1 ============================================================================== SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934--For the quarterly period ended March 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number ------------- ------------ ENTERBANK HOLDINGS, INC. (Exact Name of Registrant as Specified in its Charter) DELAWARE 43-1706259 (State or other jurisdiction of (I.R.S. Employer incorporation 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 ------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of May 1, 2001: Common Stock, $.01 par value---9,164,496 shares outstanding as of May 1, 2001 ==============================================================================
2 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page ---- PART I - FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited): Consolidated Balance Sheets At March 31, 2001 and December 31, 2000 3 Consolidated Statements of Income Three Months Ended March 31, 2001 and 2000 4 Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2001 and 2000 5 Consolidated Statements of Cash Flows Three Months Ended March 31, 2001 and 2000 6 Notes to Consolidated Financial Statements 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk 17 PART II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K II-1 Signatures II-2
3 <TABLE> PART I - ITEM 1 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets <CAPTION> (Unaudited) (Audited) At March 31, At December 31, 2001 2000 ------------- --------------- <S> <C> <C> Assets ------ Cash and due from banks $ 24,724,337 $ 25,964,052 Federal funds sold 38,614,615 58,302,921 Interest-bearing deposits 9,150 9,397 Investments in debt and equity securities: Available for sale, at estimated fair value 32,942,047 50,569,333 Held to maturity, at amortized cost (estimated fair value of $220,459 at March 31, 2001 and $519,442 at December 31, 2000) 220,177 521,280 Federal Reserve Bank stock and Federal Home Loan Bank stock, at cost 2,262,550 2,262,550 ------------- ------------- Total investments in debt and equity securities 35,424,774 53,353,163 ------------- ------------- Loans held for sale 4,388,774 945,095 Loans, less unearned loan fees 583,953,908 556,792,591 Less allowance for loan losses 7,349,199 7,096,544 ------------- ------------- Loans, net 576,604,709 549,696,047 ------------- ------------- Other real estate owned 337,680 76,680 Fixed assets, net 9,023,352 8,792,020 Accrued interest receivable 3,880,860 4,258,710 Investment in Enterprise Merchant Banc, LLC 2,286,705 2,326,422 Investment in Enterprise Fund, LP 577,754 576,664 Goodwill 2,230,462 2,278,104 Prepaid expenses and other assets 3,432,785 3,483,915 ------------- ------------- Total assets $ 701,535,957 $ 710,063,190 ============= ============= Liabilities and Shareholders' Equity ------------------------------------ Deposits: Demand $ 91,476,307 $ 105,649,983 Interest-bearing transaction accounts 55,097,724 61,314,029 Money market accounts 275,603,584 271,060,782 Savings 7,245,648 7,326,217 Certificates of deposit: $100,000 and over 87,295,120 84,535,714 Other 105,719,323 102,550,712 ------------- ------------- Total deposits 622,437,706 632,437,437 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 11,000,000 Federal Home Loan Bank advances 10,954,913 9,965,899 Federal funds purchased -- 1,225,000 Accrued interest payable 1,674,723 1,687,288 Accounts payable and accrued expenses 300,368 263,783 ------------- ------------- Total liabilities 646,367,710 656,579,407 ------------- ------------- Shareholders' equity: Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 9,147,139 shares at March 31, 2001 and 9,072,521 shares at December 31, 2000 91,471 90,725 Surplus 36,455,814 35,840,371 Retained earnings 18,441,831 17,418,811 Accumulated other comprehensive income 179,131 133,876 ------------- ------------- Total shareholders' equity 55,168,247 53,483,783 ------------- ------------- Total liabilities and shareholders' equity $ 701,535,957 $ 710,063,190 ============= ============= See accompanying notes to unaudited consolidated financial statements. 3
4 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) <CAPTION> Three months ended March 31, 2001 2000 ------------ ------------ <S> <C> <C> Interest income: Interest and fees on loans $ 12,907,376 $ 11,065,399 Interest on debt securities: Taxable 827,968 730,366 Nontaxable 5,757 9,593 Interest on federal funds sold 500,972 730,935 Interest on interest bearing deposits 1,804 152 ------------ ------------ Total interest income 14,243,877 12,536,445 ------------ ------------ Interest expense: Interest-bearing transaction accounts 178,940 202,327 Money market accounts 3,107,322 2,724,687 Savings 45,938 43,980 Certificates of deposit: $100,000 and over 1,387,733 1,182,897 Other 1,621,695 1,539,545 Other borrowed funds 146,663 135,594 Guaranteed preferred beneficial interests in EBH-subordinated debentures 252,578 265,873 ------------ ------------ Total interest expense 6,740,869 6,094,903 Net interest income 7,503,008 6,441,542 Provision for loan losses 265,000 220,436 ------------ ------------ Net interest income after provision for loan losses 7,238,008 6,221,106 ------------ ------------ Noninterest income: Service charges on deposit accounts 299,561 304,227 Trust and financial advisory income 252,346 97,308 Realized gain on sale of trading security -- 500 Other service charges and fee income 115,769 90,369 Gain on sale of mortgage loans 180,023 80,767 Gain on sale of available for sale investment securities 29,687 -- Income (loss) from investment in Enterprise Merchant Banc, LLC (39,718) 30,112 Gain on investment in Enterprise Fund, LP 1,089 18,015 ------------ ------------ Total noninterest income 838,757 621,298 ------------ ------------ Noninterest expense: Salaries 3,228,895 2,431,594 Payroll taxes and employee benefits 631,804 551,105 Occupancy 396,987 370,528 Furniture and equipment 296,214 186,987 Data processing 217,489 166,902 Amortization of goodwill 47,642 47,641 Other 1,382,383 1,443,394 ------------ ------------ Total noninterest expense 6,201,414 5,198,151 ------------ ------------ Income before income tax expense 1,875,351 1,644,253 Income tax expense 715,299 635,060 ------------ ------------ Net income $ 1,160,052 $ 1,009,193 ============ ============ Per share amounts Basic earnings per share $ 0.13 $ 0.11 Basic weighted average common shares outstanding 9,117,286 8,945,347 Diluted earnings per share $ 0.12 $ 0.10 Diluted weighted average common shares outstanding 9,646,791 9,676,828 See accompanying notes to unaudited consolidated financial statements. 4
5 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) <CAPTION> Three months ended March 31, 2001 2000 ----------- ----------- <S> <C> <C> Net income $ 1,160,052 $ 1,009,193 Other comprehensive income (loss): Realized and unrealized gain (loss) arising during the period, net of tax 64,848 (34,055) Less reclassification adjustment for realized gain included in net income, net of tax 19,593 -- ----------- ----------- Total other comprehensive income (loss) 45,255 (34,055) ----------- ----------- Total comprehensive income $ 1,205,307 $ 975,138 =========== =========== - ------------------------------- See accompanying notes to unaudited consolidated financial statements. 5
6 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) <CAPTION> Three months ended March 31, 2001 2000 ------------- ------------- <S> <C> <C> Cash flows from operating activities: Net income $ 1,160,052 $ 1,009,193 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 339,491 316,735 Provision for loan losses 265,000 220,436 Gain on sale of trading security -- (500) Proceeds from sale of trading security -- 910,500 Net accretion of debt and equity securities (12,806) (29,526) Gain on sale of available for sale investment securities (29,687) -- Gain on investment in Enterprise Fund, LP (1,089) (18,015) Loss (income) from investment in Enterprise Merchant Banc, LLC 39,718 (30,112) Mortgage loans originated (15,236,542) (7,700,668) Proceeds from mortgage loans sold 11,972,886 6,578,192 Gain on sale of mortgage loans (180,023) (80,767) Noncash compensation expense attributed to stock option grants 44,265 -- Decrease (increase) in accrued interest receivable 377,850 (268,342) (Decrease) increase in accrued interest payable (12,565) 76,805 Other, net (201,836) 628,893 ------------- ------------- Net cash (used in) provided by operating activities (1,475,286) 1,612,824 ------------- ------------- Cash flows from investing activities: Decrease (increase) in interest-bearing deposits 247 (7,556) Purchases of available for sale debt and equity securities (2,978,117) (9,217,476) Proceeds from sale of available for sale debt and equity securities 279,687 -- Proceeds from maturities and principal paydowns on available for sale debt and equity securities Proceeds from maturities and principal paydowns on 20,443,114 150,000 held to maturity debt securities 300,000 -- Net increase in loans (27,208,218) (12,454,360) Recoveries of loans previously charged off 34,556 7,975 Purchases of fixed assets (523,181) (439,131) ------------- ------------- Net cash used in investing activities (9,651,912) (21,960,548) ------------- ------------- Cash flows from financing activities: Net (decrease) increase in noninterest bearing deposit accounts (14,173,676) 14,343,958 Net increase in interest bearing deposit accounts 4,173,945 841,728 Decrease in federal funds purchased (1,225,000) (1,300,000) Paydowns on Federal Home Loan Bank advances (10,986) (1,082,500) Borrowings on Federal Home Loan Bank advances 1,000,000 -- Cash dividends paid (137,029) (89,401) Proceeds from the issuance of common stock -- 13,500 Proceeds from the exercise of common stock options 571,923 91,952 ------------- ------------- Net cash (used in) provided by financing activities (9,800,823) 12,819,237 ------------- ------------- Net decrease in cash and cash equivalents (20,928,021) (7,528,487) Cash and cash equivalents, beginning of period 84,266,973 74,179,316 ------------- ------------- Cash and cash equivalents, end of period $ 63,338,952 $ 66,650,829 ============= ============= Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 6,753,434 $ 6,197,922 Income taxes 1,607,000 1,172,000 ============= ============= Noncash transactions: Transfers to other real estate owned in settlement of loans -- 42,000 ============= ============= See accompanying notes to unaudited consolidated financial statements. </TABLE> 6
