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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
EXCHANGE ACT OF 1934--For the quarterly period ended March 31,
1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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 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 April 30 1999:
Common Stock, $.01 par value----2,378,637 shares outstanding as of
April 30, 1999
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2
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets
At March 31, 1999 and December 31, 1998 1
Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 2
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 1999 and 1998 3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk -
There have been no material changes from the information
provided in the December 31, 1998 Form 10-K
PART II - OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports on Form 8-K 19
Signatures 20
3
PART I - ITEM 1
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited) (Audited)
At March 31, At December 31,
1999 1998
------------- --------------
Assets
------
Cash and due from banks $ 23,757,684 $ 29,701,018
Federal funds sold 36,225,000 14,250,000
Interest-bearing deposits 2,688 5,035
Investments in debt and equity securities:
Available for sale, at estimated fair value 19,165,707 45,592,327
Held to maturity, at amortized cost
(estimated fair value of $598,061 at March 31,
1999, and $704,723 at December 31, 1998) 591,586 698,609
------------ ------------
Total investments in debt and equity securities 19,757,293 46,290,936
------------ ------------
Loans held for sale 970,150 6,272,124
Loans, less unearned loan fees 298,737,219 273,817,522
Less allowance for loan losses 3,280,985 3,200,000
------------ ------------
Loans, net 295,456,234 270,617,522
------------ ------------
Other real estate owned 806,072 806,072
Office equipment and leasehold improvements 3,019,114 3,063,123
Accrued interest receivable 1,921,293 1,648,775
Investment in Enterprise Fund, L.P. 431,292 424,484
Prepaid expenses and other assets 2,604,147 2,224,829
------------ ------------
Total assets $384,950,967 $375,303,918
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 54,583,215 $ 61,114,961
Interest-bearing transaction accounts 25,280,010 24,234,717
Money market accounts 170,610,846 149,177,922
Savings 1,544,262 1,471,647
Certificates of deposit:
$100,000 and over 37,862,280 43,326,061
Other 57,439,322 59,854,862
------------ ------------
Total deposits 347,319,935 339,180,170
Federal Home Loan Bank advances 6,498,224 6,000,000
Accrued interest payable 514,745 608,056
Accounts payable and accrued expenses 676,121 275,563
------------ ------------
Total liabilities 355,009,025 346,063,789
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized
3,000,000 shares; issued and outstanding
2,378,637 shares at March 31, 1999 and
2,371,837 shares at December 31, 1998 23,786 23,719
Surplus 19,318,732 19,264,000
Retained earnings 10,608,215 9,941,792
Accumulated other comprehensive income (loss) (8,791) 10,618
------------ ------------
Total shareholders' equity 29,941,942 29,240,129
------------ ------------
Total liabilities and shareholders' equity $384,950,967 $375,303,918
============ ============
- -------------------------------
See accompanying notes to consolidated financial statements.
1
4
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
Three months ended March 31,
1999 1998
---------- ----------
Interest income:
Interest and fees on loans $6,335,238 $5,379,964
Interest on debt securities:
Taxable 321,851 154,634
Nontaxable 6,669 7,153
Interest on federal funds sold 277,920 224,906
Interest on interest earning deposits 177 1,806
---------- ----------
Total interest income 6,941,855 5,768,463
---------- ----------
Interest expense:
Interest-bearing transaction accounts 111,931 123,898
Money market accounts 1,704,840 1,087,657
Savings 9,470 8,615
Certificates of deposit:
$100,000 and over 509,819 484,008
Other 782,454 940,703
Federal Home Loan Bank advances 75,027 --
---------- ----------
Total interest expense 3,193,541 2,644,881
---------- ----------
Net interest income 3,748,314 3,123,582
Provision for loan losses 80,000 418,258
---------- ----------
Net interest income after
provision for loan losses 3,668,314 2,705,324
---------- ----------
Noninterest income:
Service charges on deposit accounts 130,655 50,314
Other service charges and fee income 78,953 78,770
Gain on sale of mortgage loans 335,424 269,301
Gain (loss) on investment in Enterprise Fund, L.P. 6,806 (2,316)
---------- ----------
Total noninterest income 551,838 396,069
---------- ----------
Noninterest expense:
Salaries 1,558,556 1,061,681
Payroll taxes and employee benefits 325,986 215,434
Occupancy 228,410 200,033
Furniture and equipment 100,524 84,714
FDIC insurance -- 14,965
Data processing 109,930 88,672
Other 752,288 442,949
---------- ----------
Total noninterest expense 3,075,694 2,086,648
---------- ----------
Income before income tax expense 1,144,458 1,014,745
Income tax expense 406,675 392,500
---------- ----------
Net income $ 737,783 $ 622,245
========== ==========
Basic earnings per share $ 0.31 $ 0.27
Diluted earnings per share $ 0.29 $ 0.25
Basic weighted average common shares and potential
common stock 2,374,104 2,304,430
Diluted weighted average common shares and potential
common stock 2,537,089 2,475,907
- -------------------------------
See accompanying notes to consolidated financial statements.
