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 - For the quarterly period ended
September 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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, MO 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-5500
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of October 31, 1997:
Common Stock, $.01 par value -------- 2,297,412 shares outstanding as of
October 31, 1997.
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 2: Changes in Securities and use of proceeds 14
Item 5: Other Information 14
Item 6:
Exhibits and Reports on Form 8-K 14
SIGNATURES 15
3
PART I ITEM 1
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1997 and December 31, 1996
====================================================================================================================
(Unaudited)
September 30, December 31,
ASSETS 1997 1996
- --------------------------------------------------------------------------------------------------------------------
Cash and due from banks $ 15,769,231 9,261,035
Federal funds sold 14,850,000 23,250,000
Interest bearing deposits 40,091 --
Investments in debt and equity securities:
Available for sale, at estimated fair value 13,554,520 14,005,797
Held to maturity, at amortized cost (estimated fair
value of $824,376 at September 30, 1997 and
$1,239,498 at December 31, 1996) 822,715 1,240,183
- --------------------------------------------------------------------------------------------------------------------
Total investments in debt and equity securities 14,377,235 15,245,980
- --------------------------------------------------------------------------------------------------------------------
Loans, less unearned loan fees 201,537,575 134,133,092
Less allowance for loan losses 2,255,000 1,765,000
- --------------------------------------------------------------------------------------------------------------------
Loans, net 199,282,575 132,368,092
- --------------------------------------------------------------------------------------------------------------------
Other real estate owned 806,072 874,426
Office equipment and leasehold improvements 2,205,614 1,119,268
Accrued interest receivable 1,360,817 935,864
Investment in Enterprise Fund, L.P. 227,237 550,087
Prepaid expenses and other assets 2,044,405 979,361
- --------------------------------------------------------------------------------------------------------------------
Total assets $250,963,277 184,584,113
====================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
====================================================================================================================
Deposits:
Demand 38,912,010 31,137,649
Interest-bearing transaction accounts 16,344,330 16,648,185
Money market accounts 82,088,461 54,637,747
Savings 1,331,745 1,030,346
Certificates of deposits:
$100,000 and over 37,388,411 24,067,363
Other 50,922,070 41,439,799
- --------------------------------------------------------------------------------------------------------------------
Total deposits 226,987,027 168,961,089
Notes payable -- 300,000
Accounts payable and accrued expenses 735,580 565,131
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 227,722,607 169,826,220
- --------------------------------------------------------------------------------------------------------------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000 shares;
issued and outstanding 2,144,972 shares at September 30, 1997
and 1,662,360 shares at December 31, 1996 21,450 16,624
Surplus 16,602,648 9,595,956
Retained earnings 6,603,657 5,138,612
Net unrealized holding gains on
available-for-sale securities 12,915 6,701
- --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 23,240,670 14,757,893
- --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $250,963,277 184,584,113
====================================================================================================================
See accompanying notes to consolidated financial statements.
1
4
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Three months and nine months ended September 30, 1997 and 1996
==========================================================================================================================
(Unaudited) (Unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
Interest income:
Interest and fees on loans $4,503,988 2,937,564 11,673,201 8,325,759
Interest on debt securities:
Taxable 243,115 140,632 806,687 496,017
Nontaxable 8,498 9,311 26,038 26,334
Interest on federal funds sold 63,677 100,273 543,084 260,374
Interest on interest earning deposits 403 -- 761 --
- --------------------------------------------------------------------------------------------------------------------------
Total interest income 4,819,681 3,187,780 13,049,771 9,108,484
- --------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest-bearing transaction accounts 99,065 75,878 289,186 251,667
Money market accounts 897,824 501,793 2,506,173 1,409,203
Savings 7,643 8,404 22,937 23,505
Certificates of deposit:
$100,000 and over 439,906 290,232 1,183,601 1,018,983
Other 635,255 513,386 1,899,819 1,277,152
Federal funds purchased 5,772 871 5,772 949
Notes payable -- 8,949 2,888 8,949
- --------------------------------------------------------------------------------------------------------------------------
Total interest expense 2,085,465 1,399,513 5,910,376 3,990,408
- --------------------------------------------------------------------------------------------------------------------------
Net interest income 2,734,216 1,788,267 7,139,395 5,118,076
Provision for loan losses 193,215 50,842 570,972 143,739
- --------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for
loan losses 2,541,001 1,737,425 6,568,423 4,974,337
- --------------------------------------------------------------------------------------------------------------------------
Noninterest income:
Service charges on deposit accounts 48,921 31,071 128,805 95,034
Other service charges and fee income 54,272 232,717 194,005 744,788
Gain <loss> on investment in Enterprise Fund, L.P. 662 (3,328) (3,351) (59,378)
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest income 103,855 260,460 319,459 780,444
- --------------------------------------------------------------------------------------------------------------------------
Noninterest expense:
Salaries 761,369 533,311 2,018,143 1,506,699
Payroll taxes and employee benefits 244,498 143,419 674,172 516,218
Occupancy 162,898 91,003 357,233 236,598
FDIC insurance 6,040 500 15,364 1,500
Data processing 62,517 58,334 176,131 172,893
Other 450,695 462,376 1,083,823 1,261,980
- --------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 1,688,017 1,288,943 4,324,866 3,695,888
- --------------------------------------------------------------------------------------------------------------------------
Income before income tax expense 956,839 708,942 2,563,016 2,058,893
Income tax expense 351,848 279,608 954,577 792,553
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 604,991 429,334 1,608,439 1,266,340
==========================================================================================================================
Earnings per share $ 0.27 0.25 0.74 0.74
Weighted average common shares and common
stock equivalents outstanding 2,254,021 1,728,691 2,176,712 1,702,870
==========================================================================================================================
See accompanying notes to consolidated financial statements.
