1 ============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [Fee Required] For the quarterly period ended June 30, 1997 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from to Commission file number 333-14737 ---------------- 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, MISSOURI 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 of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- -------- Indicate the number of shares outstanding of each of the registrant's classes of common stock as of July 31, 1997: Common Stock, $.01 par value ---- 2,113,972 shares outstanding ============================================================================== 2 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES TABLE OF CONTENTS =============================================================================== Page ---- PART I - FINANCIAL INFORMATION Item 1: Consolidated Balance Sheets 1 Consolidated Statements of Income 2 Consolidated Statements of Cash Flows 3 Notes to Consolidated Financial Statements 4 Item 2: Management's Discussion and Analysis of Financial Condition and Results of Operations 5 PART II - OTHER INFORMATION Item 6: Exhibits and Reports on Form 8-K 14 Signatures 15 3 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets June 30, 1997 and December 31, 1996 ============================================================================================================= (Unaudited) June 30, December 31, ASSETS 1997 1996 - ------------------------------------------------------------------------------------------------------------ Cash and due from banks $ 16,210,088 9,261,035 Federal funds sold 17,277,450 23,250,000 Interest bearing deposits 30,063 - Investments in debt and equity securities: Available for sale, at estimated fair value 19,420,622 14,005,797 Held to maturity, at amortized cost (estimated fair value of $825,839 at June 30, 1997 and $1,239,498 at December 31, 1996) 826,617 1,240,183 - ------------------------------------------------------------------------------------------------------------ Total investments in debt and equity securities 20,247,239 15,245,980 - ------------------------------------------------------------------------------------------------------------ Loans, less unearned loan fees 176,295,990 134,133,092 Less allowance for loan losses 2,090,000 1,765,000 - ------------------------------------------------------------------------------------------------------------ Loans, net 174,205,990 132,368,092 - ------------------------------------------------------------------------------------------------------------ Other real estate owned 806,072 874,426 Office equipment and leasehold improvements 1,581,195 1,119,268 Accrued interest receivable 1,241,509 935,864 Investment in Enterprise Fund, L.P. 226,574 550,087 Prepaid expenses and other assets 1,926,338 979,361 - ------------------------------------------------------------------------------------------------------------ Total assets $233,752,518 184,584,113 ============================================================================================================= LIABILITIES AND SHAREHOLDERS' EQUITY ============================================================================================================= Deposits: Demand $ 38,926,720 31,137,649 Interest-bearing transaction accounts 18,905,475 16,648,185 Money market accounts 81,332,086 54,637,747 Savings 1,279,928 1,030,346 Certificates of deposits: $100,000 and over 28,935,820 24,067,363 Other 41,140,732 41,439,799 - ------------------------------------------------------------------------------------------------------------ Total deposits 210,520,761 168,961,089 Notes payable - 300,000 Accounts payable and accrued expenses 711,652 565,131 - ------------------------------------------------------------------------------------------------------------ Total liabilities 211,232,413 169,826,220 - ------------------------------------------------------------------------------------------------------------ Shareholders' equity: Common stock, $.01 par value; authorized 3,000,000 shares; issued and outstanding 2,113,972 shares at June 30, 1997 and 1,662,360 shares at December 31, 1996 21,140 16,624 Surplus 16,447,958 9,595,956 Retained earnings 6,046,928 5,138,612 Net unrealized holding gains (losses) on available-for-sale securities 4,079 6,701 - ------------------------------------------------------------------------------------------------------------ Total shareholders' equity 22,520,105 14,757,893 - ------------------------------------------------------------------------------------------------------------ Total liabilities and shareholders' equity $233,752,518 184,584,113 ============================================================================================================= See accompanying notes to consolidated financial statements. 