7 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES (1) BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. They do not include all information and footnotes required by accounting principles generally accepted in the United States of America for complete consolidated financial statements. The accompanying consolidated financial statements of Enterbank Holdings, Inc. and subsidiaries (the "Company" or "Enterbank") are unaudited and should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. In the opinion of management, all adjustments consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein have been included. Operating results for the three month period ended March 31, 2001 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 2001. The consolidated financial statements include the accounts of Enterbank Holdings, Inc. and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. Certain amounts in the consolidated financial statements for the year ended December 31, 2000 have been reclassified to conform to the 2001 presentation. Such reclassifications had no effect on previously reported consolidated net income or shareholders' equity. (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. 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 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> 7
8 (3) SEGMENT DISCLOSURE To help the Company more effectively manage the new geographic area in which it operates, management has taken a regional management approach since the aforementioned merger took place. All earlier periods have been restated to reflect this change in management strategy. The different geographic regions in which we operate are evaluated separately on their individual performance, as well as their contribution to the Company as a whole. The corporate, intercompany, reclassifications, and other segment includes the holding company, merchant banking activities and trust preferred securities activities. The Company incurs general corporate expenses and owns Enterprise Bank in Missouri, Enterprise Banking, N.A. in Kansas 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 region occurs in Enterprise Banking, N.A., while the majority of the activity for the St. Louis region occurs in Enterprise Bank. 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, individual, agricultural, real estate construction and development, commercial and residential real estate, and 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 financial advisory 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 and financial advisory services. 8
9 The following are the financial results for the Company's operating segments for the three month periods ended March 31, 2001 and 2000 (unaudited): <TABLE> <CAPTION> Corporate, intercompany St. Louis Kansas reclassifications Region Region and other Total ------------- ------------- ----------------- ------------- <S> <C> <C> <C> <C> THREE MONTHS ENDED MARCH 31, 2001 Balance sheet information: Investment securities $ 21,853,605 $ 13,571,169 $ -- $ 35,424,774 Loans, less unearned loan fees 471,994,850 111,959,058 -- 583,953,908 Total assets 549,099,704 147,997,332 4,438,921 701,535,957 Deposits 495,710,791 128,714,082 (1,987,167) 622,437,706 Shareholders' equity $ 44,644,005 $ 14,330,554 $ (3,806,312) $ 55,168,247 ============= ============= ============ ============= Income statement information: Interest income $ 11,418,537 $ 2,825,340 $ -- $ 14,243,877 Interest expense 5,135,802 1,353,764 251,303 6,740,869 ------------- ------------- ------------ ------------- Net interest income 6,282,735 1,471,576 (251,303) 7,503,008 Provision for loan losses 195,000 70,000 -- 265,000 Noninterest income 650,853 186,533 1,371 838,757 Noninterest expense 4,466,507 1,325,385 409,522 6,201,414 ------------- ------------- ------------ ------------- Income (loss) before income tax expense 2,272,081 262,724 (659,454) 1,875,351 Income tax expense 868,502 97,958 (251,161) 715,299 ------------- ------------- ------------ ------------- Net income $ 1,403,579 $ 164,766 $ (408,293) $ 1,160,052 ============= ============= ============ ============= THREE MONTHS ENDED MARCH 31, 2000 Balance sheet information: Investment securities $ 33,582,377 $ 18,734,696 $ -- $ 52,317,073 Loans, less unearned loan fees 397,353,426 95,891,518 -- 493,244,944 Total assets 497,895,409 127,701,853 3,185,343 628,782,605 Deposits 451,202,680 110,798,298 (4,486,665) 557,514,313 Shareholders' equity $ 38,125,440 $ 13,142,571 $ (3,233,226) $ 48,034,785 ============= ============= ============ ============= Income statement information: Interest income $ 10,066,735 $ 2,469,710 $ -- $ 12,536,445 Interest expense 4,730,223 1,101,998 262,682 6,094,903 ------------- ------------- ------------ ------------- Net interest income 5,336,512 1,367,712 (262,682) 6,441,542 Provision for loan losses 145,436 75,000 -- 220,436 Noninterest income 382,598 181,981 56,719 621,298 Noninterest expense 3,626,380 991,824 579,947 5,198,151 ------------- ------------- ------------ ------------- Income (loss) before income tax expense 1,947,294 482,869 (785,910) 1,644,253 Income tax expense 722,372 163,234 (250,546) 635,060 ------------- ------------- ------------ ------------- Net income $ 1,224,922 $ 319,635 $ (535,364) $ 1,009,193 ============= ============= ============ ============= </TABLE> The St. Louis Region provided approximately 80% of the loans, deposits, and assets for the Company as of March 31, 2001 and 2000. During the same periods the Kansas region provided approximately 20% of the loans, deposits, and assets for the Company. The St. Louis Region loans increased $75 million, or 19%, while the loans in the Kansas Region increased $16 million, or 17%, for March 31, 2001 compared to March 31, 2000. Assets and deposits increased 10% for the St. Louis Region and 16% for the Kansas Region, respectively, for March 31, 2001 compared to March 31, 2000. The increase in loans and deposits 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. Investment securities in the St. Louis region decreased $12 million, or 35%, while investment securities decreased $5 million, or 28%, in the Kansas region at March 31, 2001 compared to March 31, 2000. The decrease in investment securities in both regions was the result of loan balances increasing more than deposit balances. 9
10 Interest income increased 13% and 14% for the St. Louis and Kansas regions, respectively, for the three month period ended March 31, 2001 compared to the same period ended March 31, 2000. Noninterest income increased $268,255, or 70%, in the St. Louis region as a result of increased activity in the trust and financial advisory services and gains on the sale of mortgage loans. The Company made significant investments in personnel and technology in the Kansas region which resulted in a 34% increase in noninterest expenses. The 23% increase in noninterest expense in the St. Louis region was the result of the addition of resources and infrastructure for continued growth. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 Readers should note that in addition to the historical information contained herein, this Form 10-Q contains forward looking statements which are inherently subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such statements. Factors that could cause or contribute to such differences include, but are not limited to, the effect that changes in interest rates and our cost of funds have on our earnings and assets, our level of loan defaults and delinquencies, our ability to successfully grow and realize profits from our commercial banking operations and our strategic non-banking lines of business, concentrations of our loans in one geographic area, our ability to retain key personnel, the degree and nature of our competition, and changes in government regulation of our business, as well as those discussed in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. INTRODUCTION This discussion summarizes the significant factors affecting the consolidated financial condition, results of operations, liquidity, and cash flows of the Company for the three months ended March 31, 2001 compared to the three months ended March 31, 2000 and the year ended December 31, 2000. This discussion should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000. FINANCIAL CONDITION Total assets at March 31, 2001 were $702 million, a decrease of $8 million compared to total assets of $710 million at December 31, 2000. Loans less unearned loan fees were $584 million, an increase of $27 million, or 5%, over total loans of $557 million at December 31, 2000. The increase in loans is, in part, attributable to the Company's investment in additional business development officers. Federal funds sold and investment securities were $74 million, a decrease of $38 million, or 34%, from total federal funds sold and investment securities of $112 million at December 31, 2000. The decrease resulted from the shift in interest earning assets from short-term investments into loans during the first three months of 2001. Total deposits at March 31, 2001 were $622 million, a decrease of $10 million compared to total deposits of $632 million at December 31, 2000. Total shareholders' equity at March 31, 2001 was $55 million, an increase of $1.7 million over total shareholders' equity of $53 million at December 31, 2000. The increase in equity is primarily due to net income of $1.16 million for the three months ended March 31, 2001, and the exercise of incentive stock options by employees, less dividends paid to shareholders. 10
