ 65
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995 Readers should note that in addition to the historical information contained herein, some of the information in this report contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements typically are identified with use of terms such as "may," "will," "expect," "anticipate," "estimate" and similar words, although some forward- looking statements are expressed differently. You should be aware that the Company's actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including burdens imposed by federal and state regulation of banks, credit risk, exposure to local economic conditions, risks associated with rapid increase or decrease in prevailing interest rates and competition from banks and other financial institutions, all of which could cause the Company's actual results to differ from those set forth in the forward-looking statements. PART I ------ ITEM 1: BUSINESS General Enterbank Holdings, Inc. (the "Company") was incorporated under the laws of the State of Delaware on December 30, 1994, for the purpose of providing a holding company structure for the ownership of Enterprise Bank, a Missouri banking corporation, (the "St. Louis Bank"). The Company acquired Enterprise Bank in St. Louis in May 1995 through a tax-free exchange with Bank shareholders. In June of 2000, Enterbank and Commercial Guaranty Bancshares, Inc., the parent company for First Commercial Bank, N.A. (the "Kansas Bank"), merged under a tax- free reorganization. The transaction was accounted for as a pooling of interests. The holding company ownership structure gives the Banks a source of capital and financial strength and allows the organization some flexibility in expanding the products and services offered to clients. In 2000, the Company elected to change its status from a bank holding company to a financial holding company. The St. Louis Bank began operations on May 9, 1988 as a new Missouri banking corporation. From 1988 through 1996, the Bank provided commercial banking services to its customers from a single location in the City of Clayton, St. Louis County, Missouri. During 1997, the Bank opened two additional facilities located in St. Charles County, Missouri and the City of Sunset Hills, located in St. Louis County. During 1998, the Bank opened an operations facility in St. Louis County, Missouri. The Company organized Enterprise Merchant Banc, Inc. ("Merchant Banc") (formerly Enterprise Capital Resources, Inc.) in 1995 as a wholly owned subsidiary to provide merchant banking services to closely-held businesses and their owners. Merchant Banc's current operations include a minority interest in Enterprise Merchant Banc, LLC, which focuses on providing equity capital and equity-linked debt investments to growing companies in need of additional capital to finance internal and acquisition-related growth. Additionally, Merchant Banc may receive fee income for its role as a financial advisor in capital raising transactions as well as mergers and acquisitions. It focuses on "second stage" and mezzanine financing for established companies rather than "seed money" for start-up operations. Enterprise Trust ("Trust"), formally referred to as Enterprise Financial Advisors ("EFA"), a division of the St. Louis Bank, was organized in late 1998 to provide fee-based trust services, personal financial planning, estate planning, and corporate planning services to the Company's target market on a full time basis. As part of the organization of Trust, the Company entered into solicitation and referral agreements with Moneta Group, Inc. ("Moneta"). These agreements were later renegotiated. These agreements call for Moneta to provide assistance in staffing, training, marketing and regulatory compliance for Trust for which Moneta receives compensation. Moneta refers customers, when appropriate, to the Bank and receives a share of the revenue generated in the form of options on the Company's common stock. The agreements with Moneta allow Trust to offer a full range of products and services with the depth and expertise of a large planning firm. 1
The Kansas Bank began operations on February 20, 1996 as a new Kansas banking corporation. From February of 1996 through June of 2000, First Commercial Bank primarily provided commercial banking services to its customers in Overland Park, Kansas, located in Johnson County. The Kansas Bank acquired the First National Bank of Humboldt in December of 1997, adding three additional locations in Humboldt, Chanute and Iola, all located in Southeast Kansas. In June of 2000, Enterbank completed a merger transaction under which the Kansas Bank became a subsidiary of the Company. On January 1, 2001, the Kansas Bank changed its legal name to Enterprise Banking, N.A. As used herein, unless the context indicates otherwise, Enterbank Holdings, Inc. and all of its subsidiaries are referred collectively as the ("Organization" or "Company"). The Kansas and St. Louis Banks and all of their subsidiaries are referred to as ("The Bank" or "Banking Franchise"). Enterprise Bank, Missouri and all of its subsidiaries are referred to as "The St. Louis Bank". Enterprise Banking N.A. and all of its subsidiaries are referred to as "The Kansas Bank". The Company's executive offices are located at 150 North Meramec, Clayton, Missouri 63105. The Company's telephone number is (314) 725-5500. Strategy The Company's strategy is to provide a complete range of financial services designed to appeal to closely-held businesses, their owners, and to professionals in the St. Louis and Kansas City metropolitan areas. The St. Louis Bank encompasses the city of St. Louis, Missouri, the Missouri counties of St. Louis, St. Charles, Jefferson, Franklin, Lincoln and Warren and the Illinois county of St. Clair. The Kansas Bank serves Johnson County and the greater Kansas City area, as well as Southeast Kansas. The Company's merchant banking operation targets a larger geographic area, which includes all of Missouri and the adjoining states. The Company's goal is to grow its operations within its defined market niche by being well-managed, well-capitalized and disciplined in its approach to managing and expanding its operations as growth opportunities arise. The Company believes its goals can be achieved while providing attractive returns to shareholders. Assets and income growth, net income, earnings per share, and return on shareholders' equity are the financial performance indicators the Company considers most critical in measuring success. Through the Banks, the Company currently delivers a full range of commercial banking services to the closely-held business market. Merchant banking and venture capital services are conducted through the Merchant Banc. Financial planning and trust services are offered through Trust. The Company plans to continue to expand the range of services it provides within its market niche while expanding the base of customers. The Bank Enterprise Bank in St. Louis is a Missouri state chartered bank. Enterprise Banking, N.A., formerly First Commercial Bank, N.A., is a nationally chartered bank. The Bank offers a broad range of commercial and personal banking services to customers. Loans include commercial, commercial real estate, financial and industrial development, real estate construction and development, residential real estate and a smaller amount of consumer loans. Other services include cash management, safe-deposit boxes. The Bank's primary source of funds has historically been customer deposits. The Bank offers a variety of accounts for depositors designed to attract both short- term and long-term deposits. These accounts include certificates of deposit, savings accounts, money market accounts, checking and negotiable order of withdrawal accounts, and individual retirement accounts. Interest-bearing accounts earn interest at rates established by management based on competitive market factors and management's desire to increase or decrease certain types of deposits. Management believes the Bank is able to compete effectively in both markets because the Bank's calling officers and management maintain close working relationships with their commercial clients; the Bank's management structure enables it to react to customer requests for loan and deposit services more quickly than larger competitors; the Bank's management and officers have significant experience in the communities serviced by the Bank; and the Bank continues to target the closely-held business and 2
professional market. Additionally, industry consolidation has resulted in fewer independent banks and fewer banks serving the Bank's target market niche. Management believes the Bank is one of only a few whose primary strategy is to focus on closely-held businesses, their owners and the professional market. The Bank's historical growth strategy has been both client and asset driven. The Bank continuously seeks to add clients that fit its target market. This strategy enabled the Bank to attract clients whose borrowing needs have grown along with the Bank's increasing capacity to fund client loan requests. Additionally, the Bank increased its loan portfolio based on lending opportunities developed by relationship officers. The Bank funds loan growth by attracting deposits from business and professional clients, by borrowing from the Federal Home Loan Bank and by attracting wholesale deposits which are considered stable deposit sources and which are priced at or below the Bank's all-in alternative cost of funds. The Bank's operating strategy results in operating ratios comparable to peer banks despite an increasing investment in sales personnel whose goal is to expand the number and depth of the Bank's customer relationships. The Bank can expand its customer relationships and control operating costs by: operating a small number of offices with a high per office asset base; emphasizing commercial loans which tend to be larger than retail loans; employing an experienced staff, all of whom are rewarded on the basis of performance and customer service; improving data processing and operational systems to increase productivity and control risk; leasing facilities where possible so that capital can be deployed more effectively to support growth in earning assets; and outsourcing services where possible. The Bank has a strong orientation toward commercial banking, with a specific focus on closely-held businesses, their owners, and professionals located in the target service areas. The Bank stresses personal service, flexibility in structuring loan and deposit relationships which meet client needs and timely responsiveness to the needs of clients. Management of the Bank makes it a practice to maintain close working relationships and personal contact with each of the commercial clients. Each of the Kansas and St. Louis Banks has its own Board of Directors. Each Board is comprised primarily of business owners and professionals who fit the target client profile. Each Board of Directors takes an active role in the business development activities and the credit review process of its respective Bank. Input and understanding of the needs of the Bank's current and target clients has been critical in the Bank's past success and will be critical in the Bank's plans for future growth. The Bank has historically low relationship officer turnover, and the policy is to keep officers assigned to accounts for long periods of time. This practice improves each officer's understanding of clients' businesses resulting in knowledgeable credit assessments and superior client service. Relationship officers are supported by credit analysts and other support personnel who are familiar with each assigned customer, creating a team approach to serving customers' needs. A significant portion of the Bank's new business results from referrals from existing customers. Market Areas and Approach to Expansion The St. Louis Bank has facilities in Clayton, St. Charles County and the City of Sunset Hills. The Kansas Bank has facilities in Johnson County and Southeast Kansas. The Company chose to locate in these markets based on high expectations for growth, high concentration of closely-held businesses and the high number of professionals in those markets. As mentioned above, the Company believes that local management and the involvement of a Board of Directors comprised of local business persons and professionals are key ingredients for success. Management believes that credit decisions, pricing matters, business development strategies, and other decisions should be made locally by managers who have an equity stake in the Company (see "Management"). The Company, as part of its expansion effort, plans to continue its strategy of operating a small number of offices with a high per office asset base, emphasizing commercial loans, and employing experienced staff who are rewarded on the basis of performance and customer service. 3
Enterprise Merchant Banc The Merchant Banc was established in 1995 to provide merchant banking services to closely held businesses and their owners. Its current operations include a minority investment in Enterprise Merchant Banc, LLC, which focuses on providing equity capital and equity-linked debt investments to growing companies in need of additional capital to finance internal and acquisition-related growth. Merchant Bank LLC manages two investment funds with total committed capital of approximately $35 million, of which most is invested. It focuses on "second stage" and mezzanine financing for established companies rather the "seed money" for start up organizations. Additionally, the Merchant Banc may receive fee income for its role as a financial advisor in capital raising transactions as well as mergers and acquisitions. To date, although no fees have been received for these services, $175,000 was accrued in September 2000 related to these services. In mid-1999, the Company restructured its ownership and control positions of various merchant banking operations. As a result of this restructuring, the Company maintains 100% ownership of the Merchant Banc, which in turn has a minority interest in Enterprise Merchant Banc, LLC. The minority interest in the LLC includes a 4.9% voting and common stock ownership interest with a 24.9% economic interest. The new structure provides the ability to achieve economic benefits comparable to those available under the previous structure, while satisfying Federal Reserve regulations concerning ownership and control. Enterprise Trust (Formerly Enterprise Financial Advisors) In 1997, the St. Louis Bank entered into solicitation and referral agreements with Moneta Group, Inc., a nationally recognized firm in the financial planning industry, to begin offering financial services to clients. Under the agreements, Moneta provided assistance in staffing, training, marketing and regulatory compliance and in return received a share of the gross margin generated by Enterprise Trust for planning and trust services. In addition, Moneta refers banking clients, when appropriate, to the Bank and receives a share of the revenue generated in the form of options in the Company's common stock. In 1998, Enterprise entered the trust and financial planning business on a full time basis when the St. Louis Bank was granted trust powers by the regulators. At this time the St. Louis Bank modified its agreements with Moneta. The new agreements call for Moneta to help the Bank with many of the issues related to startup including, but not limited to, staffing, training, marketing, and regulatory compliance. In return, Moneta receives a portion of the gross margin earned by the Trust division of the Bank in the form of cash. Moneta still refers banking business to the Bank and receives options in the form of compensation for banking business referrals. Enterprise Trust provides fee-based personal and corporate financial consulting and trust services to the Company's target market. Personal financial consulting includes estate planning, investment management, and retirement planning. Corporate consulting services are focused in the areas of retirement plans, management compensation and management succession issues. Some investment management services are provided through Argent Capital Management LLC ("Argent"), a money management company that invests principally in large capitalization companies, of which the Company owns approximately 5% of the outstanding shares. In addition, the Company acquired approximately 11% of Retirement Plan Services, LLC ("RPS") in October of 2000 and in December elected to move its 401(k) plan from the Principal Group to RPS. Investments The Company's investment policy is designed to enhance net income and return on equity through prudent management of risk; ensure liquidity to meet cash-flow requirements; help manage interest rate risk; ensure collateral is available for public deposits, advances and repurchase agreements; and manage asset diversification. The Company, through the Asset/Liability Management Committee ("ALCO"), monitors investment activity and manages its liquidity by structuring the maturity dates of its investments to meet anticipated customer funding needs. However, the primary goal of the Company's investment policy is to maintain an appropriate relationship between assets and liabilities while maximizing interest 4
rate spreads. Accordingly, the ALCO monitors the sensitivity of its assets and liabilities with respect to changes in interest rates and maturities and directs the overall acquisition and allocation of funds. Employees At December 31, 2000, the Company had approximately 252 full time equivalent employees. None of the Company's employees are covered by a collective bargaining agreement. Management believes that its relationship with its employees is good. ITEM 2: PROPERTIES All of the Company's St. Louis banking facilities are leased under agreements that expire in 2004, 2003, 2011 and 2016, for Clayton, St. Louis County, the City of Sunset Hills, and St. Charles County, respectively. The Company has the option to renew the Clayton facility lease for one additional five-year period with future rentals to be agreed upon. Throughout 2000 the Company's Clayton banking facility was leased from a limited partnership in which Fred H. Eller, the Company's Chief Executive Officer, is a limited partner and Robert E. Saur, a director of the Company, is a general partner. The partnership sold the building in December of 2000 and neither Mr. Eller nor Mr. Saur currently have an interest in the building, other than occupational. The Company has the option to renew the St. Louis County facility lease for three additional five-year periods with future rentals to be agreed upon. The Company has the option to renew the Sunset Hills facility lease for two additional five-year periods with future rentals to be agreed upon. The Company has no future rental options for the St. Charles County facility; however, during the term of the lease, the monthly rentals are adjusted periodically based on then-current market conditions and inflation. The Merchant Banc facility in Kansas is leased under an agreement that expires in 2003. A portion of the Merchant Banc facility is sublet for the same amount as the lease and the proceeds are used to reduce the Company's occupancy expense. All the banking buildings in Kansas are owned by the Company. The future aggregate minimum rental commitments required under the leases are as follows: Year Amount ---- ------ 2001 $1,105,080 2002 $1,116,622 2003 $1,106,303 2004 $ 995,310 2005 $ 471,326 Thereafter $4,147,656 For leases that renew or are subject to periodic rental adjustments, the monthly rental payments will be adjusted based on then-current market conditions and rates of inflation. 5
The following is a list of the Company's current facilities: <TABLE> <CAPTION> Facility Address Description - -------- ------- ----------- <S> <C> <C> Enterprise Bank, Clayton 150 North Meramec Commercial and Retail Clayton, Missouri 63105 Banking Enterprise Bank, St. Peters 300 St. Peters Centre Blvd. Commercial and Retail St. Peters, Missouri 63376 Banking Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd. Commercial and Retail Sunset Hills, Missouri 63127 Banking Enterprise Banking, N.A., Overland Park 12695 Metcalf Avenue Commercial and Retail Overland Park, Kansas 66213 Banking Enterprise Banking, N.A., Humboldt 725 Bridge Street Commercial and Retail Humboldt, Kansas 66748 Banking Enterprise Banking, N.A., Chanute 17 S. Lincoln Commercial and Retail Chanute, Kansas 66720 Banking Enterprise Banking, N.A., Iola 208 West Street Commercial and Retail Iola, Kansas 66749 Banking Enterprise Bank, St. Louis 1281 North Warson Road Operations Center St. Louis, Missouri 63132 Enterprise Merchant Banc, Inc., 7400 W. 110/th/ Street 5/th/ Floor Merchant Banking Overland Park Overland Park, Kansas 66210 </TABLE> ITEM 3: LEGAL PROCEEDINGS The Company and its subsidiaries are, from time to time, parties to various legal proceedings arising out of their businesses. Management believes that there are no such proceedings pending or threatened against the Company or its subsidiaries which, if determined adversely, would have a material adverse effect on the business, financial condition, results of operations or cash flows of the Company or any of its subsidiaries. ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders in the quarter ended December 31, 2000. ITEM 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS As of March 1, 2001, the Company had approximately 1,098 common stock shareholders of record and a market price of $14.125. The common stock is not traded on an exchange or in any established public trading market, although there have been a limited number of transactions in the common stock that have been reported to the National Association of Securities Dealers ("NASD"). Based solely on the sales reported to the NASD, the Company believes the high and low sale prices for the common stock and dividends declared were as follows in the quarters indicated: Dividends Market Price Declared -------------------- ---------- 1999 High Low ---- First Quarter $ 12.50 $ 10.33 $ .0100 Second Quarter 14.00 12.50 .0100 Third Quarter 15.17 14.00 .0100 Fourth Quarter 18.25 15.17 .0100 2000 ---- First Quarter $ 18.25 $ 18.00 $ .0125 Second Quarter 18.00 17.00 .0125 Third Quarter 17.75 14.75 .0125 Fourth Quarter 16.00 14.50 .0125 6
There may have been other transactions at other prices not known to the Company. Since the Company does not have any current plans to list its common stock on any exchange or seek quotation of common stock on the National Association of Securities Dealers Automated Quotation System (NASDAQ) in the near future, an established public trading market for the common stock may not develop in the foreseeable future. Dividends The holders of shares of common stock of the Company are entitled to receive dividends when, as, and if declared by the Company's Board of Directors out of funds legally available for the purpose of paying dividends. The amount of dividends, if any, that may be declared by the Company will be dependent on many factors, including future earnings, bank regulatory capital requirements and business conditions as they affect the Bank. As a result, no assurance can be given that dividends will be paid in the future with respect to the common stock. Common Stock On August 18, 1999, the Board of Directors approved a 3 for 1 stock split, in the form of a stock dividend, of the Company's common stock for shareholders of record on September 29, 1999. On September 29, 1999, the Company's shareholders approved the 3 for 1 stock split and an amendment to the Company's Certificate of Incorporation to increase the number of authorized shares of common stock from 3,500,000 to 20,000,000. All share and per share amounts have been restated to reflect the split. The authorized capital stock of the Company consists of 20,000,000 shares of common stock, par value $.01 per share (the "Common Stock"). Holders of Common Stock are entitled to one vote per share on all matters on which the holders of Common Stock are entitled to vote. In all elections of directors, holders of Common Stock have the right to cast votes equaling the number of shares of Common Stock held by such stockholder multiplied by the number of directors to be elected. All of such votes may be cast for a single director or may be distributed among the number of directors to be elected, or any two or more directors, as such stockholder may deem fit. Holders of Common Stock have no preemptive, conversion, redemption, or sinking fund rights. In the event of a liquidation, dissolution or winding-up of the Company, holders of Common Stock are entitled to share equally and ratably in the assets of the Company, if any, remaining after the payment of all debts and liabilities of the Company. 7