1 4 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income Three months and six months ended June 30, 1997 and 1996 ======================================================================================================================= (Unaudited) (Unaudited) Three months ended Six months ended June 30, June 30, ----------------------- --------------------- 1997 1996 1997 1996 - ----------------------------------------------------------------------------------------------------------------------- Interest income: Interest and fees on loans $3,863,377 2,779,006 7,169,213 5,388,195 Interest on debt securities: Taxable 322,341 156,744 563,572 355,385 Nontaxable 7,848 8,142 17,540 17,023 Interest on federal funds sold 170,348 70,896 479,407 160,101 Interest on interest earning deposits 223 - 358 - - ----------------------------------------------------------------------------------------------------------------------- Total interest income 4,364,137 3,014,788 8,230,090 5,920,704 - ----------------------------------------------------------------------------------------------------------------------- Interest expense: Interest-bearing transaction accounts 95,251 81,746 190,121 175,789 Money market accounts 858,897 456,205 1,608,349 907,410 Savings 7,498 7,688 15,294 15,101 Certificates of deposit: $100,000 and over 392,948 347,108 743,695 728,751 Other 626,572 403,787 1,264,564 763,766 Federal funds purchased - 78 - 78 Notes payable - - 2,888 - - ----------------------------------------------------------------------------------------------------------------------- Total interest expense 1,981,166 1,296,612 3,824,911 2,590,895 - ----------------------------------------------------------------------------------------------------------------------- Net interest income 2,382,971 1,718,176 4,405,179 3,329,809 Provision for loan losses 279,183 46,141 377,757 92,897 - ----------------------------------------------------------------------------------------------------------------------- Net interest income after provision for loan losses 2,103,788 1,672,035 4,027,422 3,236,912 - ----------------------------------------------------------------------------------------------------------------------- Noninterest income: Service charges on deposit accounts 44,544 31,908 79,884 63,963 Other service charges and fee income 59,962 300,320 139,733 512,071 Loss on investment in Enterprise Fund, L.P. (2,212) (52,236) (4,013) (56,050) - ----------------------------------------------------------------------------------------------------------------------- Total noninterest income 102,294 279,992 215,604 519,984 - ----------------------------------------------------------------------------------------------------------------------- Noninterest expense: Salaries 650,293 535,974 1,256,774 973,388 Payroll taxes and employee benefits 219,997 171,232 429,674 372,799 Occupancy 98,785 73,777 194,335 145,595 FDIC insurance - 500 9,324 1,000 Data processing 52,435 64,583 113,614 114,559 Other 332,999 425,979 633,128 799,604 - ----------------------------------------------------------------------------------------------------------------------- Total noninterest expense 1,354,509 1,272,045 2,636,849 2,406,945 - ----------------------------------------------------------------------------------------------------------------------- Income before income tax expense 851,573 679,982 1,606,177 1,349,951 Income tax expense 311,757 252,714 602,729 512,945 - ----------------------------------------------------------------------------------------------------------------------- Net income $ 539,816 427,268 1,003,448 837,006 ======================================================================================================================= Earnings per share $ 0.24 0.25 0.47 0.50 Weighted average common shares and common stock equivalents outstanding 2,236,146 1,685,240 2,123,867 1,679,992 ======================================================================================================================= See accompanying notes to consolidated financial statements. 2 5 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Six months ended June 30, 1997 and 1996 =============================================================================================================== (Unaudited) -------------------------------- 1997 1996 - --------------------------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 1,003,448 837,006 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 143,241 102,895 Provision for loan losses 377,757 92,897 Write-downs and losses on other real estate owned (25,728) - Net (amortization) accretion of debt securities (143,992) 17,775 Loss on investment in Enterprise Fund, L.P. 4,013 56,050 (Increase) decrease in accrued interest receivable (305,645) 88,737 Increase in prepaid expenses and other assets (946,979) (203,277) Increase in accounts payable and accrued expenses 147,874 338,845 - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) operating activities 253,989 1,330,928 - --------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Decrease in federal funds sold 5,972,550 10,030,000 Increase in interest earning deposits (30,063) - Purchases of available-for-sale debt securities (17,837,997) (989,794) Purchases of available-for sale equity securities (90,500) (94,200) Purchases of held-to-maturity debt securities - (109,004) Proceeds from maturities of available-for-sale debt securities 12,660,000 7,440,000 