11 RESULTS OF OPERATIONS Net income was $1,160,052 for the three month period ended March 31, 2001, an increase of 15% over net income of $1,009,193 for the same period in fiscal year 2000. Basic earnings per share for the three month periods ended March 31, 2001 and 2000 were $0.13 and $0.11, respectively. Diluted earnings per share for the three month periods ended March 31, 2001 and 2000 were $0.12 and $0.10, respectively. NET INTEREST INCOME Net interest income (presented on a tax equivalent basis) was $7.5 million, or 4.69% of average earning assets, for the three months ended March 31, 2001, compared to $6.5 million, or 4.42% of average earning assets, for the same period in 2000. The $1 million, or 16% increase, in net interest income for the three months ended March 31, 2001 resulted primarily from a $63 million increase in average earnings assets to $650 million, from $588 million, during the same period in 2000. The increase in earning assets 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. The yield on average earning assets increased to 8.89% for the three month period ended March 31, 2001 compared to 8.58% for the three month period ended March 31, 2000. The increase in asset yield was primarily due to a general increase in average yield on loans and investment securities. The increase in net interest margin was attributed to a change in the mix of interest- earning assets. Higher yielding loans and investment securities increased to 89% of total assets for the three months ended March 31, 2001 compared to 86% for the same period in 2000. The increase in net interest margin was slightly offset by an increase in the yield on interest-bearing liabilities. The yield on interest-bearing liabilities increased to 5.04% for the three months ended March 31, 2001 compared to 4.91% for the same period in 2000. This increase is attributed mainly to a 74 basis point increase in the rate paid on certificates of deposit. The increase in the interest paid on interest-bearing liabilities was offset by a change in the mix of liabilities. Total interest-bearing liabilities decreased to 79% of total average assets for the three months ended March 31, 2001 from 80% for the same period in 2000. This decrease is attributed to a 21% increase in noninterest-bearing liabilities compared to a 9% increase in interest-bearing liabilities for the three months ended March 31, 2001 as compared to the same period ended 2000. 11
12 The following table 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 the three month periods ended March 31, 2001 and 2000: <TABLE> <CAPTION> Three months ended March 31, -------------------------------------------------------------------------------- 2001 2000 -------------------------------------- -------------------------------------- Percent Interest Average Percent Interest Average Average of Total Income/ Yield/ Average of Total Income/ Yield/ Balance Assets Expense Rate Balance Assets Expense Rate ------- ------ ------- ---- ------- ------ ------- ---- (Dollars in Thousands) <S> <C> <C> <C> <C> <C> <C> <C> <C> ASSETS - ------ Interest-earning assets: Loans (1) $ 568,178 82.74% $ 12,927 9.23% $ 486,608 78.51% $ 11,102 9.15% Taxable investments in debt and equity securities 44,538 6.49 828 7.54 47,939 7.73 730 6.11 Non-taxable investments in debt and equity securities (2) 457 0.07 9 7.75 836 0.13 13 6.24 Federal funds sold 37,242 5.42 501 5.46 52,210 8.42 731 5.62 Interest-bearing deposits 33 -- -- 3.59 14 0.01 -- 4.31 --------- ------ -------- --------- ------ -------- Total interest-earning assets $ 650,448 94.72 $ 14,265 8.89 $ 587,607 94.80 $ 12,576 8.58 Non-interest-earning assets: Cash and due from banks 22,252 3.24 19,239 3.10 Fixed assets, net 8,926 1.30 8,157 1.32 Investment in Enterprise Merchant Banc, LLC 2,263 0.33 304 0.06 Prepaid expenses and other assets 10,053 1.46 10,610 1.71 Allowance for loan losses (7,224) (1.05) (6,137) (0.99) --------- ------ --------- ------ Total assets $ 686,718 100.00% $ 619,780 100.00% ========= ====== ========= ====== LIABILITIES AND - --------------- SHAREHOLDERS' EQUITY - -------------------- Interest-bearing liabilities: Interest-bearing transaction accounts $ 53,783 7.83% $ 179 1.35% $ 46,665 7.53% $ 202 1.74% Money market accounts 267,359 38.94 3,107 4.71 228,497 36.87 2,725 4.78 Savings 7,223 1.05 46 2.58 6,832 1.10 44 2.58 Certificates of deposit 191,819 27.94 3,009 6.36 194,314 31.35 2,722 5.62 Borrowed funds 11,290 1.64 147 5.27 10,363 1.67 136 5.28 Guaranteed preferred beneficial interests in EBH subordinated debentures 11,000 1.60 253 9.31 11,000 1.78 266 9.70 --------- ------ -------- --------- ------ -------- Total interest-bearing liabilities $ 542,474 79.00 $ 6,741 5.04 $ 497,671 80.30 $ 6,095 4.91 Noninterest-bearing liabilities: Demand deposits 87,166 12.69 71,381 11.52 Other liabilities 2,325 0.34 2,486 0.40 --------- ------ --------- ------ Total liabilities 631,965 92.03 571,538 92.22 Shareholders' equity 54,753 7.97 48,242 7.78 --------- ------ --------- ------ Total liabilities and shareholders' equity $ 686,718 100.00% $ 619,780 100.00% ========= ====== ========= ====== Net interest income $ 7,524 $ 6,481 ======== ======== Net interest margin 4.69% 4.42% ==== ==== <FN> - -------------------- (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 $345,000 and $282,000 for the three months ended March 31, 2001 and 2000, respectively. (2) Non-taxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. </FN> </TABLE> 12
