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 September 30, 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 October 15, 2001: Common Stock, $.01 par value---- 9,254,496 shares outstanding ===============================================================================
2 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES TABLE OF CONTENTS Page PART I - FINANCIAL INFORMATION Item 1. Financial Statements (unaudited): Consolidated Balance Sheets At September 30, 2001 and December 31, 2000..............................1 Consolidated Statements of Income Three Months and Nine Months Ended September 30, 2001 and 2000...........2 Consolidated Statements of Comprehensive Income Three Months and Nine Months Ended September 30, 2001 and 2000...........4 Consolidated Statements of Cash Flows Nine Months Ended September 30, 2001 and 2000............................5 Notes to Unaudited Consolidated Financial Statements.....................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.........................................10 Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk ...24 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 (unaudited) <CAPTION> At September 30, At December 31, 2001 2000 ------------------ ------------------ <S> <C> <C> Assets ------ Cash and due from banks $ 34,127,839 $ 25,933,462 Federal funds sold 70,201,888 58,302,921 Interest-bearing deposits 1,337,042 39,987 Investments in debt and equity securities: Available for sale, at estimated fair value 36,481,254 50,569,333 Held to maturity, at amortized cost 218,317 521,280 (estimated fair value of $219,160 at September 30, 2001 and $519,442 at December 31, 2000) Other investments 2,262,550 2,262,550 ------------------ ------------------ Total investments in debt and equity securities 38,962,121 53,353,163 ------------------ ------------------ Loans held for sale 1,479,837 945,095 Loans, less unearned loan fees 638,658,163 556,792,591 Less allowance for loan losses 7,304,509 7,096,544 ------------------ ------------------ Loans, net 631,353,654 549,696,047 ------------------ ------------------ Other real estate owned 48,000 76,680 Fixed assets, net 9,778,204 8,792,020 Accrued interest receivable 3,562,115 4,258,710 Investment in Enterprise Merchant Banc, LLC 2,295,137 2,326,422 Investment in Enterprise Fund, L.P. 583,057 576,664 Goodwill 2,135,179 2,278,104 Prepaid expenses and other assets 7,977,851 4,359,063 ------------------ ------------------ Total assets $ 803,841,924 $ 710,938,338 ================== ================== Liabilities and Shareholders' Equity ------------------------------------ Deposits: Demand $ 115,329,136 $ 105,649,983 Interest-bearing transaction accounts 55,826,079 61,314,029 Money market accounts 313,651,616 271,060,782 Savings 8,303,688 7,326,217 Certificates of deposit: $100,000 and over 95,522,501 84,535,714 Other 126,362,811 102,550,712 ------------------ ------------------ Total deposits 714,995,831 632,437,437 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 11,000,000 Federal Home Loan Bank advances 14,901,022 9,965,899 Federal funds purchased -- 1,225,000 Notes payable 1,500,000 -- Accrued interest payable 1,498,970 1,687,288 Accounts payable and accrued expenses 2,084,274 1,138,931 ------------------ ------------------ Total liabilities 745,980,097 657,454,555 ------------------ ------------------ Shareholders' equity: Common stock, $.01 par value; authorized 20,000,000 shares; issued and outstanding 9,254,496 shares at September 30, 2001 and 9,072,521 shares at December 31, 2000 92,545 90,725 Surplus 37,157,365 35,840,371 Retained earnings 20,346,268 17,418,811 Accumulated other comprehensive income 265,649 133,876 ------------------ ------------------ Total shareholders' equity 57,861,827 53,483,783 ------------------ ------------------ Total liabilities and shareholders'equity $ 803,841,924 $ 710,938,338 ================== ================== </TABLE> - ---------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements.
4 <TABLE> ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) <CAPTION> Three months ended Nine months ended September 30, September 30, ------------------------------ ------------------------------ 2001 2000 2001 2000 ------------------------------ ------------------------------- <S> <C> <C> <C> <C> Interest income: Interest and fees on loans $ 12,191,313 $ 12,759,978 $ 37,755,020 $ 35,913,151 Interest on securities: Taxable 472,121 939,545 1,798,199 2,547,825 Nontaxable 4,068 8,798 14,533 27,232 Interest on federal funds sold 506,496 837,913 1,297,431 2,208,701 Interest on interest-bearing deposits 6,213 553 14,630 927 -------------- -------------- -------------- -------------- Total interest income 13,180,211 14,546,787 40,879,813 40,697,836 -------------- -------------- -------------- -------------- Interest expense: Interest-bearing transaction accounts 138,517 202,314 477,691 614,915 Money market accounts 2,309,575 3,575,317 7,972,964 9,430,163 Savings 40,409 46,971 131,841 136,509 Certificates of deposit: $100,000 and over 1,279,653 1,331,305 4,020,654 3,276,953 Other 1,754,256 1,700,427 5,077,864 5,255,369 Other borrowed funds 209,567 124,460 558,278 405,454 Guaranteed preferred beneficial interests in EBH-subordinated debentures 264,245 264,244 778,195 790,309 -------------- -------------- -------------- -------------- Total interest expense 5,996,222 7,245,038 19,017,487 19,909,672 -------------- -------------- -------------- -------------- Net interest income 7,183,989 7,301,749 21,862,326 20,788,164 Provision for loan losses 175,000 214,914 770,000 763,356 -------------- -------------- -------------- -------------- Net interest income after provision for loan losses 7,008,989 7,086,835 21,092,326 20,024,808 -------------- -------------- -------------- -------------- Noninterest income: Service charges on deposit accounts 319,375 291,532 932,750 886,470 Trust and financial advisory income 409,304 283,835 978,405 590,202 Gain on sale of trading security -- -- -- 500 Other service charges and fee income 119,900 261,704 316,357 527,887 Gain on sale of other real estate 12,630 -- 12,630 -- Gains on sale of mortgage loans 348,919 158,816 861,728 353,607 Gains on sale of securities -- -- 82,246 -- Income (loss) from investment in Enterprise Merchant Banc, LLC (10,683) 55,813 (34,392) 79,648 Income from investment in Enterprise Fund, L.P. 5,590 326 6,393 28,102 -------------- -------------- -------------- -------------- Total noninterest income 1,205,035 1,052,026 3,156,117 2,466,416 -------------- -------------- -------------- -------------- Noninterest expense: Salaries 3,389,674 2,818,623 9,867,025 7,848,513 Payroll taxes and employee benefits 691,218 625,193 2,042,948 1,731,222 Occupancy 418,459 384,791 1,216,465 1,143,939 Furniture and equipment 254,629 126,795 716,399 511,093 Data processing 273,171 344,853 812,074 699,164 Amortization of goodwill 47,642 47,642 142,925 142,924 Other 1,379,668 1,506,135 3,945,051 4,410,017 -------------- -------------- -------------- -------------- Total noninterest expense 6,454,461 5,854,032 18,742,887 16,486,872 -------------- -------------- -------------- -------------- Income before income tax expense 1,759,563 2,284,829 5,505,556 6,004,352 Income tax expense 713,120 862,400 2,163,824 2,298,164 -------------- -------------- -------------- -------------- Net income $ 1,046,443 $ 1,422,429 $ 3,341,732 $ 3,706,188 ============== ============== ============== ============== </TABLE> - --------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements 2
5 <TABLE> ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income (unaudited) continued <CAPTION> Three months ended Nine months ended September 30, September 30, ------------------------------- ------------------------------- 2001 2000 2001 2000 ------------------------------- ------------------------------- <S> <C> <C> <C> <C> Per share amounts Basic earnings per share $ 0.11 $ 0.16 $ 0.36 $ 0.41 Basic weighted average common shares outstanding 9,249,804 8,989,253 9,182,260 8,966,252 Diluted earnings per share $ 0.11 $ 0.15 $ 0.35 $ 0.38 Diluted weighted average common shares outstanding 9,645,722 9,639,253 9,613,331 9,664,094 </TABLE> - --------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements 3