ITEM 6: SELECTED FINANCIAL DATA ------------------------------- (in thousands, except per share amounts) <TABLE> <CAPTION> Fiscal Year Ended December 31, ----------------------------- STATEMENT OF INCOME DATA: 2000 1999 1998 1997 1996 ---- ---- ---- ---- ---- <S> <C> <C> <C> <C> <C> Interest income $ 56,030 $ 41,076 $ 33,505 $ 21,574 $ 13,597 Interest expense 27,596 18,160 15,705 9,955 6,066 Net interest income 28,434 22,916 17,800 11,619 7,531 Provision for loan losses 1,043 2,496 1,361 875 530 Noninterest income 3,495 3,595 2,758 638 1,266 Noninterest expenses 22,477 18,095 14,526 7,923 6,073 Income before income taxes 8,409 5,920 4,671 3,459 2,194 Income taxes 3,208 2,335 1,725 1,203 1,031 Income before cumulative effect of a change in accounting principle 5,201 3,585 2,946 2,256 1,163 Cumulative effect on prior years of a change in asset classification - 121 - - - Net income 5,201 3,706 2,946 2,256 1,163 PER SHARE DATA: Net income per share-basic $ 0.58 $ 0.41 $ 0.34 $ 0.30 $ 0.21 Net income per share-diluted 0.54 0.39 0.32 0.29 0.19 Cash dividends per share 0.050 0.040 0.033 0.030 0.027 Book value per share 5.90 5.26 4.96 4.43 3.73 Tangible book value per share 5.64 4.99 4.66 4.09 3.72 BALANCE SHEET DATA: Balance sheet totals-end of period: Assets $ 710,063 $ 615,143 $ 488,066 $ 398,839 $ 184,612 Loans 556,793 480,891 354,927 293,893 150,121 Allowance for loan losses 7,097 6,758 4,430 3,170 1,950 Deposits 632,437 542,329 433,203 356,635 188,237 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000 11,000 - - - Borrowings 11,191 12,417 9,205 3,674 300 Shareholders' equity 53,484 47,044 44,306 37,001 23,037 Average balance sheet amounts: Assets $ 662,157 $ 527,255 $ 425,701 $ 265,218 $ 168,071 Loans 517,381 429,408 328,761 203,344 128,427 Earning assets 627,882 492,288 393,128 246,122 155,109 Interest-bearing liabilities 529,187 411,706 328,195 197,759 122,203 Shareholders' equity 50,132 46,261 41,148 30,997 19,544 SELECTED RATIOS: Return on average equity 10.37% 7.88% 7.16% 7.28% 5.95% Return on average tangible equity 10.87 8.46 7.66 8.01 5.97 Return on average assets 0.79 0.70 0.69 0.85 0.69 Efficiency ratio (non-interest expense as a percentage of total revenues) 70.40 68.25 70.66 64.64 69.03 Average equity to average assets 7.57 8.77 9.67 11.69 11.63 Leverage ratio 9.41 10.62 9.76 12.88 13.67 Net yield on average earning assets 8.95 8.37 8.56 8.79 8.80 Cost of interest-bearing liabilities 5.21 4.41 4.79 5.05 4.94 Net interest margin 4.55 4.68 4.56 4.73 4.91 Nonperforming loans to total loans 0.36 0.53 0.19 0.02 0.11 Nonperforming assets to total assets 0.29 0.48 0.30 0.21 0.49 Net charge offs (recoveries) to average loans 0.14 0.04 0.03 0.01 (0.02) Allowance for loan losses to total loans 1.27 1.41 1.25 1.08 1.45 </TABLE> 8
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS --------------------------------------------- Introduction The following discussion and analysis is intended to review the significant factors of the financial condition and results of operations of the Company for the three-year period ended December 31, 2000. Reference should be made to the accompanying consolidated financial statements and the selected financial data presented elsewhere and herein for an understanding of the following review. Fiscal 2000 Compared to Fiscal 1999 - ----------------------------------- Financial Condition Total assets at December 31, 2000 were $710 million, an increase of $95 million, or 15%, over total assets of $615 million at December 31, 1999. Loans were $557 million, an increase of $76 million, or 16%, over total loans of $481 million at December 31, 1999. Federal funds sold and investment securities were $112 million, an increase of $11 million, or 11%, from total federal funds sold and investment securities of $101 million at December 31, 1999. The increase in loans and investments is attributable to the continued calling efforts of the Company's relationship officers and sustained economic growth in the local markets served by the Company. Total deposits at December 31, 2000 were $632 million, an increase of $90 million, or 17%, over total deposits of $542 million at December 31, 1999. Most of the deposit growth occurred in demand, interest bearing transaction, and money market deposits. Demand deposits grew $31 million, or 41%, during 2000. Interest bearing transaction deposits grew $13 million or 27% during 2000. Money market deposits grew $53 million, or 24%, during 2000. Growth in transaction and money market deposit accounts is attributed primarily to direct calling efforts of relationship officers and $12 million in money market accounts referred by Moneta. Certificates of deposits decreased $6 million, or 3% during 2000. The Company belongs to a national network of time depositors (primarily credit unions) who place time deposits with the Company, typically in increments of $99,000. The Company refers to such deposits as network CD's. The Bank chose to decrease the amount of network CDs by $15 million or 33% because of sufficient growth in other categories to meet loan demand. The $9 million in core certificates of deposit growth is due to an enhanced presence in the market place. Total shareholders equity at December 31, 2000 was $53 million, an increase of $6 million over total shareholders equity of $47 million at December 31, 1999. The increase in equity is primarily due to net income of $5.2 million for the twelve months ended December 31, 2000, the exercise of incentive stock options, and changes in accumulated other comprehensive income, less dividends paid to shareholders. Results of Operations Net income was $5.2 million for the year ended December 31, 2000, an increase of 40% over net income of $3.7 million for the same period in 1999. Diluted earnings per share for the years ended December 31, 2000 and 1999 were $0.54 and $0.39 respectively. Net Interest Income The largest component of the Company's net income is net interest income. Net interest income (presented on a tax equivalent basis) was $28.6 million, which yielded a net interest margin of 4.55%, for the year ended December 31, 2000, compared to net interest income of $23.1 million and net interest margin of 4.68% for the same period in 1999. The $5.5 million, or 24%, increase in net interest income was driven primarily by a 28%, or $136 million increase in average earning assets to $628 million for the year ended December 31, 2000. The increase in the earning assets, primarily loans, is attributable to the continued calling efforts of the Company's relationship officers and sustained economic growth in the local market served by the Company. Average loans increased $88 million, or 20%, to $517 million in 2000 compared to $429 million in 1999. 9
The yield on average earning assets increased to 8.95% for the year ended December 31, 2000 from 8.37% for the same period in 1999. The increase in asset yield was primarily due to a 125 basis point increase in the prime rate since July of 1999 and a general increase in average yields on loans and investment securities. Average interest earning assets increased to 94.82% of total assets in 2000 from 93.37% for the same period in 1999. The increase in net interest income was offset by a $117 million increase in average interest bearing liabilities to $529 million in 2000 from $412 million during the same period in 1999. The yield on interest-bearing liabilities increased to 5.21% in 2000 compared to 4.41% for the same period in 1999. This increase is primarily attributed to the aforementioned increases in the prime rate and the addition of $11 million in guaranteed preferred beneficial interest in EBH-subordinated debentures. The increase in the interest paid on interest-bearing liabilities was also attributed to a change in the mix of liabilities from lower cost liabilities, such as interest-bearing transaction and savings accounts, to higher cost liabilities, such as money market accounts, certificates of deposits, and guaranteed preferred beneficial interests in EBH-subordinated debentures. Total average interest-bearing liabilities increased to 79.92% of total average assets for the year ended December 31, 2000 from 78.08% for the same period in 1999. The table on page 12 sets forth, on a tax-equivalent basis, certain information relating to the Company's average balance sheet and reflects the average yield earned on interest-earning assets, the average cost of interest-bearing liabilities and the resulting net interest income for each of the three years ended December 31, 2000, 1999, and 1998. Fiscal 1999 Compared to Fiscal 1998 - ----------------------------------- Financial Condition Total assets at December 31, 1999 were $615 million, an increase of $128 million, or 26%, over total assets of $488 million at December 31, 1998. Loans were $481 million, an increase of $126 million, or 35%, over total loans of $355 million at December 31, 1998. Federal funds sold and investment securities were $101 million, an increase of $20 million, or 24%, from total federal funds sold and investment securities of $81 million at December 31, 1998. Total deposits at December 31, 1999 were $542 million, an increase of $109 million, or 25%, over total deposits of $433 million at December 31, 1998. Most of the deposit growth occurred in money market deposits and certificates of deposit. Money market deposits grew $50 million, or 30%, during 1999. Certificates of deposit grew $48 million or 34% during 1999. Growth in transaction and money market deposit accounts is attributed primarily to direct calling efforts by relationship officers. Growth in certificates of deposit is also due to an enhanced presence in the marketplace and an increase of $16 million, or 55%, in network CDs. The Company belongs to a national network of time depositors (primarily credit unions) who place time deposits with the Company, typically in increments of $99,000. The Company refers to such deposits as network CDs. Total shareholders' equity at December 31, 1999 was $47 million, an increase of $3 million over total shareholders' equity of $44 million at December 31, 1998. The increase in equity is due net income of $3.7 million for the twelve months ended December 31, 1999, and the exercise of incentive stock options by employees, less dividends paid to shareholders, treasury stock purchases, and other comprehensive losses. Results of Operations Net income was $3.7 million for the year ended December 31, 1999, an increase of 26% over net income of $2.9 million for the same period in 1998. Diluted earnings per share for the years ended December 31, 1999 and 1998 were $0.39 and $0.32, respectively. The Company's net income increased primarily due to growth in interest earning assets and an increase in noninterest income offset by an increase in interest bearing liabilities and noninterest expenses. 10
Net Interest Income Net interest income (presented on a tax equivalent basis) was $23.1 million, which yielded a net interest margin of 4.68%, for the year ended December 31, 1999, compared to net interest income and net interest margin of $17.9 million and 4.56%, for the same period in 1998. The $5.1 million, or 29%, increase in net interest income was driven by a 25%, or $99 million, increase in average earning assets, a change in the mix of earning assets and a decrease in the yield on interest bearing liabilities. Average earning assets increased to $492 million for the year ended December 31, 1999. The mix of earning assets shifted from lower earning investment securities and federal funds sold to higher yielding loans. The increase in the earning assets and shift in mix is attributable to the continued calling efforts of the Company's relationship officers resulting in loan growth of $101 million, or 31%, in average loan balances during 1999 as compared to 1998 and sustained economic growth in the local market served by the Company. Some of the increase was offset by a lower average earning asset yield and growth in interest bearing deposits. Average loans as a percent of average total assets increased to 81.44% in 1999 from 77.23% in 1998. For the same periods, the yield on average loans was 8.81% and 9.11%, respectively. The decrease in loan yield in 1999 compared to 1998 partially offset the margin benefits obtained by increasing the loan to asset ratio during the same period. The yield on average earning assets decreased to 8.37% for the year ended December 31, 1999 from 8.56% for the same period in 1998. The decrease in asset yield was primarily due to a general decrease in average yield on loans, investment securities and federal funds sold. The yield on interest bearing liabilities decreased to 4.41% for the year ended December 31, 1999 from 4.79% for the same period in 1998. The yield on all categories of deposits decreased in 1999 as compared to 1998. This drop is due to a concerted effort by the Asset/Liability Committee to decrease the interest paid on deposits. This general drop in yields was partially offset by deposits shifting to higher yielding money market accounts. 11
<TABLE> <CAPTION> Year ended December 31, -------------------------------------------------------------------------------------------- 2000 1999 -------------------------------------------------------------------------------------------- Percent Interest Average Percent Interest Average Average of Total Income/ Yield/ Average of Total Income/ Yield/ Balance Assets Expense Rate Balance Assets Expense Rate -------- -------- ------- -------- -------- ------- -------- -------- <S> <C> <C> <C> <C> <C> <C> <C> <C> Interest-earning assets: Loans (1) $517,381 78.14% $49,231 9.52% $429,408 81.44% $37,820 8.81% Taxable investments in debt and equity securities 55,005 8.31 3,473 6.31 36,955 7.01 2,094 5.67 Nontaxable investments in debt securities (2) 700 0.11 54 7.75 935 0.18 70 7.49 Federal funds sold 54,773 8.27 3,410 6.23 24,957 4.73 1,231 4.93 Interest earning deposits 23 0.00 1 5.12 33 0.01 2 6.06 -------- ------- ------ -------- ------- ------- Total interest-earning assets 627,882 94.83 56,169 8.95 492,288 93.37 41,217 8.37 Noninterest-earning assets; 21,419 4.06 Cash and due from banks 19,878 3.00 7,813 1.48 Fixed assets, net 8,309 1.25 Investment in Enterprise Merchant Banc, LLC 1,088 0.16 175 0.03 Prepaid expenses and other assets 11,703 1.77 10,393 1.97 Allowance for loan losses (6,703) (1.01) (4,833) (0.91) -------- ------- -------- ------- Total assets $662,157 100.00% $527,255 100.00% ======== ======= ======== ======= Liabilities and Shareholders' Equity: Interest-bearing liabilities: Interest-bearing transaction accounts 8,781 7.37% $ 823 1.69% $ 44,477 8.43% 814 1.83% Money market 7,200 38.84 13,366 5.20 197,931 37.53 8,528 4.31 Savings 7,178 1.08 185 2.58 6,935 1.32 179 2.58 Certificates of deposit $ 4,593 29.39 11,624 5.97 148,790 28.22 7,821 5.26 Borrowed funds 0,435 1.58 545 5.22 11,595 2.20 632 5.45 Guaranteed preferred beneficial interests in EBH-Subordinated Debentures 11,000 1.66 1,053 9.58 1,978 0.38 186 9.40 -------- ------- ------ -------- ------- ------- Total interest-bearing liabilities 529,187 79.92 27,596 5.21 411,706 78.08 18,160 4.41 Noninterest-bearing liabilities: Demand deposits 79,364 11.99 66,044 12.53 Other liabilities 3,474 0.52 3,244 0.62 -------- ------- -------- ------- Total liabilities 612,025 92.43 480,994 91.23 Shareholders' equity 50,132 7.57 46,261 8.77 -------- ------- -------- ------- Total liabilities and shareholder's equity $662,157 100.00% $527,255 100.00% ======== ======= ======== ======= Net interest income $28,573 $23,057 ======= ======= Net interest margin 4.55% 4.68% ====== ==== <CAPTION> Year ended December 31, ----------------------------------------------------------- 1998 ----------------------------------------------------------- Percent Interest Average Average of Total Income/ Yield Balance Assets Expense Rate ------- ------- ------- ----------- <S> <C> <C> <C> <C> Interest-earning assets: Loans (1) $ 328,761 77.23% $29,953 9.11% Taxable investments in debt and equity securities 31,568 7.42 1,890 5.99 Nontaxable investments in debt securities (2) 1,805 0.42 158 8.75 Federal funds sold 30,186 7.09 1,600 5.30 Interest earning deposits 808 0.19 41 5.07 --------- ------- ------- ------- Total interest-earning assets 393,1289 92.35 33,642 8.56 Noninterest-earning assets; Cash and due from banks 19,703 4.63 Fixed assets, net 7,497 1.76 Investment in Enterprise Merchant Banc, LLC - - Prepaid expenses and other assets 9,081 2.13 Allowance for loan losses (3,708) (0.87) -------- --------- Total assets $425,701 100.00% ======== ====== Liabilities and Shareholders' Equity: Interest-bearing liabilities: Interest-bearing transaction accounts $ 38,746 9.10% $ 900 2.32% Money market 131,899 30.98 5,991 4.54 Savings 6,863 1.61 187 2.72 Certificates of deposit 145,827 34.26 8,306 5.70 Borrowed funds 4,860 1.14 321 6.60 Guaranteed preferred beneficial interests in EBH-Subordinated Debentures - - - - -------- ------- ----- Total interest-bearing liabilities 328,195 77.09 15,705 4.79 Noninterest-bearing liabilities: Demand deposits 54,781 12.87 Other liabilities 1,577 0.37 ------ ------ Total liabilities 384,553 90.33 Shareholders' equity 41,148 9.67 ------ ------- Total liabilities and shareholder's equity $425,701 100.00% ======= ======= Net interest income $ 17,937 ====== Net interest margin 4.56% ==== </TABLE> _________________ (1) Average balances include non-accrual loans. The income on such loans is included in interest but is recognized only upon receipt. Loan fees included in interest income are approximately $1,062,000, $1,128,000 and $739,000 for 2000, 1999 and 1998, respectively. (2) Nontaxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. 12
During 2000, an increase in the average volume of earning assets resulted in an increase in interest income of $11,082,000. Interest income increased $3,870,000 due to an increase in rates on earning assets. Increases in average volume of interest-bearing demand deposits, savings and money market accounts, time deposits and notes payable resulted in an increase in interest expense of $6,390,000. Changes in interest rates on the average volume of interest-bearing liabilities resulted in an increase in interest expense of $3,046,000. The net effect of the volume and rate changes associated with all categories of interest-earning assets during 2000 as compared to 1999 increased interest income by $14,952,000, while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities increased interest expense by $9,436,000. During 1999, an increase in the average volume of earning assets resulted in an increase in interest income of $8,816,000, partially offset by a decrease of $1,241,000 due to a decrease in rates on earning assets. Increases in the average volume of interest-bearing demand deposits, savings and money market accounts, and notes payable and other borrowing resulted in an increase in interest expense of $3,613,000. Changes in interest rates on the average volume of interest-bearing liabilities resulted in a decrease in interest expense of $1,158,000. The increase in the volume of both earning assets and interest bearing liabilities are due to the previously mentioned 26% growth the Company experienced during 1999. The decrease in the average rate of earning assets was a result of interest rate pressures and competition in the Company's market. The decrease in the average rate of interest bearing liabilities was the result of a concerted effort by the Asset/Liability Committee ("ALCO") to decrease the interest paid on deposits. The net effect of the volume and rate changes associated with all categories of interest-earning assets during 1999 as compared to 1998 increased interest income by $7,575,000 while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities increased interest expense by $2,455,000. The following table sets forth, on a tax-equivalent basis for the periods indicated, a summary of the changes in interest income and interest expense resulting from changes in yield/rates and volume: <TABLE> <CAPTION> 2000 Compared to 1999 1999 Compared to 1998 Increase (Decrease) Due to Increase (Decrease) Due to ------------------------------------ --------------------------------- Volume(1) Rate(2) Net Volume(1) (Rate(2) Net --------- ------- -------- --------- -------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> Interest earned on: Loans $ 8,189 $ 3,222 $ 11,411 $ 8,884 $ (1,017) $ 7,867 Taxable investments in debt and equity securities 1,120 259 1,379 309 (105) 204 Nontaxable investments in debt and equity securities (3) (11) (5) (16) (68) (20) (88) Federal funds sold 1,785 394 2,179 (263) (106) (369) Certificates of deposit (1) (0) (1) (46) 7 (39) ------ ----- ------- ------- -------- ------- Total interest-earning assets $ 11,082 $ 3,870 $ 14,952 $ 8,816 $ (1,241) $ 7,575 ------ ----- ------- ------- -------- ------- Interest paid on: Interest-bearing demand deposits $ 75 $ (66) $ 9 $ 121 $ (207) $ (86) Money market rate deposits 2,863 1,975 4,838 2,855 (318) 2,537 Savings deposits 6 - 6 2 (10) (8) Time deposits 2,644 1,159 3,803 166 (651) (485) Borrowed funds (61) (26) (87) 376 (65) 311 Guaranteed preferred beneficial interests in EBH-subordinated debentures 863 4 867 93 93 186 ------ ----- ------- ------- -------- ------- Total $ 6,390 $ 3,046 $ 9,436 $ 3,613 $ (1,158) $ 2,455 ------ ----- ------- ------- -------- ------- Net interest income (loss) $ 4,692 $ 824 $ 5,516 $ 5,203 $ (83) $ 5,120 ====== ===== ======= ======= ======== ======= </TABLE> (1) Change in volume multiplied by yield/rate of prior period. (2) Change in yield/rate multiplied by volume of prior period. (3) Nontaxable investments in debt securities are presented on a fully tax- equivalent basis assuming a tax rate of 34%. NOTE: The change in interest due to both rate and volume has been allocated to rate and volume changes in proportion to the relationship of the absolute dollar amounts of the change in each. 13
