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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 March 31, 1998
[ ] 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 000-24131
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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 of 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 April 30 1998:
Common Stock, $.01 par value----2,305,112 shares outstanding as of
April 30, 1998
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 1
Consolidated Statements of Income
Three Months Ended March 31, 1998 and 1997 2
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 1998 and 1997 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures Regarding Market
Risk - There have been no material changes from the information
provided in the December 31, 1997 Form 10-K
PART II. OTHER INFORMATION
Item 6. Exhibits and Report on Form 8-K 16
Signatures 17
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PART I - ITEM 1
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheet
(Unaudited) (Audited)
March 31, December 31,
Assets 1998 1997
------ ------------ ------------
Cash and due from banks $ 16,078,757 $ 13,897,054
Federal funds sold 26,200,000 32,825,000
Interest-bearing deposits 117,531 148,349
Investments in debt and equity securities:
Available for sale, at estimated fair value 8,083,731 12,514,721
Held to maturity, at amortized cost
(estimated fair value of $557,614 at March 31,
1998, and $920,154 at December 31, 1997) 555,917 919,163
------------ ------------
Total investments in debt and equity securities 8,639,648 13,433,884
------------ ------------
Loans held for sale 5,123,509 1,324,244
Loans, less unearned loan fees 233,178,611 225,560,208
Less allowance for loan losses 2,915,000 2,510,000
------------ ------------
Loans, net 230,263,611 223,050,208
------------ ------------
Other real estate owned 806,072 806,072
Office equipment and leasehold improvements 2,346,154 2,328,699
Accrued interest receivable 1,433,864 1,448,343
Investment in Enterprise Fund, L.P. 424,367 225,683
Prepaid expenses and other assets 1,751,996 1,877,320
------------ ------------
Total assets $293,185,509 $291,364,856
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 45,509,067 $ 46,052,686
Interest-bearing transaction accounts 19,318,912 22,519,772
Money market accounts 98,266,715 98,639,345
Savings 1,399,796 1,429,316
Certificates of deposit:
$100,000 and over 34,526,582 32,824,697
Other 66,294,129 62,834,818
------------ ------------
Total deposits 265,315,201 264,300,634
Accounts payable and accrued expenses 1,200,536 997,430
------------ ------------
Total liabilities 266,515,737 265,298,064
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized
3,000,000 shares; issued and outstanding
2,305,112 shares at March 31, 1998 and
2,298,412 shares at December 31, 1997 23,051 22,984
Surplus 18,917,742 18,879,210
Retained earnings 7,730,688 7,166,071
Other comprehensive income (1,709) (1,473)
------------ ------------
Total shareholders' equity 26,669,772 26,066,792
------------ ------------
Total liabilities and shareholders' equity $293,185,509 $291,364,856
============ ============
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
Three months ended March 31,
1998 1997
---------- ----------
Interest income:
Interest and fees on loans $5,379,964 $3,305,836
Interest on debt securities:
Taxable 154,634 241,231
Nontaxable 7,153 9,692
Interest on federal funds sold 224,906 309,059
Interest on interest earning deposits 1,806 135
---------- ----------
Total interest income 5,768,463 3,865,953
---------- ----------
Interest expense:
Interest-bearing transaction accounts 123,898 94,870
Money market accounts 1,087,657 749,452
Savings 8,615 7,796
Certificates of deposit:
$100,000 and over 484,008 350,747
Other 940,703 637,992
Notes payable -- 2,888
---------- ----------
Total interest expense 2,644,881 1,843,745
---------- ----------
Net interest income 3,123,582 2,022,208
Provision for loan losses 418,258 98,574
---------- ----------
Net interest income after
provision for loan losses 2,705,324 1,923,634
---------- ----------
Noninterest income:
Service charges on deposit accounts 50,314 35,340
Other service charges and fee income 78,770 79,771
Gain on Sale of Mortgage Loans 269,301 --
Loss on investment in Enterprise Fund, L.P. (2,316) (1,801)
---------- ----------
Total noninterest income 396,069 113,310
---------- ----------
Noninterest expense:
Salaries 1,061,681 696,481
Payroll taxes and employee benefits 215,434 119,677
Occupancy 200,033 95,550
Furniture and Equipment 84,714 50,584
FDIC insurance 14,965 9,324
Data processing 66,872 61,179
Other 442,949 249,545
---------- ----------
Total noninterest expense 2,086,648 1,282,340