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5
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31,
1999 1998
-------- --------
Net income $737,783 $622,245
-------- --------
Other comprehensive income (loss), before tax:
Unrealized losses on securities:
Unrealized holding losses arising during period (29,408) (358)
-------- --------
Other comprehensive income (loss), before tax (29,408) (358)
Income tax benefit related to items of
other comprehensive income 9,999 122
-------- --------
Other comprehensive income (loss), net of tax (19,409) (236)
-------- --------
Comprehensive income $718,374 $622,009
======== ========
- -------------------------------
See accompanying notes to consolidated financial statements.
3
6
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31,
1999 1998
------------ ------------
Cash flows from operating activities:
Net income $ 737,783 $ 622,245
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 148,726 113,924
Provision for loan losses 80,000 418,258
Net accretion of debt securities (159,296) (34,741)
(Gain) loss on investment in Enterprise Fund, L.P. (6,808) 2,316
Mortgage loans originated (20,888,068) (23,525,870)
Proceeds from mortgage loans sold 26,190,042 19,453,605
(Increase) decrease in accrued interest receivable (272,518) 14,479
(Increase) decrease in prepaid expenses and other assets (379,322) 125,324
Increase in accounts payable and accrued
expenses 317,246 203,228
------------ ------------
Net cash provided by (used in) operating activities 5,767,785 (2,334,232)
------------ ------------
Cash flows from investing activities:
Purchases of interest-bearing deposits 2,347 --
Purchases of available-for-sale debt securities (7,439,465) (4,212,167)
Purchases of available-for-sale equity securities -- (320,000)
Proceeds from maturities of available-for-sale debt securities 34,000,000 9,000,000
Proceeds from maturities and principal paydowns on
held-to-maturity debt securities 103,000 360,785
Proceeds from the maturity of interest-bearing deposits -- 30,819
Net increase in loans (24,918,712) (7,631,661)
Purchases of office equipment and leasehold improvements (104,717) (133,901)
Write-down of office equipment and leasehold improvements -- 2,522
Investment in Enterprise Fund, L.P. -- (201,000)
------------ ------------
Net cash provided by (used in) investing activities 1,642,453 (3,104,603)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in demand and savings accounts 16,019,086 (4,146,629)
Net increase (decrease) in certificates of deposit (7,879,321) 5,161,196
Increase (decrease) in notes payable 498,224 --
Cash dividends paid (71,360) (57,628)
Proceeds from the exercise of common stock options 54,799 38,599
------------ ------------
Net cash provided by financing activities 8,621,428 995,538
------------ ------------
Net increase in cash and due from banks 16,031,666 (4,443,297)
Cash and due from banks, beginning of year 43,951,018 46,722,054
------------ ------------
Cash and due from banks, end of year $ 59,982,684 $ 42,278,757
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 3,367,843 $ 2,618,221
Income taxes 527,309 108,800
- ----------------------------
See accompanying notes to consolidated financial statements.
4
7
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 and notes thereto contained in the Company's Annual Report
on Form 10-K for the year ended December 31, 1998. 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, 1999 are not necessarily indicative of the results that may be
expected for any other interim period or for the year ending December
31, 1999.
The consolidated financial statements include the accounts of
Enterbank Holdings, Inc. and its subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts in the consolidated financial statements for the year
ended December 31, 1998 have been reclassified to conform to the 1999
presentation. Such reclassifications had no effect on previously
reported consolidated net income or shareholders' equity.
(2) DIRECTOR COMPENSATION
On March 17, 1999, the Board of Directors adopted a Stock Appreciation
Rights ("SAR") Plan to replace the previous director compensation
program. The Plan is effective as of April 1, 1999. An exercise
price of $35.00 per share was used in the initial grant, and the SARs
will vest over a period of five years. At maturity, each participant
in the Plan will receive cash or common stock, at the discretion of
the Company, equal to the dollar amount of the incremental increase in
value of the Company's stock. The Company will accrue for the future
payout of the outstanding SARs. A more detailed description of the
SAR Plan is included in Part II, Item 5 on Page 18 of this report and
the Plan itself is attached hereto as Exhibit 4.
(3) ENTERPRISE MERCHANT BANC
The Company's wholly owned subsidiary, Enterprise Merchant Banc
("Merchant Banc") is currently raising capital for a second merchant-
banking fund ("Fund II"). It is anticipated that Fund II will not be
a Small Business Investment Company ("SBIC") regulated by the Small
Business Administration ("SBA"). Due to current Federal Reserve
regulations, the Company cannot have control of an investment company
that is not SBA regulated. Therefore, if the second fund closes and
it is not an SBIC, the Company will restructure the ownership of
Enterprise Merchant Banc to result in a minority ownership interest
for the Company. The Company expects an initial closing for the Fund
II during the second quarter of 1999.
(4) COMPREHENSIVE INCOME
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 or losses on securities. The
Company's comprehensive earnings adjustments for the three-month
period ending March 31, 1999 and 1998 were as follows:
5
8
Three Months Ended March 31, 1999
-----------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Unrealized gains (losses) on securities:
Unrealized holding losses arising
during period $(29,408) 9,999 19,409
-------- ----- ------
Other comprehensive income (loss) $(29,408) 9,999 19,409
======== ===== ======
Three Months Ended March 31, 1998
-----------------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
---------- ---------- ----------
Unrealized gains (losses) on securities:
Unrealized holding losses arising
during period $ (358) 122 (236)
-------- ----- -----
Other comprehensive income (loss) $ (358) 122 (236)
======== ===== =====
The Company did not sell any investments in debt and equity securities during
the three months ended March 31, 1999 and 1998.