6 <TABLE> ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (unaudited) <CAPTION> Three months ended Nine months ended September 30, September 30, -------------------------------- -------------------------------- 2001 2000 2001 2000 -------------------------------- -------------------------------- <S> <C> <C> <C> <C> Net income $ 1,046,443 $ 1,422,429 $ 3,341,732 $ 3,706,188 Other comprehensive income, before tax Realized and unrealized gain (loss) arising during the period, net of tax 102,145 (263,955) 186,055 178,218 Less: reclassification adjustment for realized gains included in net income, net of tax -- -- 54,282 -- -------------- -------------- -------------- -------------- Total other comprehensive income (loss), net of tax 102,145 (263,955) 131,773 178,218 -------------- -------------- -------------- -------------- Total comprehensive income $ 1,148,588 $ 1,158,474 $ 3,473,505 $ 3,884,406 ============== ============== ============== ============== </TABLE> - ---------------------------------------------- See accompanying notes to unaudited consolidated financial statements 4
7 <TABLE> ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited) <CAPTION> Nine months ended September 30, 2001 2000 ---------------- ----------------- <S> <C> <C> Cash flows from operating activities: Net income $ 3,341,732 $ 3,706,188 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,202,782 1,018,142 Provision for loan losses 770,000 763,356 Proceeds from sale of trading security -- 910,500 Gain on sale of trading security -- (500) Net accretion of debt and equity securities (55,312) (201,246) Gain on sale of available for sale investment securities (82,246) -- Income from investment in Enterprise Fund, L.P. (6,393) (28,102) Loss (income) from investment in Enterprise Merchant Banc, LLC 34,392 (79,648) Mortgage loans originated (64,257,678) (29,391,565) Proceeds from mortgage loans sold 64,584,664 29,695,213 Gain on sale on mortgage loans (861,728) (353,607) Noncash compensation expense attributed to stock option grants 145,249 -- Decrease (increase) in accrued interest receivable 696,595 (715,073) (Decrease) increase in accrued interest payable (188,318) 641,989 (Increase) in receivable from Enterprise Merchant Banc, LLC (1,500,000) -- Other, net (1,441,385) 309,818 ---------------- ----------------- Net cash provided by operating activities 2,382,354 6,275,465 ---------------- ----------------- Cash flows from investing activities: Increase in interest-bearing deposits (1,297,055) (13,996) Purchases of available for sale debt securities (51,486,799) (26,041,235) Purchases of available for sale equity securities -- (332,200) Purchase of held to maturity debt securities 101,195) -- Proceeds from sale of available for sale debt and equity securities 2,517,209 804,187 Proceeds from maturities and principal paydowns on available for sale debt and equity securities 63,375,375 7,881,860 Proceeds from maturities and principal paydowns on held to maturity debt securities 400,000 150,000 Proceeds from sale of other real estate 313,630 30,000 Net increase in loans 82,550,389) (54,302,209) Recoveries of loans previously charged off 98,832 55,006 Proceeds from sale of fixed assets 15,300 -- Purchases of fixed assets (2,058,618) (1,315,696) Investment in Enterprise Merchant Banc, LLC (43,107) (1,635,888) ---------------- ----------------- Net cash used in investing activities (70,816,817) (74,720,171) ---------------- ----------------- Cash flows from financing activities: Net increase in non-interest bearing deposit accounts 9,679,153 11,166,606 Net increase in interest bearing deposit accounts 72,879,241 62,529,897 Decrease in federal funds purchased (1,225,000) (1,300,000) Paydowns of Federal Home Loan Bank advances (3,064,877) (1,137,963) Proceeds from borrowings of Federal Home Loan Bank advances 8,000,000 -- Increase in notes payable 1,500,000 -- Cash dividends paid (414,275) (291,857) Proceeds from the exercise of common stock options 1,173,565 491,753 ---------------- ----------------- Net cash provided by financing activities 88,527,807 71,458,436 ---------------- ----------------- Net increase in cash and cash equivalents 20,093,344 3,013,730 Cash and cash equivalents, beginning of year 84,236,383 74,179,316 ---------------- ----------------- Cash and cash equivalents, end of year $ 104,329,727 $ 77,193,046 ================ ================= Supplemental disclosures of cash flow information: Cash paid during the year for: Interest $ 19,205,805 $ 19,267,683 Income taxes 3,218,300 3,168,194 ================ ================= Noncash transactions: Loans made to facilitate sale of other real estate owned 28,680 -- </TABLE> - ---------------------------------------------------------------------- See accompanying notes to unaudited consolidated financial statements. 5
8 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (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 and nine month periods ended September 30, 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) SEGMENT DISCLOSURE To help the Company more effectively manage the geographic areas in which it operates, management has taken a regional management approach. 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, other, and intercompany reclassifications includes the holding company, merchant banking activities, trust preferred securities activities and intercompany eliminations and reclassifications. The Company incurs general corporate expenses and owns Enterprise Bank and Enterprise Merchant Banc, Inc. Enterprise Merchant Banc, Inc. maintains 4.9% ownership in Enterprise Merchant Banc, LLC, which offers merchant banking and venture capital services. The majority of the activity for the Company occurs in Enterprise Bank which includes the St. Louis Region and the Kansas Region. On September 28, 2001, the Company completed the merger between its two banking subsidiaries, Enterprise Bank and Enterprise Banking, N.A. with Enterprise Bank (the "Bank") being the survivor of the merger. The Bank provides 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, 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. The St. Louis Region includes Enterprise Trust, which provides trust and financial advisory services. 6
9 The following are the financial results and balance sheet information for the Company's operating segments as of and for the nine month periods ended September 30, 2001 and 2000 (unaudited): <TABLE> <CAPTION> Corporate, other St. Louis Kansas and intercompany Region Region reclassification Total ----------------- ----------------- ----------------- ----------------- <S> <C> <C> <C> <C> BALANCE SHEET INFORMATION: AT SEPTEMBER 30, 2001 - ---------------------------- Investment securities $ 25,257,544 $ 13,704,577 $ -- $ 38,962,121 Loans, less unearned loan fees 505,720,398 132,937,765 -- 638,658,163 Total assets 630,661,760 165,941,831 7,238,333 803,841,924 Deposits 568,559,590 146,647,606 (211,365) 714,995,831 Shareholders' equity 48,124,417 14,756,235 (5,018,825) 57,861,827 ================= ================= ================= ================= AT SEPTEMBER 30, 2000 - ---------------------------- Investment securities $ 44,068,130 $ 18,614,420 $ -- $ 62,682,550 Loans, less unearned loan fees 432,092,813 102,420,501 -- 534,513,314 Total assets 548,818,647 37,724,238 4,149,304 690,692,189 Deposits 498,192,992 119,414,877 (1,582,739) 616,025,130 Shareholders' equity 41,364,274 15,011,683 (5,248,061) 51,127,896 ================= ================= ================= ================= </TABLE> 7
10 <TABLE> <CAPTION> Corporate, other St. Louis Kansas and intercompany Region Region reclassification Total ---------------- --------------- ------------------ ---------------- <S> <C> <C> <C> <C> INCOME STATEMENT INFORMATION: THREE MONTHS ENDED SEPTEMBER 30, 2001 - ----------------------------------------- Interest income $ 10,290,672 $ 2,889,539 $ -- $ 13,180,211 Interest expense 4,384,291 1,347,686 264,245 5,996,222 ---------------- --------------- ------------------ ---------------- Net interest income 5,906,381 1,541,853 (264,245) 7,183,989 Provision for loan losses 150,000 25,000 -- 175,000 Noninterest income (loss) 957,675 252,453 (5,093) 1,205,035 Noninterest expense 4,515,406 1,396,651 542,404 6,454,461 ---------------- --------------- ------------------ ---------------- Income (loss) before income tax expense 2,198,650 372,655 (811,742) 1,759,563 Income tax expense (benefit) 857,475 141,656 (286,011) 713,120 ---------------- --------------- ------------------ ---------------- Net income (loss) $ 1,341,175 $ 230,999 $ (525,731) $ 1,046,443 ================ =============== ================== ================ THREE MONTHS ENDED SEPTEMBER 30, 2000 - ----------------------------------------- Interest income $ 11,762,050 $ 2,784,737 $ -- $ 14,546,787 Interest expense 5,698,557 1,284,396 262,085 7,245,038 ---------------- --------------- ------------------ ---------------- Net interest income 6,063,493 1,500,341 (262,085) 7,301,749 Provision for loan