13 PROVISION FOR LOAN LOSSES The provision for loan losses was $265,000 for the three months ended March 31, 2001, compared to $220,436 for the same period in 2000. The Company's asset quality remained strong with net chargeoffs of $13,000 for the three months ended March 31, 2001, compared to net chargeoffs of $50,000 for the same period in 2000. Loan growth remained strong during the first three months of 2001. The increase in provision expense in the first quarter of 2001 as compared to the same period in 2000 was due to the continued increase in loans outstanding, resulting in higher risk. 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 for loan losses that have been charged to expense. <TABLE> <CAPTION> Three months ended March 31, --------------------------- 2001 2000 --------- --------- (Dollars in thousands) <S> <C> <C> Allowance at beginning of year $ 7,097 $ 6,758 --------- --------- Loans charged off: Commercial and industrial 5 49 Real estate: Commercial 35 -- Construction -- -- Residential -- -- Consumer and other 7 10 --------- --------- Total loans charged off 47 59 --------- --------- Recoveries of loans previously charged off: Commercial and industrial 8 2 Real estate: Commercial 20 -- Construction -- -- Residential 3 1 Consumer and other 3 6 --------- --------- Total recoveries of loans previously charged off 34 9 --------- --------- Net loans charged off 13 50 --------- --------- Provision for loan losses 265 220 --------- --------- Allowance at end of period $ 7,349 $ 6,928 ========= ========= Average loans $ 568,178 $ 486,608 Total loans $ 583,954 $ 493,245 Nonperforming loans $ 1,944 $ 2,051 Net charge-offs to average loans (annualized) 0.009% 0.041% Allowance for loan losses to total loans 1.259% 1.405% </TABLE> 13
14 The Company's credit management policies 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. 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 in 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 review and credit 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, internal controls provides management with a detailed list of loans on the watch list and summaries of the entire loan portfolio categorized by risk rating. These are coupled with an analysis of changes in the risk profiles of the portfolios, changes in past due and non-performing 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 allowance for loan losses required for the portfolios are then compared to the actual allowance balances to determine the provision necessary to maintain the allowance for loan losses at an appropriate level. 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 loans 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 non-accrual, 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 for loan losses 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. Were the experience to deteriorate, and additional provisions for loan losses were required, future operational results would be negatively impacted. Both management and the Board of Directors continually monitor changes in asset quality, market conditions, concentrations of credit, and other factors, all of which impact the credit risk associated with the Company's loan portfolio. 14
15 The following table sets forth information concerning the Company's non- performing assets as of the dates indicated: <TABLE> <CAPTION> March 31, March 31, 2001 2000 --------- --------- (Dollars in thousands) <S> <C> <C> Non-accrual loans $ 1,944 $ 2,006 Loans past due 90 days or more and still accruing interest -- -- Restructured loans -- 45 --------- --------- Total non-performing loans 1,944 2,051 Other real estate owned 338 438 --------- --------- Total non-performing assets $ 2,282 $ 2,489 ========= ========= Total assets $ 701,536 $ 628,783 Total loans $ 583,954 $ 493,245 Total loans plus other real estate owned $ 584,292 $ 493,683 Non-performing loans to loans 0.33% 0.42% Non-performing assets to loans plus other real estate owned 0.39% 0.50% Non-performing assets to total assets 0.33% 0.40% </TABLE> NONINTEREST INCOME Noninterest income was $838,757 for the three months ended March 31, 2001 compared to $621,298 for the same period in 2000. The increase is primarily attributed to a $155,038 increase in trust and financial advisory income and a $99,256 increase in the gain on the sale of mortgage loans. Trust and financial advisory income was $252,346 for the three months ended March 31, 2001, as compared to $97,308 for the same period in 2000. The increase in fees was the result of increased assets under management in Enterprise Trust. The increase in the gain on sale of mortgage loans was due to a dramatic decrease in interest rates during the first quarter of 2001 resulting in higher loan sales. The $25,400 increase in other service charges and fee income and the $29,687 gain on the sale of available for sale equity securities also contributed to the increase