Three Months Ended March 31, 1999
----------------------------------------
Accumulated
Unrealized Other
Gains (losses) Comprehensive
On Securities Income
----------------- -------------
Beginning balance $ 10,618 10,618
Current-period change (19,409) (19,409)
-------- -------
Ending balance $ (8,791) (8,791)
======== =======
Three Months Ended March 31, 1998
----------------------------------------
Accumulated
Unrealized Other
Gains (losses) Comprehensive
On Securities Income
----------------- -------------
Beginning balance $ (1,473) (1,473)
Current-period change (236) (236)
-------- -------
Ending balance $ (1,709) (1,709)
======== =======
6
9
(5) SEGMENT DISCLOSURE
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, requires operating segment
reporting in financial statements for periods beginning after December 15,
1997. An operating segment is defined under SFAS 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.
Management of the Company reviews the financial performance of its operation
segments on an after-tax basis. The Company's four major operating segments
in 1998 and 1999 include Enterbank Holdings, Inc., Enterprise Bank,
Enterprise Financial Advisors and Enterprise Merchant Banc. Enterbank
Holdings incurs general corporate expenses not allocated to the operating
segments and operates as a holding company for each of the other three
operating segment entities. Enterprise Bank provides a full range of
commercial banking services. These services include but are not limited to
loans, deposit accounts, safe deposit boxes, lock boxes and cash management
services. Enterprise Financial Advisors offers financial planning and trust
services. Enterprise Merchant Banc offers merchant banking and venture
capital services. The following are the financial results for each of the
Company's operating segments for the three-month period ended March 31, 1998
and 1999:
Enterprise
Enterbank Financial
Holdings Enterprise Bank Advisors Merchant Banc Eliminations Consolidated
---------------------------------------------------------------------------------------
Three months ended March 31, 1999
Interest income $ -- $ 6,941,855 $ -- $ 10 $ (10) $ 6,941,855
Interest expense -- 3,193,551 -- -- (10) 3,193,541
Net interest margin -- 3,748,304 -- -- -- 3,748,304
Provision for Loan Losses -- 80,000 -- -- -- 80,000
Noninterest income 726 484,466 26,570 52,081 -- 563,843
Direct expenses -- -- 12,005 -- -- 12,005
Contribution margin -- -- 14,565 52,081 -- 551,838
Noninterest expenses 180,556 2,504,713 219,140 171,285 -- 3,075,694
Income before income tax
expense (benefit) (179,830) 1,648,057 (204,575) (119,194) -- 1,144,458
Income Tax expense (benefit) (47,739) 580,691 (78,184) (48,093) -- 406,675
Net income (132,091) 1,067,366 (126,391) (71,101) -- 737,783
========== ============ ========= ========= =========== ============
Total Assets $1,006,014 $383,475,768 $ 28,918 $ 548,778 $ (108,511) $384,950,967
---------- ------------ --------- --------- ----------- ------------
Three months ended March 31, 1998
Interest Income $ -- $ 5,768,463 $ -- $ 1 $ (1) $ 5,768,463
Interest Expense -- 2,644,882 -- -- (1) 2,644,881
Net interest margin -- 3,123,581 -- -- -- 3,123,582
Provision for Loan Losses -- 418,258 -- -- -- 418,258
Noninterest income 2,820 331,040 -- 62,209 -- 396,069
Direct expenses -- -- -- -- -- --
Contribution margin -- -- -- -- -- --
Noninterest expenses 216,943 1,772,452 -- 97,253 -- 2,086,648
Income before income tax expense
(benefit) (214,123) 1,263,911 -- (35,043) -- 1,014,745
Income Tax expense (benefit) (78,500) 483,000 -- (12,000) -- 392,500
Net income (135,623) 780,911 -- (23,043) -- 622,245
========== ============ ========= ========= =========== ============
Total Assets $2,283,583 $292,091,728 $ -- $ 188,898 $(1,378,700) $293,185,509
---------- ------------ --------- --------- ----------- ------------
7
10
As shown on the table, Enterprise Bank ("the Bank") is the primary source of
income and assets for the Company. The Bank contributed $91 million more in
assets at March 31, 1999 over assets at March 31, 1998. Most of the asset
growth experienced by the Company is attributable to the Bank. The Bank also
provides much of the income to the Company. The Bank experienced a 37%
increase in net income during the three-month period ended March 31, 1999
compared to the same period in 1998. The Company experienced a 19% increase
in net income for the same period. The other operating segments are
experiencing net losses primarily because they are currently in early stages
of growth. Enterprise Financial Advisors began operations during the second
half of 1998. The Merchant Banc has increased activity during 1998 and 1999
by opening an office in Overland Park, Kansas, and started to raise capital
for a second equity fund. Enterbank Holdings has some assets in the form of
small investments. Enterbank Holdings also has noninterest expenses related
to consolidated items of the company.