losses 159,914 55,000 -- 214,914 Noninterest income 633,348 180,927 237,751 1,052,026 Noninterest expense 4,037,567 1,216,064 600,401 5,854,032 ---------------- --------------- ------------------ ---------------- Income (loss) before income tax expense 2,499,360 410,204 (624,735) 2,284,829 Income tax expense (benefit) 943,043 154,198 (234,841) 862,400 ---------------- --------------- ------------------ ---------------- Net income (loss) $ 1,556,317 $ 256,006 $ (389,894) $ 1,422,429 ================ =============== ================== ================ NINE MONTHS ENDED SEPTEMBER 30, 2001 - ----------------------------------------- Interest income $ 32,380,730 $ 8,499,083 $ -- $ 40,879,813 Interest expense 14,189,722 4,050,846 776,919 19,017,487 ---------------- --------------- ------------------ ---------------- Net interest income 18,191,008 4,448,237 (776,919) 21,862,326 Provision for loan losses 650,000 120,000 -- 770,000 Noninterest income (loss) 2,512,230 671,886 (27,999) 3,156,117 Noninterest expense 13,420,566 4,123,668 1,198,653 18,742,887 ---------------- --------------- ------------------ ---------------- Income (loss) before income tax expense 6,632,672 876,455 (2,003,571) 5,505,556 Income tax expense (benefit) 2,590,024 331,189 (757,389) 2,163,824 ---------------- --------------- ------------------ ---------------- Net income (loss) $ 4,042,648 $ 545,266 $ (1,246,182) $ 3,341,732 ================ =============== ================== ================ NINE MONTHS ENDED SEPTEMBER 30, 2000 - ----------------------------------------- Interest income $ 32,772,352 $ 7,925,484 $ -- $ 40,697,836 Interest expense 15,548,618 3,577,954 783,100 19,909,672 ---------------- --------------- ------------------ ---------------- Net interest income 17,223,734 4,347,530 (783,100) 20,788,164 Provision for loan losses 558,356 205,000 -- 763,356 Noninterest income 1,534,264 571,194 360,958 2,466,416 Noninterest expense 11,373,660 3,245,576 1,867,636 16,486,872 ---------------- --------------- ------------------ ---------------- Income (loss) before income tax expense 6,825,982 1,468,148 (2,289,778) 6,004,352 Income tax expense (benefit) 2,555,938 513,655 (771,429) 2,298,164 ---------------- --------------- ------------------ ---------------- Net income (loss) $ 4,270,044 $ 954,493 $ (1,518,349) $ 3,706,188 ================ =============== ================== ================ </TABLE> 8
11 The St. Louis Region provided approximately 80% of the loans, deposits, and assets for the Company as of September 30, 2001 and 2000. During the same periods, the Kansas Region provided approximately 20% of the loans, deposits and assets for the Company. In the St. Louis Region, loans increased $74 million, or 17%, while loans in the Kansas Region increased $31 million, or 30%, from September 30, 2000 to September 30, 2001. Assets and deposits increased 15% and 14% in the St. Louis Region, respectively, and 20% and 23%, respectively, in the Kansas Region from September 30, 2000 to September 30, 2001. The increase in loans and deposits is attributed to the continued calling efforts of the Company's relationship officers. Investment securities in the St. Louis Region decreased $19 million, or 43%, while investment securities decreased $5 million, or 26%, in the Kansas Region from September 30, 2000 to September 30, 2001. The decrease in investment securities in both regions was the result of a liquidity strategy to help facilitate and fund loan growth. St. Louis Region's interest income decreased $1,471,378, or 13%, and interest expense decreased $1,314,266, or 23%, for the three month period ended September 30, 2001 compared to the same period ended September 30, 2000. St. Louis Region net interest income decreased $157,112, or 3%, during the three months ended September 30, 2001 as compared to the same period in 2000. The decrease in interest income and interest expense is a result of a dramatic decline in the interest rate environment since December 2000. The Kansas Region experienced a $104,802, or 4%, increase in interest income and a $63,290, or 5%, increase in interest expense during the three month period ended September 30, 2001 compared to the same period in 2000. The increase in interest income and interest expense is a result of an increase in average balances outstanding in interest-earning assets and interest-bearing liabilities partially offset by a dramatic decline in the interest rate environment since December 2000. Net interest income increased $41,512 in the Kansas Region during the three months ended September 30, 2001 as compared to the same period in 2000 or 3%. Noninterest income increased $324,327, or 51%, in the St. Louis Region as a result of increased activity in the trust and financial advisory services as well as gains on the sale of mortgage loans during the three months ended September 30, 2001 as compared to the same period in 2000. The Company made significant investments in personnel and technology in the Kansas Region which resulted in a $180,587, or 15%, increase in noninterest expense during the three months ended September 30, 2001 as compared to the same period in 2000. The $477,839, or 12%, increase in noninterest expense in the St. Louis Region was the result of the addition of resources and infrastructure for continued growth during the three months ended September 30, 2001 as compared to the same period in 2000. The corporate, other, and intercompany reclassification segment provided a $5,093 loss in the noninterest income category for the three months ended September 30, 2001, which is a $242,844 decrease as compared to the same period in 2000. This decrease is due to the recognition of a $175,000 nonrecurring merchant banking fee during the nine months ended September 30, 2000 and a decrease in merchant banking activity during 2001. Interest income decreased $391,622, or 1%, and interest expense decreased $1,358,896, or 9%, resulting in an increase in net interest income of $967,274 or 6%, for the St. Louis Region for the nine months ended September 30, 2001 as compared to the same period in 2000. The decrease in interest income is a result of a dramatic decline in the interest rate environment offset by an increase in average balances outstanding in interest-earning assets. The decrease in interest expense is a result of a dramatic decline in the interest rate environment since December 2000 offset by an increase in average balances outstanding in interest-bearing liabilities. During the same period, the Kansas Region experienced an increase of $573,599, or 7%, and $472,892, or 13%, in interest income and expense, respectively. The increase in interest income and interest expense is a result of an increase in average balances outstanding in interest-earning assets and interest-bearing liabilities partially offset by a dramatic decline in the interest rate environment since December 2000. These increases resulted in an increase of $100,707, or 2%, in net interest income for the Kansas Region. Noninterest income increased $977,966, or 64%, in the St. Louis Region as a result of increased activity in the trust and financial advisory services as well as gains on the sale of mortgage loans during the nine months ended September 30, 2001 as compared to the same period in 2000. The Company made significant investments in personnel and technology in the Kansas Region which resulted in a $878,092, or 27%, increase in noninterest expense during the nine months ended September 30, 2001 as compared to the same period in 2000. The $2,046,906, or 18%, increase in noninterest expense in the St.Louis Region was the result of the addition of resources and infrastructure for continued growth during the nine months ended September 30, 2001 as compared to the same period in 2000. Noninterest expense was $1,198,653 and 9