Loan Portfolio Loans, as a group, are the largest asset and the primary source of interest income for the Company. Diversification among different categories of loans reduces the risks associated with any single type of loan. The following table sets forth the composition of the Company's loan portfolio by type of loans at the dates indicated: <TABLE> <CAPTION> December 31, ----------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ----------------- ----------------- ----------------- ----------------- ----------------- Percent Percent Percent Percent Percent of Total of Total of Total of Total of Total Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans ------ ----- ------ ----- ------ ----- ------ ----- ------ ----- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Commercial and industrial $153,357 27.54% $137,815 28.66% $116,467 32.81% $ 95,499 32.50% $ 50,817 33.85% Real estate: Commercial 134,133 24.09 103,471 21.51 46,351 13.06 47,744 16.25 27,445 18.28 Construction 128,779 23.13 119,251 24.80 78,112 22.01 50,793 17.28 24,089 16.05 Residential 114,212 20.51 95,916 19.95 90,762 25.57 85,493 29.09 42,673 28.42 Consumer and other 26,312 4.73 24,438 5.08 23,235 6.55 14,354 4.88 5,097 3.40 -------- ------ -------- ------ -------- ------ -------- ------ -------- ------ Total loans $556,793 100.00% $480,891 100.00% $354,927 100.00% $293,883 100.00% $150,121 100.00% ======== ====== ======== ====== ======== ====== ======== ====== ======== ====== </TABLE> The Company's subsidiary banks grant commercial, residential, consumer, and agricultural loans. In the St. Louis metropolitan and Overland Park, Kansas areas, the banks grant commercial, residential and consumer loans primarily to small to medium sized businesses and their owners. In the Southeast Kansas market, loans are made to a wider range of businesses and consumers, including farmers. Overall, the Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector. However, a substantial portion of the portfolio is secured by real estate. As of December 31, 2000, $377 million in loans, or 68% of the loan portfolio, involved real estate as part or all of the collateral package, as compared to $319 million, or 66%, and $215 million, or 61%, in 1999 and 1998, respectively. As of December 31, 2000, $164 million or 43%, of the real estate secured loans for 2000, were personal and business loans and loans on owner-occupied properties as compared to $151 million, or 47%, and $98.9 million, or 46%, for 1999 and 1998, respectively. Management views these types of loans as having less risk than traditional real estate loans because the primary source of repayment for these loans is not dependent upon the cash flow or sale of the real estate securing the loans. When evaluating the appropriateness of the allowance for loan losses, these loans are evaluated based on commercial considerations such as the financial condition, cash flow and income of the borrower as well as the value of all collateral securing the loans, including the market value of any real estate securing the loan. 14
The following table sets forth the interest rate sensitivity of the loan portfolio at December 31, 2000: <TABLE> <CAPTION> Loans Maturing or Repricing ---------------------------------------------- After One In One Through After Year or Less Five Years Five Years Total ------------ ---------- ---------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> Fixed Rate Loans/(1)/ - ---------------- Commercial and industrial $ 19,973 $ 33,375 $1,718 $ 55,066 Real estate: Commercial 9,902 59,844 4,532 74,278 Construction 7,672 16,265 1,373 25,310 Residential 12,557 28,081 1,299 41,937 Consumer and other 5,378 7,525 238 13,141 -------- -------- ------ -------- Total $ 55,482 $145,090 $9,160 $209,732 ======== ======== ====== ======== Variable Rate Loans/(1)/ - ------------------- Commercial and industrial $ 98,291 $ - $ - $ 98,291 Real estate: Commercial 59,855 - - 59,855 Construction 103,469 - - 103,469 Residential 72,275 - - 72,275 Consumer and other 13,171 - - 13,171 -------- -------- ------ -------- Total $347,061 $ - $ - $347,061 ======== ======== ====== ======== Total Loans/(1)/ - ----------- Commercial and industrial $118,264 $ 33,375 $1,718 $153,357 Real estate: Commercial 69,757 59,844 4,532 134,133 Construction 111,141 16,265 1,373 128,779 Residential 84,832 28,081 1,299 114,212 Consumer and other 18,549 7,525 238 26,312 -------- -------- ------ -------- Total $402,543 $145,090 $9,160 $556,793 ======== ======== ====== ======== </TABLE> (1) Loan balances are shown net of unearned loan fees and loans held for sale. Provision for Loan Losses The provision for loan losses was $1,042,534, $2,496,256, and $1,360,899 in 2000, 1999, and 1998 respectively. The provision for loan loss decreased from 1999 to 2000 due to a large provision expense being recognized in 1999 related to the classification of a large commercial credit. In December 1999, the Company made an additional $1 million provision for loan losses for two specific loans. During 2000, the decrease in provision reflects loan growth of $76 million during 2000 versus loan growth of $126 million during the same period in 1999. During 1999, the increase in provision reflects an increase in loan growth and in net loan charge offs compared to the year ended December 31, 1998. The Company experienced loan growth of $126 million during 1999 versus loan growth of $61 million during the same period in 1998. The Company had net loan charge offs of $167,579 during 1999 as compared to net loan charge offs of $101,669 during 1998. In September 2000, the Kansas bank charged off one commercial loan in the amount of $495,000 which accounted for a substantial portion of the charged off loans during the year. The Company has charged off a total of $1,359,000 in loans from January 1, 1996 through December 31, 2000. Total recoveries for the same period are $376,000, resulting in a five-year net charge-off experience of $983,000, or 0.04% per year of average loans for the same period. 15
The following table summarizes changes in the allowance for loan losses arising from loans charged-off and recoveries on loans previously charged-off, by loan category, and additions to the allowance charged to expense: <TABLE> <CAPTION> December 31, -------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Allowance at beginning of period $ 6,758 $ 4,430 $ 3,170 $ 1,950 $ 1,400 -------- -------- -------- -------- -------- Loans charged off: Commercial and industrial 682 109 48 90 - Real estate: Commercial 48 2 39 45 - Construction - - - - - Residential 32 - - 27 - Consumer and other 26 135 76 - - -------- -------- -------- -------- -------- Total loans charged off 788 246 163 162 - -------- -------- -------- -------- -------- Recoveries of loans previously charged off: Commercial and industrial 63 33 36 44 - Real estate: Commercial - 21 10 50 4 Construction - - - - - Residential 13 - - 38 15 Consumer and other 8 24 16 - 1 -------- -------- -------- -------- -------- Total recoveries of loans previously charged off 84 78 62 132 20 -------- -------- -------- -------- -------- Net loans charged off (recovered] 704 168 101 30 (20) -------- -------- -------- -------- -------- Provisions charged to operations 1,043 2,496 1,361 875 530 -------- -------- -------- -------- -------- Allowance of acquired entity - - - 375 - Allowance at end of period $ 7,097 $ 6,758 $ 4,430 $ 3,170 $ 1,950 ======== ======== ======== ======== ======== Average loans $517,381 $429,408 $328,761 $203,344 $120,849 Total loans 556,793 480,892 354,927 293,883 134,133 Nonperforming loans 2,005 2,559 666 50 161 Net charge off (recoveries) to average loans 0.14% 0.04% 0.03% 0.01% (0.02)% Allowance for loan losses to loans 1.27 1.41 1.25 1.08 1.45 </TABLE> The Company's credit management policy and procedures focus on identifying, measuring and controlling credit exposure. These procedures employ a lender- initiated system of rating credits, which is ratified in the loan approval process and subsequently tested in internal loan reviews, external audits and regulatory bank examinations. Basically, the system requires rating all loans at the time they are made. Adversely rated credits, including loans requiring close monitoring which would not normally be considered criticized credits by regulators, are included on a monthly loan watch list. Loans may be added to the watch list for reasons which are temporary and correctable, such as the absence of current financial statements of the borrower or a deficiency in loan documentation. Other loans are added whenever any adverse circumstance is detected which might affect the borrower's ability to meet the terms of the loan. This could be initiated by the delinquency of a scheduled loan payment, a deterioration in the borrower's financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment within which the borrower operates. Loans on the watch list require detailed loan status reports prepared by the responsible officer every four months, which are then discussed in formal meetings with the loan 16
review and loan administration staffs. Downgrades of loan risk ratings may be initiated by the responsible loan officer at any time. However, upgrades of risk ratings may only be made with the concurrence of the loan review and credit administration staffs generally at the time of the formal watch list review meetings. Each month, loan administration provides management and the Bank Boards of Directors with detailed lists of loans on the watch list and summaries of the entire loan portfolio by risk rating. These are coupled with analyses of changes in the risk profiles of the portfolios, changes in past due and nonperforming loans and changes in watch list and classified loans over time. In this manner, the overall increases or decreases in the levels of risk in the portfolios are monitored continually. Factors are applied to the loan portfolios for each category of loan risk to determine acceptable levels of allowance for loan losses. These factors are derived primarily from the actual loss experience and from published national surveys of norms in the industry. The calculated allowances required for the portfolios are then compared to the actual allowance balances to determine the provisions necessary to maintain the allowances at appropriate levels. In addition, management exercises judgment in its analysis of determining the overall level of the allowance for loan losses. In its analysis, management considers the change in the portfolio, including growth and composition, and the economic conditions of the region in which the Company operates. Based on this quantitative and qualitative analysis, the allowance for loan losses is adjusted. Such adjustments are reflected in the consolidated statements of income. The Company does not engage in foreign lending. Additionally, the Company does not have any concentrations of loans exceeding 10% of total loan, which are not otherwise disclosed in the loan portfolio composition table. The Company does not have a material amount of interest-bearing assets which would have been included in nonaccrual, past due or restructured loans if such assets were loans. Management believes the allowance for loan losses is adequate to absorb probable losses in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to increase the allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examinations. While the Company has benefited from very low historical net charge offs during an extended period of rapid loan growth, management remains cognizant that historical loan loss and non-performing asset experience may not be indicative of future results. If the experience were to deteriorate and additional provisions for loan losses were required, future operating results would be negatively impacted. Both management and the Board of Directors continually monitor changes in asset quality, market conditions, concentration of credit and other factors, all of which impact the credit risk associated with the Company's loan portfolio. As of December 31, 2000, 1999, and 1998, the Company had 49, 41, and 46 impaired loans in the aggregate amounts of $9,091,231, $3,328,825, and $1,750,465, respectively, all of which are considered potential problem loans. The increase in impaired loans of $5.8 million from December 31, 1999 to December 31, 2000 is primarily due to the classification of two large credit relationships with an outstanding balance of $2.9 million at December 31, 2000 in addition to the classification of certain other smaller commercial credits. Management believes that the specific reserves on these credits is adequate at December 31, 2000. The Company had foreclosed property in the amount of $76,680, $438,072, and $806,072, as of December 31, 2000, 1999, and 1998, respectively, which are considered nonperforming. Nonperforming assets decreased from $2,955,000 at December 31, 1999 to $2,082,000 at December 31, 2000. Non-performing assets increased from $1,472,000 at December 31, 1998 to $2,955,000 at December 31, 1999. 17
The following table sets forth information concerning the Company's nonperforming assets as of the dates indicated: <TABLE> <CAPTION> As of December 31, --------------------------------------------------------------------- 2000 1999 1998 1997 1996 -------- -------- -------- -------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Nonaccrual loans $ 1,798 $ 2,485 $ 581 $ 50 $ 131 Loans past due 90 days or more and still accruing interest 207 74 85 - 30 Restructured loans - - - - - -------- -------- -------- -------- -------- Total nonperforming loans 2,005 2,559 666 50 161 Foreclosed property 77 396 806 806 874 -------- -------- -------- -------- -------- Total nonperforming assets $ 2,082 $ 2,955 $ 1,472 $ 856 $ 1,035 ======== ======== ======== ======== ======== Total assets $710,063 $615,143 $488,065 $398,839 $212,237 Total loans, net of unearned loan fees 556,793 480,891 354,927 293,883 149,936 Total loans plus foreclosed property 556,870 481,287 355,733 294,689 150,810 Nonperforming loans to total loans 0.36% 0.53% 0.19% 0.02% 0.11% Nonperforming assets to total loans plus foreclosed property 0.37 0.61 0.41 0.29 0.69 Nonperforming assets to total assets 0.29 0.48 0.30 0.21 0.49 </TABLE> The Company's policy is to discontinue the accrual of interest on loans when principal or interest is due and has remained unpaid for 90 days or more, unless the Company is in the process of collecting the principal and interest due, and is fairly certain to collect all interest. The following table sets forth the allocation of the allowance for loan losses by loan category as an indication of the estimated risk of loss for each loan type. The unallocated portion of the allowance is intended to cover loss exposure related to potential problem loans for which no specific allowance has been estimated and for other losses in the loan portfolio deemed probable. <TABLE> <CAPTION> As of December 31, -------------------------------------------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------------ ------------------ ------------------ ------------------ ------------------ Percent Percent Percent Percent Percent of of of of of Category Category Category Category Category Total Total Total Total Total Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans --------- ----- --------- ----- --------- ----- --------- ----- --------- ----- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> Commercial and industrial $ 3,046 27.54% $ 2,801 28.66% $ 1,625 32.81% $ 903 32.50% $ 467 33.85% Real estate: Commercial 1,589 24.09 1,437 21.51 577 13.06 399 16.25 277 18.28 Construction 833 23.13 972 24.80 688 22.01 489 17.28 456 16.05 Residential 1,026 20.51 959 19.95 896 25.57 777 29.09 421 28.42 Consumer and other 312 4.73 364 5.08 235 6.55 170 4.88 62 3.40 Not allocated 291 - 225 409 - 432 - 267 - ------- ------ ------- ------ ------- ------ ------- ------ ------- ------ Total $ 7,097 100.00% $ 6,758 100.00% $ 4,430 100.00% $ 3,170 100.00% $ 1,950 100.00% ======= ====== ======= ====== ======= ====== ======= ====== ======= ====== </TABLE> The above allocation by loan category does not mean that actual loan charge offs will be incurred in the categories indicated. The risk factors considered in determining the above allocation are the same as those used when determining the overall level of the allowance. 18
Noninterest Income The following table depicts the annual changes in various noninterest income categories: <TABLE> <CAPTION> December 31, December 31, ------------ ------------ 2000 versus 1999 1999 versus 1998 ----------------------------------- -------------------------------------- $ Change 2000 1999 $ Change 1999 1998 ---------- ---------- ---------- ---------- ---------- ---------- <S> <C> <C> <C> <C> <C> <C> Realized gain on trading assets (201,954) 500 202,454 202,454 202,454 - Gain on sale of other real estate 84,880 214,930 130,050 130,050 130,050 - Gain on sale of mortgage loans (305,408) 503,702 809,110 (433,759) 809,110 1,242,869 Trust and financial advisory income 257,019 851,829 594,810 594,810 594,810 - Income from minority interest in EMB, LLC 61,793 64,727 2,934 2,934 2,934 Gain (loss) on investment in Enterprise Fund, L.P. 37,717 29,954 (7,763) (5,564) (7,763) (2,199) Service charges on deposit accounts 10,962 1,196,326 1,185,364 478,898 1,185,364 706,466 Other service charges and fee income (45,993) 632,563 678,556 (132,054) 698,556 810,610 ---------- ---------- ---------- ---------- ---------- ---------- Total noninterest income $ (100,984) $3,494,531 $3,595,515 $ 837,769 $3,595,515 $2,757,746 ========== ========== ========== ========== ========== ========== </TABLE> Total noninterest income was $3,494,531 in 2000, representing a $100,984 decrease from 1999. Total noninterest income was $3,595,515 in 1999, representing a $837,769 increase from 1998. The key to these differences is in understanding the trends associated with each income category. In connection with the adoption of SFAS 133, the Company elected to reclassify an equity investment from held-to-maturity to trading. The Company recorded a $197,546 gain on marking the asset to market during the second quarter of 1999, which is treated as a cumulative effect of a change in accounting principle. In the fourth quarter of 1999 the Company obtained a purchase agreement for the equity investment which resulted in a $202,454 gain. This gain was recognized as noninterest income. The asset was sold on February 2, 2000. Management considers this to be nonrecurring income. The gain on sale of other real estate of $214,930 in 2000 and $130,050 in 1999 was a result of the sale of two separate parcels of foreclosed properties the Company has owned since 1992. Management considers this to be nonrecurring income. The decreases in the gains on sale of mortgage loans was due to an increase in interest rates during 1999 and 2000. Over half of the gains on sale of mortgage loans in 1998 were due to refinancing, while the refinancing of mortgage loans account for less than 25% of the mortgage gains in 2000. The demand for refinanced mortgage loans dramatically decreased with the rise in interest rates. The Company began offering trust and financial advisory services in October 1998. The $594,810 in fees during 1999 was the result of several life insurance and financial planning transaction fees. The $257,019 increase in fees to $851,829 during 2000 as compared to $594,810 during 1999 was the result of increased assets under management in the trust company and portfolio management for the financial planners. Income from minority investment in EMB LLC was $64,727, $2,934, and $0 during 2000, 1999, and 1998, respectively. The gain (loss) from the investment in Enterprise Fund, L.P. was $29,954, ($7,763), and ($2,199), during 2000, 1999, and 1998, respectively. The increase in the income from investment in EMB LLC and the investment in Enterprise Fund L.P. over the three year period was the result of the aforementioned Merchant Banc restructuring in 1999 and a $175,000 merchant banking fee the Company recognized in September of 2000. The increase of $478,898 in service charges on deposit accounts during 1999 was due to a concerted effort by the Company's management to alter service charges and other fees to stay competitive in the market place. As a result of the rising interest rate environment in 2000, the service charges did not 19
increase in line with deposit growth. Higher interest rates resulted in higher earnings credit on deposit accounts which offset service charges. This is especially true on business accounts. Noninterest Expense Total noninterest expense was $22,476,544 in 2000 representing a $4,381,587 or 24% increase from 1999. Increases in salaries, payroll taxes and employee benefits, occupancy expense, and data processing expenses are primarily due to: 1) increased activity and growth in trust and financial advisory operations started during 1998, 2) the investment in several additional new business development officers in the St. Louis region and additional management in the Kansas region, and 3) normal increases associated with growth. The Company recently implemented an Internet banking business and check imaging system to enhance customer service. Both programs increased noninterest expense during 2000. In addition, the Company expanded its computer and data processing infrastructure for the additional Kansas locations and communication between the regions, which also increased expenses. During 2000, the Company expensed approximately $496,386 in legal, accounting, travel, and other costs related to the merger. The remaining increase is attributed to normal operating expenses associated with growth. Other noninterest expenses were $5,173,672 for 2000, an increase of $665,038, or 15% over 1999. The following table depicts changes in noninterest expenses in the above mentioned operations: <TABLE> <CAPTION> December 31, 2000 versus 1999 December 31, 1999 versus 1998 ----------------------------------------- ----------------------------------------- $ Change 2000 1999 $ Change 1999 1998 ----------- ----------- ----------- ----------- ----------- ----------- <S> <C> <C> <C> <C> <C> <C> Salaries, payroll taxes and employee $ 2,647,554 $13,251,757 $10,604,203 $ 2,174,819 $10,604,203 $ 8,429,384 benefits Occupancy 245,953 1,557,082 1,311,129 71,168 1,311,129 1,239,961 Furniture, equipment and data processing 326,655 1,807,080 1,480,425 382,889 1,480,425 1,097,536 Amortization of goodwill 1 190,567 190,566 (1) 190,566 190,567 Merger expenses 496,386 496,386 - - - - Other 665,038 5,173,672 4,508,634 940,668 4,508,634 3,567,966 ----------- ----------- ----------- ----------- ----------- ----------- Total Noninterest Expense $ 4,381,587 $22,476,544 $18,094,957 $ 3,569,543 $18,094,957 $14,525,414 =========== =========== =========== =========== =========== =========== </TABLE> Total noninterest expense was $18,094,957 in 1999 representing a $3,569,543 or 25% increase from 1998. The increase in noninterest expense was primarily attributable to: 1) the new trust and financial advisory services started in 1998, 2) growth in the new banking facilities opened during 1997 in St. Peters and Sunset Hills; and 3) expenses related to growth in the Company. During 1999, the Company's trust and financial advisory division increased its staff and other expenses to support the Company's growth in this business segment. The Company added 35 employees to support its growth and establish its market presence. The increases were primarily due to increases in salaries and benefits expense, occupancy expense and other operating expenses related to the above mentioned operations and staff additions. Income Taxes Income tax expense was $3,208,450, $2,335,408, and $1,725,403 for 2000, 1999, and 1998, respectively. The effective tax rate was 38%, 39% and 37% for the years ended December 31, 2000, 1999, and 1998, respectively. 20