Proceeds from maturities and principal paydowns on held-to-maturity debt securities 407,256 3,434 Net increase in loans (42,121,573) (10,302,462) Purchases of office equipment and leasehold improvements (605,168) (182,857) (Increase) decrease in Investment in Enterprise Fund, L.P. 319,500 (520,500) - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities (41,325,995) 5,274,617 - --------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in demand and savings accounts 36,990,282 (6,136,456) Net increase (decrease) in certificates of deposit 4,569,390 (764,398) Decrease in notes payable (300,000) - Cash dividends paid (95,131) (51,218) Proceeds from the issuance of common stock 6,856,518 - - --------------------------------------------------------------------------------------------------------------- Net cash provided by (used in) financing activities 48,021,059 (6,952,072) - --------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and due from banks 6,949,053 (346,527) Cash and due from banks, beginning of period 9,261,035 8,109,804 - --------------------------------------------------------------------------------------------------------------- Cash and due from banks, end of period $16,210,088 7,763,277 =============================================================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,831,439 2,640,965 Income taxes 705,258 467,759 Noncash transactions: Transfers to other real estate owned in settlement of loans 55,000 50,000 Loans made to facilitate the sale of other real estate owned 149,082 50,000 =============================================================================================================== See accompanying notes to consolidated financial statements. 3 6 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements June 30, 1997 and December 31, 1996 ============================================================================== (1) BASIS OF PRESENTATION The accompanying consolidated financial statements of Enterbank Holdings, Inc. and subsidiaries (the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 1996 annual report on Form 10-K. 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 six month period ended June 30, 1997 are not necessarily indicative of the results that may be expected for any other interim period or for the year ending December 31, 1997. The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated. (2) STOCK OFFERING On February 14, 1997, the Company completed a stock offering of 451,612 shares of common stock. These shares were offered to the public at $15.50 per share. The offering allowed for the sale of a minimum of 193,548 shares, or $3,000,000, and a maximum of 451,612 shares, or $7,000,000 in common stock. The maximum number of shares was sold at $15.50 per share. 4 7 ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL CONDITION Total assets at June 30, 1997 were $234 million, an increase of $49 million, or 26%, over total assets of $185 million at December 31, 1996. Loans and leases were $176 million, an increase of $42 million, or 31%, over total loans and leases of $134 million at December 31, 1996. The increase in loans and leases is, in part, attributable to the Company's investment in additional business development officers. Federal funds sold and investment securities were $36 million, a decrease of $2 million, or 5%, from total federal funds sold and investment securities of $38 million at December 31, 1996. The decrease resulted from the increased loans in the second quarter of 1997. Total deposits at June 30, 1997 were $211 million, an increase of $42 million, or 25%, over total deposits of $169 million at December 31, 1996. Deposit growth occurred primarily in money market accounts and demand deposit accounts. Total money market accounts at June 30, 1997 were $81 million, an increase of $26 million, or 47%, over total money market accounts of $55 million at December 31, 1996. Total demand deposits of June 30, 1997 were $39 million, an increase of $8 million, or 25%, over total demand deposits of $31 million at December 31, 1996. Total shareholders' equity increased $7.7 million primarily due to retained earnings of $900,000 for the six months ended June 30, 1997 and net proceeds of $6.8 million from the sale of common stock. On March 19, 1997, the Board of Directors of the Company approved an investment of $510,000 in City Bancorp, a proposed Missouri bank holding company. The investment is held in escrow pending regulatory approval of the proposed holding company, bank charter and investment. The funds held in escrow are included in prepaid expenses and other assets. City Bancorp is the proposed holding company for a proposed newly-chartered Missouri state bank which will be located in Springfield, Missouri. The Company believes this investment will provide an opportunity to participate in the growing Springfield market by affiliating with an organization with a philosophy similar to its own. The management of City Bancorp consists of individuals with whom the Company's management has worked with in the past and has a good reputation in the banking industry. RESULTS OF OPERATIONS Net income was $1,003,000 for the six month period ended June 30, 1997, an increase of 20% over net income of $837,000 for the same period in 1996. Net income for the three month period ended June 30, 1997 was $540,000, an increase of 26% over net income of $427,000 for the same period in 1996. Earnings per share for the six months ended June 30, 1997 and 1996 were $0.47 and $0.50, respectively. Earnings per share for the three months ended June 30, 1997 and 1996 were $0.24 and $0.25, respectively. The $0.03 decrease in earnings per share for the six month period primarily resulted from an increase in weighted average common stock equivalents outstanding of 443,875 from June 30, 1996 to June 30, 1997. Weighted average common stock equivalents increased from the issuance of 198,960 shares of common stock upon the exercise of outstanding warrants in August 1996 and the issuance of 451,612 shares of common stock on February 14, 1997 in the Company's common stock offering. 5 8 NET INTEREST INCOME Net interest income (presented on a tax-equivalent basis) was $4.40 million, or 4.62% of average earning assets, for the six months ended June 30, 1997, as compared to $3.33 million, or 5.04% of average earnings assets, for the same period in 1996. The $1.1 million, or 32%, increase in net interest income resulted primarily from a $59 million increase in average earning assets to $192 million for the six months ended June 30, 1997 from $133 million during the same period in 1996, offset by a lower average earning asset yield and higher cost of deposits. Net interest income (presented on a tax-equivalent basis) was $2.4 million, or 4.75% of average earning assets, for the three months ended June 30, 1997, as compared to $1.7 million, or 5.14% of average earning assets, for the same period in 1996. The $657,000, or 38%, increase in net interest income resulted primarily from a $66 million increase in average earning assets to $200 million for the three months ended June 30, 1997 from $134 million during the same period in 1996, offset by a lower average earning asset yield and higher cost of deposits. The yield on average earning assets decreased from 8.97% for the six months ended June 30, 1996 to 8.66% for the same period in 1997. The yield on average earning assets decreased from 9.06% for the three months ended June 30, 1996 to 8.76% for the same period in 1997. The decrease during both period comparisons is primarily the result of a change in the mix of earning assets from higher yielding assets, such as loans, to lower yielding assets, such as investment securities and federal funds sold, and a decrease in the average yield on loans due to competitive market pressures. The yield on interest-bearing deposits increased from 4.87% for the three and six months periods ended June 30, 1996 to 5.02% for the same periods in 1997. The increase is primarily the result of two factors: 1. An increase in the cost of money market accounts due to modifications in the rate structure for money market accounts. At the end of 1996, the Company changed the money market accounts offered to customers to pay accounts with collected balances over $300,000 a higher rate. 2. A change in the mix of interest-bearing liabilities from lower cost deposits, such as interest-bearing transaction accounts and savings accounts, to higher cost deposits, such as money market accounts and certificates of deposit. 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 and six month periods ended June 30: 6 9 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Distribution of Average Assets, Liabilities and Shareholder's Equity and Interest Rates =========================================================================================================================== Three months ended June 30, ------------------------------------------------------------------------------ 1997 1996 -------------------------------------- ------------------------------------- Percent Interest Average Percent Interest Average Average of total income/ yield/ Average of total income/ yield/ ASSETS balance assets expense rate balance assets expense rate - --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Interest-earning assets: Loans<F1> $164,116 76.63 % $3,867 9.45 % $116,777 80.25 % $2,782 9.58 % Taxable investments in debt securities 22,719 10.61 323 5.70 11,157 7.67 156 5.62 Non-taxable investments in debt securities<F2> 829 0.39 13 6.29 911 0.63 14 6.18 Federal funds sold 12,609 5.89 170 5.41 5,371 3.69 71 5.32 Interest earning deposits 30 0.01 - - - - - - - --------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 200,303 93.53 4,373 8.76 134,216 92.24 3,023 9.06 - --------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets: Cash and due from banks 10,443 4.88 8,733 6.00 Office equipment and leasehold improvements 1,349 0.63 880 0.60 Prepaid expenses and other assets 4,000 1.87 3,177 2.18 Allowance for possible loan losses (1,955) (0.91) (1,483) (1.02) - --------------------------------------------------------------------------------------------------------------------------- Total assets $214,140 100.00 % $145,523 100.00 % =========================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Interest-bearing transaction accounts 15,905 7.43 114 2.87 13,040 8.96 92 2.84 Money market 72,778 33.99 859 4.73 41,098 28.24 456 4.46 Savings 1,214 0.57 7 2.31 1,033 0.71 8 3.11 Certificates of deposit 69,824 32.60 1,020 5.86 52,696 36.21 751 5.73 Notes payable - - - - - - - - Federal funds purchased - - - - 5 - - - - --------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 159,721 74.59 2,000 5.02 107,872 74.12 1,307 4.87 Noninterest-bearing liabilities: Demand deposits 31,317 14.62 23,791 16.35 Other liabilities 746 0.35 1,146 0.79 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 191,784 89.56 132,809 91.26 Shareholders' equity 22,356 10.44 12,714 8.74 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $214,140 100.00 % $145,523 100.00 % =========================================================================================================================== Net interest income $2,373 $1,716 =========================================================================================================================== Net interest margin 4.75 % 5.14 % =========================================================================================================================== <FN> <F1> 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 $170,000 and $156,000 for the three month period ended June 30, 1997 and 1996, respectively. Loan fees included in interest income are approximately $305,000 and $269,000 for the six month period ended June 30, 1997 and 1996, respectively. <F2> Non-taxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. =========================================================================================================================== Six months ended June 30, ------------------------------------------------------------------------------ 1997 1996 -------------------------------------- ------------------------------------- Percent Interest Average Percent Interest Average Average of total income/ yield/ Average of total income/ yield/ ASSETS balance assets expense rate balance assets expense rate - --------------------------------------------------------------------------------------------------------------------------- (Dollars in thousands) Interest-earning assets: Loans<F1> $152,826 74.56 $7,175 9.47 % $113,576 78.73 % $5,394 9.55 % Taxable investments in debt securities 20,096 9.80 564 5.66 12,543 8.70 355 5.69 Non-taxable investments in debt securities<F2> 865 0.42 27 6.29 876 0.61 26 5.97 Federal funds sold 18,174 8.87 479 5.31 6,115 4.24 160 5.26 Interest earning deposits 26 0.01 - - - - - - - --------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 191,987 93.66 8,245 8.66 133,110 92.28 5,935 8.97 - --------------------------------------------------------------------------------------------------------------------------- Noninterest-earning assets: Cash and due from banks 9,992 4.87 8,707 6.04 Office equipment and leasehold improvements 1,269 0.62 846 0.59 Prepaid expenses and other assets 3,635 1.77 3,031 2.10 Allowance for possible loan losses (1,889) (0.92) (1,461) (1.01) - --------------------------------------------------------------------------------------------------------------------------- Total assets $204,994 100.00 % $144,233 100.00% =========================================================================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY - --------------------------------------------------------------------------------------------------------------------------- Interest-bearing liabilities: Interest-bearing transaction accounts 15,363 7.49 209 2.74 13,942 9.68 186 2.68 Money market 68,620 33.47 1,608 4.73 40,909 28.36 907 4.46 Savings 1,172 0.57 15 2.58 1,014 0.70 15 2.97 Certificates of deposit 69,101 33.72 2,009 5.86 51,550 35.74 1,493 5.82 Notes payable 50 0.02 3 12.10 - - - - Federal funds purchased - - - - 3 - - - - --------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 154,306 75.27 3,844 5.02 107,418 74.48 2,601 4.87 Noninterest-bearing liabilities: Demand deposits 29,335 14.31 23,125 16.03 Other liabilities 343 0.17 1,170 0.81 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities 183,984 89.75 131,713 91.32 Shareholders' equity 21,010 10.25 12,520 8.68 - --------------------------------------------------------------------------------------------------------------------------- Total liabilities and shareholders' equity $204,994 100.00 % $144,233 100.00 % =========================================================================================================================== Net interest income $4,401 $3,334 =========================================================================================================================== Net interest margin 4.62 % 5.04 % =========================================================================================================================== <FN> <F1> 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 $170,000 and $156,000 for the three month period ended June 30, 1997 and 1996, respectively. Loan fees included in interest income are approximately $305,000 and $269,000 for the six month period ended June 30, 1997 and 1996, respectively. <F2> Non-taxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%. 