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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
[ ] 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
ENTERBANK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 43-1706259
(State or other jurisdiction of incorporation (I.R.S. Employer Identification Number)
or organization)
150 NORTH MERAMEC, CLAYTON, MO 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-5500
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, PAR VALUE $.01 PER SHARE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months, and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of Form 10-K [ ]
State the aggregate market value of the voting stock held by non-affiliates of
the Registrant as of March 1, 2000: Common Stock, par value $.01, $102,580,595
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock as of March 1, 2000: Common Stock, par value $ .01, 7,152,024
shares outstanding
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ENTERBANK HOLDINGS, INC.
1999 ANNUAL REPORT ON FORM 10-K
Page
Business........................................................................ 1
Properties...................................................................... 5
Legal Proceedings............................................................... 6
Submission of Matters to Vote of Security Holders............................... 6
Market for Common Stock and Related Stockholder Matters......................... 6
Selected Financial Data......................................................... 8
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 9
Quantitative and Qualitative Disclosures About Market Risk...................... 22
Financial Statements and Supplementary Data..................................... 32
Management...................................................................... 32
Beneficial Ownership of Securities.............................................. 32
Certain Related Party Transactions.............................................. 33
Independent Auditors' Report.................................................... 34
Consolidated Financial Statements............................................... 35
Signatures ..................................................................... 61
Exhibit Index ................................................................. 63
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, some of the information in this report contains forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements typically are identified with use of terms such as "may," "will,"
"expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware that
the Company's actual results could differ materially from those contained in the
forward-looking statements due to a number of factors, including 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, all of which could cause the Company's actual results to differ
from those set forth in the forward-looking statements.
PART I
ITEM 1: BUSINESS
GENERAL
Enterbank Holdings, Inc. (the "Company") was incorporated under the laws of the
State of Delaware on December 30, 1994, for the purpose of providing a holding
company structure for the ownership of Enterprise Bank, a Missouri banking
corporation, (the "Bank"). The Company acquired the Bank in May 1995 through a
tax-free exchange with Bank shareholders. The bank holding company ownership
structure gives the Bank a source of capital and financial strength and allows
the organization some flexibility in expanding the products and services offered
to clients.
The Bank began operations on May 9, 1988 as a newly formed and chartered
Missouri banking corporation. From 1988 through 1996, the Bank provided
commercial banking services to its customers from a single location in the City
of Clayton, St. Louis County, Missouri. During 1996, the Bank received
regulatory approval for two additional facilities located in St. Charles County,
Missouri and the St. Louis County City of Sunset Hills which opened in their
permanent facilities in July and September 1997, respectively. During 1998, the
Bank opened an operations facility in St. Louis County, Missouri.
The Company organized Enterprise Merchant Banc, Inc. ("Merchant Banc") (formerly
Enterprise Capital Resources, Inc.) in 1995 as a wholly owned subsidiary to
provide merchant banking services to closely-held businesses and their owners.
Merchant Banc's current operations include a minority interest in Enterprise
Merchant Banc, LLC, which focuses on providing equity capital and equity-linked
debt investments to growing companies in need of additional capital to finance
internal and acquisition-related growth. Additionally, Merchant Banc receives
fee income for its role as a financial advisor in capital raising transactions
as well as mergers and acquisitions. It focuses on "second stage" and mezzanine
financing for established companies rather than "seed money" for start-up
operations.
Enterprise Financial Advisors ("EFA"), a division of the Bank, was organized in
October of 1997 to provide fee-based personal financial planning, estate
planning, trust services, and corporate planning services to the Company's
target market. As part of the organization of EFA, the Company entered into
solicitation and referral agreements with Moneta Group, Inc. ("Moneta"). These
agreements were renegotiated with the introduction of trust services by EFA.
These agreements call for Moneta to provide assistance in staffing, training,
marketing and regulatory compliance for EFA. Moneta refers customers, when
appropriate, to the Bank and receives a share of the revenue generated in the
form of options in the Company's common stock and a percent of the gross margin
generated in EFA as compensation. The agreements with Moneta also allow EFA to
offer a full range of products and services with the depth and expertise of a
large planning firm. EFA will continue to expand products and services available
to customers as the division develops.
As used herein, unless the context indicates otherwise, Enterbank Holdings, Inc.
and all of its subsidiaries are referred collectively as the "Organization" or
"Company."