Liquidity and Interest Rate Sensitivity Liquidity is provided by the Company's earning assets, including short-term investments in federal funds sold, maturities in the loan portfolio, maturities in the investment portfolio, amortization of term loans, and by the Company's deposit inflows, proceeds from borrowings, and retained earnings. The following table reflects the Company's GAP analysis (rate sensitive assets minus rate sensitive liabilities) as of December 31, 2000: <TABLE> <CAPTION> Over Over After 3 Months 1 Year 5 Years 3 Months Through 12 Through or No Stated or Less Months 5 Years Maturity Total -------- ----------- -------- --------- -------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> Assets: Investments in debt and equity securities $ 8,777 $ 22,944 $ 16,672 $ 4,960 $ 53,353 Interest-bearing deposits 9 - - - 9 Loans, net of unearned loan fees 359,040 44,448 145,090 9,160 557,738 Federal funds sold 58,303 - - - 58,303 -------- -------- -------- -------- -------- Total interest-sensitive assets $426,129 $ 67,392 $161,762 $ 14,120 $669,403 -------- -------- -------- -------- -------- Liabilities: Interest-bearing transaction accounts $ 61,314 - - - 61,314 Money market and savings accounts 278,387 - - - 278,387 Certificates of deposit 40,820 116,933 29,324 9 187,086 Guaranteed preferred beneficial interests in EBH-subordinated debentures - - - 11,000 11,000 Federal Home Loan Bank Advances and funds purchased 1,225 5,014 4,074 878 11,191 -------- -------- -------- -------- -------- Total interest-sensitive liabilities $381,746 $121,947 $ 33,398 $ 11,887 $548,978 -------- ======== ======== ======== ======== Interest-sensitivity GAP GAP by period $ 46,383 $(54,555) $128,364 $ 2,233 $120,425 ======== ======== ======== ======== ======== Cumulative GAP $ 46,383 $(10,172) $118,192 $120,425 $120,425 ======== ======== ======== ======== ======== Ratio of interest-sensitive assets to interest-sensitive liabilities: Periodic 1.12 0.55 4.84 1.19 1.22 Cumulative GAP 1.12 0.98 1.22 1.22 1.22 ======== ======== ======== ======== ======== </TABLE> The Company made certain assumptions in preparing the table above. These assumptions included: loans will repay at historic repayment speeds; interest- bearing demand accounts and savings accounts are interest sensitive due to immediate repricing of remaining balance for each period presented; and fixed maturity deposits will not be withdrawn prior to maturity. A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the table. As indicated in the preceding table, the Company was asset sensitive on a cumulative basis for all periods except the 3 to 12 month period at December 31, 2000 based on contractual maturities. In this regard, a decrease in the general level of interest rates would generally have a negative effect on the Company's net interest income as the repricing of the larger volume of interest sensitive assets would create a larger reduction in interest income as compared to the reduction in interest expense created by the repricing of 21
the smaller volume of interest sensitive liabilities. Likewise, an increase in the general level of interest rates would have a positive effect on net interest margin. As a policy, the Company focuses more attention to the cumulative GAP ratios than any specific periods ratios since the cumulative GAP takes into account the repricing nature of the assets and liabilities for a specific period plus all previous periods which would have been affected by interest rate movements. ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Market Risk The Company's exposure to market risk is reviewed on a regular basis by the ALCO. Interest rate risk is the potential of economic losses due to future interest rate changes. These economic losses can be reflected as a loss of future net interest income and/or a loss of current fair market values. The objective is to measure the effect on net interest income and to adjust the balance sheet to minimize the inherent risk while at the same time maximizing income. Management realizes certain risks are inherent and that the goal is to identify and minimize those risks. Tools used by management include the standard GAP report subject to different rate shock scenarios. At December 31, 2000, the rate shock scenario models indicated that annual net interest income would change by less than 5% should rates rise or fall within 200 basis points from their current level over a one year period. 22
The following tables present the scheduled maturity of market risk sensitive instruments at December 31, 2000: <TABLE> <CAPTION> Beyond 5 Years or No Stated Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total ------ ------ ------ ------ ------ -------- ----- <S> <C> <C> <C> <C> <C> <C> <C> Assets: Investment in debt and equity securities $ 31,721 $ 12,285 $ 2,168 $ 965 $1,254 $ 4,960 $ 53,353 Interest-bearing deposits 9 - - - - - 9 Federal funds sold 58,303 - - - - - 58,303 Loans, net of unearned loan fees 403,488 50,554 58,137 30,734 5,665 9,160 557,738 -------- -------- -------- --------- ------ ------- -------- Total $493,521 $ 62,839 $ 60,305 $ 31,699 $6,919 $14,120 $669,403 ======== ======== ======== ========= ====== ======= ======== Liabilities: Savings, Now, money market deposits $339,701 $ - $ - $ - $ - $ - $339,701 Certificates of deposit 157,753 22,197 5,032 1,880 215 9 187,086 Guaranteed preferred beneficial interests in EBH-subordinated debentures - - - - - 11,000 11,000 Other borrowed funds 6,239 29 4,000 - 45 878 11,191 -------- -------- -------- --------- ------ ------- -------- Total $503,693 $ 22,226 $ 9,032 $ 1,880 $ 260 $11,887 $548,978 ======== ======== ======== ========= ====== ======= ======== <CAPTION> Average Estimated Total Interest Rate Fair Value ----- ------------- ---------- <S> <C> <C> <C> Assets: Investment in debt and equity securities $ 53,353 6.31% 53,351 Interest-bearing deposits 9 5.12 9 Federal funds sold 58,303 6.23 58,303 Loans, net of unearned loan fees 557,738 9.52% 559,352 -------- -------- Total $669,403 $671,015 Liabilities: Savings, Now, money market deposits $339,701 4.59% $339,701 Certificates of deposit 187,086 5.97 188,649 Guaranteed preferred Beneficial interests in EBH-subordinated debentures 11,000 9.58% 10,313 Other borrowed funds 11,191 5.22 11,185 -------- -------- Total $548,978 $549,848 </TABLE> 23
Balance Sheet Trend The following table summarizes certain trends in the Company's balance sheet during the three-year period ended December 31, 2000: <TABLE> <CAPTION> December 31, ------------------------------- 2000 1999 1998 -------- -------- -------- (Dollars in Thousands) <S> <C> <C> <C> Total assets $710,063 $615,143 $488,066 Earning assets 668,458 581,393 436,014 Deposits 632,437 542,329 433,203 Loans to deposits 88.04% 88.67% 81.93% Loans to total assets 78.41 78.18 72.72 Investment securities to total assets 7.51 7.43 13.25 Earning assets to total assets 94.14 94.51 89.34 ======== ======== ======== Loans $556,899 $480,947 $355,030 Unearned loan fees (106) (56) (103) -------- -------- -------- Net loans $556,793 $480,891 $354,927 ======== ======== ======== Investment securities - HFT $ - $ 910 $ - Investment securities - AFS 50,569 42,156 63,232 Investment securities - HTM 521 680 699 Capital stock of the Federal Reserve Bank and the Federal Home Loan Bank 2,263 1,930 726 -------- -------- -------- Total investments $ 53,353 $ 45,676 $ 64,657 ======== ======== ======== Investment securities - HFT $ - $ 910 $ - Investment securities - AFS 50,569 42,156 63,232 Investment securities - HTM 521 680 699 Capital stock of the Federal Reserve Bank and the Federal Home Loan Bank 2,263 1,930 726 Federal funds sold 58,303 54,825 16,425 Interest-bearing deposits 9 1 5 Net loans 556,793 480,891 354,927 -------- -------- -------- Total earning assets $668,458 $581,393 $436,014 ======== ======== ======== </TABLE> The ratio of earning assets to total assets was 94.14%, 94.51% and 89.34% for years ending December 31, 2000, 1999 and 1998, respectively. Earning assets increased $87,065,000 and $145,379,000, or 15% and 33%, for the years ended December 31, 2000 and 1999, respectively. Total assets increased $94,920,000 and $127,077,000, or 15% and 26%, during the same periods, respectively. The following table shows, for the periods indicated, the average annual amount and the average rate paid by type of deposit: <TABLE> <CAPTION> December 31, ------------------------------------------------------------------------------ 2000 1999 1998 ------------------------ ----------------------- ------------------------ (Dollars in Thousands) Average Interest Average Interest Average Interest Balance Expense Rate Balance Expense Rate Balance Expense Rate -------- ------- ---- -------- -------- ---- -------- -------- ---- <S> <C> <C> <C> <C> <C> <C> <C> <C> <C> Noninterest-bearing demand deposits $ 79,364 $ - -% $ 66,044 $ - -% $ 54,781 $ - -% Interest-bearing transaction accounts 48,781 823 1.69 44,477 814 1.83 38,746 900 2.32 Money market accounts 257,200 13,366 5.20 197,931 8,528 4.31 131,899 5,991 4.54 Savings accounts 7,178 185 2.58 6,935 179 2.58 6,863 187 2.72 Certificates of deposit 194,593 11,624 5.97 148,790 7,821 5.26 145,827 8,306 5.70 -------- ------- -------- ------- -------- ------- $587,116 $25,998 4.43% $464,177 $17,342 3.74% $378,116 $15,384 4.07% ======== ======= ==== ======== ======= ==== ======== ======= ==== </TABLE> 24
Since inception, the Company has experienced rapid loan and deposit growth primarily due to aggressive direct calling efforts of relationship officers and sustained economic growth in the local markets served by the Company. Management has pursued closely-held businesses whose management desires a close working relationship with a locally-managed, full-service bank. Due to the relationships developed with these customers, management views large deposits from this source as a stable deposit base. Additionally, the Company belongs to a national network of time depositors (primarily credit unions) who place time deposits with the Company, typically in increments of $99,000. The Company used this source of deposits for over five years and considers it to be a stable source of deposits that allows the Company to acquire funds at a cost below its alternative cost of funds. There were $30 million at December 31, 2000, $45 million at December 31, 1999 and $29 million at December 31, 1998 in deposits from the national network. The following table sets forth the amount and maturity of certificates of deposit that had balances of more than $100,000 at December 31, 2000: Remaining Maturity Amount ------------------ ------ (Dollars in Thousands) Three months or less $ 22,837 Over three through six months 19,522 Over six through twelve months 33,471 Over twelve months 8,706 -------- $ 84,536 ======== The table below sets forth the carrying value of investment securities held by the Company at the dates indicated: <TABLE> <CAPTION> December 31, ---------------------------------------------------------------------- 2000 1999 1998 -------------------------- --------------------- -------------------- Percent Percent Percent of Total of Total of Total Amount Securities Amount Securities Amount Securities -------- ---------- ------ ---------- ------- ---------- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> U.S. Treasury securities and obligations of U.S. government corporations and agencies $42,674 79.98% $38,740 84.82% $57,495 88.92% Municipal bonds 660 1.24 819 1.79 856 1.32 Mortgage-backed securities 7,474 14.01 3,245 7.10 4,711 7.29 Other securities 282 0.53 32 0.07 - - Trading securities - - 910 1.99 - - Capital stock of the Federal Reserve Bank and the Federal Home Loan Bank 2,263 4.24 1,930 4.23 1,598 2.47 ------- ------ ------- ------ ------- ------ $53,353 100.00% $45,676 100.00% $64,660 100.00% ======= ====== ======= ====== ======= ====== </TABLE> As of December 31, 2000, debt securities with an amortized cost of $521,280 were classified as held to maturity securities and debt and equity securities with an amortized cost of $52,629,041 were classified as available for sale securities. The market valuation account for the available for sale securities was $202,842 to increase the recorded balance of such securities at December 31, 2000 to fair value on that date. The Company had no securities classified as a trading asset at December 31, 2000. As of December 31 1999, debt securities with an amortized cost of $679,806 were classified as held to maturity securities, and debt and equity securities with an amortized cost of $44,710,927 were classified as available for sale securities. The market valuation account for the available for sale securities was ($625,035) to decrease the recorded balance of such securities at December 31, 1999 to fair value on that date. 25
The Company had one security classified as a trading asset with a fair market value of $910,000 at December 31, 1999. The trading asset was sold for $910,500 on February 2, 2000. As of December 31, 1998, debt securities with an amortized cost of $698,608 were classified as held-to-maturity securities; debt and equity securities with an amortized cost of $55,081,103 were classified as available-for-sale securities; the market valuation account for the available-for-sale securities was adjusted to approximately $502,723 to decrease the recorded balance of such securities at December 31, 1998 to fair value on that date. The following table summarizes maturity and yield information on the investment portfolio at December 31, 2000: <TABLE> <CAPTION> Carrying Value Yield (1) --------- ----------- (Dollars in Thousands) <S> <C> <C> U.S. Treasury securities and obligations of U.S. government corporations and agencies: 0 to 1 year $28,788 6.05% 1 to 5 years 13,886 5.51 5 to 10 years - - 10 years or more - - No stated maturity - - ------- Total $42,674 5.87% ======= ==== Municipal bonds: 0 to 1 year $ 553 5.37% 1 to 5 years 107 6.75 5 to 10 years - - 10 years or more - - No stated maturity - - ------- Total $ 660 5.59% ======= ==== Mortgage backed securities: 0 to 1 year $ 2,380 7.16% 1 to 5 years 2,429 6.66 5 to 10 years - - 10 years or more 2,665 7.09 No stated maturity - - ------- Total 7,474 6.97% ======= ==== Other securities, including capital stock of the Federal Reserve Bank and the Federal Home Loan Bank 0 to 1 year $ - -% 1 to 5 years 250 8.75 5 to 10 years 32 8.75 10 years or more - - No stated maturity 2,263 6.53 ------- Total $ 2,545 6.78% ======= ==== Total 0 to 1 year $31,721 6.12% 1 to 5 years 16,672 5.74 5 to 10 years 32 8.75 10 years or more 2,665 7.09 No stated maturity 2,263 6.53 ------- Total $53,353 6.07% ======= ==== </TABLE> (1) Weighted average tax-equivalent yield 26
The asset/liability management process, which involves management of the components of the balance sheet to allow assets and liabilities to reprice at approximately the same time, is an ever-changing process essential to minimizing the effect of interest rate fluctuations on net interest income. Capital Adequacy Risk-based capital guidelines for financial institutions were adopted by regulatory authorities effective January 1, 1991. These guidelines were designed to relate regulatory capital requirements to the risk profile of the specific institution and to provide for uniform requirements among the various regulators. Currently, the risk-based capital guidelines require the Company to meet a minimum total capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders' equity (excluding the unrealized market value adjustments on the available-for- sale securities), (b) qualifying perpetual preferred stock and related surplus subject to certain limitations specified by the FDIC, and (c) minority interests in the equity accounts of consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights within certain limits, and (f) any other intangible assets and investments in subsidiaries that the FDIC determines should be deducted from Tier 1 capital. The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio of Tier 1 capital to average total assets for banking organizations deemed the strongest and most highly rated by banking regulators. A higher minimum leverage ratio is required of less highly rated banking organizations. Total capital, a measure of capital adequacy, includes Tier 1 capital, allowance for loan losses, and debt considered equity for regulatory capital purposes. The following table summarizes the Company's risk-based capital and leverage ratios at the dates indicated: December 31, ---------------------- 2000 1999 1998 ------ ------ ------ Tier 1 capital to risk weighted assets 10.60% 11.15% 9.89% Total capital to risk weighted assets 11.79 12.35 10.97 Leverage ratio (Tier 1 capital to average assets) 9.41 10.62 9.16 Tangible capital to tangible assets 9.75 7.68 8.63 At December 31, 2000, the Company's Tier 1 capital was $62 million compared to $56 million and $42 million at December 31, 1999 and 1998, respectively. At December 31, 2000, the Company's total capital was $69 million compared to $62 million and $44 million at December 31, 1999 and 1998, respectively. Effect of Inflation Persistent high rates of inflation can have a significant effect on the reported financial condition and results of operations of all industries. However, the asset and liability structure of commercial banks is substantially different from that of an industrial company in that virtually all assets and liabilities of commercial banks are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a commercial bank's performance. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase equity capital at higher than normal rates to maintain an appropriate equity-to- assets ratio. SUPERVISION AND REGULATION -------------------------- The Company and the Banks are subject to state and federal banking laws and regulations which impose specific requirements or restrictions on and provide for general regulatory oversight with respect to virtually all aspects of operations. These laws and regulations are generally intended to protect depositors, not shareholders. To the extent that the following summary describes statutory or regulatory provisions, it is qualified in its entirety by reference to the particular statutory and regulatory provisions. Any change in applicable laws or regulations may have a material effect on the business and prospects of the Company. The numerous regulations and policies promulgated by the regulatory authorities create a 27
difficult and ever-changing atmosphere in which to operate. The Company and the Bank commit substantial resources in order to comply with these statutes, regulations and policies. The Company is unable to predict the nature or the extent of the effect on its business and earnings that fiscal or monetary policies, economic control, or new federal or state legislation may have in the future. Federal Bank Holding Company Regulation The Company is a bank holding company under the definition of the Bank Holding Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to periodic examination by the Federal Reserve and is required to file periodic reports of its operations and such additional information as the Federal Reserve may require. The Company's and the Banks' activities are limited to banking, managing or controlling banks, furnishing services to or performing services for its subsidiaries, or engaging in any other activity that the Federal Reserve determines to be closely related to banking. Investments, Control and Activities. With certain limited exceptions, the BHCA requires every bank holding company to obtain the prior approval of the Federal Reserve before (i) acquiring substantially all the assets of any bank, (ii) acquiring direct or indirect ownership or control of any voting shares of any bank if after such acquisition it would own or control more than 5% of the voting shares of such bank (unless it already owns or controls the majority of such shares), or (iii) merging or consolidating with another bank holding company. Federal legislation permits bank holding companies to acquire control of banks throughout the United States. In addition, and subject to certain exceptions, the BHCA and the Change in Bank Control Act, together with regulations thereunder, require Federal Reserve approval (or, depending on the circumstances, no notice of disapproval) prior to any person or company acquiring "control" of a bank holding company, such as the Company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Under Federal Reserve regulations applicable to the Company, control will be refutably presumed to exist if a person acquires at least 10% of the outstanding shares of any class of voting securities once the Company registers the common stock under the Securities and Exchange Act of 1934. The regulations provide a procedure for challenge of the rebuttable control presumption. Under the BHCA, the Company is generally prohibited from engaging in, or acquiring direct or indirect control of more than 5% of the voting shares of any company engaged in, nonbanking activities, unless the Federal Reserve, by order of regulation, has found those activities to be so closely related to banking or managing or controlling banks as to be a related activity. Some of the activities that the Federal Reserve has determined by regulation to be proper incidents to the business of banking include investment in and management of Small Business Investment Companies, making or servicing loans and certain types of leases, engaging in certain insurance and brokerage activities, performing data processing services, acting in certain circumstances as a fiduciary or investment or financial advisor, owning savings associations, and making investments in limited projects designed primarily to promote community welfare. Recent Developments: The Gramm-Leach-Bliley Act ("GLBA") was signed into law on November 12, 1999. This major banking legislation now permits affiliation among depository institutions and entities whose activities are considered "financial in nature" or incidental or complementary to such activities. Activities which are expressly considered financial in nature include, among other things, securities and insurance underwriting and agency, investment management and merchant banking. With certain exceptions, GLBA similarly expanded the authorized activities of subsidiaries of national banks (and indirectly through the wild card powers provisions of state law, Missouri banks). These provisions became effective March 11, 2000. In general, these expanded powers are reserved to bank holding companies, to be known as financial holding companies ("FHC") and banks, where all depository institutions affiliated with them are well capitalized and well managed based on applicable banking regulations and meet specified Community Reinvestment Act ratings. GLBA authorizes the Federal Reserve and the United States Treasury, in cooperation with one another, to determine what additional activities are permissible as financial in nature. Maintenance of activities which are financial in nature will require FHC's and banks to continue 28