---------- ----------
Income before income tax expense 1,014,745 754,604
Income tax expense 392,500 290,972
---------- ----------
Net income $ 622,245 $ 463,632
========== ==========
Basic earnings per share $ 0.27 $ 0.25
Diluted earnings per share $ 0.25 $ 0.23
Basic weighted average common shares and common stock
equivalents outstanding 2,304,430 1,888,166
Diluted weighted average common shares and common stock
equivalents outstanding 2,475,907 2,020,455
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31,
1998 1997
-------- --------
Net income $622,245 $463,632
-------- --------
Other comprehensive income, before tax:
Unrealized losses on securities:
Unrealized holding losses arising during period (358) (29,300)
-------- --------
Other comprehensive income, before tax (358) (29,300)
Income tax benefit related to items of
other comprehensive income 122 9,962
-------- --------
Other comprehensive income, net of tax (236) (19,338)
-------- --------
Comprehensive income $622,009 $444,294
======== ========
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31,
1998 1997
------------ -------------
Cash flows from operating activities:
Net income $ 622,245 $ 463,632
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 113,924 70,462
Provision for loan losses 418,258 98,574
Net accretion of debt and equity securities (34,741) (61,633)
Loss on investment in Enterprise Fund, L.P. 2,316 1,801
Mortgage loans originated (23,252,870) --
Proceeds from mortgage loans sold 19,453,605 --
(Increase) decrease in accrued interest receivable 14,479 (100,902)
(Increase) decrease in prepaid expenses and other assets 125,324 (812,262)
Increase in accounts payable and accrued
expenses 203,228 103,153
------------ -------------
Net cash provided by operating activities (2,334,232) (237,175)
------------ -------------
Cash flows from investing activities:
Purchases of interest-bearing deposits (21,709)
Purchases of available-for-sale debt securities (4,212,167) (11,866,590)
Purchases of available-for-sale equity securities (320,000) (90,500)
Proceeds from maturities of available-for-sale debt securities 9,000,000 4,660,000
Proceeds from maturities and principal paydowns on
held-to-maturity debt securities 360,785 406,556
Proceeds from the maturity of interest-bearing deposits 30,819 --
Net increase in loans (7,631,661) (14,073,137)
Purchases of office equipment and leasehold improvements (133,901) (194,401)
Write-down of office equipment and leasehold improvements 2,522 --
(Investment in) contributions returned from Enterprise Fund, L.P. (201,000) 319,500
------------ -------------
Net cash used in investing activities (3,104,603) (20,860,281)
------------ -------------
Cash flows from financing activities:
Net increase in demand and savings accounts (4,146,629) 17,344,310
Net increase in certificates of deposit 5,161,196 8,824,833
(Decrease) in notes payable -- (300,000)
Cash dividends paid (57,628) (47,565)
Proceeds from the issuance of common stock -- 6,856,518
Proceeds from the exercise of common stock options 38,599 --
------------ -------------
Net cash provided by financing activities 995,538 32,678,096
------------ -------------
Net increase in cash and due from banks (4,443,297) 11,580,640
Cash and due from banks, beginning of year 46,722,054 32,511,035
------------ -------------
Cash and due from banks, end of year $ 42,278,757 $ 44,091,675
============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 2,618,221 $ 1,820,428
Income taxes $ 108,800 $ 259,322
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
(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 Company's Annual Report on Form 10-K
for the year ended December 31,1997. In the opinion of
management, all adjustments, consisting of normal recurring
accruals considered necessary for a fair presentation of the
results of operations for the interim periods presented herein,
have been included. Operating results for the three month period
ended March 31, 1998 are not necessarily indicative of the
results that may be expected for any other interim period or for
the year ending December 31, 1998.
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Certain amounts in the consolidated financial statements for the year
end December 31, 1997 have been reclassified to conform to the
1998 presentation. Such reclassifications had no effect on
previously reported consolidated net income or shareholders'
equity.
(2) STOCK OFFERINGS AND OTHER TRANSACTIONS
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.
As part of the organization of Enterprise Financial Advisors
"Financial Advisors" as a division of the bank, the Company entered
into solicitation and referral agreements with Moneta Group, Inc.