7 10 PROVISION FOR POSSIBLE LOAN LOSSES The provision for possible loan losses was $279,000 and $378,000 for the three and six month periods ended June 30, 1997, respectively, compared to $46,000 and $93,000 for the same periods in 1996. The increase in provision reflects an increase in net loan charge-offs of $53,000 from net recoveries of $7,000 for the six months ended June 30, 1997 and 1996, respectively, and loan growth of $42 million versus $10 million during those same periods. 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 expense: ==================================================================================================== June 30, ------------------------- 1997 1996 - ---------------------------------------------------------------------------------------------------- (dollars in thousands) Allowance at beginning of period $1,765 1,400 - ---------------------------------------------------------------------------------------------------- Loans charged off: Commercial and industrial 24 - Real estate: Commercial 45 - Construction 11 - Residential - - Consumer and other - - - ---------------------------------------------------------------------------------------------------- Total loans charged off 80 - - ---------------------------------------------------------------------------------------------------- Recoveries of loans previously charged off: Commercial and industrial 20 - Real estate: Commercial 7 7 Construction - - Residential - - Consumer and other - - - ---------------------------------------------------------------------------------------------------- Total recoveries of loans previously charged off 27 7 - ---------------------------------------------------------------------------------------------------- Net loans charged off (recovered) 53 (7) - ---------------------------------------------------------------------------------------------------- Provisions charged to operations 378 93 - ---------------------------------------------------------------------------------------------------- Allowance at end of period $2,090 1,500 ==================================================================================================== 8 11 =============================================================================================== Average loans $152,826 113,576 Total loans 176,296 120,773 Nonperforming loans 595 352 Net charge-offs (recoveries) to average loans 0.04% (0.01)% Allowance for possible loan losses to loans 1.19 1.24 Allowance for possible loan losses to nonperforming loans 351.26 426.14 =============================================================================================== The allowance for loan losses is maintained at a level considered adequate to provide for potential losses. The provision for loan losses is based on a periodic analysis which considers, among other factors, current economic conditions, loan portfolio composition, past loan loss experience, independent appraisals, loan collateral and payment experience. In addition to the allowance for estimated losses on identified problem loans, an overall unallocated allowance is established to provide for unidentified credit losses inherent in the portfolio. As adjustments to the allowance for loan losses become necessary, they are reflected in the results of operations in the periods in which they become known. Management believes the allowance for loan losses is adequate to absorb losses in the loan portfolio. While management uses available information to recognize loan losses, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to increase the allowance for loan losses based on their judgments and interpretations about information available to them at the time of their examinations. While the Company has benefited from very low historical net charge-off experience during an extended period of rapid loan growth, management remains cognizant that historical loan loss and nonperforming asset experience may not be indicative of future results. If the experience were to deteriorate and additional provisions for loan losses were required, future operating results would be negatively impacted. Both management and the Board of Directors continually monitor changes in asset quality, market conditions, concentration of credit and other factors which impact the credit risk associated with the Company's loan portfolio. 