to satisfy applicable well capitalized and well managed requirements. Bank holding companies which do not qualify for FHC status are limited to non-banking activities deemed closely related to banking prior to adoption of GLBA. In addition to the creation of FHC's, GLBA establishes a scheme of "functional regulation" of financial services businesses which is intended to reflect the primacy of regulation over activities and entities by regulators routinely responsible for such activities and entities and with the appropriate expertise in the area of regulation. This applies both in allocating responsibility for supervising different companies within an FHC and in supervising different activities within the same company. In this connection, GLBA clarifies the regulation by states of insurance products sold by depository institutions, repeals some of the exemptions enjoyed by banks under federal securities laws in relation to securities offered by banks and licensing of broker-dealers and investment advisors. GLBA also adopts restrictions on financial institutions regarding the sharing of customer non-public personal information with non-affiliated third parties unless the customer has had an opportunity to opt out of the disclosure. GLBA also imposes periodic disclosure requirements concerning the financial institution's policies and practices regarding data sharing with affiliated and non-affiliated parties. This act will be the subject of extensive rule making by federal banking regulators and others. The effects of this legislation will only begin to be understood over the next several years and at this time cannot be predicted with any certainty. Source of Strength; Cross-Guarantee. In accordance with Federal Reserve policy, the Company is expected to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances in which the Company might not otherwise do so. Under the BHCA, the Federal Reserve may require a bank holding company to terminate any activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal Reserve's determination that such activity or control constitutes a serious risk to the financial soundness or stability of any subsidiary depository institution of the bank holding company. Further, federal bank regulatory authorities have additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution's financial condition. Bank Regulation General. As of December 31, 2000, the Company is the holding company for Enterprise Bank, a Missouri chartered bank, and Enterprise Banking N.A., a nationally chartered bank. The Missouri Bank is not a member of the Federal Reserve system, while the Kansas bank is a member. The Missouri Division of Finance and the FDIC are primary regulators for the Missouri Bank. The Kansas Bank is subject to regulation by the Office of the Comptroller of Currency ("OCC") These regulatory authorities regulate or monitor all areas of the Banks' operations, including security devices and procedures, adequacy of capitalization and loss reserves, loans, investments, borrowings, deposits, mergers, issuance of securities, payment of dividends, interest rates payable on deposits, interest rates or fees chargeable on loans, establishment of branches, corporate reorganizations, maintenance of books and records, and adequacy of staff training to carry on safe lending and deposit gathering practices. The Bank must maintain certain capital ratios and is subject to limitations on aggregate investments in real estate, bank premises, and furniture and fixtures. Transactions With Affiliates and Insiders. The Banks are subject to the provisions of Section 23A of the Federal Reserve Act, which place limits on the amount of loans or extensions of credit to, investments in, or certain other transactions with, affiliates and on the amount of advances to third parties collateralized by the securities or obligations of affiliates. In addition, most of these loans and certain other transactions must be secured in prescribed amounts. The Banks are also subject to the provisions of Section 23B of the Federal Reserve Act that, among other things, prohibit an institution from engaging in certain transactions with certain affiliates unless the transactions are on terms substantially the same, or at least as favorable to such institution or its subsidiaries, as those prevailing at the time for comparable 29
transactions with nonaffiliated companies. The Banks are subject to certain restrictions on extensions of credit to executive officers, directors, certain principal shareholders, and their related interests. Such extensions of credit (i) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties and (ii) must not involve more than the normal risk of repayment or present other unfavorable features. Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires that, in connection with examinations of financial institutions within its jurisdiction, the FDIC shall evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those institutions. These factors are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. The Company has a satisfactory rating under CRA. Other Regulations. Interest and certain other charges collected or contracted for by the Bank are subject to state usury laws and certain federal laws concerning interest rates. The Bank's loan operations are also subject to certain federal laws applicable to credit transactions, such as the federal Truth-In-Lending Act governing disclosures of credit terms to consumer borrowers; the Home Mortgage Disclosure Act of 1975 requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves; the Equal Credit Opportunity Act prohibiting discrimination on the basis of race, creed or other prohibited factors in extending credit; the Fair Credit Reporting Act of 1978 governing these and provision of information to credit reporting agencies; the Fair Debt Collection Act governing the manner in which consumer debts may be collected by collection agencies; and the rules and regulations of the various federal agencies charged with the responsibility of implementing such federal laws. The deposit operations of the Banks are also subject to the Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records, and the Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which governs automatic deposits to and withdrawals from deposit accounts and customers' rights and liabilities arising from the use of automated teller machines and other electronic banking services. Deposit Insurance. The deposits of the Banks are currently insured by the FDIC to a maximum of $100,000 per depositor, subject to certain aggregation rules. The FDIC establishes rates for the payment of premiums by federally insured banks for deposit insurance. An insurance fund (BIF) is maintained for commercial banks, with insurance premiums from the industry used to offset losses from insurance payouts when banks and thrifts fail. The FDIC has adopted a risk-based deposit insurance premium system for all insured depository institutions, including the Banks, which requires premiums from a depository institution based upon its capital levels and risk profile, as determined by its primary federal regulator on a semiannual basis. Dividends The principal source of the Company's cash revenues comes from dividends received from the Banks. The amount of dividends that may be paid by the Banks to the Company depends on the Banks earnings and capital position and is limited by federal and state law, regulations, and policies. Capital Regulations The federal bank regulatory authorities have adopted risk-based capital guidelines for banks and bank holding companies that are designed to make regulatory capital requirements more sensitive to differences in risk profile among banks and bank holding companies, account for off-balance-sheet exposure, and minimize disincentives for holding liquid assets. The resulting capital ratios represent qualifying capital as a percentage of total risk-weighted assets and off-balance-sheet items. The guidelines are minimums, and the federal regulators have noted that banks and bank holding companies contemplating significant expansion programs should not allow expansion to diminish their capital ratios and should maintain ratios well in excess of the minimums. The current guidelines require all bank holding companies and federally-regulated banks to maintain a minimum risk-based total capital ratio, a portion of which must be Tier 1 capital. Tier 1 capital includes common shareholders' equity, qualifying 30
perpetual preferred stock, and minority interests in equity accounts of consolidated subsidiaries, but excludes goodwill and most other intangibles and excludes the allowance for loan and lease losses. Tier 2 capital includes the excess of any preferred stock not included in Tier 1 capital, mandatory convertible securities, hybrid capital instruments, subordinated debt and intermediate term-preferred stock, and general reserves for loan and lease losses up to 1.25% of risk-weighted assets. Under these guidelines, banks' and bank holding companies' assets are given risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance-sheet items are given credit conversion factors to convert them to asset equivalent amounts to which an appropriate risk-weight will apply. These computations result in the total risk-weighted assets. Most loans are assigned to the 100% risk category, except for first mortgage loans fully secured by residential property and, under certain circumstance, residential construction loans, both of which carry a 50% rating. Most investment securities are assigned to the 20% category, except for municipal or state revenue bonds, which have a 50% rating, and direct obligations of or obligations guaranteed by the United States Treasury or United States Government agencies, which have a 0% rating. The federal bank regulatory authorities have also implemented a leverage ratio, which is Tier 1 capital as a percentage of average total assets less intangibles, to be used as a supplement to the risk-based guidelines. The principal objective of the leverage ratio is to place a constraint on the maximum degree to which a bank holding company may leverage its equity capital base. ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Included on pages 34 through 40, below. PART III -------- MANAGEMENT ---------- ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this item is incorporated herein by reference to pages [2] through [13] of the Company's Proxy Statement for its annual meeting to be held April 25, 2001, at the University Club which is located at 1034 S. Brentwood Boulevard, St. Louis, Missouri 63117. The meeting will be held at 4:00 p.m. ITEM 11: EXECUTIVE COMPENSATION The information required by this item is incorporated herein by reference to pages [6] through [9] of the Company's Proxy Statement for its annual meeting to be held April 25, 2001, at the University Club which is located at 1034 S. Brentwood Boulevard, St. Louis, Missouri 63117. The meeting will be held at 4:00 p.m. ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this item is incorporated herein by reference to pages [11] through [13] of the Company's Proxy Statement for its annual meeting to be held April 25, 2001, at the University Club which is located at 1034 S. Brentwood Boulevard, St. Louis, Missouri 63117. The meeting will be held at 4:00 p.m. 31
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS The Company and the Bank have, and expect to continue to have, banking and other transactions in the ordinary course of business with directors and executive officers of the Company and their affiliates, including members of their families or corporations, partnerships or other organizations in which such directors or executive officers have a controlling interest, on substantially the same terms (including price, or interest rates and collateral) as those prevailing at the time for comparable transactions with unrelated parties. Such transactions are not expected to involve more than the normal risk of collectibility nor present other unfavorable features to the Company and the Bank. The Bank is subject to limits on the aggregate amount it can lend to the Bank's and the Company's directors and officers as a group. This limit is currently equal to the entity's unimpaired capital plus reserve for loan losses. Loans to individual directors and officers must also comply with the Bank's lending policies and statutory lending limits, and directors with a personal interest in any loan application are excluded from the consideration of such loan application. ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) The following documents are filed or incorporated by reference as part of this Report: Enterbank Holdings Inc. and subsidiaries ---------------------------------------- 1. Financial Statements: Page Number --------------------- ----------- Independent auditors' report 33 Consolidated Balance Sheets at December 31, 2000 and December 31, 1999 34 Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998 35 Consolidated Statements of Shareholders' Equity for the years ended December 31, 2000, 1999 and 1998 37 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 38 Consolidated Statements of Comprehensive Income for the years ended December 31, 2000, 1999 and 1998 40 Notes to Consolidated Financial Statements 41 2. Financial Statement Schedules ----------------------------- None other than those included in the Notes to Consolidated Financial Statements. 3. Exhibits -------- See Exhibit Index (b) Reports on Form 8-K No reports on Form 8-K were filed during the fourth quarter of 2000. 32
Independent Auditors' Report The Board of Directors and Shareholders Enterbank Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Enterbank Holdings, Inc. and subsidiaries (the Company) as of December 31, 2000 and 1999, and the related consolidated statements of income, shareholders' equity, cash flows, and comprehensive income for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Enterbank Holdings, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. KPMG LLP St. Louis, Missouri February 23, 2001 33
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December31, 2000 and 1999 <TABLE> <CAPTION> Assets 2000 1999 ------ ------------ ------------ <S> <C> <C> Cash and due from banks $ 25,964,052 $ 19,354,316 Federal funds sold 58,302,921 54,825,000 Interest-bearing deposits 9,397 469 Investments in debt and equity securities: Trading, at fair value - 910,000 Available for sale, at estimated fair value 50,569,333 42,155,542 Held to maturity, at amortized cost (estimated fair value of $519,442 in 2000 and $676,851 in 1999) 521,280 679,806 Federal Reserve Bank stock and Federal Home Loan Bank stock, at cost 2,262,550 1,930,350 ------------ ------------ Total investments in debt and equity securities 53,353,163 45,675,698 ------------ ------------ Loans held for sale 945,095 1,438,335 Loans, less unearned loan fees 556,792,591 480,891,481 Less allowance for loan losses 7,096,544 6,758,222 ------------ ------------ Loans, net 549,696,047 474,133,259 ------------ ------------ Other real estate owned 76,680 438,072 Fixed assets, net 8,792,020 7,982,725 Accrued interest receivable 4,258,710 3,555,615 Investment in Enterprise Merchant Banc LLC 2,326,422 572,009 Investment in Enterprise Fund, L.P. 576,664 546,710 Goodwill 2,278,104 2,468,671 Prepaid expenses and other assets 3,483,915 4,152,610 ------------ ------------ Total assets $710,063,190 $615,143,489 ============ ============ Liabilities and Shareholders' Equity ------------------------------------ Deposits: Demand $105,649,983 $ 75,045,703 Interest-bearing transaction accounts 61,314,029 48,414,208 Money market accounts 271,060,782 218,135,867 Savings 7,326,217 7,631,671 Certificates of deposit: $100,000 and over 84,535,714 68,224,042 Other 102,550,712 124,877,136 ------------ ------------ Total deposits 632,437,437 542,328,627 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 11,000,000 Federal Home Loan Bank advances 9,965,899 11,116,830 Federal funds purchased 1,225,000 1,300,000 Accrued interest payable 1,687,288 1,292,155 Accounts payable and accrued expenses 263,783 1,062,281 ------------ ------------ Total liabilities 656,579,407 568,099,893 ------------ ------------ Shareholders' equity: Common stock, $.01 par value; 20,000,000 shares authorized; 9,072,521 issued and outstanding at December 31, 2000, and 8,970,359 issued and 8,936,930 outstanding at December 31, 1999 90,725 89,703 Surplus 35,840,371 35,133,786 Retained earnings 17,418,811 12,622,630 Accumulated other comprehensive income (loss) 133,876 (412,523) Treasury stock, at cost; 0 and 33,429 shares at December 31, 2000, and 1999, respectively - (390,000) ------------ ------------ Total shareholders' equity 53,483,783 47,043,596 ------------ ------------ Total liabilities and shareholders' equity $710,063,190 $615,143,489 ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 34
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated statements of Income Years ended December 31, 2000,1999 and 1998 <TABLE> <CAPTION> 2000 1999 1998 ----------- ------------ ------------ <S> <C> <C> <C> Interest income: Interest and fees on loans $49,110,601 $ 37,704,318 $ 29,870,062 Interest on debt and equity securities: Taxable 3,472,765 2,093,835 1,889,844 Nontaxable 35,801 46,027 104,628 Interest on federal funds sold 3,410,002 1,230,721 1,600,151 Interest on interest bearing deposits 1,183 1,107 40,454 ----------- ------------ ------------ Total interest income 56,030,352 41,076,008 33,505,139 ----------- ------------ ------------ Interest expense: Interest-bearing transaction accounts 823,133 814,184 900,370 Money market accounts 13,365,785 8,528,748 5,991,061 Savings 185,127 179,029 187,371 Certificates of deposit: $100,000 and over 4,689,220 2,696,800 2,751,264 Other 6,934,653 5,123,408 5,553,097 Other borrowed funds 544,657 631,327 322,395 Guaranteed preferred beneficial interests in EBH-subordinated debentures 1,053,334 186,605 - ----------- ------------ ------------ Total interest expense 27,595,909 18,160,101 15,705,558 Net interest income 28,434,443 22,915,907 17,799,581 ----------- ------------ ------------ Provision for loan losses 1,042,534 2,496,256 1,360,899 ----------- ------------ ------------ Net interest income after provision for loan losses 27,391,909 20,419,651 16,438,682 ----------- ------------ ------------ Noninterest income: Service charges on deposit accounts 1,196,326 1,185,364 706,466 Trust and financial advisory income 851,829 594,810 - Realized gain on trading assets 500 202,454 - Other service charges and fee income 632,563 678,556 810,610 Gain on sale of other real estate 214,930 130,050 - Gain on sale of mortgage loans 503,702 809,110 1,242,869 Income from minority interest in EMB, LLC 64,727 2,934 - Gain (loss) on investment in Enterprise Fund, L.P. 29,954 (7,763) (2,199) ----------- ------------ ------------ Total noninterest income 3,494,531 3,595,515 2,757,746 ----------- ------------ ------------ Noninterest expense: Salaries 10,900,075 8,905,995 7,142,525 Payroll taxes and employee benefits 2,351,682 1,698,208 1,286,859 Occupancy 1,557,082 1,311,129 1,239,961 Furniture and equipment 722,703 674,421 658,007 Data processing 1,084,377 806,004 439,529 Amortization of goodwill 190,567 190,566 190,567 Other 5,670,058 4,508,634 3,567,966 ----------- ------------ ------------ Total noninterest expense 22,476,544 18,094,957 14,525,414 ----------- ------------ ------------ Income before income tax expense 8,409,896 5,920,209 4,671,014 Income tax expense 3,208,450 2,335,408 1,725,403 ----------- ------------ ------------ Income before cumulative effect of a change in accounting principle $ 5,201,446 $ 3,584,801 $ 2,945,611 ----------- ------------ ------------ Cumulative effect on prior years of a change in asset classification, net of taxes - 121,491 - ----------- ------------ ------------ Net income $ 5,201,446 $ 3,706,292 $ 2,945,611 =========== ============ ============ </TABLE> See accompanying notes to consolidated financial statements. 35
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated statements of Income (continued) Years ended December 31, 2000,1999 and 1998 <TABLE> <CAPTION> 2000 1999 1998 ------------ ---------- ----------- <S> <C> <C> <C> Per share amounts Basic earnings per share: Income before cumulative effect of change in accounting principle $ 0.58 $ 0.40 $ 0.34 Cumulative effect on prior years of a change in asset classification - 0.01 - ---------- ---------- ---------- Net income $ 0.58 $ 0.41 $ 0.34 ========== ========== ========== Basic weighted average common shares outstanding 8,990,605 8,953,717 8,642,113 Diluted earnings per share: Income before cumulative effect of a change in accounting principle $ 0.54 $ 0.38 $ 0.32 Cumulative effect on prior years of a change in asset classification - 0.01 - ---------- ---------- ---------- Net income $ 0.54 $ 0.39 $ 0.32 ========== ========== ========== Diluted weighted average common shares outstanding 9,684,752 9,596,490 9,135,249 </TABLE> See accompanying notes to consolidated financial statements. 36
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years Ended December 31, 2000, 1999, and 1998 <TABLE> <CAPTION> Accumulated Total other share- Common Stock Retained comprehensive Treasury holders' -------------------- Shares Amount Surplus earnings income (loss) stock equity --------- ------- ----------- ------------- ------------- --------- ----------- <S> <C> <C> <C> <C> <C> <C> <C> Balance, December 31, 1997 8,350,681 $83,506 $30,426,954 $ 6,491,357 $ (1,473) $ - $37,000,344 Net income - - - 2,945,611 - - 2,945,611 Dividends declared ($.03 per share) - - - (235,053) - - (235,053) Stock options exercised 220,275 2,203 383,322 - - - 385,525 Issuance of common stock 362,064 3,621 4,146,698 - - - 4,150,319 Other comprehensive income - - - - 58,832 - 58,832 --------- ------- ----------- ----------- ------------ --------- ----------- Balance, December 31, 1998 8,933,020 89,330 34,956,974 9,201,915 57,359 - 44,305,578 Net income - - - 3,706,292 - - 3,706,292 Dividends declared ($.04 per share) - - - (285,577) - - (285,577) Stock options exercised 28,125 281 69,404 - - - 69,685 Issuance of common stock 9,214 92 107,408 - - - 107,500 Purchase of treasury stock - - - - - (390,000) (390,000) Other comprehensive income (loss) - - - - (469,882) - (469,882) --------- ------- ----------- ----------- ------------ --------- ----------- Balance, December 31, 1999 8,970,359 89,703 35,133,786 12,622,630 (412,523) (390,000) 47,043,596 Net income - - - 5,201,446 - - 5,201,446 Dividends declared ($.05 per share) - - - (405,265) - - (405,265) Stock options exercised 134,621 1,346 802,779 - - - 804,125 Issuance of common stock 970 10 10,324 - - - 10,334 Noncash compensation expense attributed to stock option grants - - 283,148 - - - 283,148 Retirement of treasury stock (33,429) (334) (389,666) - - 390,000 - Other comprehensive income - - - - 546,399 - 546,399 --------- ------- ----------- ----------- ------------ --------- ----------- Balance, December 31, 2000 9,072,521 $90,725 $35,840,371 $17,418,811 $ 133,876 - $53,483,783 ========= ======= =========== =========== ============ ========= =========== </TABLE> See accompanying notes to consolidated financial statements. 37
ENTERBANK HOLDINGS, INC. AND SUBSIDIARES Consolidated Statements of Cash Flows (continued) Years ended December 31, 2000, 1999, and 1998 <TABLE> <CAPTION> 2000 1999 1998 ------------ ------------- ------------ <S> <C> <C> <C> Cash flows from operating activities: Net income $ 5,201,446 $ 3,706,292 $ 2,945,611 Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle, net of tax - (121,491) - Depreciation and amortization 1,399,929 1,110,234 1,028,780 Provision for loan losses 1,042,534 2,496,256 1,360,899 Gain on sale of other real estate owned (214,930) (130,050) - Gain on sale of available for sale debt securities - - (20,256) Gain on sale of trading security (500) (202,454) - Increase in trading security - (400,000) Proceeds from sale of trading security 910,500 - - Net accretion of debt and equity securities (93,459) (133,779) (232,991) (Gain) loss on investment in Enterprise Fund, L.P. (29,954) 7,763 2,199 Mortgage loans originated (36,538,187) (56,541,117) (94,433,924) Proceeds from mortgage loans sold 37,535,129 62,184,016 90,728,913 Gain on sale of mortgage loans (503,702) (809,110) (1,242,869) Noncash compensation expense attributed to stock option grants 283,148 - - Increase in accrued interest receivable (703,095) (1,034,026) (50,056) Increase in accrued interest payable 395,133 207,601 4,819 Other, net (411,280) (844,609) (662,534) ------------ ------------- ------------ Net cash provided by (used in) operating activities 8,272,712 9,495,526 (571,409) ------------ ------------- ------------ Cash flows from investing activities: Net (increase) decrease in interest-bearing deposits (8,928) 4,566 143,314 Purchases of available for sale debt and equity securities (35,037,422) (36,903,835) (57,206,984) Purchases of held to maturity debt securities - (100,000) (256,689) Proceeds from maturities of available for sale debt and equity securities 27,221,293 56,280,542 27,872,133 Proceeds from sales of available for sale debt and equity securities - - 3,351,573 Proceeds from maturities and principal paydowns on held to maturity debt securities 150,000 103,000 460,785 Net increase in loans (76,766,232) (126,210,752) (61,205,217) Proceeds from sale of other real estate owned 653,002 540,050 24,327 Recoveries of loans previously charged off 84,230 78,478 62,030 Purchases of fixed assets (2,018,658) (901,813) (2,112,042) Proceeds from dispositions of fixed assets - 28,522 - Investment in EMB, L.L.C. (1,754,413) (572,009) - Investment in Enterprise Fund, L.P. - (129,989) (201,000) ------------ ------------- ------------ Net cash used in investing activities (87,477,128) (107,783,240) (89,067,770) ------------ ------------- ------------ Cash flows from financing activities: Net increase in noninterest bearing deposit accounts 30,604,280 3,376,469 13,401,878 Net increase in interest bearing deposit accounts 59,504,530 105,749,088 63,166,337 Increase (decrease) in Federal funds purchased (75,000) 1,300,000 - Increase (decrease) in Federal Home Loan Bank advances (1,150,931) 1,911,818 5,531,432 Proceeds from issuance of subordinated debentures - 11,000,000 - Cash dividends paid (405,265) (285,577) (235,053) Proceeds from the issuance of common stock 10,334 107,500 4,150,319 Proceeds from the exercise of common stock options 804,125 69,685 385,525 Purchase of treasury stock - (390,000) - ------------ ------------- ------------ Net cash provided by financing activities 89,292,073 122,838,983 86,400,438 ------------ ------------- ------------ Net increase (decrease) in cash and due from banks 10,087,657 24,551,269 (3,238,741) Cash and cash equivalents, beginning of year 74,179,316 49,628,047 52,866,788 ------------ ------------- ------------ Cash and cash equivalents, end of year $ 84,266,973 $ 74,179,316 $ 49,628,047 ============ ============= ============ </TABLE> See accompanying notes to consolidated financial statements. 38