2
5
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine months ended September 30, 1997 and 1996
===================================================================================================================
(Unaudited)
--------------------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net income $ 1,608,439 1,266,340
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 226,781 160,607
Provision for loan losses 570,972 143,739
(Gains) losses on sale of other real estate owned,
net of write-downs and expenses (25,728) 6,646
Net (amortization) accretion of debt securities (181,310) 23,832
Loss on investment in Enterprise Fund, L.P. 3,351 59,378
(Increase) decrease in accrued interest receivable (424,953) 70,397
(Increase) decrease in prepaid expenses and other assets (1,065,044) 71,208
Increase (decrease) in accounts payable and accrued expenses 167,260 (229,899)
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 879,768 1,572,248
- -------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Decrease in federal funds sold 8,400,000 10,605,000
Increase in interest earning deposits (40,091) --
Purchases of available-for-sale debt securities (17,837,997) (8,922,967)
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 18,580,000 10,140,000
Proceeds from maturities and principal paydowns on
held-to-maturity debt securities 407,956 5,229
Net increase in loans (67,575,468) (19,246,166)
Proceeds from sales of other real estate owned 184,093 --
Purchases of office equipment and leasehold improvements (1,313,127) (241,686)
Decrease (increase) in Investment in Enterprise Fund, L.P. 319,499 (520,500)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (58,965,635) (8,384,294)
- -------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in demand and savings accounts 35,222,619 (4,229,610)
Net increase in certificates of deposit 22,803,319 8,650,813
(Decrease) increase in notes payable (300,000) 300,000
Cash dividends paid (143,393) (84,146)
Proceeds from the issuance of common stock 7,011,518 1,094,280
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 64,594,063 5,731,337
- -------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and due from banks 6,508,196 (1,080,709)
Cash and due from banks, beginning of period 9,261,035 8,109,804
- -------------------------------------------------------------------------------------------------------------------
Cash and due from banks, end of period $ 15,769,231 7,029,095
===================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,869,541 4,017,213
Income taxes 1,095,258 739,759
Noncash transactions:
Transfers to other real estate owned in settlement of loans 195,000 50,000
Loans made to facilitate the sale of other real estate owned 104,987 50,000
===================================================================================================================
See accompanying notes to consolidated financial statements.
3
6
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 1997 and 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 nine month period ended September
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 OFFERINGS AND OTHER TRANSACTIONS
On February 14, 1997, the Company completed a stock offering of
451,612 shares of common stock registered under the Securities Act
of 1933 on Form S-1. 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.
On October 31, 1997, the Company completed a private stock offering of
130,940 shares of common stock exempt from registration under the
Securities Act of 1933 pursuant to Regulation D thereunder. These
shares were offered at $16.75 per share. The offering allowed for the
sale of a minimum of 59,701 shares, or $1,000,000, and a maximum of
131,343 shares, or $2,200,000 in common stock. The offering and
substantially all sales of common stock were made to accredited
investors.
