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
PART I - ITEM 1
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited) (Audited)
At March 31, At December 31,
2001 2000
------------- ---------------
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)
Three months ended March 31,
2001 2000
------------ ------------
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)
Three months ended March 31,
2001 2000
----------- -----------
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)
Three months ended March 31,
2001 2000
------------- -------------
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.
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:
As of or for the
three months
ended March 31, 2000
--------------------
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
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):
Corporate,
intercompany
St. Louis Kansas reclassifications
Region Region and other Total
------------- ------------- ----------------- -------------
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
============= ============= ============ =============
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:
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)
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>
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.
Three months ended
March 31,
---------------------------
2001 2000
--------- ---------
(Dollars in thousands)
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%
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:
March 31, March 31,
2001 2000
--------- ---------
(Dollars in thousands)
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%
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:
Remaining Maturity Amount
---------------------------------- --------
(Dollars in Thousands)
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
========
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:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
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
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:
Beyond
5 Years
or No
Stated
Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total
---------- ---------- ---------- ---------- ---------- ---------- ---------
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
========= ====== ====== ====== ====== ====== =========
Average
Interest
Rate for
Three
Months
Ended Estimated
Carrying March 31, Fair
Value 2001 Value
--------- --------- ---------
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
========= =========
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