12 $1,867,636 at the corporate, other, and intercompany reclassification segment for the nine months ended September 30, 2001 and 2000, respectively. The $668,983, or 36%, decrease in noninterest expense is a result of approximately $500,000 in legal, accounting, travel, and other nonrecurring expenses related to the merger completed in June 2000. 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 cost of funds have on earnings and assets, the level of loan defaults and delinquencies, the ability to successfully grow and realize profits from commercial banking operations and strategic non-banking lines of business, concentrations of loans in two geographic areas, the ability to retain key personnel, the degree and nature of competition, and changes in government regulation of business, as well as those factors 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 and nine month periods ended September 30, 2001 compared to the three and nine month periods ended September 30, 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 September 30, 2001 were $804 million, an increase of $93 million, or 13%, over total assets of $711 million at December 31, 2000. Loans and leases, net of unearned loan fees, were $639 million, an increase of $82 million, or 15%, over total loans and leases of $557 million at December 31, 2000. The increase in loans is, in part, attributed to the Company's investment in additional business development officers and the success of the Company's relationship officers' efforts. Federal funds sold and investment securities were $109 million, a decrease of $3 million, or 2%, from total federal funds sold and investment securities of $112 million at December 31, 2000. The decrease resulted primarily from the shift in earning assets from short-term investments to loans during the first nine months of 2001. Total deposits at September 30, 2001 were $715 million, an increase of $83 million, or 13%, over total deposits of $632 million at December 31, 2000. Deposit growth is attributed to direct calling efforts of relationship officers. Total shareholders' equity at September 30, 2001 was $58 million, an increase of $5 million, or 9%, over total shareholders' equity of $53 million at December 31, 2000. The increase in equity is due to net income of $3.3 million for the nine months ended September 30, 2001, and the exercise of incentive stock options by employees and directors, less dividends paid to shareholders. 10
13 RESULTS OF OPERATIONS Net income was $1,046,443 for the three month period ended September 30, 2001, a decrease of 26% compared to net income of $1,422,429 for the same period in 2000. Net income was $3,341,732 for the nine month period ended September 30, 2001, a decrease of 10% compared to net income of $3,706,188 for the same period in 2000. The decrease in net income for the three months ended September 30, 2001 is attributed to a decrease in the net interest margin precipitated by a dramatic decline in the interest rate environment since December 2000. Basic earnings per share for the three month periods ended September 30, 2001 and 2000 were $0.11 and $0.16, respectively. Diluted earnings per share for the three month periods ended September 30, 2001 and 2000 were $0.11 and $0.15, respectively. Basic earnings per share for the nine month periods ended September 30, 2001 and 2000 were $0.36 and $0.41, respectively. Diluted earnings per share for the nine month periods ended September 30, 2001 and 2000 were $0.35 and $0.38, respectively. NET INTEREST INCOME Net interest income (on a tax equivalent basis)was $7.2 million, or 3.97%, of average interest-earning assets, for the three months ended September 30, 2001, compared to $7.3 million, or 4.58%, of average interest-earning assets, for the same period in 2000. The $127,000 decrease in net interest income for the three months ended September 30, 2001 as compared to the same period in 2000 was the result of a decrease in interest rates of average interest-earning assets and an increase in average interest-bearing liabilities offset by an increase in average interest-earning assets and a decrease in the interest rates on average interest-bearing liabilities. Average interest-earning assets for the three months ended September 30, 2001 were $719 million, an $82 million, or 13%, increase over $637 million, during the same period in 2000. The increase in average interest-earning assets is attributed to the continued calling efforts of the Company's relationship officers. The yield on average interest-earning assets decreased to 7.28% for the three month period ended September 30, 2001 compared to 9.10% for the three month period ended September 30, 2000. The decrease in asset yield was primarily due to a 350 basis point decrease in the prime rate since December 2000 and a general decrease in the average yield on loans and investment securities. Average interest-bearing liabilities increased to $594 million for the three months ended September 30, 2001 from $536 million for the same period in 2000. The increase in money market accounts and certificates of deposit is attributed to continued calling efforts of the Company's relationship officers. The cost of interest-bearing liabilities decreased to 4.00% for the three months ended September 30, 2001 compared to 5.38% for the same period in 2000. This decrease is attributed mainly to declines in market interest rates for all sources of funding. We expect continued pressure on our interest rate spreads and net interest rate margin for the fourth quarter as declines in the prime rate during the third quarter are absorbed. Continued repricing of our funding sources over the next six months should offset some of this negative impact on asset yields. In addition, loan volume growth should continue and, with existing volumes, result in greater net interest income for the remainder of the year. 11
14 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 interest spread and net interest rate margin for the three month periods ended September 30, 2001 and 2000: <TABLE> <CAPTION> Three months ended September 30, ---------------------------------------------------------------------------------------- 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)(2) $ 624,088 81.74% $ 12,212 7.76% $ 526,618 78.46% $ 12,786 9.66% Taxable investments in debt securities 34,448 4.51 472 5.44 58,933 8.78 940 6.34 Non-taxable investments in debt securities(2) 262 0.03 6 9.32 676 0.10 13 7.85 Federal funds sold 59,784 7.83 506 3.36 51,203 7.63 838 6.51 Interest-bearing deposits 713 0.09 6 3.46 36 0.01 1 6.06 --------- --------- --------- --------- --------- --------- Total interest-earning assets 719,295 94.20 13,202 7.28 37,466 94.98 14,578 9.10 Noninterest-earning assets: Cash and due from banks 25,506 3.34 20,093 2.99 Fixed assets, net 9,586 1.26 8,205 1.22 Investment in Enterprise Mercahnt Banc, LLC 2,293 0.30 1,755 0.26 Prepaid expenses and other assets 13,920 1.82 10,784 1.61 Allowance for loan losses (7,126) (0.92) (7,089) (1.06) --------- --------- --------- --------- Total assets $ 763,474 100.00% $ 671,214 100.00% ========= ========= ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing transaction accounts $ 51,210 6.71% $ 138 1.07% $ 47,589 7.09% $ 202 1.69% Money market accounts 289,333 37.90 2,310 3.17 262,718 39.14 3,575 5.41 Savings 7,878 1.03 40 2.04 7,251 1.08 47 2.58 Certificates of deposit 218,502 28.62 3,034 5.51 197,546 29.43 3,032 6.11 Borrowed funds 16,207 2.12 210 5.13 10,003 1.49 125 4.95 Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000 1.44 264 9.53 11,000 1.64 264 9.56 --------- --------- --------- --------- --------- --------- Total interest-bearing liabilities 594,130 77.82 5,996 4.00 536,107 79.87 7,245 5.38 Noninterest-bearing liabilities: Demand deposits 103,024 13.49 81,658 12.17 Other liabilities 8,825 1.16 2,973 0.44 --------- --------- --------- --------- Total liabilities 705,979 92.47 620,738 92.48 Shareholders' equity 57,495 7.53 50,476 7.52 --------- --------- --------- --------- Total liabilities and shareholders' equity $ 763,474 100.00% 671,214 100.00% ========= ========= ========= ========= Net interest income $ 7,206 $ 7,333 ========= ========= Net interest spread 3.28 3.72 Net interest margin(3) 3.97% 4.58% ========= ======== <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 $307,000 and $217,000, for the three months September 30, 2001 and 2000, respectively. (2) Non-taxable income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. (3) Net interest income divided by average total interest-earning assets. </FN> </TABLE> 12