(6) CHANGE IN ACCOUNTING PRINCIPLES
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 1999. Earlier
application is encouraged but should not be applied retroactively to
financial statements of prior periods. SFAS 133 establishes standards for
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The Company is currently evaluating the requirements and impact
of SFAS 133.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, this Form 10-Q contains forward-looking statements which are
inherently subject to risks and uncertainties that could cause actual results
to differ materially from those contemplated by such statements. Factors
that could cause or contribute to such differences include, but are not
limited to, burdens imposed by federal and state regulation of banks, credit
risk, exposure to local economic conditions, risks associated with rapid
increase or decrease in prevailing interest rates and competition from banks
and other financial institutions, as well as those discussed in the Company's
1998 Annual Report on Form 10-K.
INTRODUCTION
The discussion summarizes the significant factors affecting the consolidated
financial condition, results of operations, liquidity and cash flows of the
Company for the three months ended March 31, 1999 compared to the three
months ended March 31, 1998 and the year ended December 31, 1998. This
discussion should be read in conjunction with the consolidated financial
statements and notes thereto contained in the Company's Annual Report on Form
10-K for the year ended December 31, 1998.
FINANCIAL CONDITION
Total assets at March 31, 1999 were $385 million, an increase of $10 million,
or 3%, over total assets of $375 million at December 31, 1998. Loans and
leases, net of unearned loan fees, were $299 million, an increase of $25
million, or 9%, over total loans and leases of $274 million at December 31,
1998. Federal funds sold and investment securities were $56 million, a
decrease of $4 million, or 7%, from total federal funds sold and investment
securities of $60
8
11
million at December 31, 1998. The decrease resulted from the shift in earnings
assets from short-term investments into loans during the first three months of
1999.
Total deposits at March 31, 1999 were $347 million, an increase of $8 million
over total deposits of $339 million at December 31, 1998.
Total shareholders' equity at March 31, 1999 was $29.9 million, an increase
of $701,813 over total shareholders' equity of $29.2 million at December 31,
1998. The increase in equity is due to an increase in retained earnings of
$737,783 for the three months ended March 31, 1999, and the exercise of
incentive stock options by employees, less dividends paid to shareholders.
RESULTS OF OPERATIONS
Net income was $737,783 for the three month period ended March 31, 1999, an
increase of 19% over net income of $622,245 for the same period in fiscal
1998. Basic earnings per share for the three month period ended March 31,
1999 and 1998 were $0.31 and $0.27, respectively. Diluted earnings per share
for the three-month period ended March 31, 1999 and 1998 were $0.29 and
$0.25, respectively.
NET INTEREST INCOME
Net interest income (presented on a tax equivalent basis) was $3.8 million,
or 4.45% of average earnings assets, for the three months ended March 31,
1999, compared to $3.1 million, or 4.84% of average earning assets, for the
same period in 1998. The $700,000, or 22% increase, in net interest income
for the three months ended March 31, 1999 resulted primarily from an $81
million increase in average earnings assets to $345 million, from $263
million during the same period in 1998. This increase in earning asset
balances was offset by a 0.65% decrease in the earning asset yield. The
increase in earning assets is attributable to the continued calling efforts
of the Company's relationship officers and sustained economic growth in the
local market served by the Company. The yield on average earning assets
decreased to 8.26% for the three month period ended March 31, 1999 compared
to 8.91% for the three month period ended March 31, 1998. The decrease in
asset yield was primarily due to three 0.25% drops, for a total of a ).75%
decrease in the Prime rate during the third and fourth quarters of the fiscal
year 1998 and a general decrease in average yield on loans. The decrease in
asset yield was also attributed to a change in the mix of earning assets from
higher yielding loans to lower yielding investment securities and federal
funds sold. The increase in net interest margin was offset by a $76 million
increase in average interest-bearing liabilities to $290 million for the
three months ended March 31, 1999 from $214 million during the same period in
1998. The yield on interest-bearing liabilities decreased to 4.47% for the
three months ended March 31, 1999 compared to 5.02% for the same period in
1998. This decrease is attributed to the above-mentioned declines in the
Prime rate and a concerted effort by management to decrease the interest paid
on deposits.