"Moneta". These agreements call for Moneta to provide planning
services for Financial Advisors' customers under a revenue sharing
agreement. Moneta will refer customers, when appropriate, to the
Bank and receive a share of the revenue generated in the form of
options in the Company's common stock. The agreements with Moneta
also allow Financial Advisors to offer a full range of products and
services with the depth and expertise of a large planning firm.
Financial Advisors will continue to expand products and services
available to customers as the division develops.
On October 31, 1997, the Company completed a private placement of
its common stock 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. These shares were offered in a private sale to Moneta
principals related to the previously mentioned agreements with
Moneta. 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 company sold 130,940 shares at
$16.75 per share.
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(3) CHANGE IN ACCOUNTING PRINCIPLES
Effective January 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income." This statement requires presentation of
the components of comprehensive earnings, including the changes in
equity from non-owner sources such as unrealized gains on
securities . The Company's comprehensive earnings adjustments
for the three month period ending March 31, 1998 and 1997 were as
follows:
1998
------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Unrealized gains on securities:
Unrealized holding losses arising
during period $ (358) 122 (236)
-------- ----- -------
Other comprehensive income $ (358) 122 (236)
======== ===== =======
1997
------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Unrealized gains on securities:
Unrealized holding losses arising
during period $(29,300) 9,962 (19,338)
-------- ----- -------
Other comprehensive income $(29,300) 9,962 (19,338)
======== ===== =======
The company did not sell any investments in debt and equity securities
during the three months ended March 31, 1998 and 1997.
1998
-----------------------------
Accumulated
Unrealized Other
Gains on Comprehensive
Securities Income
---------- -------------
Beginning balance $(1,473) (1,473)
Current-period change (236) (236)
------- ------
Ending balance $(1,709) (1,709)
======= ======
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1997
-----------------------------
Accumulated
Unrealized Other
Gains on Comprehensive
Securities Income
---------- -------------
Beginning balance $ 6,702 6,702
Current-period change (19,338) (19,338)
-------- -------
Ending balance $(12,636) (12,636)
======== =======
Effective December 31, 1997, the Company adopted SFAS No. 128, "Earnings
Per Share". SFAS No. 128 requires the reporting of basic and diluted
earnings per share. Basic earnings per share data is calculated by
dividing net income, after deducting dividends on preferred stock, by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share gives effect to the increase in the average
shares outstanding which would have resulted from the exercise of dilutive
stock options and warrants. In accordance with the requirements of SFAS
No. 128 basic and diluted earnings per share have been restated for the
three months ended March 31, 1997.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
Total assets at March 31, 1998 were $293 million, an increase of $2 million,
or 1%, over total assets of $291 million at December 31, 1997. Loans and
leases, net of unearned loan fees were $233 million, an increase of $7
million, or 3% over total loans and leases of $226 million at December 31,
1997. Federal funds sold and investment securities were $35 million, a
decrease of $11 million, or 24%, from total federal funds sold and investment
securities of $46 million at December 31, 1997. The decrease resulted from
the shift in earnings assets from short-term investments into loans during
the first three months of 1998.
Total deposits at March 31, 1998 were $265 million, an increase of $1 million
over total deposits of $264 million at December 31, 1997.
Total shareholders' equity increased $602,980. The increase in equity is
due to an increase in retained earnings of $564,617 for the three months
ended March 31, 1998, and the exercise of incentive stock options by some
employees.
RESULTS OF OPERATIONS
Net income was $622,245 for the three month period ended March 31, 1998, an
increase of 35% over net income of $464,000 for the same period in 1997.
Basic earnings per share for the three months ended March 31, 1998 and 1997
was $0.27 and $0.25, respectively. Diluted earnings per share for the three
months ended March 31, 1998 and 1997 was $0.25 and $0.23, 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
from March 31, 1997 to March 31, 1998. Weighted average common stock
equivalents increased primarily from the issuance of 451,612 and 130,940
shares of common stock on February 14, 1997 and October 31, 1997,
respectively, in two common stock offerings.