15 NET INTEREST INCOME Net interest income, presented on a tax equivalent basis, was $21.9 million, or 4.30% of average interest-earning assets, for the nine months ended September 30, 2001, compared to $20.9 million, or 4.55% of average interest-earning assets, for the same period in 2000. The $1,030,000 increase in net interest income for the nine months ended September 30, 2001 as compared to the same period in 2000 was the result of an increase in average interest-earning assets and a decrease in the interest rates on average interest-bearing liabilities offset by a decrease in the interest rates of average interest earning assets and an increase in average interest-bearing liabilities. Average interest-earning assets for the nine months ended September 30, 2001 were $681 million, a $68 million, or 11%, increase over $613 million during the same period in 2000. The increase in interest-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 interest-earning assets decreased to 8.04% for the nine month period ended September 30, 2001 compared to 8.89% for the same period ended September 30, 2000. The decrease in asset yield was primarily due to a 350 basis point decrease in the prime rate since December 2000 and a general decrease in the average yield on loans and investment securities. Average interest-bearing liabilities increased $51 million, or 10%, to $567 million, for the nine months ended September 30, 2001 from $517 million for the same period in 2000. The increase in interest-bearing transaction accounts, money market accounts and certificates of deposit is attributed to continued calling efforts of the Company's relationship officers. The cost of interest-bearing liabilities decreased to 4.48% for the nine months ended September 30, 2001 compared to 5.15% for the same period in 2000. This decrease is attributed mainly to declines in market interest rates for all sources of funding. 13
16 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 spread and rate margin for the nine month periods ended September 30, 2001 and 2000: <TABLE> <CAPTION> Nine Months Ended September 30, ------------------------------------------------------------------------------------------- 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)(2) $ 601,536 83.32% $ 37,814 8.40% $ 509,009 78.69% $ 36,010 9.45% Taxable investments in debt securities 37,354 5.17 1,798 6.44 54,793 8.47 2,548 6.21 Non-taxable investments in equity securities(2) 326 0.05 22 9.03 712 0.11 41 7.67 Federal funds sold 41,526 5.75 1,297 4.18 8,368 7.48 2,209 6.10 Interest-bearing deposits 549 0.07 15 3.57 24 0.00 1 5.57 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets 681,291 94.36 40,946 8.04 612,906 94.75 40,809 8.89 Noninterest-earning assets: Cash and due from banks 23,548 3.26 19,511 3.02 Fixed assets, net 9,285 1.29 8,197 1.27 Investment in Enterprise Merchant Banc, LLC 2,287 0.32 968 0.15 Prepaid expenses and other assets 12,749 1.77 11,879 1.83 Allowance for loan losses (7,236) (1.00) (6,612) (1.02) ---------- ---------- ---------- ---------- Total assets $ 721,924 100.00% $ 646,849 100.00% ========== ========== ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities: Interest-bearing transaction accounts $ 52,058 7.21% $ 478 1.23% $ 47,525 7.35% $ 615 1.73% Money market accounts 277,713 38.47 7,973 3.84 246,159 38.06 9,430 5.12 Savings 7,525 1.04 132 2.34 7,058 1.09 137 2.59 Certificates of deposit 204,606 28.34 9,098 5.95 194,514 30.07 8,532 5.86 Borrowed funds 14,462 2.00 558 5.16 10,571 1.63 405 5.12 Guaranteed preferred beneficial interestsin EBH-subordinated debentures 11,000 1.52 778 9.46 11,000 1.70 791 9.59 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-bearing liabilities 567,364 78.58 19,017 4.48 516,827 79.90 19,910 5.15 Noninterest-bearing liabilities: Demand deposits 94,581 13.10 76,655 11.85 Other liabilities 3,865 0.55 4,054 0.63 ---------- ---------- ---------- ---------- Total liabilities 665,810 92.23 597,536 92.38 Shareholders' equity 56,114 7.77 49,313 7.62 ---------- ---------- ---------- ---------- Total liabilities & shareholders' equity $ 721,924 100.00% $ 646,849 100.00% ========== ========== ========== ========== Net interest income $ 21,929 $ 20,899 ========== ========== Net interest spread 3.56 3.74 Net interest margin(3) 4.30% 4.55% ======== ======== <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 $996,000, and $820,000 for the nine months ended September 30, 2001, and 2000, respectively. (2) Non-taxable income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. (3) Net interest income divided by average total interest-earning assets. </FN> </TABLE> 14
17 During the three months ended September 30, 2001, an increase in the average volume of interest-earning assets resulted in an increase in interest income of $9,805,000. Interest income decreased $11,181,000 due to a decrease in rates on average interest-earning assets. Increases in the average volume of interest-bearing demand deposits, savings and money market accounts, time deposits and borrowed funds resulted in an increase in interest expense of $3,488,000. Changes in interest rates on the average volume of interest-bearing liabilities resulted in a decrease in interest expense of $4,737,000. The net effect of the volume and rate changes associated with all categories of interest-earning assets during the three months ended September 30, 2001 as compared to the same period in 2000 was a decrease in interest income of $1,376,000, while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities was a decrease in interest expense of $1,249,000. During the nine months ended September 30, 2001 as compared to the same period in 2000, an increase in the average volume of interest-earning assets resulted in an increase in interest income of $6,559,000, offset by a decrease of $6,422,000 due to a decrease in interest rates on interest-earning assets. Increases in the average volume of interest-bearing demand deposits, savings and money market accounts, borrowed funds, and guaranteed preferred beneficial interests in EBH-subordinated debentures resulted in an increase in interest expense of $2,325,000. Changes in interest rates on the average volume of interest-bearing liabilities resulted in a decrease in interest expense of $3,218,000. The net effect of the volume and rate changes associated with all categories of interest-earning assets during the nine months ended September 30, 2001 as compared to the same period in 2000, increased interest income by $137,000, while the net effect of the volume and rate changes associated with all categories of interest-bearing liabilities was a decrease in interest expense of $893,000. 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> 2001 Compared to 2000 --------------------------------------------------------------------------- 3 months ended September 30 9 months ended September 30 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 $ 9,422 $ (9,998) $ (576) $ 7,754 $ (5,950) $ 1,804 Taxable investments in debt and equity securities (349) (119) (468) (897) 148 (749) Nontaxable investments in debt and equity securities (3) (20) 14 (6) (29) 10 (19) Federal funds sold 745 (1,076) (331) (283) (629) (912) Certificates of deposit 7 (2) 5 14 (1) 13 ---------- ---------- ---------- ---------- ---------- ---------- Total interest-earning assets $ 9,805 $ (11,181) $ ( 1,370) $ 6,559 $ (6,422) $ 137 ---------- ---------- ---------- ---------- ---------- ---------- Interest paid on: Interest-bearing demand deposits $ (231) $ 189 $ (42) $ 84 $ (221) $ (137) Money market rate deposits 3,277 (4,564) 1,287) 1,642 (3,099) (1,457) Savings deposits 21 28) (7) 12 (17) (5) Time deposits 1,232 (1,230) 2 437 129 566 Borrowed funds 80 5 85 150 3 153 Guaranteed preferred beneficial interests in EBH-subordinated debentures -- -- -- -- (13) (13) ---------- ---------- ---------- ---------- ---------- ---------- Total $ 4,379 $ (5,628) $ (1,249) $ 2,325 $ (3,218) $ (893) ---------- ---------- ---------- ---------- ---------- ---------- Net interest income (loss) $ 5,426 $ (5,552) $ (127) $ 4,234 $ (3,204) $ 1,030 ========== ========== ========== ========== ========== ========== <FN> (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. </FN> </TABLE> 15
18 PROVISION FOR LOAN LOSSES The provision for loan losses was $175,000 and $770,000 for the three month and nine month periods ended September 30, 2001, respectively, compared to $215,000 and $763,000 for the same periods in 2000. The Company had net chargeoffs of $562,000 for the nine months ended September 30, 2001 compared to net charge offs of $625,000 during the same period ended September 30, 2000. During May 2001, the Kansas Region restructured a $1.5 million commercial loan on nonaccrual which resulted in a charge off of $270,000. This restructured loan was approximately 41% of the charge offs during the nine months ended September 30, 2001. The Kansas Region specifically reserved for this loan relationship. Two other loans were charged off for an additional amount of $287,000. These three charged off commercial loans represent 84% of the total chargeoffs during the nine months ended September 30, 2001. Loan growth remained strong during the first nine months of 2001. The Company increased its allowance for loan losses for the nine months ended September 30, 2001 by charging $770,000 to the provision for loan losses. 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 that have been charged to the provision: <TABLE> <CAPTION> Nine Months Ended September 30, ----------------------- 2001 2000 --------- --------- (Dollars in Thousands) <S> <C> <C> Allowance at beginning of year $ 7,097 $ 6,758 Loans charged off: Commercial and industrial 166 630 Real estate: Commercial 270 36 Construction -- -- Residential 167 -- Consumer and other 58 14 --------- --------- Total loans charged off 661 680 --------- --------- Recoveries of loans previously charged off: Commercial and industrial 20 44 Real estate: Commercial 26 5 Construction -- -- Residential 49 1 Consumer and other 4 5 --------- --------- Total recoveries of loans previously charged off 99 55 --------- --------- Net loans charged off 562 625 --------- --------- Provision charged to operations 770 763 --------- --------- Allowance at end of period $ 7,305 $ 6,896 ========= ========= Average loans $ 601,536 $ 509,009 Ending total loans, less unearned loan fees $ 638,658 $ 534,513 Ending nonperforming loans $ 2,472 $ 1,984 Net charge offs to average loans (annualized) 0.12% 0.16% Allowance for loan losses to total loans 1.14% 1.29% </TABLE> 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 16