9
12
The following table sets forth, on a tax-equivalent basis, certain
information relating to the Company's average balance sheet and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
three month periods ended March 31, 1999 and 1998:
Three months ended March 31,
-------------------------------------------------------------------------------------------
1999 1998
------------------------------------------- -------------------------------------------
Percent Interest Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
------- -------- -------- ------- ------- -------- -------- -------
(Dollars in Thousands)
ASSETS
- ------
Interest-earning assets:
Loans <F1> $295,261 79.25% $6,360 8.74% $235,290 83.60% $5,391 9.29%
Taxable investments in debt
securities 24,451 6.56 322 5.34 10,762 3.82 155 5.84
Non-taxable investments in
debt securities <F2> 632 0.17 10 6.42 658 0.23 11 6.78
Federal funds sold 24,184 6.49 278 4.66 16,356 5.81 225 5.58
Interest earning deposits 17 0.00 0 4.27 128 0.05 2 6.34
-------- ------ ------ -------- ------ ------
Total interest-earning assets 344,545 92.48 6,970 8.20 263,194 93.51 5,784 8.91
------ ------
Non-interest-earning assets:
Cash and due from banks 23,054 6.19 14,371 5.11
Office equipment and leasehold
improvements 3,052 0.82 2,337 0.83
Prepaid expenses and other assets 5,150 1.38 4,270 1.52
Allowance for possible loan
losses (3,238) (0.87) (2,734) (0.97)
-------- ------ -------- ------
Total assets $372,563 100.00% $281,438 100.00%
======== ====== ======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction
accounts $ 24,972 6.70% $ 112 1.82% $ 19,686 6.95% $ 124 2.55%
Money market 158,787 42.62 1,705 4.35 94,167 33.46 1,088 4.69
Savings 1,554 0.62 9 2.47 1,413 0.50 9 2.58
Certificates of deposit 97,994 26.30 1,292 5.35 98,468 34.99 1,425 5.87
Federal Home Loan Bank advances 6,328 1.70 75 4.81 -- -- -- --
-------- ------ ------ -------- ------ ------
Total interest-bearing liabilities 289,635 77.74 3,194 4.47 213,734 75.94 2,646 5.02
------ ------
Noninterest-bearing liabilities:
Demand deposits 52,086 13.98 40,208 14.25
Other liabilities 1,166 0.31 1,004 0.36
-------- ------ -------- ------
Total liabilities 342,887 92.03 254,946 90.59
Shareholders' equity 29,676 7.97 26,492 9.41
-------- ------ -------- ------
Total liabilities and
shareholders' equity $372,563 100.00% $281,438 100.00%
======== ====== ======== ======
Net interest income $3,777 $3,138
====== ======
Net interest margin 4.45% 4.84%
<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 $250,000 and $148,000, for
1999 and 1998, respectively.
<F2> Non-taxable investment income is presented on a fully tax-equivalent
basis assuming a tax rate of 34%.
10
13
PROVISION FOR POSSIBLE LOAN LOSSES
The provision for possible loan losses was $80,000 for the three months ended
March 31, 1999, compared to $418,258 for the same period in 1998. Continued
quality of the loan portfolio allowed the Company to decrease the provision
for loan losses during the first three months of 1999 as compared to the same
period in 1998. This quality is demonstrated by a decrease in impaired
loans. Impaired loans decreased $28,000 from $862,000 at March 31, 1998 to
$834,000 at March 31, 1999. The decrease in provision for possible loan
losses also reflects a decrease in net loans charged off to net recoveries of
$1,000 from net loans charged off of $13,000 for three months ended March 31,
1999 and 1998, respectively.
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,
-----------------------------------
1999 1998
---------- -----------
(Dollars in Thousands)
Allowance at beginning of year $ 3,200 $ 2,510
---------- -----------
Loans charged off:
Commercial and industrial -- 30
Real estate:
Commercial -- --
Construction -- --
Residential -- --
Consumer and other -- --
---------- -----------
Total loans charged off -- 30
---------- -----------
Recoveries of loans previously charged off:
Commercial and industrial -- 14
Real estate:
Commercial -- --
Construction -- --
Residential 1 3
Consumer and other -- --
---------- -----------
Total recoveries of loans previously charged off (1) 17
---------- -----------
Net loans (recovered) charged off (1) 13
---------- -----------
Provisions charged to operations 80 418
---------- -----------
Allowance at end of period $ 3,281 $ 2,915
========== ===========
Average loans $ 295,261 $ 235,290
Total loans $ 298,737 $ 233,179
Nonperforming loans $ 29 $ 93
Net charge-offs to average loans 0.00% 0.01%
Allowance for possible loan losses to loans 1.10% 1.25%
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The Company's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. The system requires rating all loans
at the time they are made.
Adversely rated credits, including loans requiring close monitoring which
would not normally be considered criticized credits by regulators, are
included on a monthly loan watch list. Loans may be added to the watch list
for reasons which are temporary and correctable, such as the absence of
current financial statements of the borrower or a deficiency in loan
documentation. Other loans are added whenever any adverse circumstance is
detected which might affect the borrower's ability to meet the terms of the
loan. This could be initiated by the delinquency of a scheduled loan
payment, a deterioration in the borrower's financial condition identified in
a review of periodic financial statements, a decrease in the value of the
collateral securing the loan, or a change in the economic environment in
which the borrower operates. Loans on the watch list require detailed loan
status reports prepared by the responsible officer every four months, which
are then discussed in formal meetings with the loan review and loan
administration staffs. Downgrades of loan risk ratings may be initiated by
the responsible loan officer at any time. However, upgrades of risk ratings
may only be made with the concurrence of the loan review and credit
administration staffs generally at the time of the formal watch list review
meetings.
Each month, loan administration provides management with a detailed list of
loans on the watch list and summaries of the entire loan portfolio
categorized by risk rating. These are coupled with an analysis of changes in
the risk profiles of the portfolios, changes in past due and non-performing
loans and changes in watch list and classified loans over time. In this
manner, the overall increases or decreases in the levels of risk in the
portfolios are monitored continually. Factors are applied to the loan
portfolios for each category of loan risk to determine acceptable levels of
allowance for possible loan losses. These factors are derived primarily from
the actual loss experience and from published national surveys of norms in
the industry. The calculated allowances required for the portfolios are then
compared to the actual allowance balances to determine the provisions
necessary to maintain the allowances at appropriate levels. In addition,
management exercises judgment in its analysis of determining the overall
level of the allowance for possible loan losses. In its analysis, management
considers the change in the portfolio, including growth and composition, and
the economic conditions of the region in which the Company operates. Based
on this quantitative and qualitative analysis, the allowance for possible
loan losses is adjusted. Such adjustments are reflected in the consolidated
statements of income.