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The Company's executive offices are located at 150 North Meramec, Clayton,
Missouri 63105. The Company's telephone number is (314) 725-5500.
MERGER AGREEMENT
On January 5, 2000 the Company announced that it had executed a merger agreement
with Commercial Guaranty Bancshares, Inc. ("CGB"). CBG, located in Overland
Park, Kansas, is a bank holding company which owns all of the outstanding stock
of First Commercial Bank, N.A., a national bank headquartered in Overland Park.
Pursuant to the Merger Agreement, CGB would be merged with a newly formed
subsidiary of the Company and would become a wholly-owned subsidiary of the
Company. Each outstanding share of CGB common stock would be converted into
2.1429 shares of Company common stock in a tax-free transaction which would be
accounted for as a pooling of interests. An aggregate of approximately 1,793,300
Company shares would be issued in the transaction and an additional
approximately 254,700 Company shares would be subject to stock options exchanged
for options to purchase CGB shares. Consummation of the merger is subject to
approval by the shareholders of both the Company and CGB, approval by the Board
of Governors of the Federal Reserve System and certain other customary
conditions. Overland Park is an affluent, fast-growing suburb of Kansas City,
Missouri, which the Company believes will provide the Company an attractive
opportunity to expand its banking and related businesses. At December 31, 1999,
CGB had assets of $128 million and deposits of $107 million.
STRATEGY
The Company's strategy is to provide a complete range of financial services
designed to appeal to closely-held businesses, their owners, and to
professionals in the St. Louis metropolitan area, which encompasses the city of
St. Louis, Missouri, the Missouri counties of St. Louis, St. Charles, Jefferson,
Franklin, Lincoln and Warren and the Illinois county of St. Clair. The merger
with CGB will allow the Company to also serve Johnson County and the greater
Kansas City area. The Company's merchant banking operation targets a larger
geographic area, which includes all of Missouri and the adjoining states. The
Company's goal is to grow its operations within its defined market niche by
being well-managed, well-capitalized and disciplined in its approach to managing
and expanding its operations as growth opportunities arise. The Company believes
its goals can be achieved while providing attractive returns to shareholders.
Growth, net income, earnings per share, and return on shareholders' equity are
the financial performance indicators the Company considers most critical in
measuring success.
Through the Bank, the Company currently delivers a full range of commercial
banking services to the closely-held business market. Merchant banking and
venture capital services are conducted through the Merchant Banc. Financial
planning and trust services are offered through Financial Advisors. The Company
plans to continue to expand the range of services it provides within its market
niche while expanding the base of customers. If consummated, the merger with CGB
will allow the Company to serve customers on both sides of Missouri and in
Kansas. This expansion is in line with the Company's strategic plan.
THE BANK
The Bank offers a broad range of commercial and personal banking services to its
customers. Loans include commercial, commercial real estate, financial and
industrial development, real estate construction and development, residential
real estate and a small amount of consumer loans. Other services include cash
management, safe-deposit boxes, and lock boxes.
The Company's primary source of funds has historically been customer deposits.
The Company offers a variety of accounts for depositors designed to attract both
short-term and long-term deposits. These accounts include certificates of
deposit, savings accounts, money market accounts, checking and negotiable order
of withdrawal accounts, and individual retirement accounts. Interest-bearing
accounts earn interest at rates established by management based on competitive
market factors and management's desire to increase or decrease certain types of
deposits. The Company believes that its ability to solicit deposits will be
enhanced as a result of the merger.
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Management believes the Bank is able to compete effectively in its market
because the Company's officers and senior management maintain close working
relationships with their commercial customers and their businesses; the Bank's
management structure enables it to react to customer requests for loan and
deposit services more quickly than larger competitors; the Bank's management and
officers have significant experience in the communities serviced by the Bank;
and the Company continues to target the closely-held business and professional
market. Additionally, industry consolidation has resulted in fewer independent
banks and fewer banks serving the Bank's target market niche. Management
believes the Bank is the only bank in its market area whose primary strategy is
to focus on closely-held businesses, their owners and the professional market.
The Bank's historical growth strategy has been both customer and asset driven.
The Bank continuously seeks to add customers that fit its target market. This
strategy has enabled the Bank to attract customers whose borrowing needs have
grown along with the Bank's increasing capacity to fund its customers' loan
requests. Additionally, the Bank has increased its loan portfolio based on
lending opportunities developed by relationship officers. The Bank funds its
loan growth by attracting deposits from its business and professional customers,
by borrowing from the Federal Home Loan Bank and by attracting wholesale
deposits which are considered stable deposit sources and which are priced or
below the Bank's all-in alternative cost of borrowing funds.