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NET INTEREST INCOME
Net interest income (presented on a tax equivalent basis) was $3.1 million,
or 4.84% of average earnings assets, for the three months ended March 31,
1998, compared to $2.0 million, or 4.48% of average earning assets, for the
same period in 1997. The $1.1 million, or 55% increase, in net interest
income resulted primarily from an $80 million increase in average earnings
assets to $263 million for the three months ended March 31, 1998, from $184
million during the same period in 1997 and an increase in the average earning
asset yield. The increase in the earning assets is attributable to the
continued calling efforts of the Company's relationship officers and
sustained economic growth in the local market served by the Company. The
yield on average earnings assets increased from 8.55% for three months ended
March 31, 1997 to 8.91% for the same period in 1998. The increase in asset
yield was primarily due to a change in mix of earning assets from lower
yielding investment securities and federal funds sold to higher yielding
loans. The increase in net interest margin was offset by a $65 million
increase in average interest-bearing liabilities to $214 million for the
three months ended March 31, 1998 from $149 million during the same period in
1997, while the yield on interest-bearing liabilities remained constant at
5.02%.
(Remainder of this page intentionally left blank)
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The following table sets forth, on a tax-equivalent basis, certain
information relating to the Company's average balance sheet and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
three month periods ended March 31, 1997 and 1998:
Three months ended March 31,
-----------------------------------------------------------------------------
1998 1997
------------------------------------- --------------------------------------
Percent Interst Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
------- -------- ------- ------- ------- -------- -------- -------
ASSETS (Dollars in Thousands)
- ------
Interest-earning assets:
Loans<F1> $235,290 83.60% $5,391 9.29% $141,411 72.23% $3,308 9.49%
Taxable investments in debt securities 10,762 3.82 155 5.84 17,487 8.93 241 5.59
Non-taxable investments in debt
securities<F2> 658 0.23 11 6.78 858 0.44 14 6.62
Federal funds sold 16,356 5.81 225 5.58 23,800 12.16 309 5.27
Interest earning deposits 128 0.05 2 6.34 23 0.01 -- 2.38
-------- ------ ------ -------- ------ ------
Total interest-earning assets 263,194 93.51 5,784 8.91 183,579 93.76 3,872 8.55
------ ------
Non-interest-earning assets:
Cash and due from banks 14,371 5.11 9,536 4.87
Office equipment and leasehold improvements 2,337 0.83 1,187 0.61
Prepaid expenses and other assets 4,270 1.52 3,311 1.69
Allowance for possible loan losses (2,734) (0.97) (1,822) (0.93)
-------- ------ -------- ------
Total assets $281,438 100.00% $195,791 100.00%
======== ====== ======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 19,686 6.99% $ 124 2.55% $ 14,815 7.57% $ 95 2.60%
Money market 94,167 33.46 1,088 4.69 64,415 32.90 749 4.72
Savings 1,413 0.50 9 2.58 1,132 0.58 8 2.87
Certificates of deposit 98,468 34.99 1,425 5.87 68,457 34.96 989 5.86
Notes payable -- -- -- -- 100 0.05 3 12.17
-------- ------ ------ -------- ------ ------
Total interest-bearing liabilities 213,734 75.94 2,646 5.02 148,919 76.06 1,844 5.02
------ ------
Noninterest-bearing liabilities:
Demand deposits 40,208 14.29 27,156 13.87
Other liabilities 1,004 0.36 4 --
-------- ------ -------- ------
Total liabilities 254,946 90.59 176,079 89.93
Shareholders' equity 26,492 9.41 19,712 10.07
-------- ------ -------- ------
Total liabilities and shareholders' equity $281,438 100.00% $195,791 100.00%
======== ====== ======== ======
Net interest income $3,138 $2,028
====== ======
Net interest margin 4.84% 4.48%
<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 $148,000 and $135,000, for 1998 and
1997, respectively.
<F2>Non-taxable investment income is presented on a fully tax-equivalent
basis assuming a tax rate of 34%.
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PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $418,258 for the three months
ended March 31, 1998, compared to $98,574 for the same period in 1997. The
increase in provision reflects a slight increase in net loans charged off to
$13,000 from $4,000 for three months ended March 31, 1998 and 1997,
respectively. The Company also increased loan loss reserve during the first
quarter of 1998 to reflect the continued growth in the loan portfolio.