9 12 The following table sets forth information concerning the Company's nonperforming assets as of the dates indicated: ==================================================================================================== June 30, December 31, 1997 1996 - ---------------------------------------------------------------------------------------------------- (dollars in thousands) Nonaccrual loans $ 323 131 Loans past due 90 days or more and still accruing interest 272 30 Restructured loans - - - ---------------------------------------------------------------------------------------------------- Total nonperforming loans 595 161 Foreclosed property 806 874 - ---------------------------------------------------------------------------------------------------- Total nonperforming assets $ 1,401 1,035 ==================================================================================================== Total assets $233,753 184,584 Total loans 176,296 134,133 Total loans plus foreclosed property 177,102 135,007 Nonperforming loans to loans 0.34% 0.12% Nonperforming assets to loans plus foreclosed property 0.79 0.77 Nonperforming assets to total assets 0.60 0.56 ==================================================================================================== NONINTEREST INCOME Noninterest income was $102,000 and $216,000 for the three and six months periods ended June 30, 1997, respectively, as compared to $280,000 and $520,000 for the same periods in 1996. The decrease is primarily attributed to merchant credit card income. The Company sold its merchant credit card portfolio in November 1996. Merchant credit card income in 1997 was $0 compared to $147,000 and $383,000 for the three and six month periods ended June 30, 1996, respectively. Noninterest income from other sources consists primarily of service charges and other fees related to deposit accounts. NONINTEREST EXPENSE Noninterest expense increased $83,000 and $230,000 to $1,355,000 and $2,637,000 for the three and six month periods ended June 30, 1997, respectively. The increases are primarily due to increases in salaries and benefits expense and occupancy expense, offset by a reduction of $121,000 and $268,000 for the three and six month periods ended June 30, 1997 in expenses related to the previously mentioned merchant credit card operation. Increases in salaries and benefits and occupancy expense are primarily due to the personnel and temporary facilities for the St. Charles county banking facility. 10 13 LIQUIDITY AND INTEREST RATE SENSITIVITY Liquidity is provided by the Company's earning assets, including short-term investments in federal funds sold, maturities in the loan portfolio, maturities in the investment portfolio, amortization of term loans, and by the Company's deposit inflows, proceeds from borrowings, and retained earnings. Since inception, the Company has experienced rapid loan and deposit growth primarily due to an aggressive direct calling effort 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 four years and considers it to be a stable source of deposits that allows the Company to acquire funds at a cost below its alternative cost of funds. There were $29.0 million and $31.2 million of deposits from the national network with the Company at June 30, 1997 and December 31, 1996, respectively. The following table sets forth the amount and maturity of certificates of deposit that had balances of more than $100,000 at June 30, 1997: ======================================================================================= Remaining maturity Amount (dollars in thousands) - --------------------------------------------------------------------------------------- Three months or less $26,323 Over three through six months 2,310 Over six through twelve months 303 Over twelve months - - --------------------------------------------------------------------------------------- $28,936 ======================================================================================= The asset/liability management process, which involves management of the components of the balance sheet to allow assets and liabilities to reprice at approximately the same time, is an ever-changing process essential to minimizing the effect of interest rate fluctuations on net interest income. CAPITAL ADEQUACY In April 1996, the Company obtained a $1,000,000 unsecured line of credit. The line of credit was a one year interest only note accruing interest at the prime rate. The outstanding principal balance on the loan as of December 31, 1996 was $300,000 which was repaid during the three-month period ended March 31, 1997 from the proceeds of the common stock offering. The line of credit was not renewed at the maturity date in April 1997 at the request of the Company. 11 14 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 instructions and to provide for uniform requirements among the various regulators. Currently, the risk-based guidelines require the Company to meet a minimum total capital ratio of 8.0% of which at least 4.0% must consist of Tier 1 capital. Tier 1 capital generally consists of (a) common shareholders' equity (excluding the unrealized market value adjustments on the available-for-sale securities), (b) qualifying perpetual preferred stock and related surplus subject to certain limitations specified by the FDIC, and (c) minority interests in the equity accounts of consolidated subsidiaries less goodwill and 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. 