The Bank's operating strategy results in operating ratios comparable to peer
banks despite its increasing investment in sales personnel whose goal is to
expand the number and depth of the Bank's customer relationships. The Bank can
expand its customer relationships and control operating costs by: operating a
small number of offices with a high per office asset base; emphasizing
commercial loans which tend to be larger than retail loans; employing an
experienced staff, all of whom are rewarded on the basis of performance and
customer service; improving data processing and operational systems to increase
productivity and control risk; leasing facilities so that capital can be
deployed more effectively to support growth in earning assets; and outsourcing
services where possible.
The Bank has a strong orientation toward commercial banking, with a specific
focus on closely-held businesses, their owners, and professionals located in its
target service areas. The Bank stresses personal service, flexibility in
structuring loan and deposit relationships which meet customers' needs and
timely responsiveness to the needs of customers. Senior management of the Bank
makes it a practice to maintain close working relationships and personal contact
with each of its commercial customers.
The Bank's Board of Directors is comprised primarily of business owners and
professionals who fit the current and target customer profile of the Bank. The
Board of Directors takes an active role in the Bank's business development
activities and the credit review process. Its input and understanding of the
needs of the Bank's current and target customers has been critical in the Bank's
past success and will be critical in the Bank's plans for future growth.
The Bank has historically had low turnover of relationship officers, and its
policy is to keep officers assigned to accounts for long periods of time. This
practice improves each officer's understanding of clients' businesses resulting
in knowledgeable credit assessments and superior customer service.
Relationship officers are supported by credit analysts and other support
personnel who are familiar with each assigned customer, creating a team approach
to serving customers' needs. A significant portion of the Bank's new business
results from referrals from existing customers.
The Bank's growth in loans has been due in large measure to its strategy of
targeting closely-held businesses and to the relationships and experience of the
Bank's management and directors in the St. Louis community.
The loan authority and approval process of the Bank units consists of several
committee reviews. The Presidents of each geographic banking unit, the Bank's
Chief Financial Officer, and the unit's Chief Executive Officer review and vote
on any aggregate loan relationships greater than the Banks's Internal Lending
Limit and all insider loans. Any aggregate loan relationships greater than the
Bank's Internal Lending Limit are reviewed and examined by each banking unit's
Director Loan Committee consisting
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of all members of the unit's Board of Directors. These directors serve on a
rotating basis at their respective banking units. Notwithstanding the required
approvals for insider loans, all such loans are subsequently ratified by the
full Board of Directors of the Company at the Quarterly Board Meeting.
MARKET AREAS AND APPROACH TO EXPANSION
Recent expansion efforts include the establishment of banking facilities in St.
Charles County and the City of Sunset Hills based on the high expectations for
growth in those markets and the high concentration of closely-held businesses
and professionals in those markets, and the establishment of an operations
facility in St. Louis County. As mentioned above, the Company believes that
local management and the involvement of a Board of Directors comprised of local
business persons and professionals are key ingredients for success. Management
believes that credit decisions, pricing matters, business development
strategies, etc. should be made locally by managers who have an equity stake in
the Company (see "Management."). The Company, as part of its expansion effort,
plans to continue its strategies of operating a small number of offices with a
high per office asset base, emphasizing commercial loans, and employing
experienced staff who are rewarded on the basis of performance and customer
service.
The Company recently signed the merger agreement with CGB. Johnson County is one
of the fastest growing counties in the Midwest and has demographical
characteristics consistent with those of the Company's current areas of
operation. CGB shares the same business philosophies concerning service and the
same target market as the Company making it a good strategic fit for the
organization as a whole.
ENTERPRISE MERCHANT BANC
The Merchant Banc was established in 1995 to provide merchant banking services
to closely held businesses and their owners. Its current operations include a
minority investment in Enterprise Merchant Banc, LLC, which focuses on providing
equity capital and equity-linked debt investments to growing companies in need
of additional capital to finance internal and acquisition-related growth.
Additionally, the Merchant Banc receives fee income for its role as a financial
advisor in capital raising transactions as well as mergers and acquisitions. It
focuses on "second stage" and mezzanine financing for established companies
rather the "seed money" for start up organizations.