In a related transaction, on October 31, 1997, the Company entered
into an agreement with Moneta Group, Inc., a St. Louis based financial
planning and investment advisory firm (Moneta), to enter into a
business referral and financial planning servicing arrangement. The
business referral arrangement will provide for compensation in the
form of non-qualified Company stock options for up to 200,000 shares
of the Company's common stock to Moneta personnel based upon cumulative
net incremental revenues generated by deposit accounts and loan
transactions referred to the Company's wholly-owned subsidiary,
Enterprise Bank, by such Moneta personnel. The options, when granted,
and the common stock to be issued pursuant to such option, when
issued, will be unregistered and issued pursuant to available
exemptions from registration. The financial planning arrangement will
enable Enterprise Bank to offer its customers financial planning
services by Moneta personnel in return for a percentage share of the
earnings generated from such services. The business referral and
financial planning servicing arrangement is subject to execution of the
agreement by all parties thereto.
4
7
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at September 30, 1997 were $251 million, an increase of $66
million, or 36%, over total assets of $185 million at December 31, 1996.
Loans and leases were $202 million, an increase of $68 million, or 51%, over
total loans and leases of $134 million at December 31, 1996. Federal funds
sold and investment securities were $29 million, a decrease of $9 million, or
24%, from total federal funds sold and investment securities of $38 million at
December 31, 1996. The decrease resulted from the shift in earning assets
from short-term investments into loans during the first five months of 1997.
Total deposits at September 30, 1997 were $227 million, an increase of $58
million, or 34%, over total deposits of $169 million at December 31, 1996.
Deposit growth during the first nine months of 1997 occurred primarily in
money market accounts and demand deposit accounts. Deposit growth in the
third quarter occurred primarily in certificates of deposits due to
advertising programs.
Total shareholders' equity increased $8.5 million primarily due to retained
earnings of $1.5 million for the nine months ended September 30, 1997 and net
proceeds of $7.0 million from the sale of common stock and the exercise of
incentive stock options by some employees.
RESULTS OF OPERATIONS
Net income was $1,608,000 for the nine month period ended September 30, 1997,
an increase of 27% over net income of $1,266,000 for the same period in 1996.
Net income for the three month period ended September 30, 1997 was $605,000,
an increase of 41% over net income of $429,000 for the same period in 1996.
Earnings per share for the nine months ended September 30, 1997 and 1996 were
$0.74. Earnings per share for the three months ended September 30, 1997 and
1996 were $0.27 and $0.25, respectively. Earnings per share did not increase
in line with the increase in net income due to the increase in weighted
average common stock equivalents outstanding of 514,696 from September 30,
1996 to September 30, 1997. Weighted average common stock equivalents
increased primarily 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.
NET INTEREST INCOME
Net interest income (presented on a tax-equivalent basis) was $7.1 million, or
4.82% of average earning assets, for the nine months ended September 30, 1997
compared to $5.1 million, or 5.04% of average earning assets, for the same
period in 1996. The $2.0 million, or 39%, increase in net interest income
resulted primarily from a $62 million increase in average earning assets to
$198 million for the nine months ended September 30, 1997 from $136 million
during the same period in 1996, offset by a lower average earning asset yield
and a higher cost of deposits.
Net interest income (presented on a tax-equivalent basis) was $2.7 million, or
5.19% of average earning assets, for the three months ended September 30, 1997
compared to $1.8 million, or 5.03% of average earning assets, for the same
period in 1996. The $946,000, or 53%, increase in net interest income
resulted primarily from a $68 million increase in average earning assets to
$210 million for the three months ended September 30, 1997 from $142 million
during the same period in 1996 and a higher average earning asset yield and
lower cost of deposits. The asset yield increase is primarily due to a change
in the mix of earning assets from lower yielding federal funds sold to higher
yielding loans.
5
8
The yield on average earning assets decreased to 8.83% for the nine month
period ended September 30, 1997 from 8.96% for the same period in 1996. The
yield on average earning assets increased to 9.14% for the three month period
ended September 30, 1997 from 8.95% for the same period in 1996. The yield on
interest bearing deposits increased to 5.01% for the nine month period ended
September 30, 1997 from 4.88% for the same period in 1996 and remained
relatively constant for the two three-month periods ended September 30, 1997
and 1996.