ENTERBANK HOLDINGS, INC. AND SUBSIDIARES Consolidated Statements of Cash Flows (continued) Years ended December 31, 2000, 1999, and 1998 <TABLE> <S> <C> <C> <C> Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $27,200,776 $17,788,374 $15,700,739 Income taxes 3,236,000 2,245,189 2,014,266 =========== =========== =========== Noncash transactions: Transfers to other real estate owned in settlement of loans $ 76,680 $ 42,000 $ 97,781 Loans made to facilitate the sale of other real estate owned - 515,240 100,000 Transfer of held to maturity security to trading - 510,000 - Retirement of treasury stock 390,000 - - =========== =========== =========== </TABLE> See accompanying notes to consolidated financial statements. 39
ENTERBANK HOLDINGS, INC. AND SUBSIDIARES Consolidated Statements of Comprehensive Income Years ended December 31, 2000, 1999, and 1998 <TABLE> <CAPTION> 2000 1999 1998 ---------- ---------- ----------- <S> <C> <C> <C> Net income $5,201,446 $3,706,292 $2,945,611 Other comprehensive income (loss), before tax: Unrealized gains (losses) on securities: Unrealized holding gains (losses) arising during year 827,877 (711,942) 70,597 Unrealized gain on transfer of securities from held to maturity to available for sale - - 21,914 ---------- ---------- ---------- Other comprehensive income (loss), before tax 827,877 (711,942) 92,511 Income tax benefit (expense) related to items of other comprehensive income 281,478 (242,060) 33,679 ---------- ---------- ---------- Other comprehensive income (loss), net of tax 546,399 (469,882) 58,832 ---------- ---------- ---------- Comprehensive income $5,747,845 $3,236,410 $3,004,443 ========== ========== ========== </TABLE> See accompanying notes to consolidated financial statements. 40
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 1--ORGANIZATION On May 9, 1995, Enterbank Holdings, Inc. (the "Company") was formed as a bank holding company. Enterbank Holdings, Inc. exchanged 1,463,400 shares of Enterbank Holdings, Inc. for all 73,170 (100%) of outstanding shares of Enterprise Bank in a twenty-for-one stock exchange. The merger represented a combination of entities under common control and, accordingly, was accounted for in a manner similar to a pooling of interest. On September 29, 1999, the Company completed a 3 for 1 stock split in the form of a stock dividend. In October, 2000, the Company changed its status from a bank holding company to a financial holding company. Additionally, Enterprise Capital Resources, Inc. ("ECR") was formed as a small business investment company in 1995 and, on May 11, 1995, Enterbank Holdings, Inc. acquired 100% of the outstanding shares of ECR. Subsequent to December 31, 1997, ECR changed its name to Enterprise Merchant Banc, Inc. ("Merchant Banc"). In 1997, the Company organized Enterprise Trust ("Trust") as a division of the Bank to provide fee-based trust, personal financial planning, estate planning, and corporate planning services to the Company's target market. The Company entered into solicitation and referral agreements with Moneta Group, Inc., a financial planning company, as part of the organization of Trust. In 1998, Trust obtained trust powers. The Company renegotiated the agreements with Moneta with the introduction of trust services. In 1999, the Company formed EBH Capital Trust I ("EBH Trust"). EBH Trust is a Delaware business trust created for the single purpose of offering trust preferred securities and purchasing the junior subordinated debentures of the Company. On June 23, 2000, the Company completed the merger transaction with Commercial Guaranty Bancshares, Inc. located in Overland Park, Kansas. Commercial Guaranty Bancshares, Inc. ("CGB") is the bank holding company for First Commercial Bank, N.A. ("FCB"). The merger was a tax-free exchange utilizing the pooling of interests method of accounting. On January 1, 2001, First Commercial Bank, N.A., changed its name to Enterprise Banking, N.A. NOTE 2--MERGER BETWEEN ENTERBANK HOLDINGS, INC. AND COMMERCIAL GUARANTY BANCSHARES, INC. On June 23, 2000, the Company completed the merger transaction between Commercial Guaranty Bancshares, Inc. ("CGB"), the bank holding company for First Commercial Bank, N.A., headquartered in Overland Park, Kansas, and Enterbank Holdings, Inc. The Company issued 1,794,264 shares of its common stock in exchange for 100% of the outstanding common stock of CGB. The merger was a tax- free reorganization for federal income tax purposes and was accounted for as a pooling of interests; therefore, all recorded amounts have been restated to reflect this acquisition. 41
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Following are the total assets, net income, net interest income, basic and diluted earnings per share for the Company and CGB prior to the restatement as of or for the three months ended March 31, 2000, which was the last quarter before the merger: <TABLE> <CAPTION> As of or for the three months ended March 31, 2000 -------------------- <S> <C> Enterbank Holdings, Inc. Total assets $ 500,354,950 Net income 847,163 Net interest income 5,070,639 Basic earnings per share 0.12 Diluted earnings per share $ 0.11 Commercial Guaranty Bancshares, Inc. Total assets $ 128,927,655 Net income 162,030 Net interest income 1,370,903 Basic earnings per share 0.19 Diluted earnings per share $ 0.19 </TABLE> NOTE 3--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The Company provides a full range of banking services to individual and corporate customers located within St. Louis, Missouri and the surrounding communities through its subsidiary, Enterprise Bank, Missouri (the Missouri Bank) and the Kansas Metropolitan and Southeast Kansas markets through Enterprise Banking, N.A. (the Kansas Bank), collectively (the Banks). The Company is subject to competition from other financial and nonfinancial institutions providing financial services in the markets served by the Company's subsidiaries. Additionally, the Company and its subsidiaries are subject to the regulations of certain federal and state agencies and undergo periodic examinations by those regulatory agencies. The more significant accounting policies used by the Company in the preparation of the consolidated financial statements are summarized below: Basis of Financial Statement Presentation The consolidated financial statements of the Company and its subsidiaries have been prepared in conformity with accounting principles generally accepted in the United States of America and conform to predominant practices within the banking industry. In preparing the consolidated financial statements, management is required to make estimates and assumptions which significantly affect the reported amounts in the consolidated financial statements. Estimates which are particularly susceptible to change in a short period of time include the determination of the allowance for loan losses and the valuation of real estate acquired in connection with foreclosures or in satisfaction of amounts due from borrowers on loans. Actual amounts could differ from those estimates. Consolidation The consolidated financial statements include the accounts of the Company; its banking subsidiaries, Enterprise Bank, Missouri (100% owned), Enterprise Banking, N.A. (100% owned) and its merchant banking company, Merchant Banc (100% owned). All significant intercompany accounts and transactions have been eliminated. 42
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Investments in Debt and Equity Securities The Company currently classifies investments in debt and equity securities as follows: Trading - includes securities which the Company has bought and held principally for the purpose of selling them in the near term. Held to maturity - includes debt securities which the Company has the positive intent and ability to hold until maturity. Available for sale - includes debt and marketable equity securities not classified as held to maturity or trading (i.e., investments which the Company has no present plans to sell but may be sold in the future under different circumstances). Debt securities classified as held to maturity are carried at amortized cost, adjusted for the amortization or accretion of premiums or discounts. Unrealized holding gains and losses for held to maturity securities are excluded from earnings and shareholders' equity. Debt and equity securities classified as available for sale are carried at estimated fair value. Unrealized holding gains and losses for available for sale securities are excluded from earnings and reported as a net amount in a separate component of shareholders' equity until realized. All previous fair value adjustments included in the separate component of shareholders' equity are reversed upon sale. Debt and equity securities classified as trading are carried at estimated fair value. The realized and unrealized gains and losses on trading securities are included in noninterest income. Transfers of securities between categories are recorded at fair value at the date of transfer. Unrealized holding gains or losses associated with transfers of securities from the held to maturity category to the available for sale category are recorded as a separate component of shareholders' equity. A decline in the market value of any available for sale or held to maturity security below cost that is deemed other than temporary results in a charge to earnings and the establishment of a new cost basis for the security. For securities in the held to maturity and available for sale categories, premiums and discounts are amortized or accreted over the lives of the respective securities as an adjustment to yield using the interest method. Dividend and interest income is recognized when earned. Realized gains and losses for securities classified as trading, available for sale and held to maturity are included in earnings and are derived using the specific identification method for determining the cost of securities sold. Loans Held for Sale During 1997, the Company began mortgage banking operations. Mortgage banking activities include the origination of residential mortgage loans for sale to various investors. Mortgage loans are originated and intended for sale in the secondary market, principally under programs with the Government National Mortgage Association (GNMA) or the Federal National Mortgage Association (FNMA). Mortgage loans held for sale are carried at the lower of cost or fair value, which is determined on a specific identification method. The Company does not retain servicing on any loans originated and sold, nor did the Company have any capitalized mortgage servicing rights at December 31, 2000. Interest and Fees on Loans Interest income on loans is accrued and credited to income based on the principal amount outstanding. The recognition of interest income is discontinued when a loan becomes 90 days past due or a significant deterioration in the borrower's credit has occurred which, in management's opinion, negatively impacts the collectibility of the loan. Subsequent interest payments received on such loans are applied to principal if any doubt exists as to the collectibility of such principal; otherwise, such receipts are recorded as interest income. Loans are returned to accrual status when management believes full collectibility of principal and interest is expected. The Company defers the recognition of loan origination fees, net of the cost associated with originating such loans. Deferred loan fees are accreted into income over the contractual life of the loan using the straight-line method, which approximates the interest method. 43
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Loans and Allowance For Loan Losses The allowance for loan losses is increased by provisions charged to expense and is available to absorb charge offs, net of recoveries. Management utilizes a systematic, documented approach in determining the appropriate level of the allowance for loan losses. Management's approach, which provides for general and specific allowances, is based on current economic conditions, past losses, collection experience, risk characteristics of the portfolio, assessments of collateral values by obtaining independent appraisals for significant properties, and such other factors which, in management's judgment, deserve current recognition in estimating loan losses. Management believes the allowance for loan losses is adequate to absorb probable losses in the loan portfolio. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions and other factors. In addition, various regulatory agencies, as an integral part of the examination process, periodically review the Bank's loan portfolio. Such agencies may require the Bank to add to the allowance for loan losses based on their judgments and interpretations of information available to them at the time of their examinations. Accounting for Impaired Loans A loan is considered impaired when it is probable the Banks will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. When measuring impairment, the expected future cash flows of an impaired loan are discounted at the loan's effective interest rate. Alternatively, impairment is measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan. Regardless of the measurement method used, historically, the Bank measures impairment based on the fair value of the collateral when foreclosure is probable. Additionally, impairment of a restructured loan is measured by discounting the total expected future cash flow at the loan's effective rate of interest as stated in the original loan agreement. The Banks recognize interest income on nonaccrual loans only when received and on impaired loans continuing to accrue interest as earned. Other Real Estate Owned Other real estate owned represents property acquired through foreclosure or deeded to the Company's subsidiary banks in lieu of foreclosure on loans on which the borrowers have defaulted as to the payment of principal and interest. Other real estate owned is recorded on an individual asset basis at the lower of cost or fair value less estimated costs to sell. Subsequent reductions in fair value are expensed or recorded in a valuation reserve account through a provision against income. Subsequent increases in the fair value are recorded through a reversal of the valuation reserve, but not below zero. Gains and losses resulting from the sale of other real estate owned are credited or charged to current period earnings. Costs of maintaining and operating other real estate owned are expensed as incurred, and expenditures to complete or improve other real estate owned properties are capitalized if the expenditures are expected to be recovered upon ultimate sale of the property. Fixed Assets Buildings, leasehold improvements, and furniture, fixtures, and equipment are stated at cost less accumulated depreciation and amortization is computed using the straight-line method over their respective estimated useful lives. Furniture, fixtures and equipment is depreciated over three to ten years and buildings and leasehold improvements over ten to forty years. 44
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Goodwill Banks acquired and recorded under the purchase method are recorded at the fair value of the net assets acquired at the acquisition date, and results of operations are included from that date. Excess of purchase price over the fair value of net assets acquired is recorded as goodwill and is being amortized on a straight-line basis over 15 years. Impairment of Long-Lived Assets Long-lived assets, including goodwill and premises and equipment, are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or group of assets may not be recoverable. The impairment review includes a comparison of future cash flows expected to be generated by the asset or group of assets with their associated carrying value. If the carrying value of the asset or group of assets exceeds expected cash flows (undiscounted and without interest changes), an impairment loss is recognized to the extent the carrying amount exceeds expected cash flows. Income Taxes The Company and its subsidiaries file consolidated federal income tax returns. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. Cash Flow Information For purposes of reporting cash flows, the Company considers cash and due from banks and federal funds sold to be cash and cash equivalents. Reclassification Certain reclassifications have been made to the prior year amounts to conform to the present year presentation. Stock Options The Corporation accounts for its stock option plans in accordance with the provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees, and related interpretations. As such, compensation expense is recorded on the date of grant only if the current market price of the underlying stock exceeded the exercise price. The Company provides pro forma net income and pro forma net income per share disclosures for employee stock option grants made in 1995 and future years as if the fair-value-based method defined in Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation, had been applied. Derivative Instruments and Hedging Activities Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for Derivative Instruments and Hedging Activities." This statement establishes standards for derivative instruments embedded in other contracts, and for hedging activities. It requires an entity to recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value. The Company currently does not have any derivative instruments or engage in hedging activities. 45
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 4--EARNINGS PER SHARE Basic earnings per share data is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per share gives effect to the increase in the average shares outstanding which would have resulted from the exercise of dilutive stock options and warrants. The components of basic earnings per share for the years ended December 31, 2000, 1999, and 1998 are as follows: <TABLE> <CAPTION> 2000 1999 1998 -------------- -------------- ------------- <S> <C> <C> <C> Basic Net income attributable to common shareholders' equity $ 5,201,446 $ 3,706,292 $ 2,945,611 ============== ============== ============= Weighted average common shares outstanding 8,990,605 8,953,717 8,642,113 ============== ============== ============= Basic earnings per share $ 0.58 $ 0.41 $ 0.34 ============== ============== ============= </TABLE> The components of diluted earnings per share for the years ended December 31, 2000, 1999, and 1998 are as follows: <TABLE> <CAPTION> 2000 1999 1998 -------------- -------------- ------------- <S> <C> <C> <C> Diluted Net income attributable to common shareholders' equity $ 5,201,446 $ 3,706,292 $ 2,945,611 ============== ============== ============= Weighted average common shares outstanding 8,990,605 8,953,717 8,642,113 Stock options 694,147 642,773 493,136 -------------- -------------- ------------- Diluted weighted average common shares outstanding 9,684,752 9,596,490 9,135,249 ============== ============== ============= Diluted earnings per share $ 0.54 $ 0.39 $ 0.32 ============== ============== ============= </TABLE> NOTE 5--REGULATORY RESTRICTIONS The Company's subsidiary banks are subject to regulations by regulatory authorities, which require the maintenance of minimum capital standards, which may affect the amount of dividends the Company's subsidiary banks can pay. At December 31, 2000 and 1999, approximately $3,533,000 and $1,038,000, respectively, of cash and due from banks represented required reserves on deposits maintained by the Company's subsidiary banks in accordance with Federal Reserve Bank requirements. 46
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 6--INVESTMENTS IN DEBT AND EQUITY SECURITIES A summary of the amortized cost and estimated fair value of debt and equity securities classified as available for sale at December 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> 2000 ----------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> U. S. Treasury securities and obligations of U.S. government corporations and agencies $ 42,462,946 $ 218,058 $ 6,477 $ 42,674,527 Mortgage-backed securities 7,461,840 15,720 24,459 7,453,101 Municipal bonds 159,287 - - 159,287 Other securities 282,418 - - 282,418 Federal Reserve Bank stock and Federal Home Loan Bank stock 2,262,550 - - 2,262,550 ------------- ------------- ------------- ------------- $ 52,629,041 $ 233,778 $ 30,936 $ 52,831,883 ============= ============= ============= ============= <CAPTION> 1999 ----------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ------------- ------------- ------------- ------------- <S> <C> <C> <C> <C> U. S. Treasury securities and obligations of U.S. government corporations and agencies $ 39,211,846 $ 2,233 $ 474,418 $ 38,739,661 Mortgage-backed securities 3,373,836 - 152,850 3,220,986 Municipal bonds 162,477 - - 162,477 Other securities 32,418 - - 32,418 Federal Reserve Bank stock and Federal Home Loan Bank stock 1,930,350 - - 1,930,350 ------------- ------------- ------------- ------------- $ 44,710,927 $ 2,233 $ 627,268 $ 44,085,892 ============= ============= ============= ============= </TABLE> The amortized cost and estimated fair value of debt and equity securities classified as available for sale at December 31, 2000, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Estimated Cost Fair Value ----------- ----------- Due in one year or less $27,031,016 $27,118,863 Due after one year through five years 15,873,635 15,997,369 Mortgage-backed securities 7,461,840 7,453,101 Securities with no stated maturity 2,262,550 2,262,550 ----------- ----------- $52,629,041 $52,831,883 =========== =========== 47