The Company recently restructured its ownership and control positions of various
merchant banking operations. As a result of this restructuring, the Company
maintains 100% ownership the Merchant Banc which in turn has a minority interest
in Enterprise Merchant Banc, LLC. The minority interest in the LLC includes a
4.9% voting and common stock ownership interest with a 24.9% economic interest.
The new structure provides the ability to achieve economic benefits comparable
to those available under the previous structure, yet satisfies Federal Reserve
regulations concerning ownership and control.
ENTERPRISE FINANCIAL ADVISORS
Enterprise Financial Advisors was organized as a division of Enterprise Bank in
late 1997 to provide fee-based personal and corporate financial consulting and
trust services to the Company's target market. Personal financial consulting
includes estate planning, investment management, retirement planning, trust
services and custodial services. Corporate consulting services are focused in
the areas of retirement plans, management compensation and management succession
issues. Some investment management services are provided through Argent Capital
Management, a money management company that invests principally in large
capitalization companies. The Company owns approximately an 8% interest in
Argent Capital Management.
As a part of the organization of Enterprise Financial Advisors, the Company
entered into solicitation and referral agreements with Moneta Group, Inc., a
nationally recognized firm in the financial planning industry. Under the
agreements, Moneta provides assistance in staffing, training, marketing and
regulatory compliance and in return receives a share of the gross margin
generated by Enterprise Financial Advisors for planning and trust services. In
exchange for customer referrals, Moneta receives compensation in the form of
Enterbank stock options. The agreements are intended to leverage the trust
powers of Enterprise Bank with the established expertise and marketing power of
Moneta, thereby
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enabling Enterprise Financial Advisors to offer a full range of products and
services with the depth and expertise of a large financial planning firm.
INVESTMENTS
The Company's investment policy is designed to enhance net income and return on
equity through prudent management of risk; ensure liquidity to meet cash-flow
requirements; help manage interest rate risk; ensure collateral is available for
public deposits, advances and repurchase agreements; and manage asset
diversification. The Company, through the Asset/Liability Management Committee
("ALCO"), monitors investment activity and manages its liquidity by structuring
the maturity dates of its investments to meet anticipated customer funding
needs. However, the primary goal of the Company's investment policy is to
maintain an appropriate relationship between assets and liabilities while
maximizing interest rate spreads. Accordingly, the ALCO monitors the sensitivity
of its assets and liabilities with respect to changes in interest rates and
maturities and directs the overall acquisition and allocation of funds.
EMPLOYEES
At December 31, 1999, the Company had approximately 151 full time equivalent
employees. None of the Company's employees are covered by a collective
bargaining agreement. Management believes that its relationship with its
employees is good.
ITEM 2: PROPERTIES
All of the Company's banking facilities are leased under agreements that expire
in 2004, 2003, 2011 and 2016, for Clayton, St. Louis County, the City of Sunset
Hills, and St. Charles County, respectively. The Company has the option to renew
the Clayton facility lease for one additional five-year periods with future
rentals to be agreed upon. One section of the Clayton facility is sublet and the
proceeds are used to reduce the Company's occupancy expenses. The Company has
the option to renew the St. Louis County facility lease for three additional
five-year periods with future rentals to be agreed upon. The Company has the
option to renew the Sunset Hills facility lease for two additional five-year
periods with future rentals to be agreed upon. The Company has no future rental
options for the St. Charles County facility; however, during the term of the
lease, the monthly rentals are adjusted periodically based on then-current
market conditions and inflation. The Merchant Banc facility in Kansas is leased
under an agreement that expires in 2003. A portion of the Merchant Banc facility
is sublet for the same amount as the lease and the proceeds are used to reduce
the Company's occupancy expense. The Company has no future rental options for
the Kansas office. The Company's aggregate rent expense totaled $814,538,
$749,086 and $436,524 in 1999, 1998 and 1997, respectively, and sublease rental
income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and 1997,
respectively. The Company leases its Clayton facility from a partnership in
which a director, Robert E. Saur, and an officer, Fred H. Eller, have an
ownership interest.
The future aggregate minimum rental commitments required under the leases are as
follows:
Year Amount
2000 $ 1,034,379
2001 1,043,145
2002 1,053,740
2003 1,019,589
2004 955,437
2005 and thereafter 3,784,092
For leases that renew or are subject to periodic rental adjustments, the monthly
rental payments will be adjusted based on then-current market conditions and
rates of inflation.