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 nine month
periods ended September 30:
6
9
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Distribution of Average Assets, Liabilities and Shareholder's Equity and Interest Rates
===============================================================================================================================
Three months ended September 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> $187,817 83.13% $4,517 9.54% $123,648 80.63% $2,946 9.48%
Taxable investments in debt securities 16,868 7.47 243 5.72 10,022 6.54 141 5.60
Non-taxable investments in debt securities<F2> 825 0.37 13 6.25 895 0.58 14 6.22
Federal funds sold 4,419 1.96 64 5.75 7,652 4.99 100 5.20
Interest earning deposits 39 0.02 -- 4.48 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 209,968 92.95 4,837 9.14 142,217 92.74 3,201 8.95
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets:
Cash and due from banks 12,243 5.41 8,648 5.64
Office equipment and leasehold improvements 1,871 0.83 884 0.58
Prepaid expenses and other assets 3,988 1.77 3,126 2.03
Allowance for possible loan losses (2,171) (0.96) (1,525) (0.99)
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $225,899 100.00% $153,350 100.00%
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction accounts 16,303 7.22 108 2.63 12,149 7.92 78 2.55
Money market 75,782 33.55 898 4.70 41,907 27.33 502 4.77
Savings 1,222 0.54 8 2.60 1,114 0.73 9 3.21
Certificates of deposit 73,175 32.39 1,075 5.83 55,467 36.17 803 5.76
Notes payable -- -- -- -- 266 0.17 9 13.46
Federal funds purchased 416 0.18 3 2.86 60 0.04 1 6.63
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 166,898 73.88 2,092 4.97 110,963 72.36 1,402 5.03
Noninterest-bearing liabilities:
Demand deposits 35,304 15.63 24,892 16.23
Other liabilities 839 0.37 3,661 2.39
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 203,041 89.88 139,516 90.98
Shareholders' equity 22,858 10.12 13,834 9.02
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $225,899 100.00% $153,350 100.00%
===============================================================================================================================
Net interest income $2,745 $1,799
===============================================================================================================================
Net interest margin 5.19% 5.03%
===============================================================================================================================
<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 $195,000 and
$106,000 for the three month period ended September 30, 1997 and 1996,
respectively.
Loan fees included in interest income are approximately $500,000 and
$375,000 for the nine month period ended September 30, 1997 and 1996,
respectively.
<F2> Non-taxable investment income is presented on a fully tax-equivalent
basis assuring a tax rate of 34%.
===============================================================================================================================
Nine months ended September 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> $164,618 77.65% $11,692 9.50% $116,958 79.41% $8,340 9.53%
Taxable investments in debt securities 19,008 8.96 807 5.68 11,727 7.96 496 5.65
Non-taxable investments in debt securities<F2> 851 0.40 40 6.28 850 0.58 40 6.29
Federal funds sold 13,539 6.39 543 5.36 6,631 4.50 260 5.24
Interest earning deposits 30 0.01 1 4.46 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 198,046 93.41 13,083 8.83 136,166 92.45 9,136 8.96
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest earning assets:
Cash and due from banks 10,751 5.07 8,699 5.91
Office equipment and leasehold improvements 1,472 0.69 859 0.58
Prepaid expenses and other assets 3,755 1.77 3,053 2.07
Allowance for possible loan losses (1,984) (0.94) (1,483) (1.01)
- -------------------------------------------------------------------------------------------------------------------------------
Total assets $212,040 100.00% $147,294 100.00%
===============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
- -------------------------------------------------------------------------------------------------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction accounts 15,680 7.39 317 2.70 13,340 9.05 264 2.64
Money market 71,033 33.50 2,506 4.72 42,178 28.64 1,409 4.46
Savings 1,190 0.56 23 2.58 1,048 0.71 24 3.06
Certificates of deposit 70,473 33.24 3,084 5.85 52,866 35.89 2,296 5.80
Notes payable 33 0.02 3 12.15 172 0.12 9 6.99
Federal funds purchased 141 0.07 6 5.73 22 0.01 1 6.07
- -------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 158,550 74.78 5,939 5.01 109,626 74.42 4,003 4.88
Noninterest-bearing liabilities:
Demand deposits 31,356 14.78 23,800 16.16
Other liabilities 470 0.22 910 0.62
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities 190,376 89.78 134,336 91.20
Shareholders' equity 21,664 10.22 12,958 8.80
- -------------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $212,040 100.00% $147,294 100.00%
===============================================================================================================================
Net interest income $7,144 $5,133
===============================================================================================================================
Net interest margin 4.82% 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 $195,000 and
$106,000 for the three month period ended September 30, 1997 and 1996,
respectively.
Loan fees included in interest income are approximately $500,000 and
$375,000 for the nine month period ended September 30, 1997 and 1996,
respectively.
<F2> Non-taxable investment income is presented on a fully tax-equivalent
basis assuring a tax rate of 34%.