19 process and subsequently tested in 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 six months, which are then discussed in formal meetings with the Asset Quality/Risk Management Area and the Executive Loan Committee. 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 Executive Loan Committee generally at the time of the formal quarterly watch list review meetings. Each month, management prepares 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. 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 provided in the most recent form 10-K. 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. 17
20 The following table sets forth information concerning the Company's non-performing assets as of the dates indicated: <TABLE> <CAPTION> September 30, December 31, 2001 2000 -------------- -------------- (Dollars in Thousands) <S> <C> <C> Non-accrual loans $ 1,215 $ 1,798 Loans past due 90 days or more and still accruing interest -- 207 Restructured loans 1,257 -- -------------- -------------- Total nonperforming loans 2,472 2,005 Foreclosed property 48 77 -------------- -------------- Total non-performing assets $ 2,520 $ 2,082 ============== ============== Total assets $ 803,842 $ 710,938 Total loans, less unearned loan fees $ 638,658 $ 556,793 Total loans plus foreclosed property $ 638,706 $ 556,870 Nonperforming loans to loans 0.39% 0.36% Nonperforming assets to loans plus foreclosed property 0.39% 0.37% Nonperforming assets to total assets 0.31% 0.29% </TABLE> Currently, economic indicators suggest a business "slowdown" or even "recession". Management has not yet seen any adverse trends in credit quality but expects delinquencies and credit risk in the loan portfolio to increase over the next few quarters in response to economic conditions. However, given our underwriting standards and monitoring procedures, losses should remain minimal. NONINTEREST INCOME Noninterest income was $1,205,035 and $3,156,117 for the three month and nine month periods ended September 30, 2001, respectively, compared to $1,052,026 and $2,466,416 for the same periods in 2000. The increases are primarily attributed to increases in trust and financial advisory income and increases in the gains on the sale of mortgage loans. Trust and financial advisory income was $409,304 and $978,405 for the three and nine month periods ended September 30, 2001, respectively, as compared to $283,835 and $590,202 for the same periods in 2000. The increases in fees were the result of increased transaction-based fees and assets under management at Enterprise Trust. Management expects fee growth to continue throughout 2001. The gains on the sale of mortgage loans were $348,919 and $861,728 for the three month and nine month periods ended September 30, 2001, respectively, as compared to $158,816 and $353,607 for the same periods in 2000. The increases in these gains were due to a dramatic decrease in interest rates during the first nine months of 2001, which spurred residential mortgage loan refinancing and an increase in mortgage loans sold. Approximately 65% of the mortgage gains were the result of refinanced loans. The Company generally sells its mortgage loans and the related servicing rights to various third party investors. The gains on sale of investment securities were $0 and $82,246 for the three month and nine month periods ended September 30, 2001 as compared to no gains during the same periods in 2000. The Company sold three investment securities during the first six months of 2001 for liquidity purposes. These increases were slightly offset by decreases in other service charges and fee income. Other service charges and fee income were $119,900 and $316,357 for the three month and nine month periods ended September 30, 2001, respectively, as compared to $261,704 and $527,887 for the same periods in 2000. The decrease is primarily attributed to a nonrecurring $175,000 merchant banking fee the Company recognized in September of 2000. These increases were also offset by decreases in the income from the Company's investment in Enterprise Merchant Banc, LLC 18
21 and the income on investment in Enterprise Fund, L.P. during the nine month period ended September 30, 2001 as compared to the same period in 2000. Both of these decreases were a result of decreased fee income earned by these businesses during 2001 as compared to 2000. NONINTEREST EXPENSE Noninterest expense was $6.5 million and $18.7 million for the three month and nine month periods ended September 30, 2001, respectively, compared to $5.9 million and $16.5 million for the same periods in 2000. The increases in noninterest expense was primarily due to: 1) the investment in several new business development officers in the St. Louis Region and additional management in the Kansas Region; 2) increased commission-based activity and backroom processing growth in trust and financial advisory services; 3) increased commissions related to the sale of mortgage loans; and 4) normal increases associated with continued growth. The Company also expanded its computer and data processing infrastructure for the additional Kansas locations and communication between the regions, which increased expenses. In April 2001, the Company completed a computer system conversion to bring Enterprise Banking, N.A. on the same core processing system utilized by Enterprise Bank. The computer conversion, including fees to software vendors and training, increased noninterest expenses by approximately $100,000 during the nine months ended September 30, 2001 as compared to the same period in 2000. Other noninterest expense was $1,379,668 and $3,945,051 for the three month and nine month periods ended September 30, 2001, respectively, a decrease of $126,467, or 8%, and $464,966, or 11%, compared to the three month and nine month periods ended September 30, 2000. These decreases are attributed to the elimination of nonrecurring corporate merger related expenses. During the nine months ended September 30, 2000 the Company expensed approximately $500,000 in legal, accounting, travel and other costs related to the merger completed in June 2000. LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is provided by the Company's earning assets, including short-term investments in federal funds sold, maturities in loan and investment portfolios, and amortization of term loans, along with deposit inflows, and proceeds from borrowings. At September 30, 2001 the loan to deposit ratio was 89%, as compared to 88% at December 31, 2000. Federal funds sold and investment securities were $109 million at September 30, 2001 as compared to $112 million at December 31, 2000. During the nine months ended September 30, 2001, the Company experienced loan growth of $82 million and deposit growth of $83 million. This decrease in the Company's liquidity position resulted in the utilization of maturing investment securities and federal funds sold balances to fund loan growth. The Company increased its Federal Home Loan Bank advances to $15 million at September 30, 2001 from $10 million at December 31, 2000. The Company closely monitors its current liquidity position and believes there are sufficient backup sources of liquidity. As of September 30, the Company has over $64 million available from the Federal Home Loan Bank of Des Moines under a blanket loan pledge and $9 million from the Federal Reserve under a pledged loan agreement. The Company also has access to over $36 million in overnight federal funds purchased from various banking institutions. 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. For further discussion, see Item 3 on page 24. 19