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:
March 31,
----------------------------------
1998 1997
------- -------
(Dollars in Thousands)
Allowance at beginning of year $ 2,510 $ 1,765
------- -------
Loans charged off:
Commercial and industrial 30 24
Real estate:
Commercial -- --
Construction -- --
Residential -- --
Consumer and other -- --
------- -------
Total loans charged off 30 24
------- -------
Recoveries of loans previously charged off:
Commercial and industrial 14 18
Real estate:
Commercial -- --
Construction -- --
Residential 3 2
Consumer and other -- --
------- -------
Total recoveries of loans previously charged off 17 20
------- -------
Net loans charged off 13 4
------- -------
Provisions charged to operations 418 99
------- -------
Allowance at end of period $ 2,915 $ 1,860
======= =======
Average loans $235,290 $141,411
Total loans $233,179 $148,203
Nonperforming loans $ 93 $ 100
Net charge-offs to average loans 0.01% --%
Allowance for possible loan losses to loans 1.25% 1.26%
Allowance for possible loan losses to non- 3,134.41% 1,860.00%
performing loans
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 for loan
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losses is established to provide for unidentified credit losses inherent in
the portfolio. As increases to the allowance 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:
March 31, December 31,
1998 1997
--------- ------------
(Dollars in Thousands)
Non-accrual loans $ 93 $ 50
Loans past due 90 days or more
and still accruing interest -- --
Restructured loans -- --
-------- --------
Total nonperforming loans 93 50
Foreclosed property 806 806
-------- --------
Total non-performing assets $ 899 $ 856
======== ========
Total assets $293,186 $291,365
Total loans $233,179 $225,560
Total loans plus foreclosed property $233,985 $226,366
Nonperforming loans to loans 0.04% 0.02%
Nonperforming assets to loans plus
foreclosed property 0.38% 0.38%
Nonperforming assets to total assets 0.31% 0.29%
NONINTEREST INCOME
Noninterest income was $396,069 for the three months ended March 31, 1998,
compared to $113,310 for the same period in 1997. The increase is primarily
attributed to the gain on sale of mortgage loans. The Company began offering
mortgage loan products during the third quarter of 1997. The gain on sale of
mortgage loans was $269,301 for the three months ended March 31, 1998
compared to $0 for the three month period ended March 31, 1997. Noninterest
income from other sources consists primarily of service charges and other
fees related to deposit accounts.
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NONINTEREST EXPENSE
Noninterest expense was $2.1 million for the three months ended March 31,
1998, compared to $1.3 million for the same period in 1997. The increase is
primarily due to increases in salaries and benefits expense of $460,957 and
occupancy and equipment expense of $138,613. Increases in salaries and
benefits and occupancy and equipment expense are primarily due to: 1) the
personnel, occupancy and equipment expenses for the new banking facilities
opened during 1997 in St. Charles County and Sunset Hills, 2) salaries and
benefits related to the origination and sale of mortgage loans and 3) normal
increases associated with growth. Other operating expenses of $442,949 for
the three months ended March 31, 1998 increased $193,404 over $249,545 for
the three months ended March 31, 1997. This increase is attributed to normal
operating expenses associated with growth.
YEAR 2000
In 1997, the Company organized a formal program to address the implications
of Year 2000 issues. The Company completed the assessment, analysis and
planning phases and is in the implementation phase of the project. Testing
of the systems will be conducted throughout 1998. The company expects
expenditures related to Year 2000 issues to be immaterial.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio,
maturities in the investment portfolio, amortization of term loans, deposit
inflows, proceeds from borrowings, and retained earnings.
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to the aggressive direct calling efforts of the Company's
relationship officers and sustained economic growth in the local market
served by the Company. Management has pursued privately held businesses who
desire a close working relationship with a locally-managed, full service
bank. Due to the relationship developed with these customers, management
views deposits from this source as a stable deposit base. Additionally, the
Company belongs to a national network of time depositors (primarily credit
unions) who place time deposits with the Company, typically in increments of
$99,000. The Company has used this source of deposits for over four years
and considers it to be a stable source of deposits enabling the Company to
acquire funds at a cost below its alternative cost of funds. There were $32
million and $31 million of deposits from the national network with the
Company at March 31, 1998 and December 31, 1997, respectively.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at March 31, 1998:
Remaining Maturity Amount
- ----------------------------------------- --------------
(Dollars in Thousands)
Three months or less $ 10,085
Over three through six 9,067
Over six through twelve 13,310
Over twelve months 2,065
---------
$ 34,527
=========
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.