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of the amortized cost and estimated fair value of debt and equity securities classified as held to maturity at December 31, 2000 and 1999 is as follows: 2000 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value --------- ---------- ---------- ---------- Mortgage-backed securities $ 20,497 $ - $ 160 $ 20,337 Municipal bonds 500,783 - 1,678 499,105 --------- ---------- ---------- ---------- $ 521,280 $ - $ 1,838 $ 519,442 ========= ========== ========== ========== 1999 --------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value --------- ---------- ---------- ---------- Mortgage-backed securities $ 23,538 $ 44 $ - $ 23,582 Municipal bonds 656,268 353 3,352 653,269 --------- ---------- ---------- ---------- $ 679,806 $ 397 $ 3,352 $ 676,851 ========= ========== ========== ========== The amortized cost and estimated fair value of debt and equity securities classified as held to maturity at December 31, 2000, by contractual maturity, are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Estimated Cost Fair Value --------- ---------- Due in one year or less $500,783 $499,105 Mortgage-backed securities 20,497 20,337 -------- -------- $521,280 $519,442 ======== ======== There were no sales of investments in debt and equity securities for the years ended December 31, 2000 and 1999. Proceeds from the sales of securities during 1998 were $3,351,573. Gross gains of $20,256 were realized on those sales. Debt and equity securities having a carrying value of $14,481,015 and $17,210,741 at December 31, 2000 and 1999, respectively, were pledged as collateral to secure public deposits and for other purposes as required by law. As a member of the Federal Home Loan Bank system administered by the Federal Housing Finance Board, the Bank is required to maintain an investment in the capital stock of its respective Federal Home Loan Bank (FHLB) in an amount equal to the greater of 1% of the aggregate outstanding balance of loans secured by dwelling units at the beginning of each year or .3% of its total assets. The FHLB stock is recorded at cost which represents redemption value. The Missouri Bank is a member of the Federal Home Loan Bank of Des Moines, while the Kansas Bank is a member of the Federal Home Loan Bank of Topeka. In connection with the adoption of SFAS 133, the Company elected to reclassify an equity investment from held to maturity to trading. The Company recorded a $197,546 gain on marking the asset to market during the second quarter of 1999, which is treated as a cumulative effect of change in accounting principle. In the fourth quarter of 1999, the Company obtained a purchase agreement for the equity investment which resulted in a $202,454 gain in the fair value. This gain was recognized as noninterest income. The asset was subsequently sold on February 2, 2000 for $910,500. 48
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 7--LOANS A summary of loans by category at December 31, 2000 and 1999 is as follows: 2000 1999 ------------ ------------ Commercial and industrial $ 153,357,212 $ 137,819,178 Loans secured by real estate 377,123,787 318,645,849 Other 26,417,315 24,482,566 ------------ ------------ 556,898,314 480,947,593 Less unearned loan fees 105,723 56,112 ------------ ------------ $ 556,792,591 $ 480,891,481 ============ ============ The breakdown of loans secured by real estate at December 31, 2000 and 1999 is as follows: 2000 1999 ------------ ------------ Business and personal loans $ 102,380,296 $ 103,528,036 Income-producing properties 102,237,244 95,784,942 Owner-occupied properties 61,158,902 47,701,284 Real estate development properties 111,347,345 71,631,587 ------------ ------------ $ 377,123,787 $ 318,645,849 ============ ============ The Company's subsidiary banks grant commercial, residential, and consumer loans throughout its service areas, which consists primarily of the immediate area in which the Banks are located. The Company has a diversified loan portfolio, with no particular concentration of credit in any one economic sector; however, a substantial portion of the portfolio is concentrated in and secured by real estate. The ability of the Company's borrowers to honor their contractual obligations is dependent upon the local economy and its effect on the real estate market. Following is a summary of activity for the year ended December 31, 2000 of loans to executive officers and directors or to entities in which such individuals had beneficial interests as a shareholder, officer, or director. Such loans were made in the normal course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and did not involve more than the normal risk of collectibility. Balance, January 1, 2000 $ 32,740,478 New loans 3,274,545 Payments and other reductions (6,059,909) ----------- Balance, December 31, 2000 $ 29,955,114 =========== A summary of activity in the allowance for loan losses for the years ended December 31, 2000, 1999 and 1998 is as follows: 2000 1999 1998 ---------- ----------- ---------- Balance at beginning of year $ 6,758,222 $ 4,429,545 $ 3,170,315 Provisions charged to operations 1,042,534 2,496,256 1,360,899 Loans charged off (788,442) (246,057) (163,699) Recoveries of loans previously charged off 84,230 78,478 62,030 ---------- ----------- ---------- Balance at end of year $ 7,096,544 $ 6,758,222 $ 4,429,545 ========== =========== ========== 49
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements A summary of impaired loans, which include nonaccrual loans, at December 31, 2000, 1999 and 1998 is as follows: 2000 1999 1998 ---------- ---------- ---------- Nonaccrual loans $ 1,798,364 $ 2,484,725 $ 580,608 Impaired loans continuing to accrue interest 7,292,867 844,100 1,169,857 ---------- ---------- ---------- Total impaired loans $ 9,091,231 $ 3,328,825 $ 1,750,465 ========== ========== ========== Allowance for losses on specific impaired loans $ 1,869,902 $ 1,172,038 $ 583,570 Impaired loans with no related allowance for loan losses - 2,820 1,668 Average balance of impaired loans during the year $ 5,408,861 $ 2,488,957 $ 1,204,564 ========== ========== ========== If interest on nonaccrual loans had been accrued, such income would have been $287,696, $178,520 and $13,250 for the years ended December 31, 2000, 1999, and 1998, respectively. The amount recognized as interest income on nonaccrual loans was $14,979, $15,455 and $393 for the years ended December 31, 2000, 1999, and 1998, respectively. The amount recognized as interest income on impaired loans continuing to accrue interest was $676,371, $125,097 and $126,355 for the years ended December 31, 2000, 1999, and 1998, respectively. NOTE 8--FIXED ASSETS A summary of fixed assets at December 31, 2000 and 1999 is as follows: <TABLE> <CAPTION> 2000 1999 ---------------- --------------- <S> <C> <C> Land $ 842,953 $ 842,953 Buildings 3,867,129 3,848,773 Leasehold improvements 1,893,547 1,825,613 Furniture, fixtures and equipment 7,784,251 5,703,756 ---------------- --------------- 14,387,880 12,221,095 Less accumulated depreciation and amortization 5,595,860 4,238,370 ---------------- --------------- $ 8,792,020 $ 7,982,725 ================ =============== </TABLE> Depreciation and amortization of building, leasehold improvements, and furniture, fixtures and equipment included in noninterest expense amounted to $1,209,363 in 2000, $919,668 in 1999 and $838,213 in 1998. All of the Company's Missouri banking facilities are leased under agreements that expire in various years through 2016. The Company's aggregate rent expense totaled $1,030,883, $814,538 and $749,086 in 2000, 1999 and 1998, respectively, and sublease rental income totaled $76,231, $60,550, and $42,816 in 2000, 1999 and 1998, respectively. The future aggregate minimum rental commitments required under the leases are as follows: Year Amount ---- ------ 2001 $1,105,080 2002 1,116,622 2003 1,106,303 2004 995,310 2005 471,326 Thereafter 4,147,656 For leases which renew or are subject to periodic rental adjustments, the monthly rental payments will be adjusted based on then current market conditions and rates of inflation. 50
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 9--INVESTMENT IN ENTERPRISE FUND, L.P. The Company and its subsidiaries have a combined 10% interest in a limited liability small business investment partnership, Enterprise Fund, L.P. The Company had a total commitment of $1,005,000. The Company has made contributions of $502,500 and was released from any future capital commitments with the restructuring of the Merchant Banking Business. This investment, which is accounted for using the equity method of accounting, had a carrying value of $576,664 and $546,710 at December 31, 2000 and 1999, respectively. NOTE 10--OTHER BORROWINGS As a member of the Federal Home Loan Bank, the subsidiary banks have access to Federal Home Loan Bank advances. Federal Home Loan Bank advances are secured under a blanket agreement which assigns all Federal Home Loan Bank stock, and one to four family mortgage loans equal to 130% of the outstanding balance. The following table summarizes the type, term and rate of the Company's Federal Home Loan Bank advances at December 31, 2000: <TABLE> <CAPTION> Outstanding Type of Advance Balance Issue Date Term Rate - --------------- ---------------- ---------------- --------------- -------------- <S> <C> <C> <C> <C> Long term non-amortized advance $ 14,296 11/30/94 7 years 8.34% Long term non-amortized advance 45,000 02/03/95 10 years 8.10 Long term non-amortized advance 28,580 08/01/95 7 years 6.64 Long term non-amortized advance 2,000,000 08/28/98 3 years 5.80 Long term non-amortized advance 1,000,000 08/28/98 5 years 5.89 Long term non-amortized advance 3,000,000 10/05/98 3 years 4.68 Long term non-amortized advance 3,000,000 10/05/98 5 years 4.72 Mortgage matched advance 458,953 02/01/99 15 years 5.62 Mortgage matched advance 185,739 04/05/99 15 years 6.15 Mortgage matched advance 233,331 05/06/99 15 years 6.32 ---------- Total Federal Home Loan Bank Advances $9,965,899 ========== </TABLE> The weighted average interest rate on outstanding Federal Home Loan Bank advances as of December 31, 2000 is 5.17%. Federal funds purchased represent overnight advances bearing interest at 6.63% and 5.83% as of December 31, 2000 and 1999, respectively. NOTE 11--MATURITY OF CERTIFICATES OF DEPOSIT Following is a summary of certificates of deposit maturities at December 31, 2000: <TABLE> <CAPTION> $ 100,000 Maturity Period and Over Other Total ------------------------------------------- ------------- ------------ ------------ <S> <C> <C> <C> Less than 1 year $75,829,577 $ 81,923,818 $157,753,395 Greater than 1 year and less than 2 years 6,881,100 15,315,385 22,196,485 Greater than 2 years and less than 3 years 1,424,864 3,607,327 5,032,191 Greater than 3 years and less than 4 years 300,173 1,579,905 1,880,078 Greater than 4 years and less than 5 years 100,000 115,482 215,482 Over 5 years - 8,795 8,795 ----------- ------------ ------------ $84,535,714 $102,550,712 $187,086,426 =========== ============ ============ </TABLE> 51
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 12--NOTES PAYABLE In March 1999, the Company obtained a $2,500,000 unsecured bank line of credit. In July 1999, the Company increased the line to $5,000,000. The line of credit was renewed on April 1, 2000 and matures on March 31, 2001 and is an interest only note, accruing interest at a variable rate of Prime minus 0.50%. The Company used a portion of the proceeds from the offering of guaranteed preferred beneficial interests in EBH-subordinated debentures to pay off the $5,000,000 outstanding balance on the note. For the year ended December 31, 1999, the average balance and maximum month-end balance of the note payable were $1,029,167 and $5,000,000, respectively. The Company had no outstanding principal balance on the loan as of December 31, 2000 and 1999. The Company had a line with the Federal Reserve Bank of St. Louis during 2000 for liquidity purposes and did not draw on the line. As of December 31, 2000, $61,924,355 was available under this line. 52
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 13--INCOME TAXES The components of income tax expense (benefit) for the years ended December 31, 2000, 1999 and 1998 are as follows: 2000 1999 1998 ---------- ---------- ---------- Current: Federal $2,949,725 $2,830,153 $1,841,557 State and local 431,873 389,987 289,415 Deferred (173,148) (884,732) (405,569) ---------- ---------- ---------- $3,208,450 $2,335,408 $1,725,403 ========== ========== ========== A reconciliation of expected income tax expense, computed by applying the statutory federal income tax rate of 34% in 2000, 1999 and 1998, to income before income taxes and the amounts reflected in the consolidated statements of income is as follows: 2000 1999 1998 ---------- ---------- ---------- Income tax expense at statutory rate $2,859,365 $2,012,871 $1,588,145 Increase (reduction) in income taxes resulting from: Tax-exempt income (82,032) (78,604) (62,135) State and local income tax expense 285,036 257,391 191,014 Goodwill amortization 64,793 64,793 64,793 Other, net 81,288 78,957 (56,414) ---------- ---------- ---------- Total tax expense $3,208,450 $2,335,408 $1,725,403 ========== ========== ========== A net deferred income tax asset of $2,190,533 and $2,298,863 is included in prepaid expenses and other assets in the consolidated balance sheets at December 31, 2000 and 1999, respectively. The tax effect of temporary differences that gave rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2000 and 1999 is as follows: 2000 1999 ---------- ---------- Deferred tax assets: Allowance for loan losses $2,359,638 $2,270,456 Unrealized losses on securities available for sale - 212,512 Deferred compensation 198,711 134,192 ---------- ---------- Total deferred tax assets 2,558,349 2,617,160 ---------- ---------- Deferred tax liabilities: Deferred loan fees 213 775 Office equipment and leasehold improvements 281,309 311,692 Unrealized gains on securities available for sale 68,966 - Other 17,328 5,830 ---------- ---------- Total deferred tax liabilities 367,816 318,297 ---------- ---------- Net deferred tax asset $2,190,533 $2,298,863 ========== ========== A valuation allowance would be provided on deferred tax assets when it is more likely than not that some portion of the assets will not be realized. The Company has not established a valuation allowance as of December 31, 2000, due to management's belief that all criteria for recognition have been met, including the existence of a history of taxes paid sufficient to support the realization of the deferred tax assets. 53
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 14--REGULATORY MATTERS The Banks are subject to various regulatory capital requirements administered by the Federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possible additional, discretionary - actions by regulators that, if undertaken, could have a direct material effect on the Banks' financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures of the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Banks' capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Quantitative measures established by regulation to ensure capital adequacy require the Banks to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2000, that the Banks meet all capital adequacy requirements to which it is subject. As of December 31, 2000, the most recent notification from the FDIC categorized the Missouri Bank as well capitalized under the regulatory framework for prompt corrective action. As of December 31, 2000, the most recent notification from the OCC categorized the Kansas Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Banks must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table. There are no conditions or events since that notification that management believes have changed the institutions' category. The Company's and Banks' actual capital amounts and ratios are also presented in the table. <TABLE> <CAPTION> To Be Well Capitalized Under For Capital Prompt Corrective Actual Adequacy Purposes Action Provisions -------------------- ------------------- ----------------- Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ------ ----- <S> <C> <C> <C> <C> <C> <C> As of December 31, 2000: Total Capital (to risk weighted assets) Enterbank Holdings, Inc. $69,043,524 11.79% $46,859,325 8.00% $58,574,157 10.00% Enterprise Bank, Missouri 47,996,270 10.27 37,397,138 8.00 46,746,422 10.00 Enterprise Banking, N.A. 13,209,043 11.68 9,049,719 8.00 11,312,149 10.00 Tier 1 Capital (to risk weighted assets) Enterbank Holdings, Inc. $62,071,803 10.60% $23,429,663 4.00% $35,144,494 6.00% Enterprise Bank, Missouri 43,131,270 9.23 18,698,569 4.00 28,047,853 6.00 Enterprise Banking, N.A. 11,817,715 10.45 4,524,860 4.00 6,787,289 6.00 Tier 1 Capital (to average assets) Enterbank Holdings, Inc. $62,071,803 9.41% $19,796,366 3.00% $32,993,943 5.00% Enterprise Bank, Missouri 43,131,270 8.21 15,754,367 3.00 26,257,279 5.00 Enterprise Banking, N.A. 11,817,715 9.05 3,919,173 3.00 6,531,955 5.00 As of December 31, 1999: Total Capital (to risk weighted assets) Enterbank Holdings, Inc. $61,998,592 12.35 %$40,168,392 8.00% $50,210,490 10.00% Enterprise Bank, Missouri 41,215,654 10.22 32,253,615 8.00 40,317,018 10.00 Enterprise Banking, N.A. 12,433,484 13.00 7,651,692 8.00 9,564,615 10.00 Tier 1 Capital (to risk weighted assets) Enterbank Holdings, Inc. $55,987,448 11.15 %$20,084,196 4.00% $30,126,294 6.00% Enterprise Bank, Missouri 36,980,654 9.17 16,126,807 4.00 24,190,211 6.00 Enterprise Banking, N.A. 11,237,842 11.75 3,825,846 4.00 5,738,769 6.00 Tier 1 Capital (to average assets) Enterbank Holdings, Inc. $55,987,448 10.62 %$15,817,650 3.00% $26,362,750 5.00% Enterprise Bank, Missouri 36,980,654 9.09 12,201,701 3.00 20,336,168 5.00 Enterprise Banking, N.A. 11,237,842 9.54 3,534,322 3.00 5,890,536 5.00 </TABLE> 54
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 15--GUARANTEED PREFERRED BENEFICIAL INTERESTS IN EBH-SUBORDINATED DEBENTURES On October 25, 1999, EBH Capital Trust I ("EBH Trust"), a newly-formed Delaware business trust subsidiary of Enterbank Holdings, Inc. issued 1,375,000 shares of 9.40% Cumulative Trust Preferred Securities ("Preferred Securities") at $8 per share in an underwritten public offering. The Preferred Securities mature on December 15, 2029. The maturity date may be shortened to a date not earlier than December 15, 2004, if certain conditions are met. The debentures are the sole asset of EBH Trust. In connection with the issuance of the Preferred Securities, the Company made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of EBH Trust under the Preferred Securities. The Company's proceeds from the issuance of the subordinated debentures to EBH Trust, net of underwriting fees and offering expenses, were $10.28 million. The Preferred Securities are classified as debt for reporting purposes and capital for regulatory reporting purposes. NOTE 16--SHAREHOLDERS' EQUITY On September 29, 1999, the Company completed a 3 for 1 stock split in the form of a stock dividend. All share and per share data have been restated to reflect this stock split. NOTE 17--COMPENSATION PLANS Stock Options Plans At December 31, 2000, the Company had five qualified incentive and two nonqualified stock option plans for the benefit of employees and directors of Enterbank Holdings and subsidiaries. Plan I was adopted on April 20, 1988 with 432,000 options. As of December 31, 2000, Plan I had no options outstanding and no options available for future grant. Plan II was adopted on April 25, 1990 with 225,000 options. Plan II had 187,200 options outstanding and no options available for grant. Plan III was adopted on June 19, 1996 with 600,000 options. Plan III has 564,800 options outstanding and 7,000 options available for future grants. Plan IV was adopted on April 28, 1999 with 600,000 options. Plan IV has 162,950 options outstanding and 437,050 available for future grants. Plan V is discussed below. The Company inherited two stock option plans with the CGB merger completed in June of 2000. The stock option plans provide qualified and nonqualified options to certain officers and directors for up to 273,220 common shares of the Company. These options were fully vested upon grant. The options are exercisable for ten years and five years for the qualified and nonqualified options, respectively. The CGB plans have 201,961 options outstanding and no options available for future grant. In 1998, the Company adopted by Board Approval a nonqualified stock option plan ("the Nonqualified Plan"), which sets aside up to 105,000 shares of Company common stock to grant options to certain key employees of the Company or any of its subsidiaries. There are limitations as to the number of options which my be granted to any individual and additional restrictions for options which may be granted to any individual who is also a ten percent shareholder. The purchase price for any options granted under the Nonqualified Plan will be determined based upon the market value of the common stock at the time such options are granted. At December 31, 2000, the Nonqualified Plan had 85,500 options outstanding and 19,500 options available for future grants. 55
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Following is a summary of the various stock option plan transactions: Number Price of shares per share Total --------- -------------------------------- December 31, 1997 1,214,575 $ 1.67 - 9.72 $ 5,431,134 Granted 200,509 8.33 - 11.67 2,110,008 Exercised 220,275 1.67 - 5.33 385,525 Forfeited 108,859 3.08 - 5.33 861,500 --------- -------------- ------------ December 31, 1998 1,085,950 $ 1.67 - 11.67 $ 6,294,117 Granted 104,316 10.33 - 15.17 1,211,280 Exercised 28,125 1.67 - 5.33 69,685 Forfeited 22,457 5.33 - 11.67 201,200 --------- -------------- ------------ December 31, 1999 1,139,684 $ 1.67 - 15.17 $ 7,234,512 Granted 214,597 15.00 - 18.25 3,291,612 Exercised 134,621 2.33 - 11.67 804,125 Forfeited 17,249 5.33 - 18.25 216,248 --------- -------------- ------------ December 31, 2000 1,202,411 $ 2.33 - 18.25 $ 9,505,751 ========= ============== ============ The exercise price range of outstanding options at December 31, 2000 was $2.33 to $18.25 and the weighted average contractual life was 6.39 years. The Company applies APB Opinion 25 and related Interpretations in accounting for its stock option plans. Accordingly, no compensation cost has been recognized for its stock option plans. Had compensation cost for the Company's stock-based compensation plans been determined based on the fair value at the grant dates for awards under those plans consistent with the method contained in SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below: 2000 1999 1998 ------ ------ ------ Net income (in thousands) As reported $5,201 $3,706 $2,946 Pro forma 4,749 3,337 2,539 Earnings per share: Basic: As reported $ 0.58 $ 0.41 $ 0.34 Pro forma 0.53 0.38 0.27 Diluted: As reported $ 0.54 $ 0.39 $ 0.32 Pro forma 0.49 0.35 0.25 The fair value of each option granted in 2000 was estimated on the date of grant using the Black-Scholes option- pricing model with the following assumptions; a risk-free interest rate of 6.50% and 6.06% for April and September, respectively; a dividend yield of 0.67%; vesting period for 5 years; expected lives of 10 years; and volatility of 13.38% and 30.13% for April and September, respectively. The weighted average fair value of the options granted in 2000 was $6.75. The fair value of each option granted in 1999 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions; a risk-free interest rate of 4.72%, 5.18%, 5.79% and 6.11% for January, April, July and October, respectively; a dividend yield of 0.67%; vesting period for 5 years; expected lives of 10 years; and volatility of 24.13%. The weighted average fair value of the options granted in 1999 was $4.93. The fair value of each option granted in 1998 was estimated on the date of grant using the Black-Scholes option-pricing model with the following assumptions: a risk-free interest rate of 5.50%, 5.46%, 5.40% and 4.67% for February, June, August and September, respectively; a dividend yield of 0.67%; vesting period for 5 years; expected lives of 10 years; and volatility of 27.23%. The weighted average fair value of the options granted in 1998 was $4.56. 56