The Company does not engage in foreign lending. Additionally, the Company
does not have any concentrations of loans exceeding 10% of total loans which
are not otherwise disclosed in the loan portfolio composition table. The
Company does not have a material amount of interest-bearing assets which
would have been included in non-accrual, past due or restructured loans if
such assets were loans.
Management believes the allowance for loan losses is adequate to absorb
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-offs
during an extended period of rapid loan growth, management remains cognizant
that historical loan loss and non-performing asset experience may not be
indicative of future results. Were the experience to deteriorate, and
additional provisions for loan losses were required, future operational
results would be negatively impacted. Both management and the Board of
Directors continually monitor changes in asset quality, market conditions,
concentration of credit and other factors, all of which impact the credit
risk associated with the Company's loan portfolio.
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The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated:
March 31, December 31,
1999 1998
------------ ------------
(Dollars in Thousands)
Non-accrual loans $ 29 $ 2
Loans past due 90 days or more
and still accruing interest -- --
Restructured loans -- --
------------ ------------
Total nonperforming loans 29 2
Foreclosed property 806 806
------------ ------------
Total non-performing assets $ 835 $ 808
============ ============
Total assets $ 384,951 $ 375,304
Total loans $ 298,737 $ 273,818
Total loans plus foreclosed property $ 299,543 $ 274,624
Nonperforming loans to loans 0.01% 0.00%
Nonperforming assets to loans plus
foreclosed property 0.28% 0.29%
Nonperforming assets to total assets 0.22% 0.22%
NONINTEREST INCOME
Noninterest income was $551,838 for the three months ended March 31, 1999,
compared to $396,069 for the same period in 1998. The increase is primarily
attributed to increased service charges on deposit accounts and the gain on
the sale of mortgage loans. Service charges on deposit accounts were
$130,655 for the three months ended March 31, 1999, compared to $50,314 for
the same period in 1998. The increase in service charges is due to a
concerted effort by the Company's management to alter service charges and
other fees to stay competitive in the marketplace. The gain on the sale of
mortgage loans was $335,424 for the three months ended March 31, 1999
compared to $269,301 for the three-month period ended March 31, 1998. This
increase is due to an increased sales of mortgage loans in the three months
ended March 31, 1999 as compared to the same period in 1998.
NONINTEREST EXPENSE
Noninterest expense was $3.1 million for the three months ended March 31,
1999, compared to $2.1 million for the same period in 1998. The increase is
primarily due to increases in salaries and benefits expense of $607,427 and
occupancy and equipment expense of $87,245. Increases in salaries and
benefits and occupancy and equipment expenses are primarily due to: 1) the
personnel, occupancy and equipment expenses for the new trust and financial
planning operations started during 1998 and the ongoing costs associated with
Enterprise Merchant Banc; 2) salaries and benefits related to continued
growth in the banking facilities opened in 1996 and mortgage loan product
started during 1997; and 3) normal increases associated with growth. Expenses
related to other operations were $1,240,423 for the three months ended March
31, 1999, an increase of $234,193, or 23%, over $1,003,230 for the three
months ended March 31, 1998. This increase is attributed to normal operating
expenses associated with growth.
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The following is a breakdown of noninterest expenses by unit:
3 months ended March 31,
1999 versus 1998
--------------------------------------------
1999 1998 $ Change
---------- ---------- --------
Enterprise Merchant Banc $ 165,168 $ 100,023 $ 65,145
St. Peters and Sunset Hills
Banking Units 1,196,928 815,787 381,141
Mortgage Operations 252,305 164,608 87,697
Enterprise Financial Advisors 220,870 -- 220,870
Other Operations 1,240,423 1,006,230 234,193
---------- ---------- --------
Total Noninterest Expense $3,075,694 $2,086,648 $989,046
========== ========== ========
YEAR 2000
OVERVIEW
The Year 2000 ("Y2K") issue refers to the ability of a date-sensitive
computer program to recognize a two-digit date field designated "00" as the
year 2000. Mistaking "00" for 1900 could result in a system failure or
miscalculations causing a disruption to operations and normal business
activities. This is a significant issue for many companies, including banks,
and the implications of the Y2K issue cannot be predicted with any high
degree of certainty.
The Company's State of Readiness:
The Company has developed a Y2K compliance program with five primary phases.
These are: 1) Awareness, 2) Assessment, 3) Renovations, 4) Validation and 5)
Implementation. As of March 31, 1999 the Awareness, Assessment, Renovations,
and Validation phases were complete and all systems have been reviewed for
Y2K compliance. The scope of the Assessment phase included all areas of
technology for the Company and its subsidiaries including, but not limited to,
the phone system, voice mail system, computer network, banking mainframe
and related software. As of March 31, 1999, the Implementation phase was
approximately 75% complete. The Company expects to have the Implementation
Phase completed by June 30, 1999. The Company is currently testing its
contingency plans related to Y2K and expects to have all testing completed by
June 30, 1999. The Company feels its primary Y2K exposure is in its core
banking software, which is leased from a third party bank software vendor
providing the same software to hundreds of other banks. This vendor is
working closely with the Company to address any Y2K issues that may be
discovered and has indicated to the Company that there should be no material
Y2K problems.