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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 from the proceeds of the Common Stock
offering in the first quarter of 1997. The Company chose not to renew the
line of credit at the maturity date in April 1997.
Risk-based capital guidelines for financial institutions were adopted by
regulatory authorities effective January 1, 1991. These guidelines were
designed to relate regulatory capital requirements to the risk profile of the
specific institution and to provide for uniform requirements among the
various regulators. Currently, the risk-based capital guidelines require the
Company to meet a minimum total capital ratio of 8.0% of which at least 4.0%
must consist of Tier 1 capital. Tier 1 capital generally consists of (a)
common Shareholders' equity (excluding the unrealized market value
adjustments on the available-for-sale securities), (b) qualifying perpetual
preferred stock and related surplus subject to certain limitations specified
by the FDIC, and (c) minority interests in the equity accounts of
consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights
within certain limits, and (f) any other intangible assets and investments in
subsidiaries that the FDIC determines should be deducted from Tier 1 capital.
The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio
of Tier 1 capital less purchased mortgage servicing rights to total assets,
for banking organizations deemed the strongest and most highly rated by
banking regulators. A higher minimum leverage ration is required of less
highly rated banking organizations. Total capital, a measure of capital
adequacy, includes Tier 1 capital, allowance for possible loan losses, and
debt considered equity for regulatory capital purposes.
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The following table summarizes the Company's risk-based capital and leverage
ratios at the dates indicated:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- --------------------- ---------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ------------ ------- ----------- -------
As of March 31, 1998:
Total Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $29,550,661 12.12% $19,498,585 8.00% $24,373,231 10.00%
Enterprise Bank $27,101,597 11.17% $19,413,948 8.00% $24,267,435 10.00%
Tier I Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $26,635,661 10.93% $ 9,749,292 4.00% $14,623,939 6.00%
Enterprise Bank $24,186,597 9.97% $ 9,706,974 4.00% $14,560,461 6.00%
Tier I Capital (to Average Assets)
Enterbank Holdings, Inc. $26,635,661 9.46% $11,257,520 4.00% $14,071,900 5.00%
Enterprise Bank $24,186,597 8.62% $11,219,709 4.00% $14,024,636 5.00%
As of December 31, 1997:
Total Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $28,538,743 12.28% $18,591,401 8.00% $23,239,251 10.00%
Enterprise Bank $25,915,000 11.19% $18,525,813 8.00% $23,157,266 10.00%
Tier I Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $26,028,743 11.20% $ 9,295,700 4.00% $13,943,551 6.00%
Enterprise Bank $23,405,000 10.11% $ 9,262,906 4.00% $13,894,359 6.00%
Tier I Capital (to Average Assets)
Enterbank Holdings, Inc. $26,028,743 11.42% $ 9,116,560 4.00% $11,395,700 5.00%
Enterprise Bank $23,405,000 10.30% $ 9,085,351 4.00% $11,356,689 5.00%
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
SFAS 130, Reporting Comprehensive Income, was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and
losses on available-for-sale securities. Components of the Company's
comprehensive income are reported in a financial statement that is displayed
with the same prominence as other financial statements starting in the first
quarter of 1998. The reporting requirements of SFAS 130 did not have a
material impact on the Company's financial condition or results of
operations.
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for financial statements for periods beginning
after December 15, 1997, but interim period reporting is not required in
1998. An operating segment is defined under FAS 131 as a component of an
enterprise that engages in business activities that generate revenue and
expense for which operating results are reviewed by the chief operating
decision maker in the determination of resource allocation and performance.
The Company does not believe that SFAS 131 will have a material effect on
future financial statements.
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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.
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PART II -- OTHER INFORMATION
Item 6. -- Exhibits and Reports on Form 8-K
(a). The exhibits are numbered in accordance with the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit
Number Description
------- -----------
3 Amendment to Bylaws of Enterbank Holdings, Inc.
4 Amendment to Enterprise Bank Second Incentive Stock Option Plan
11 Statement Re: Computation of Earnings Per Share
27 Financial Data Schedule
(b). The Company filed no current reports on Form 8-K during the three
months ended March 31, 1998.
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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 May, 1998.
ENTERBANK HOLDINGS, INC.
By: ------------------------------
Fred H. Eller
Chief Executive Officer
By: ------------------------------
James C. Wagner
Chief Financial Officer
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