in noninterest income for the three months ended March 31, 2001 compared to the same period in 2000. These increases were slightly offset by a $69,830 decrease in income from investment in Enterprise Merchant Banc, LLC and a $16,926 decrease in the gain on investment in Enterprise Fund, LP. Both of these decreases were a result of decreased fee income in these business during the three months ended March 31, 2001 compared to the same period in 2000. NONINTEREST EXPENSE Noninterest expense was $6.2 million for the three months ended March 31, 2001 compared to $5.2 million for the same period in 2000. The increase in noninterest expenses was primarily due to: 1) the investment in several additional new business development officers in the St. Louis region and additional management in the Kansas region; 2) increased activity and growth in the trust and financial advisory services; and 3) normal increases associated with continued growth. The Company recently implemented an Internet banking business and check imaging system to enhance customer service. Both programs increased noninterest expense during 2001. 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. Other noninterest expenses decreased $61,011 for the three months ended March 31, 2001, compared to the three months ended March 31, 2000. This decrease is attributed to a concerted effort by the Company's management to reduce expenses. 15
16 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, deposit inflows, proceeds from borrowings and retained earnings. Since its inception, the Company has experienced rapid loan and deposit growth primarily due to the aggressive direct calling efforts of the Company's relationship officers and sustained economic growth in the local market served by the Company. Management has pursued privately held businesses who desire a close working relationship with a locally managed, full service bank. Due to the relationship developed with these customers, management views 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 has used this source of deposits for over five years and considers it to be a stable source of deposits enabling the Company to acquire funds at a cost below its alternative cost of funds. There were $29 million and $30 million of deposits from the national network with the Company at March 31, 2001 and December 31, 2000, respectively. The following table sets forth the amount and maturity of certificates of deposit that had balances of more than $100,000 at March 31, 2001: <TABLE> <CAPTION> Remaining Maturity Amount ---------------------------------- -------- (Dollars in Thousands) <S> <C> Three months or less $ 28,881 Over three through six months 21,693 Over six through twelve months 26,900 Over twelve months 9,821 -------- $ 87,295 ======== </TABLE> 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. In March 2001, the Company renewed a $2,500,000 unsecured line of credit from Jefferson Bank and Trust. The line of credit matures on March 31, 2002 and is an interest only note accruing interest at a variable rate of prime minus 0.50%. There were no amounts outstanding under the line of credit at March 31, 2001. 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, (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 less purchased mortgage servicing rights to 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. 16
17 The following table summarizes the Company's risk-based capital and leverage ratios at the dates indicated: <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 MARCH 31, 2001: Total Capital (to risk weighted assets) Enterbank Holdings, Inc. $70,790,513 11.65% $48,631,750 8.00% $60,789,688 10.00% Enterprise Bank 49,581,246 10.17 38,993,622 8.00 48,742,028 10.00 Enterprise Banking, N.A. 13,449,809 11.65 9,237,752 8.00 11,547,190 10.00 Tier 1 Capital (to risk weighted assets) Enterbank Holdings, Inc. $63,758,654 10.49% $24,315,875 4.00% $36,473,813 6.00% Enterprise Bank 44,534,850 9.14 19,496,811 4.00 29,245,217 6.00 Enterprise Banking, N.A. 12,030,123 10.42 4,618,876 4.00 6,928,314 6.00 Tier 1 Capital (to average assets) Enterbank Holdings, Inc. $63,758,654 9.31% $20,534,616 3.00% $34,224,360 5.00% Enterprise Bank 44,534,850 8.22 16,252,703 3.00 27,087,839 5.00 Enterprise Banking, N.A. 12,030,123 8.66 4,168,646 3.00 6,947,743 5.00 AS OF DECEMBER 31, 2000: Total Capital (to risk weighted assets) Enterbank Holdings, Inc. $69,043,254 11.79% $46,859,325 8.00% $58,574,157 10.00% Enterprise Bank 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 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 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 </TABLE> EFFECT OF INFLATION Changes in interest rates may have a significant impact on a commercial bank's performance because virtually all assets and liabilities of commercial banks are monetary in nature. 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. ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK The Company's exposure to market risk is reviewed on a regular basis by its Asset/Liability Committee. 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 interest risk while at the same time maximizing income. Management realizes certain interest rate risks are inherent in our business 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 17