The Cost of Y2K Compliance:
The total cost to the Company to assess, correct and verify Y2K issues is
estimated at $103,000, consisting of $45,000 in salaries and benefit costs
allocated to Y2K projects and $58,000 in software and hardware expenses
required for upgrading and testing of the Company's systems. This cost
estimate does not include the cost associated with regulatory reporting,
legal review of regulatory requirements, auditing requirements or other costs
incurred related only to the disclosure requirements and not actual software
or hardware issues. Such costs are difficult to determine as these
requirements change frequently. If these non-systems related costs become
significant and quantifiable, they will be disclosed at that time.
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What Risks Exist for the Company:
The most likely risk the Company faces with respect to Y2K issues is in the
core banking software. This system identifies and calculates payments due
the Company's subsidiary bank for loans made to customers and amounts due to
the bank's customers for deposits. The loss of these records or inability to
accurately perform these calculations could cause the bank to incur
additional expenses such as loan losses, underpayments of amounts due on
loans, overpayments of amounts due to depositors or increased personnel
expenses required to track this information manually. Such expenses are not
currently quantifiable, but may be material to the operations and financial
performance of the Company and its subsidiaries.
Contingency Plans:
Management believes the Company will be Y2K compliant by December 31, 1999.
The Company is currently testing its contingency plans. However, as a
precautionary measure, the Company will create electronic and paper based
reports of every account as a back up. The back up reports will include the
necessary information to calculate balance and payment information. If
necessary, the electronic version of this information can be used by other
common software applications such as Lotus 1-2-3 or Microsoft Excel to
perform many of the calculations performed by the bank's core software
system. The back up reports can also be used to manually calculate customer
information indefinitely if needed.
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 $27
million and $29 million of deposits from the national network with the
Company at March 31, 1999 and December 31, 1998, respectively.
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The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at March 31, 1999:
Remaining Maturity Amount
----------------------------------------- ----------
(Dollars in Thousands)
Three months or less $ 11,223
Over three through six months 11,156
Over six through twelve months 13,294
Over twelve months 2,189
----------
$ 37,862
==========
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 March 1999, the Company obtained a $2,500,000 unsecured line of credit
from Jefferson Bank and Trust. The line of credit matures on March 31, 2000
and is an interest only note accruing interest at a variable rate of Prime
minus 0.50%. There were no amounts outstanding under the line of credit at
March 31, 1999.
Risk-based capital guidelines for financial institutions were adopted by
regulatory authorities effective January 1, 1991. These guidelines were
designed to relate regulatory capital requirements to the risk profile of the
specific institution and to provide for uniform requirements among the
various regulators. Currently, the risk-based capital guidelines require the
Company to meet a minimum total capital ratio of 8.0% of which at least 4.0%
must consist of Tier 1 capital. Tier 1 capital generally consists of (a)
common shareholders' equity (excluding the unrealized market value
adjustments on the available-for-sale securities), (b) qualifying perpetual
preferred stock and related surplus subject to certain limitations specified
by the FDIC, (c) minority interests in the equity accounts of consolidated
subsidiaries less (d) goodwill, (e) mortgage servicing rights within certain
limits, and (f) any other intangible assets and investments in subsidiaries
that the FDIC determines should be deducted from Tier 1 capital. The FDIC
also requires a minimum leverage ratio of 3.0%, defined as the ratio of Tier
1 capital less purchased mortgage servicing rights to total assets, for
banking organizations deemed the strongest and most highly rated by banking
regulators. A higher minimum leverage ratio is required of less highly rated
banking organizations. Total capital, a measure of capital adequacy,
includes Tier 1 capital, allowance for 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
------------- ------ ------------- ----- ------------- -----
At March 31, 1999:
Total Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 33,203,751 10.52% $ 25,244,342 8.00% $ 31,555,428 10.00%
Enterprise Bank $ 31,831,034 10.13% $ 25,130,872 8.00% $ 31,413,589 10.00%
Tier I Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 29,922,766 9.48% $ 12,622,171 4.00% $ 18,933,257 6.00%
Enterprise Bank $ 28,550,049 9.09% $ 12,565,436 4.00% $ 18,848,154 6.00%
Tier I Capital (to Average Assets)
Enterbank Holdings, Inc. $ 29,922,766 8.03% $ 11,176,900 3.00% $ 18,628,166 5.00%
Enterprise Bank $ 28,550,049 7.69% $ 11,143,889 3.00% $ 18,573,148 5.00%
At December 31, 1998:
Total Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 32,400,862 10.97% $ 23,618,397 8.00% $ 29,522,997 10.00%
Enterprise Bank $ 30,809,159 10.48% $ 23,520,774 8.00% $ 29,400,967 10.00%
Tier I Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 29,200,862 9.89% $ 11,809,199 4.00% $ 17,713,798 6.00%
Enterprise Bank $ 27,609,159 9.39% $ 11,760,387 4.00% $ 17,640,580 6.00%
Tier I Capital (to Average Assets)
Enterbank Holdings, Inc. $ 29,200,862 9.16% $ 9,558,703 3.00% $ 15,931,172 5.00%
Enterprise Bank $ 27,609,159 8.69% $ 9,526,209 3.00% $ 15,788,015 5.00%
EFFECT OF INFLATION
Changes in interest rates may have a significant impact on a commercial
bank's performance because virtually all assets and liabilities of commercial
banks are monetary in nature. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.