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements On April 1, 1999, the Company adopted a Stock Appreciation Rights ("SAR") Plan. This Plan replaces the previous form of cash compensation for directors of the Company and its subsidiaries and awards vest based upon attendance and unit performance. Under the plan, the Company has the option to pay vested SARs either in the form of cash or Company common stock. As of December 31, 2000, there were 90,000 SARs outstanding. Effective January 1, 1993, the Company adopted a 401(k) thrift plan which covers substantially all full-time employees over the age of 21. The amount charged to expense for contributions to the plan was $290,423 for 2000, $170,152 for 1999, and $153,621 for 1998. NOTE 18--LITIGATION Various legal claims have arisen during the normal course of business which, in the opinion of management, after discussion with legal counsel, will not result in any material liability. NOTE 19--DISCLOSURES ABOUT FINANCIAL INSTRUMENTS The Banks issue financial instruments with off balance sheet risk in the normal course of the business of meeting the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments may involve, to varying degrees, elements of credit and interest-rate risk in excess of the amounts recognized in the consolidated balance sheets. The Company's extent of involvement and potential exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amount of these instruments. The Banks use the same credit policies in making commitments and conditional obligations as it does for financial instruments included on its consolidated balance sheets. The contractual amount of off-balance-sheet financial instruments as of December 31, 2000 and 1999 is as follows: 2000 1999 ------------ ------------ Commitments to extend credit $269,022,511 $242,253,117 Standby letters of credit 11,806,101 12,370,773 ============ ============ Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Of the total commitments to extend credit at December 31, 2000, approximately $21,820,731 represents fixed rate loan commitments. Since certain of the commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The Banks evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management's credit evaluation of the borrower. Collateral held varies, but may include accounts receivable, inventory, premises and equipment, and real estate. Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. These standby letters of credit are primarily issued to support contractual obligations of the Banks' customers. The credit risk involved in issuing letters of credit is essentially the same as the risk involved in extending loans to customers. SFAS 107, Disclosures about Fair Value of Financial Instruments, extends existing fair value disclosure for some financial instruments by requiring disclosure of the fair value of such financial instruments, both assets and liabilities recognized and not recognized in the consolidated balance sheets. 57
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Following is a summary of the carrying amounts and fair values of the Company's financial instruments on the consolidated balance sheets at December 31, 2000 and 1999: <TABLE> <CAPTION> 2000 1999 -------------------------- -------------------------- Carrying Estimated Carrying Estimated Amount Fair Value Amount Fair Value ------------ ------------ ------------ ------------ <S> <C> <C> <C> <C> Balance sheet assets: Cash and due from banks $ 25,964,052 25,964,052 $ 19,354,316 $ 19,354,316 Federal funds sold 58,302,921 58,302,921 54,825,000 54,825,000 Interest-bearing deposits 9,397 9,397 469 469 Investments in debt, equity, and trading securities 53,353,163 53,351,325 45,675,698 45,672,743 Loans held for sale 945,095 945,095 1,438,335 1,438,335 Loans, net 549,696,047 552,255,829 474,133,259 476,354,207 Accrued interest receivable 4,258,710 4,258,710 3,555,615 3,555,615 ============ ============ ============ ============ Balance sheet liabilities: Deposits $632,437,437 $633,999,426 $542,328,627 $543,477,249 FHLB advances 9,965,899 9,960,145 11,116,830 11,038,566 Guaranteed preferred beneficial interests in EBH- subordinated debentures 11,000,000 10,312,500 11,000,000 11,000,000 Federal funds purchased 1,225,000 1,225,000 1,300,000 1,300,000 Accrued interest payable 1,687,288 1,687,288 1,292,155 1,292,155 ============ ============ ============ ============ </TABLE> The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practical to estimate such value: Cash and Other Short-term Instruments For cash and due from banks, federal funds sold (purchased), interest-bearing deposits, and accrued interest receivable (payable), the carrying amount is a reasonable estimate of fair value, as such instruments reprice in a short time period. Investments in Debt and Equity Securities Fair values are based on quoted market prices or dealer quotes. Loans Held for Sale Loans held for sale are recorded at the lower of cost or fair value, using the specific identification method. Loans, net The fair value of adjustable-rate loans approximates cost. The fair value of fixed-rate loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Deposits The fair value of demand deposits, interest-bearing transaction accounts, money market accounts and savings deposits is the amount payable on demand at the reporting date. The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities. Federal Home Loan Bank Advances The fair value of Federal Home Loan Bank advances is based on the discounted value of contractual cash flows. The discount rate is estimated using rates on borrowed money with similar remaining maturities. 58
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Guaranteed Preferred Beneficial Interests in EBH-Subordinated Debentures Fair value of guaranteed preferred beneficial interests in EBH-subordinated debentures is based on market prices as of December 31, 2000. The fair value as of December 31, 1999 is assumed to equal carrying amount since the offering was completed in the fourth quarter of 1999. Commitments to Extend Credit and Standby Letters of Credit The fair value of commitments to extend credit and standby letters of credit are estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements, the likelihood of the counterparties drawing on such financial instruments, and the present creditworthiness of such counterparties. The Company believes such commitments have been made on terms which are competitive in the markets in which it operates; however, no premium or discount is offered thereon and accordingly, the Company has not assigned a value to such instruments for purposes of this disclosure. Limitations Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company's entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company's financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment, and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates. Fair value estimates are based on existing on- and off-balance-sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in many of the estimates. NOTE 20--LINE OF BUSINESS RESULTS To help the Company more effectively manage the new geographic area in which it operates, management has taken a regional management approach since the merger took place. All earlier periods have been restated to reflect this change in management evaluation. The regions are evaluated separately on their individual performance, as well as their contribution to the Company as a whole. The corporate, other intercompany, and reclassifications segment include the holding company, merchant banking activities and trust preferred securities activities. The Company incurs general corporate expenses and owns Enterprise Bank, Missouri, Enterprise Banking, N.A. and Enterprise Merchant Banc, Inc. Enterprise Merchant Banc, Inc. offers merchant banking and venture capital services through its investment in Enterprise Merchant Banc LLC. The majority of the activity for the Kansas City region occurs in Enterprise Banking, N.A., while the majority of the activity for the St. Louis region occurs in Enterprise Bank, Missouri. The Banks provide similar products and services in two defined geographic areas. The products and services offered include a broad range of commercial and personal banking services, including certificates of deposit, individual retirement and other time deposit accounts, checking and other demand deposit accounts, interest checking accounts, savings accounts and money market accounts. Loans include commercial, financial and agricultural, real estate construction and development, commercial and residential real estate, consumer and installment loans. Other financial services include mortgage banking, debit and credit cards, automatic teller machines, internet account access, safe deposit boxes, trust and private banking services and cash management services. The revenues generated by each business segment consist primarily of interest income, generated from the loan and investment security portfolios, and service charges and fees, generated from the deposit products and services. The products and services are offered to customers primarily within their respective geographic areas, with the exception of loan participations executed between the subsidiary banks. The St. Louis region includes Enterprise Trust, which provides trust services and financial planning services. 59
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements <TABLE> <CAPTION> Corporate/intercompany St. Louis Region Kansas City Region reclassification Total ---------------- ------------------ ---------------------- --------------- <S> <C> <C> <C> <C> As of and for the year ended December 31, 2000 Balance sheet information: Investment securities $ 36,001,871 $ 17,351,292 $ - $ 53,353,163 Loans, less unearned loan fees 445,496,043 111,296,548 - 556,792,591 Total assets 566,882,531 138,721,913 4,458,746 710,063,190 Deposits 514,758,354 119,382,330 (1,703,247) 632,437,437 Shareholders' equity $ 43,248,747 $ 14,112,214 $ (3,877,178) $ 53,483,783 ================ ================== ====================== =============== Income statement information: Interest income $ 45,253,823 $ 10,776,529 $ - $ 56,030,352 Interest expense 21,652,864 4,899,413 1,043,632 27,595,909 ---------------- ------------------ ---------------------- --------------- Net interest income 23,600,959 5,877,116 (1,043,632) 28,434,443 Provision for loan losses 712,534 330,000 - 1,042,534 Noninterest income 2,366,368 771,046 357,117 3,494,531 Noninterest expense 15,561,159 4,535,134 2,380,251 22,476,544 ---------------- ------------------ ---------------------- --------------- Income before income tax expense 9,693,634 1,783,028 (3,066,766) 8,409,896 Income tax expense 3,643,018 629,357 (1,063,925) 3,208,450 ---------------- ------------------ ---------------------- --------------- Net income (loss) $ 6,050,616 $ 1,153,671 $ (2,002,841) $ 5,201,446 ================ ================== ====================== =============== As of and for the year ended December 31, 1999 Balance sheet information: Investment securities $ 24,487,847 $ 20,277,851 $ 910,000 $ 45,675,698 Loans, less unearned loan fees 385,101,759 95,789,722 - 480,891,481 Total assets 484,779,269 127,142,045 3,222,175 615,143,489 Deposits 439,756,847 106,530,797 (3,959,017) 542,328,627 Shareholders' equity $ 36,910,546 $ 14,279,911 $ (4,146,861) $ 47,043,596 ================ ================== ====================== =============== Income statement information: Interest income $ 32,136,899 $ 8,939,099 $ 10 $ 41,076,008 Interest expense 14,086,864 3,807,982 265,255 18,160,101 ---------------- ------------------ ---------------------- --------------- Net interest income 18,050,035 5,131,117 (265,245) 22,915,907 Provision for loan losses 1,021,256 1,475,000 - 2,496,256 Noninterest income 2,062,121 1,029,779 503,615 3,595,515 Noninterest expense 12,045,218 4,708,785 1,340,954 18,094,957 ---------------- ------------------ ---------------------- --------------- Income (loss) before income tax expense 7,045,682 (22,889) (1,102,584) 5,920,209 Income tax expense 2,677,511 14,949 (357,052) 2,335,408 ---------------- ------------------ ---------------------- --------------- Income before cumulative effect of a change in accounting principle 4,368,171 (37,838) (745,532) 3,584,801 Cumulative effect on prior years of a change in asset classification, net of taxes - - 121,491 121,491 ---------------- ------------------ ---------------------- --------------- Net income (loss) $ 4,368,171 $ (37,838) $ (624,041) $ 3,706,292 ================ ================== ====================== =============== As of and for the year ended December 31, 1998 Balance sheet information: Investment securities $ 46,290,936 $ 18,365,618 $ - $ 64,656,554 Loans, less unearned loan fees 273,817,522 81,109,264 - 354,926,786 Total assets 374,054,971 112,761,546 1,248,947 488,065,464 Deposits 339,746,147 94,022,900 (565,977) 433,203,070 Shareholders' equity $ 27,619,777 $ 15,065,449 $ 1,620,352 $ 44,305,578 ================ ================== ====================== =============== Income statement information: Interest income $ 25,414,269 $ 8,090,870 $ - $ 33,505,139 Interest expense 11,869,335 3,836,227 (4) 15,705,558 ---------------- ------------------ ---------------------- --------------- Net interest income 13,544,934 4,254,643 4 17,799,581 Provision for loan losses 710,899 650,000 - 1,360,899 Noninterest income 1,642,481 679,034 436,231 2,757,746 Noninterest expense 8,546,389 4,473,712 1,505,313 14,525,414 ---------------- ------------------ ---------------------- --------------- Income (loss) before income tax expense 5,930,127 (190,035) (1,069,078) 4,671,014 Income tax expense 2,226,744 (124,872) (376,469) 1,725,403 ---------------- ------------------ ---------------------- --------------- Net income (loss) $ 3,703,383 $ (65,163) $ (692,609) $ 2 ,945,611 ================ ================== ====================== =============== </TABLE> 60
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidazted Financial Statements NOTE 21--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Balance Sheets <TABLE> <CAPTION> December 31, ------------------------- Assets 2000 1999 ------ ----------- ----------- <S> <C> <C> Cash $ 1,489,114 $ 3,886,277 Investment in Enterprise Bank 43,248,747 36,910,546 Investment in Enterprise Merchant Banc, Inc. 2,984,366 1,221,542 Investment in Enterprise Fund, L.P. 576,664 546,710 Investment in Enterprise Banking, N.A. 14,112,214 13,694,412 Investment in other subsidiaries 834,733 585,499 Other assets 1,655,140 1,768,235 ----------- ----------- Total assets $64,900,978 $58,613,221 =========== =========== Liabilities and Shareholders' Equity ------------------------------------ Accounts payable and other liabilities $ 417,195 $ 569,625 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 11,000,000 Shareholders' equity 53,483,783 47,043,596 ----------- ----------- Total liabilities and shareholders' equity $64,900,978 $58,613,221 =========== =========== </TABLE> Condensed Statements of Income <TABLE> <CAPTION> December 31, ------------------------------------- 2000 1999 1998 ----------- ---------- ---------- <S> <C> <C> <C> Income: Gain on trading asset $ 500 $ 202,454 $ - Other income 43,089 5,168 13,670 ----------- ---------- ---------- Total income 43,589 207,622 13,670 ----------- ---------- ---------- Expenses: (Gain) loss on investment in Enterprise Fund, L.P. (29,954) 7,763 2,199 Interest expense-subordinated debentures 1,087,194 192,468 - Interest expense-notes payable - 78,650 - Other expenses 1,748,947 873,176 913,347 ----------- ---------- ---------- Total expenses 2,806,187 1,152,057 915,546 ----------- ---------- ---------- Loss before tax benefit and equity in undistributed earnings of subsidiaries (2,762,598) (944,435) (901,876) Income tax benefit 995,872 268,458 314,474 ----------- ---------- ---------- Loss before equity in undistributed earnings of subsidiaries (1,766,726) (675,977) (587,402) ----------- ---------- ---------- Equity in undistributed earnings of subsidiaries 6,968,172 4,260,778 3,533,013 Cumulative effect on prior years of a change in asset classification - 121,491 - ----------- ---------- ---------- Net income $ 5,201,446 $3,706,292 $2,945,611 =========== ========== ========== </TABLE> 61
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements Condensed Statements of Cash Flow <TABLE> <CAPTION> December 31, ---------------------------------------- 2000 1999 1998 ----------- ----------- ----------- <S> <C> <C> <C> Cash flows from operating activities: Net income $ 5,201,446 $ 3,706,292 $ 2,945,611 Adjustments to reconcile net income to net cash used in operating activities: Cumulative effect of a change in accounting principle, net of tax - (121,491) - Gain on sale of trading security (500) (202,454) - Increase in trading security - (400,000) - Proceeds from sale of trading security 910,500 - - (Gain) loss on investment in Enterprise Fund, L.P. (29,954) 7,763 2,199 Noncash compensation expense attributed to stock option grants 283,148 - - Net income of subsidiaries (6,968,172) (4,260,778) (3,533,013) Dividends from subsidiaries 1,935,000 - - Other, net (962,825) 269,099 141,961 ----------- ----------- ----------- Net cash used in operating activities 368,643 (1,001,569) (443,242) Cash flows from investing activities: Capital contributions to subsidiaries (3,175,000) (5,921,500) (5,050,319) Investment in Enterprise Fund, L.P. - (129,989) (201,000) ----------- ----------- ----------- Net cash used in investing activities (3,175,000) (6,051,489) (5,251,319) Cash flows from financing activities: Proceeds from purchased funds and other short-term borrowings - 5,000,000 - Repayments of purchased funds and other short-term borrowings - (5,000,000) - Proceeds from issuance of subordinated debentures - 11,000,000 - Cash dividends paid (405,265) (285,577) (235,053) Proceeds from the exercise of common stock options 804,125 69,685 385,525 Proceeds from the issuance of common stock 10,334 107,500 4,150,319 Purchase of treasury stock - (390,000) - ----------- ----------- ----------- Net cash provided by financing activities 409,194 10,501,608 4,300,791 =========== =========== =========== Net increase (decrease) in cash and cash equivalents (2,397,163) 3,448,550 (1,393,770) Cash and cash equivalents, beginning of year 3,886,277 437,727 1,831,497 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 1,489,114 $ 3,886,277 $ 437,727 =========== =========== =========== </TABLE> 62
SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15d of the Securities Act of 1934, the undersigned Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the 21st of February, 2001. ENTERBANK HOLDINGS, INC. By: /s/ Fred H. Eller ------------------ Fred H. Eller Chief Executive Officer Pursuant to the requirements of the Securities Act of 1934, this Report on Form 10-K has been signed by the following persons in the capacities and on the 21st day of February 2001. Signatures Title ---------- ----- /s/ Fred H. Eller - ----------------- Fred H. Eller Chief Executive Officer and and Director /s/ Ronald E. Henges - -------------------- Ronald E. Henges Chairman of the Board of Directors /s/ Kevin C. Eichner - -------------------- Kevin C. Eichner Vice Chairman of the Board of Directors /s/ Paul R. Cahn - ---------------- Paul R. Cahn Director /s/ Birch M. Mullins - -------------------- Birch M. Mullins Director /s/ Robert E. Saur* - ------------------- Robert E. Saur Director /s/ James A. Williams - --------------------- James A. Williams Director /s/ Henry D. Warshaw - -------------------- Henry D. Warshaw Director /s/ James L. Wilhite - -------------------- James L. Wilhite Director /s/ Ted C. Wetterau* - -------------------- Ted C. Wetterau Director /s/ Randall D. Humphreys* - ------------------------- Randall D. Humphreys Director /s/ Paul L. Vogel - ----------------- Paul L. Vogel Director /s/ William B. Moskoff - ---------------------- William B. Moskoff Director /s/ Richard S. Masinton - ----------------------- Richard S. Masinton Director 63
/s/ Ted A. Murray - ----------------- Ted A. Murray Director /s/ Michael J. DeCoursey - ------------------------ Michael J. DeCoursey Director /s/ Robert D. Ames - ------------------ Robert D. Ames Director /s/ Jack L. Sutherland - ---------------------- Jack L. Sutherland Director * By Fred H. Eller, James C. Wagner and Stacey Tate, as Attorney-in-Part pursuant to Powers of Attorney executed by the persons listed above, which Powers of Attorney and filed as Exhibit 24.1 hereto. /s/ James C. Wagner - --------------------- James C. Wagner Chief Financial Officer, Treasurer and Vice President /s/ Fred H. Eller /s/ James C. Wagner /s/ Stacey Tate - --------------------- ---------------------------------- ---------------- Fred H. Eller James C. Wagner Stacey Tate Attorney-in-Part Attorney-in-Part Attorney-in-Part 64
EXHIBIT INDEX -------------- Exhibit No. Exhibit --- ------- 3.1 Certificate of Incorporation of the Registrant, as amended (incorporated herein by reference to Exhibit 3.1 of the Registrant's Registration Statement on Form S-1 dated December 19, 1996 (File No. 333-14737)). 3.2 Amendment to the Certificates of Incorporation of the Registrant (incorporated herein by reference to Exhibit 4.2 to the Registrant's Registration Statement on Form S-8 dated July 1, 1999 (File No. 333- 82082)). 3.3 Amendment to the Certificate of Incorporation of the Registrant (incorporated herein by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the period ending September 30, 1999). 3.4 Bylaws of the Registrant, as amended (incorporated herein by reference to Exhibit 3.4 of the Registrant's Annual Report on Form 10-K for the period ending December 31, 1999). 4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by reference to Exhibit 4.3 of the Registrant's Registration Statement on Form S-8 dated December 29, 1997 (File No. 333-43365)). 4.2 Enterprise Bank Second Incentive Stock Option Plan (incorporated herein by reference to Exhibit 44.4 of the Registrant's Registration Statement on Form S-8 dated December 29, 1997 (File No. 333-43365)). 4.3 Enterbank Holdings, Inc. Third Incentive Stock Option Plan (incorporated herein by reference to Exhibit 4.5 of the Registrant's Registration Statement on Form S-8 dated December 29, 1997 (File No. 333-43365)). 4.4 Enterbank Holdings, Inc., Fourth Incentive Stock Option Plan (incorporated herein by reference to the Registrant's 1998 Proxy Statement on Form 14- A). 4.5 Enterbank Holdings, Inc. (formerly Commercial Guaranty Bancshares, Inc.) Employee Incentive Stock Option Plan (incorporated herein by reference to the Registrant's Form S-8 dated July 25, 2000 (File No. 333-42204)). 4.6 Enterbank Holdings, Inc. (formerly Commercial Guaranty Bancshares, Inc.) Non-Employee Organizer and Director Incentive Stock Option Plan (incorporated herein by reference to the Registrant's Form S-8 dated July 25, 2000 (File No. 333-42204)). 4.7 Enterbank Holdings, Inc. Stock Appreciation Rights (SAR) Plan and Agreement (incorporated herein by reference to Exhibit 4.5 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 1999). 10.1 Customer Referral Agreement by and among Enterbank Holdings, Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc. (incorporated herein by reference to Exhibit 10 of the Registrant's Quarterly Report on Form 10-Q for the period ended September 30, 1997). 10.2 Revised Customer Referral Agreement by and among Enterbank Holdings, Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc. (incorporated herein by reference to Exhibit 10.3 of the Registrant's Annual Report on Form 10-K for the period ended December 31, 1998). 65
10.3 Agreement and Plan of Merger dated January 5, 2000 between Enterbank Holdings, Inc. and Commercial Guaranty Bancshares, Inc. (incorporated herein by reference to Exhibit 10.4 of the Registrant's Annual Report on Form 10-K for the period ended December 31, 1999). 10.4 Joint Proxy Statement/Prospectus of Enterbank Holdings, Inc. and Commercial Guaranty Bancshares, Inc. (incorporated herein by reference to the Registrant's Form S-4/A dated May 11, 2000 (File No. 333- 35794)). 10.5 Enterbank Holdings, Inc. Deferred Compensation Plan I (incorporated herein by reference to Exhibit 10.1 of the Registrant's Quarterly Report on Form 10-Q for the period ended March 31, 2000) 11.1/(1)/ Statement regarding computation of per share earnings. 21.1/(1)/ Subsidiaries of the Registrant. 23.1/(1)/ Consent of KPMG LLP. 24.1/(1)/ Power of Attorney. ____________________________ /(1)/ Filed herewith 66