7
10
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $193,000 and $571,000 for the three
and nine month periods ended September 30, 1997, respectively, in comparison
to $51,000 and $144,000 for the same periods in 1996. The increase in the
provision reflects an increase in net loan charge-offs to $81,000 from net
recoveries of $12,000 for the nine months ended September 30, 1997 and 1996,
respectively, and loan growth of $68 million versus $19 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:
=========================================================================================================================
September 30,
----------------------
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Allowance at beginning of period $ 1,765 1,400
- -------------------------------------------------------------------------------------------------------------------------
Loans charged off:
Commercial and industrial 80 --
Real estate:
Commercial 27 --
Construction 5 --
Residential -- --
Consumer and other -- --
- -------------------------------------------------------------------------------------------------------------------------
Total loans charged off 112 --
- -------------------------------------------------------------------------------------------------------------------------
Recoveries of loans previously charged off:
Commercial and industrial 20 --
Real estate:
Commercial -- --
Construction -- --
Residential 11 10
Consumer and other -- 1
- -------------------------------------------------------------------------------------------------------------------------
Total recoveries of loans previously charged off 31 11
- -------------------------------------------------------------------------------------------------------------------------
Net loans charged off (recovered) 81 (11)
- -------------------------------------------------------------------------------------------------------------------------
Provisions charged to operations 571 144
- -------------------------------------------------------------------------------------------------------------------------
Allowance at end of period $ 2,255 1,555
=========================================================================================================================
Average loans 164,618 116,958
Total loans 201,538 129,721
Nonperforming loans 183 107
Net charge-offs (recoveries) to average loans 0.05% (0.01)%
Allowance for possible loan losses to loans 1.12 1.20
Allowance for possible loan losses to nonperforming
loans 1,232.24 1,453.27
=========================================================================================================================
8
11
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 increases 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.
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
=========================================================================================================================
September 30, December 31,
1997 1996
- -------------------------------------------------------------------------------------------------------------------------
(dollars in thousands)
Nonaccrual loans $ 183 131
Loans past due 90 days or more and
still accruing interest -- 30
Restructured loans -- --
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming loans 183 161
Foreclosed property 806 874
- -------------------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 989 1,035
=========================================================================================================================
Total assets $250,963 184,584
Total loans 201,538 134,133
Total loans plus foreclosed property 202,344 135,007
Nonperforming loans to loans 0.09% 0.12%
Nonperforming assets to loans plus
foreclosed property 0.49 0.77
Nonperforming assets to total assets 0.39 0.56
=========================================================================================================================
9
12
NONINTEREST INCOME
Noninterest income was $104,000 and $319,000 for the three and nine months
periods ended September 30, 1997, respectively, compared to $260,000 and
$780,000 for the same periods in 1996. The decrease is primarily attributable
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 $174,000 and $557,000 for the three and nine month periods ended
September 30, 1996. Noninterest income from other sources consists primarily
of service charges and other fees related to deposit accounts.
NONINTEREST EXPENSE
Noninterest expense increased $399,000 and $629,000 to $1,688,000 and
$4,325,000 for the three and nine month periods ended September 30, 1997,
respectively. The increases are primarily due to increases in salaries and
benefits expense and occupancy expense, offset by a reduction of $139,000 and
$407,000 for the three and nine month periods ended September 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 occupancy expenses for the new banking facilities located in
St. Charles County and Sunset Hills.
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 $38 million and $31 million of deposits from the
national network with the Company at September 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 September 30, 1997:
===========================================================================
Remaining maturity Amount
- ---------------------------------------------------------------------------
(dollars in thousands)
Three months or less $20,932
Over three through six months 7,974
Over six through twelve months 7,296
Over twelve months 1,186
- ---------------------------------------------------------------------------
$37,388
===========================================================================
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.
10
13
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.