18 scenarios. At March 31, 2001, the rate shock scenario models indicated that annual net interest income would change by less than 5% should rates rise or fall within 100 basis points from their current level over a one year period. The Bank has no market risk sensitive instruments held for trading purposes. The following tables present the scheduled maturity of the Company's market risk sensitive instruments at March 31, 2001: <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 securities $ 17,202 5,727 2,039 1,992 3,515 4,950 $ 35,425 Interest-bearing deposits 9 -- -- -- -- -- 9 Federal funds sold 38,615 -- -- -- -- -- 38,615 Loans 433,856 50,308 55,752 28,680 8,558 11,189 588,343 --------- ------ ------ ------ ------ ------ --------- Total $ 489,682 56,035 57,791 30,672 12,073 16,139 $ 662,392 ========= ====== ====== ====== ====== ====== ========= LIABILITIES Savings, NOW, money market deposits $ 337,947 -- -- -- -- -- $ 337,947 Certificates of deposit 159,470 26,018 4,951 1,096 1,384 95 193,014 Guaranteed preferred beneficial interests in EBH-subordinated debentures -- -- -- -- -- 11,000 11,000 Borrowed funds 6,014 29 4,000 45 -- 867 10,955 --------- ------ ------ ------ ------ ------ --------- Total $ 503,431 26,047 8,951 1,141 1,384 11,962 $ 552,916 ========= ====== ====== ====== ====== ====== ========= <CAPTION> Average Interest Rate for Three Months Ended Estimated Carrying March 31, Fair Value 2001 Value --------- --------- --------- <S> <C> <C> <C> ASSETS Investment securities $ 35,425 7.54% $ 35,425 Interest-earning deposits 9 3.59 9 Federal funds sold 38,615 5.46 38,615 Loans 588,343 9.23% 590,778 --------- --------- Total $ 662,392 $ 664,827 ========= ========= LIABILITIES Savings, NOW, money Market deposits $ 337,947 4.11% $ 337,947 Certificates of deposit 193,014 6.36 194,966 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000 9.31 12,947 Borrowed funds 10,955 5.27% 10,077 --------- --------- Total $ 552,916 $ 555,937 ========= ========= </TABLE> 18
19 EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS In September 200, the Financial Accounting Standards Board (FASB) issued SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities, which replaces SFAS No. 125. This Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are secured borrowings. The standards are based on the consistent application of the financial components approach, whereupon after a transfer, an entity recognizes the financial and servicing assets it controls and the liabilities it has incurred, and derecognizes financial liabilities when extinguished. This Statement is effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001. This Statement was effective for recognition and reclassification of collateral and for disclosures relating to securitization transactions and collateral for fiscal years ending after December 15, 2000. A transfer of financial assets in which the transferor surrenders control is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in exchange. This Statement requires that liabilities and derivatives transferred be initially measured at fair value, if practicable. Servicing assets and other retained interests in the transferred assets are to be measured by allocating the previous carrying amount between the assets and retained interests sold, if any, based on their relative fair values on the date of the transfer. This Statement requires that servicing assets and liabilities be subsequently measured by amortization in proportion to and over the period of estimated net servicing income or loss, and assessment for asset impairment or increased obligation based on their fair values. This Statement requires that a liability be derecognized if the debtor pays the creditor and is relieved of its obligation for the liability, or the debtor is legally released from being the primary obligor and under the liability either judicially or by the creditor. The implementation of this Statement did not have a material effect on the Company's consolidated financial statements. 19
20 PART II - OTHER INFORMATION --------------------------- ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K (a). Exhibits. Exhibit Number Description ------ ----------- 11.1 (1) Statement Regarding Calculation of Earnings Per Share 27.1 (1) Financial Data Schedule (EDGAR only) (b). There were no forms filed on Form 8-K by the registrant during the quarter ended March 31, 2001. [FN] - ------------------------------- (1) Filed herewith. </FN> II-1
21 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the 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 11th day of May, 2001. ENTERBANK HOLDINGS, INC. By: /s/ Fred H. Eller ---------------------------------- Fred H. Eller Chief Executive Officer By: /s/ James C. Wagner ---------------------------------- James C. Wagner Chief Financial Officer II-2