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PART II -- OTHER INFORMATION
Item 5. - Other Information
On March 17, 1999, the Board of Directors adopted a Stock Appreciation Rights
("SAR") Plan to replace previous director compensation of up to $350.00 per
month based solely on attendance at loan and board meetings. Eligible
participants include non-management directors of the Company. The SAR Plan is
intended to strengthen the commitment of the Company's directors by
compensating them based upon their contribution to their respective boards and
the performance of their respective unit and the Company. It allows them to
share in the equity appreciation of the Company without diluting the equity
ownership of the existing shareholders. An exercise price of $35.00 was used,
which was the price determined to be the fair market value of Enterbank
Holdings stock on March 17, 1999. The Plan is effective April 1, 1999.
Each of the non-management directors of Enterbank Holdings and its subsidiaries
were granted 400 SARs each. The chairmen of the boards, Henry Warshaw of the
Clayton Bank, James Wilhite of the St. Peters Bank, James Williams of the
Sunset Hills Bank and Peter Schick of the Enterprise Financial Advisors
(advisory) board, were each granted a total of 1,600 SARs to reflect the
additional time and effort they contribute as chairmen.
Vesting is based upon three factors 1) time, 2) performance of the unit with
which the recipient is associated (e.g., Enterbank Holdings, Clayton Bank,
Sunset Hills Bank, St. Peters Bank, Enterprise Financial Advisors/Trust, or
other any other unit which may be applicable under the terms of the Plan) and
3) attendance at the board meetings. Each director will vest in 10% of the
total SARs granted annually with the first 10% occurring 12 months from the
original grant date. In addition, SARs will vest annually based upon the
annual unit performance of the recipient's respective unit: 5% for threshold
performance, 10% for target performance and 25% for maximum performance. The
performance level is determined by the Board upon review of the fiscal year
performance of the unit. Each director must attend a majority (greater than
50%) of meetings held for vesting to occur in that period. The SARs granted
have a five-year life and at maturity each director will receive cash or common
stock, at the discretion of the Company, equal to the dollar amount of the
incremental increase in value of the Company's common stock. The participants
will not be granted additional SARs until the SARs initially granted are fully
vested. It is expected that the initial SAR grant will take four to five years
on average to fully vest. The Company is accruing for the future payout of the
outstanding SARs. The SAR Plan is attached hereto as Exhibit 4.
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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
------- -----------
3.1 Certificate of Incorporation of the Registrant, as amended
(incorporated herein by reference from Exhibit 3.1 to the Registrant's
Registration Statement on Form S-1 dated December 19, 1996
(File No. 333-14737)).
3.2 Bylaws of the Registrant, as amended, (incorporated herein by reference
from Exhibit 3.2 to the Registrant's Registration Statement on Form S-1
dated December 19, 1996 (File No. 333-14737)).
3.3 Amendment to the Bylaws of the Registrant (incorporated herein by
reference from Exhibit 3 to the Registrant's Registration on Form 8-K
dated May 15, 1998 (File No. 000-24131)).
4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by
reference from Exhibit 4.3 to the Registrant's Registration Statement
on Form S-8 dated December 29, 1997 (File No. 333-43365)).
4.2 Enterprise Bank Second Incentive Stock Option Plan (incorporated herein
by reference from Exhibit 44.4 to the Registrant's Registration Statement
on Form S-8 dated December 29, 1997 (File No. 333-43365)).
4.3 Enterbank Holdings, Inc. Third Incentive Stock Option Plan
(incorporated herein by reference from Exhibit 4.5 to the Registrant's
Registration Statement on Form S-8 dated December 29, 1997
(File No. 333-43365)).
4.4 Enterbank Holdings, Inc., Qualified Incentive Stock Option Plan
(incorporated herein by reference to the Registrant's 1998 Proxy
Statement (File No. 000-24131)).
4.5 Enterbank Holdings, Inc. Stock Appreciation Rights (SAR) Plan and
agreement. <F1>
10.2 Revised Customer Referral Agreement by and among Enterbank Holdings,
Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc.
(Incorporated herein by reference to the Registrant's Annual
Report on Form 10-K for the period ended December 31, 1998
(File No. 000-24131)).
11.1 Statement regarding computation of per share earnings. <F1>
27.1 Financial Data Schedule. (EDGAR only) <F1>
(b). The Company filed no current reports on Form 8-K during the three
months ended March 31, 1999.
<FN>
- ------------------------
<F1> Filed Herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned; thereunto duly authorized, in the City of Clayton, State of
Missouri on the 14th day of May 1999.
ENTERBANK HOLDINGS, INC.
By: _________________________________
Fred H. Eller
Chief Executive Officer
By: _________________________________
James C. Wagner
Chief Financial Officer
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