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 provisions
-------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
- --------------------------------------------------------------------------------------------------------------------------
As of September 30, 1997:
Total capital (to risk weighted assets:
Enterbank Holdings, Inc. $25,436,500 12.53% $16,238,133 8.00% $20,297,666 10.00%
Enterprise Bank 22,411,000 11.03 16,255,696 8.00 20,319,619 10.00
Tier I Capital (to risk weighted assets):
Enterbank Holdings, Inc. 23,181,500 11.42 8,119,067 4.00 12,178,600 6.00
Enterprise Bank 20,156,000 9.92 8,127,848 4.00 12,191,772 6.00
Tier I Capital (to average assets):
Enterbank Holdings, Inc. 23,181,500 10.26 9,035,960 4.00 11,294,950 5.00
Enterprise Bank 20,156,000 9.54 8,451,200 4.00 10,564,000 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 15,979,917 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
==========================================================================================================================
11
14
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 September 30,
1997, the Company's primary capital was $25.5 million compared to $16.5
million at December 31, 1996. The Company's primary capital to asset ratio on
a consolidated basis was 10.09% and 8.95% at September 30, 1997 and December
31, 1996, respectively. The Company's tangible primary capital was $25.5
million and $16.5 million at September 30, 1997 and December 31, 1996,
respectively.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
The Company adopted the provisions of SFAS 125, Accounting for Transfers and
Servicing of Financial Assets and Liabilities (SFAS 125) prospectively on
January 1, 1997. SFAS 125 established accounting and reporting standards for
transfers and servicing of financial assets and extinguishment of liabilities.
The standards established by SFAS 125 are based on consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, derecognizes
financial assets when control has been surrendered, and derecognizes
liabilities when extinguished. SFAS 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. The implementation of SFAS 125, which is
effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after December 31, 1996, did not have a material
effect on the consolidated financial position or results of operations of the
Company.
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 which publicly held common stock or
potential common stock. SFAS 128 supersedes Opinion 15 and AICPA Accounting
Interpretations 1-102 of Opinion 15 making EPS calculations comparable to
international EPS standards. 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 Company does
not believe the implementation of SFAS 128 will have a material effect on its
computation of EPS.
In February 1997, the FASB issued SFAS 129, Disclosure of Information about
Capital Structure (SFAS 129). SFAS 129 establishes standards for disclosing
information about an entity's capital structure and applied to all entities.
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 eliminates the exemption of
nonpublic entities from certain disclosure requirements on APB 15 as provided
by SFAS 21, Suspension of the Reporting of Earnings per Share and Segment
Information by Nonpublic Enterprises. SFAS 129 supersedes specific disclosure
requirements of APB 10, APB 15 and SFAS 47 and consolidates them in SFAS 129
for ease of retrieval and for greater visibility to nonpublic entities. 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 APB 10, APB 15 and SFAS 47.
Therefore, the implementation of SFAS 129 is not expected to have a material
impact on the Company's financial position or results of operations.
12
15
In June 1997, the FASB issued SFAS 130, Reporting Comprehensive Income (SFAS
130). SFAS 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. Comprehensive income is defined as "the change in
equity (net assets) of a business enterprise during a period from transactions
and other events and circumstances from nonowner sources. It includes all
changes in equity during a period except those resulting from investments by
owners and distributions to owners." SFAS 130 requires all items recognized
under accounting standards as components of comprehensive income to be
reported in a financial statement that is displayed with the same prominence
as other financial statements. It also requires publicly traded companies to
report a total for comprehensive income in condensed financial statements of
interim periods issued to shareholders. SFAS 130 requires an entity to: (1)
classify items of other comprehensive income by their nature in a statement of
financial performance and (2) display the accumulated balances of items of
other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of a statement of financial position.
SFAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The Company's management is in the process
of analyzing SFAS 130 and its impact on the Company's financial position and
results of operations.
In June 1997, the FASB issued SFAS 131, Disclosures about Segments of an
Enterprise and Related Information (SFAS 131). SFAS 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers. SFAS 131 requires that a public business enterprise report
financial and descriptive information about its reportable operating segments.
Operating segments are components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker in deciding how to allocate resources and in
assessing performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments.
SFAS 131 is effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative
information for earlier years is to be restated. SFAS 131 need not be applied
to interim financial statements in the initial year of application, but
comparative information for interim periods in the initial year of application
is to be reported in financial statements for interim periods in the second
year of application. The Company's management is in the process of analyzing
SFAS 131 and its impact on the Company's financial position and 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 2 - Changes in Securities and use of proceeds
See Part I - Item 1 - Note 2 to the Consolidated Financial Statements for the
information required by this Item.
Item 5 - Other Information
See Part I - Item 1 - Note 2 to the Consolidated Financial Statements for the
information required by this Item.
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
------- -----------
10 Customer Referral Agreement by and among Enterbank Holdings, Inc.,
Enterprise Bank and Moneta Group Investment Advisors, Inc.
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
September 30, 1997.
14
17
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the Registrant has
duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Clayton, State of Missouri, on the
14th day of November, 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