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 privisions ---------------- ------------------- ----------------- Amount Ratio Amount Ratio Amount Ratio - ------------------------------------------------------------------------------------------------------------------------ As of June 30, 1997: Total capital (to risk weighted assets): Enterbank Holdings, Inc. $24,559,100 13.32% $14,746,866 8.00% $18,433,583 10.00% Enterprise Bank 21,032,000 11.48 14,651,060 8.00 18,313,826 10.00 Tier I Capital (to risk weighted assets): Enterbank Holdings, Inc. 22,469,100 12.19 7,373,433 4.00 11,060,150 6.00 Enterprise Bank 18,942,000 10.34 7,325,530 4.00 10,988,295 6.00 Tier I Capital (to average assets): Enterbank Holdings, Inc. 22,469,100 10.96 8,199,760 4.00 10,249,700 5.00 Enterprise Bank 18,942,000 9.27 8,171,309 4.00 10,214,137 5.00 As of December 31, 1996: Total capital (to risk weighted assets): Enterbank Holdings, Inc. 16,461,861 11.53 11,424,028 8.00 14,280,035 10.00 Enterprise Bank 15,979,971 11.28 11,334,400 8.00 14,168,000 10.00 Tier I Capital (to risk weighted assets): Enterbank Holdings, Inc. 14,696,861 10.29 5,712,014 4.00 8,568,021 6.00 Enterprise Bank 14,214,917 10.03 5,667,200 4.00 8,500,800 6.00 Tier I Capital (to average assets): Enterbank Holdings, Inc. 14,696,861 9.62 6,108,240 4.00 7,635,300 5.00 Enterprise Bank 14,214,917 9.35 6,085,960 4.00 7,607,450 5.00 ======================================================================================================================== 12 15 Primary capital, a measure of capital adequacy, includes equity capital, allowance for possible loan losses, and debt considered equity for regulatory capital purposes. Tangible primary capital represents primary capital reduced by total intangible assets included in the balance sheet. At June 30, 1997, the Company's primary capital was $24.3 million compared to $16.5 million at December 31, 1996. The Company's primary capital to asset ratio on a consolidated basis was 10.41% and 8.95% at June 30, 1997 and December 31, 1996, respectively. The Company's tangible primary capital was $24.3 million and $16.5 million at June 30, 1997 and December 31, 1996, respectively. IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS During February 1997, the FASB issued SFAS 128, Earnings per Share (SFAS 128). SFAS 128 establishes standards for computing and presenting earnings per share (EPS) and applies to entities with publicly held common stock or potential common stock. SFAS 128 replaces the presentation of primary EPS with a presentation of basic EPS and replaces fully diluted EPS with diluted EPS. Basic EPS excludes dilution and is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is computed similarly to fully diluted EPS pursuant to Opinion 15. SFAS 128 is effective for financial statements issued for periods ending after December 15, 1997, including interim periods; earlier application is not permitted. After adoption, all prior-period EPS data presented shall be restated to conform with SFAS 128. The majority of the Company's outstanding options are fully vested and therefore, most of the dilution from outstanding options is already included in the current EPS calculation. The implementation of SFAS 128 to calculate current EPS is not expected to have a material impact on EPS presentation. During February 1997, the FASB issued SFAS 129, Disclosure of Information about Capital Structure (SFAS 129). SFAS 129 continues the previous requirements to disclose certain information about an entity's capital structure found in APB Opinions No. 10, Omnibus Opinion-1966, and No. 15, Earnings per Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for entities that were subject to the requirements of those standards. SFAS 129 is effective for financial statements for periods ending after December 15, 1997. It contains no change in disclosure requirements for entities that were previously subject to the requirements of Opinions 10 and 15 and Statement 47. The implementation of SFAS 129 is not expected to have a material impact on the Company's financial position or results of operations. 13 16 EFFECT OF INFLATION Persistent high rates of inflation can have a significant effect on the reported financial condition and results of operations of all industries. However, the asset and liability structure of commercial banks is substantially different from that of an industrial company in that virtually all assets and liabilities of commercial banks are monetary in nature. Accordingly, changes in interest rates may have a significant impact on a commercial bank's performance. Interest rates do not necessarily move in the same direction or in the same magnitude as the prices of goods and services. Inflation does have an impact on the growth of total assets in the banking industry, often resulting in a need to increase equity capital at higher than normal rates to maintain an appropriate equity-to-assets ratio. PART II - OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K The exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K. Exhibit Number Description ------- ----------- 11 Statement Re: Computation of Earnings Per Share 27 Financial Data Schedule The Company filed no current reports on Form 8-K during the three months ended June 30, 1997. 14 17 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Act of 1934, the undersigned Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Clayton, State of Missouri, on the 14th day of August, 1997. 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 15