22 CAPITAL ADEQUACY Enterbank Holdings, Inc. and Enterprise Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company's consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Enterbank Holdings, Inc. and Enterprise Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Quantitative measures established by regulations to ensure capital adequacy require Enterbank Holdings, Inc. and Enterprise Bank to maintain minimum amounts and ratios of total and Tier I capital (as defined in the regulations) to risk-weighted assets, and of Tier I capital to average assets. Management believes, as of September 30, 2001, that Enterbank Holdings, Inc. and Enterprise Bank were each well capitalized. As of September 30, 2001, the most recent notification from the Company's primary regulator categorized Enterbank Holdings, Inc. and Enterprise Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, Enterbank Holdings, Inc. and Enterprise Bank must maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios as set forth in the following table. 20
23 At September 30, 2001 and December 31, 2000, the required and actual capital ratios for Enterbank Holdings, Inc. and Enterprise Bank were as follows: <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> AT SEPTEMBER 30, 2001: - ---------------------- Total Capital (to Risk Weighted Assets) Enterbank Holdings, Inc. $ 73,765,508 11.24% $ 52,496,365 8.00% $ 65,620,456 10.00 % Enterprise Bank 67,784,334 10.45 51,911,346 8.00 4,889,182 10.00 Tier I Capital (to Risk Weighted Assets) Enterbank Holdings, Inc. $ 66,460,999 10.13% $ 26,248,182 4.00% $ 39,372,274 6.00 % Enterprise Bank 60,479,825 9.32 25,955,673 4.00 38,933,509 6.00 Tier I Capital (to Average Assets) Enterbank Holdings, Inc. $ 66,460,999 8.71% $ 22,904,227 3.00% $ 38,173,712 5.00 % Enterprise Bank 60,479,825 8.00 22,668,487 3.00 37,780,812 5.00 AT 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 61,205,313 10.54 46,446,857 8.00 58,058,571 10.00 Tier I 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 54,948,985 9.46 23,223,428 4.00 34,835,143 6.00 Tier I Capital (to Average Assets) Enterbank Holdings, Inc. $ 62,071,803 9.41% $ 19,796,366 3.00% $ 32,993,943 5.00 % Enterprise Bank 54,948,985 8.38 19,673,541 3.00 32,789,235 5.00 </TABLE> 21
24 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 asset ratio. EFFECT OF IMPLEMENTING RECENTLY ISSUED ACCOUNTING STANDARDS In September 2000, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standard (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 relieves 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 relieved 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 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. In July 2001, the FASB issued Statement No. 141, Business Combinations, and Statement No. 142, Goodwill and Other Intangible Assets. Statement 141 requires that the purchase method of accounting be used for all business combinations initiated after June 30, 2001 as well as all purchase method business combinations completed after June 30, 2001. Statement 141 also specifies criteria intangible assets acquired in a purchase method business combination must meet to be recognized and reported apart from goodwill. Statement 142 will require that goodwill and intangible assets with indefinite useful lives no longer be amortized, but instead tested for impairment at least annually in accordance with the provisions of Statement 142. Statement 142 will also require that intangible assets with definite useful lives be amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment in accordance with SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of. The Company is required to adopt the provisions of Statement 141 immediately and Statement 142 effective January 1, 2002. Furthermore, any goodwill and any intangible asset determined to have an indefinite useful life that are acquired in a purchase business combination completed after June 30, 2001 will not be amortized, but will continue to be evaluated for impairment in accordance with the appropriate pre-Statement 142 accounting literature. Goodwill and intangible assets acquired in business combinations completed before July 1, 2001 will continue to be amortized prior to the adoption of Statement 142. Upon adoption of Statement 142, Statement 141 will require that the Company evaluate its existing intangible assets and goodwill that were acquired in a prior purchase business combination,and to make any necessary reclassifications in 22
25 order to conform with the new criteria in Statement 141 for recognition apart from goodwill. Upon adoption of Statement 142, the Company will be required to reassess the useful lives and residual values of all intangible assets acquired in purchase business combinations, and make any necessary amortization period adjustments by the end of the first interim period after adoption. In addition, to the extent an intangible asset is identified as having an indefinite useful life, the Company will be required to test the intangible asset for impairment in accordance with the provisions of Statement 142 within the first interim period. Any impairment loss will be measured as of the date of adoption and recognized as the cumulative effect of a change in accounting principle in the first interim period. In connection with the transitional goodwill impairment evaluation, Statement 142 will require the Company to perform an assessment of whether there is an indication that goodwill is impaired as of the date of adoption. To accomplish this the Company must identify its reporting units and determine the carrying value of each reporting unit by assigning the assets and liabilities, including the existing goodwill and intangible assets, to those reporting units as of the date of adoption. The Company will then have up to six months from the date of adoption to determine the fair value of each reporting unit and compare it to the reporting unit's carrying amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform the second step of the transitional impairment test. In the second step, the Company must compare the implied fair value of the reporting unit's goodwill, determined by allocating the reporting unit's fair value to all of it assets (recognized and unrecognized) and liabilities in a manner similar to a purchase price allocation in accordance with Statement 141, to its carrying amount, both of which would be measured as of the date of adoption. This second step is required to be completed as soon as possible, but no later than the end of the year of adoption. Any transitional impairment loss will be recognized as the cumulative effect of a change in accounting principle in the Company's statement of earnings. Finally, any unamortized negative goodwill existing at the date Statement 142 is adopted must be written off as the cumulative effect of a change in accounting principle. As of the date of adoption, the Company expects to have unamortized goodwill in the amount of $2,087,000, no unamortized identifiable intangible assets, and no negative goodwill, all of which will be subject to the transition provisions of Statements 141 and 142. Amortization expense related to goodwill was $190,567 and $142,925 for the year ended December 31, 2000 and the nine months ended September 30, 2001, respectively. Because of the extensive effort needed to comply with adopting Statements 141 and 142, it is not practicable to reasonably estimate the impact of adopting these Statements on the Company's consolidated financial statements at the date of this report, including whether any transitional impairment losses will be required to be recognized as the cumulative effect of a change in accounting principle. 23
26 ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES REGARDING MARKET RISK The Company's exposure to market risk is reviewed on a regular basis by the 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 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 September 30, 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. As the following table indicates, the Company is asset sensitive. In this regard, a decrease in the general level of interest rates would have a negative effect on the Company's net interest income as compared to the reduction in interest expense created by the repricing of 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. Management is aware of the consequences of being asset sensitive and will likely continue to remain asset sensitive in the future. 24
27 The following tables present the scheduled maturity of market risk sensitive instruments at September 30, 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 Securities $ 6,738 $ 2,940 $ 7,099 $ 3,783 $ 6,722 $ 11,680 $ 38,962 Interest-bearing deposits 1,337 -- -- -- -- -- 1,337 Federal funds sold 70,202 -- -- -- -- -- 70,202 Loans 469,273 38,927 77,886 2,699 18,511 11,362 638,658 Loans held for sale 1,480 -- -- -- -- -- 1,480 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 549,030 $ 41,867 $ 84,985 $ 26,482 $ 25,233 $ 23,042 $ 750,639 =========== =========== =========== =========== =========== =========== =========== LIABILITIES Savings, NOW, money market deposits $ 377,782 -- -- -- -- -- $ 377,782 Certificates of deposit 190,185 $ 22,756 $ 6,528 $ 1,736 $ 680 -- 221,885 Guaranteed preferred beneficial interest in EBH-subordinated -- -- -- -- -- 11,000 11,000 debentures Borrowed funds 6,021 1,300 5,300 1,000 435 845 14,901 ----------- ----------- ----------- ----------- ----------- ----------- ----------- Total $ 573,988 $ 24,056 $ 11,828 $ 2,736 $ 1,115 $ 11,845 $ 625,568 =========== =========== =========== =========== =========== =========== =========== <CAPTION> Average Interest Rate for Nine Months Ended Carrying September Estimated Value 30, 2001 Fair Value ----------- ----------- ----------- <S> <C> <C> <C> ASSETS Securities $ 38,962 6.46% $ 38,963 Interest-earning deposits 1,337 3.57 1,337 Federal funds sold 70,202 4.18 70,202 Loans 638,658 8.40 640,846 Loans held for sale 1,480 1,480 ----------- ----------- Total $ 750,639 $ 752,828 =========== =========== LIABILITIES Savings, NOW, money market deposits $ 377,782 3.40% $ 377,782 Certificates of deposit 221,885 5.95 224,906 Guaranteed preferred beneficial interest in EBH-subordinated 11,000 9.46 12,165 debentures Borrowed funds 14,901 5.16 15,095 ----------- ----------- Total $ 625,568 $ 629,948 =========== =========== </TABLE> 25
28 ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K (a). Exhibits. Exhibit Number Description ------- ----------- 11.1 (1) Statement regarding computation of per share earnings (1) Filed herewith. (b). During the three months ended September 30, 2001, there were no reports filed on form 8-K. II-1
29 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 14th day of November 2001. ENTERBANK HOLDINGS, INC. By: /s/ Fred H. Eller ---------------------------------- Fred H. Eller Chief Executive Officer By: /s/ Frank H. Sanfilippo ---------------------------------- Frank H. Sanfilippo Chief Financial Officer II-2
1 <TABLE> EXHIBIT 11.1 STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE <CAPTION> Basic Diluted EPS number EPS number Net Basic Diluted of shares of shares Income EPS EPS ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> THREE MONTHS ENDED SEPTEMBER 30, 2000 8,989,253 9,639,253 $1,422,429 $0.16 $0.15 THREE MONTHS ENDED SEPTEMBER 30, 2001 9,249,804 9,645,722 $1,046,443 $0.11 $0.11 <CAPTION> Basic Diluted ------------ ------------ <S> <C> <C> <C> THREE MONTHS ENDED SEPTEMBER 30, 2000 Average Shares Outstanding 8,989,253 8,989,253 Options - Plan 1 15,978 Average Option Price $2.33 Total Exercise Cost $37,229 Shares Repurchased 2,314 Net Shares from Option - Plan 1 13,664 Options - Plan 2 204,287 Average Option Price $2.56 Total Exercise Cost $522,975 Shares Repurchased 32,503 Net Shares from Option - Plan 2 171,784 Options - Plan 3 549,670 Average Option Price $6.20 Total Exercise Cost $3,407,954 Shares Repurchased 211,806 Net Shares from Option - Plan 3 337,864 Options - Plan 4 50,313 Average Option Price $15.00 Total Exercise Cost $754,695 Shares Repurchased 46,905 Net Shares from Option - Plan 4 3,408 Options - EFA Non-qualified 85,500 Average Option Price $10.19 Total Exercise Cost $871,245 Shares Repurchased 54,148 Net Shares from Option - EFA Non-qualified 31,352 Options-CGB Qualified 167,828 Average Option Price $9.99 Total Exercise Cost $1,676,602 Shares Repurchased 104,201 Net Shares from Option -CGB Qualified 63,627 Options - CGB Non-qualified 83,246 Average Option Price $10.62 Total Exercise Cost $884,073 Shares Repurchased 54,945 Net Shares from Option - CGB Non-qualified 28,301 ------------ ------------ Gross Shares 8,989,253 9,639,253 Price $16.09 </TABLE> 1
2 <TABLE> EXHIBIT 11.1 (CONTINUED) STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE <CAPTION> Basic Diluted ------------ ------------ <S> <C> <C> <C> THREE MONTHS ENDED SEPTEMBER 30, 2001 Average Shares Outstanding 9,249,804 9,249,804 Options - Plan 2 153,200 Average Option Price $2.64 Total Exercise Cost $404,448 Shares Repurchased 32,643 Net Shares from Option - Plan 2 120,557 Options - Plan 3 527,903 Average Option Price $6.75 Total Exercise Cost $3,563,345 Shares Repurchased 287,598 Net Shares from Option - Plan 3 240,305 Options - Plan 4 425,860 Average Option Price $13.03 Total Exercise Cost $5,548,956 Shares Repurchased 447,858 Net Shares from Option - Plan 4 -- Options - EFA Non-qualified 85,500 Average Option Price $10.19 Total Exercise Cost $871,245 Shares Repurchased 70,318 Net Shares from Option - EFA Non-qualified 15,182 Options-CGB Qualified 59,825 Average Option Price $10.53 Total Exercise Cost $629,957 Shares Repurchased 50,844 Net Shares from Option -CGB Qualified 8,981 Options - CGB Non-qualified 72,961 Average Option Price $10.54 Total Exercise Cost $769,009 Shares Repurchased 62,067 Net Shares from Option - CGB Non-qualified 10,894 ------------ ----------- Gross Shares 9,249,804 9,645,722 Price $12.39 </TABLE> 2
3 <TABLE> EXHIBIT 11.1 (CONTINUED) STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE <CAPTION> Basic Diluted EPS number EPS number Net Basic Diluted of shares of shares Income EPS EPS ------------------------------------------------------------------------ <S> <C> <C> <C> <C> <C> NINE MONTHS ENDED SEPTEMBER 30, 2000 8,966,252 9,664,094 $3,706,188 $0.41 $0.38 NINE MONTHS ENDED SEPTEMBER 30, 2001 9,182,260 9,613,331 $3,341,732 $0.36 $0.35 <CAPTION> Basic Diluted ------------ ------------ <S> <C> <C> <C> NINE MONTHS ENDED SEPTEMBER 30, 2000 Average Shares Outstanding 8,966,252 8,966,252 Options - Plan 1 25,292 Average Option Price $2.33 Total Exercise Cost $58,930 Shares Repurchased 3,418 Net Shares from Option - Plan 1 21,874 Options - Plan 2 207,470 Average Option Price $2.56 Total Exercise Cost $531,123 Shares Repurchased 30,808 Net Shares from Option - Plan 2 176,662 Options - Plan 3 550,456 Average Option Price $6.01 Total Exercise Cost $3,308,241 Shares Repurchased 191,893 Net Shares from Option - Plan 3 358,563 Options - Plan 4 16,893 Average Option Price $15.00 Total Exercise Cost $253,395 Shares Repurchased 14,698 Net Shares from Option - Plan 4 2,195 Options-EFA Non-qualified 84,504 Average Option Price $10.10 Total Exercise Cost $853,490 Shares Repurchased 49,506 Net Shares from Option - EFA Non-qualified 34,998 Options-CGB Qualified 170,225 Average Option Price $9.99 Total Exercise Cost $1,700,548 Shares Repurchased 98,640 Net Shares from Option-CGB Qualified 71,585 Options - CGB Non-qualified 83,246 Average Option Price $10.62 Total Exercise Cost $884,073 Shares Repurchased 51,280 Net Shares from Option - CGB Non-qualified 31,966 ------------ -------------- Gross Shares 8,966,252 9,664,094 Price $17.24 </TABLE> 3
4 <TABLE> EXHIBIT 11.1 (CONTINUED) STATEMENT REGARDING CALCULATION OF EARNINGS PER SHARE <CAPTION> Basic Diluted ------------ -------------- <S> <C> <C> <C> NINE MONTHS ENDED SEPTEMBER 30, 2001 Average Shares Outstanding 9,182,260 9,182,260 Options - Plan 2 161,738 Average Option Price $2.62 Total Exercise Cost $423,754 Shares Repurchased 33,106 Net Shares from Option - Plan 2 128,632 Options - Plan 3 532,278 Average Option Price $6.64 Total Exercise Cost $3,534,326 Shares Repurchased 276,119 Net Shares from Option - Plan 3 256,159 Options - Plan 4 257,148 Average Option Price $13.83 Total Exercise Cost $3,556,357 Shares Repurchased 277,840 Net Shares from Option - Plan 4 -- Options-EFA Non-qualified 85,500 Average Option Price $10.19 Total Exercise Cost $871,245 Shares Repurchased 68,066 Net Shares from Option - EFA Non-qualified 17,434 Options-CGB Qualified 73,801 Average Option Price $10.27 Total Exercise Cost $757,936 Shares Repurchased 59,214 Net Shares from Option-CGB Qualified 14,587 Options - CGB Non-qualified 74,388 Average Option Price $10.56 Total Exercise Cost $785,537 Shares Repurchased 61,370 Net Shares from Option - CGB Non-qualified 13,018 Stock Appreciation Rights 99,291 Average Stock Appreciation Rights Price $12.64 Total Exercise Cost $1,255,038 Shares Repurchased 98,050 Net Shares from Stock Appreciation Rights 1,241 ------------ -------------- Gross Shares 9,182,260 9,613,331 Price $12.80 </TABLE> 4