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The following is a list of the Company's current facilities:
Operating Unit Address Description
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Enterprise Bank, Clayton 150 North Meramec Commercial and Retail
Clayton, Missouri 63105 Banking
Enterprise Bank, St. Charles 300 St. Peters Centre Blvd. Commercial and Retail
St. Peters, Missouri 63376 Banking
Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd. Commercial and Retail
Sunset Hills, Missouri 63127 Banking
Enterprise Bank, St. Louis 1281 North Warson Road Operations Offices
St. Louis, Missouri 63132
Enterprise Merchant Banc, Kansas City 7400 W. 110th Street' 5th Floor Merchant Banking
Overland Park, Kansas 66210
ITEM 3: LEGAL PROCEEDINGS
The Company and its subsidiaries are, from time to time, parties to various
legal proceedings arising out of their businesses. Management believes that
there are no such proceedings pending or threatened against the Company or its
subsidiaries which, if determined adversely, would have a material adverse
effect on the business, financial condition, results of operations or cash flows
of the Company or any of its subsidiaries.
ITEM 4: SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were submitted to vote of security holders in the quarter ended
December 31, 1999.
ITEM 5: MARKET FOR COMMON STOCK AND RELATED STOCKHOLDER MATTERS
As of March 1, 2000, the Company had approximately 607 common stock shareholders
of record and a market price of $18.00. The common stock has not been traded on
an exchange or in any established public trading market, although there have
been a limited number of transactions in the common stock that have been
reported to the National Association of Securities Dealers ("NASD"). Based
solely on the sales reported to the NASD, the Company believes the high and low
sale prices for the common stock and dividends declared were as follows in the
quarters indicated:
Dividends
Market Price (1) Declared (1)
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High Low
1999 ------------- ------------
First Quarter $ 12.50 $ 10.33 .0100
Second Quarter 14.00 12.50 .0100
Third Quarter 15.17 14.00 .0100
Fourth Quarter 18.25 15.17 .0100
1998
First Quarter $ 8.58 $ 7.00 .0083
Second Quarter 10.00 8.58 .0083
Third Quarter 10.67 9.33 .0083
Fourth Quarter 10.33 9.83 .0083
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective
September 29, 1999.
There may have been other transactions at other prices not known to the Company.
Since the Company does not expect to list its common stock on any exchange or
seek quotation of common stock on the National Association of Securities Dealers
Automated Quotation System (NASDAQ) in the near future, no established public
trading market for the common stock is expected to develop in the foreseeable
future.
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DIVIDENDS
The holders of shares of common stock of the Company are entitled to receive
dividends when, as, and if declared by the Company's Board of Directors out of
funds legally available for the purpose of paying dividends. The primary source
for the payment of dividends by the Company is dividends payable to the Company
by the Bank. The amount of dividends, if any, that may be declared by the
Company will be dependent on many factors, including future earnings, bank
regulatory capital requirements and business conditions as they affect the Bank.
As a result, no assurance can be given that dividends will be paid in the future
with respect to the common sock.
COMMON STOCK
On August 18, 1999 the Board of Directors approved a 3 for 1 stock split, in the
form of a stock dividend, of the Company's common stock for shareholders of
record on September 29, 1999. On September 29, 1999, the Company's shareholders
approved the 3 for 1 stock split and an amendment to the Company's Certificate
of Incorporation to increase the number of authorized shares of common stock
from 3,500,000 to 20,000,000. All share and per share amounts in this Annual
Report have been restated to reflect the split.
The authorized capital stock of the Company consists of 20,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"). Holders of Common
Stock are entitled to one vote per share on all matters on which the holders of
Common Stock are entitled to vote. In all elections of directors, holders of
Common Stock have the right to cast votes equaling the number of shares of
Common Stock held by such stockholder multiplied by the number of directors to
be elected. All of such votes may be cast for a single director or may be
distributed among the number of directors to be elected, or any two or more
directors, as such stockholder may deem fit. Holders of Common Stock have no
preemptive, conversion, redemption, or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common Stock
are entitled to share equally and ratably in the assets of the Company, if any,
remaining after the payment of all debts and liabilities of the Company.
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ITEM 6: SELECTED FINANCIAL DATA
Year ended December 31,
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1999 1998 1997 1996 1995
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(Dollars and number of shares in thousands, except per share data)(1)
STATEMENT OF INCOME DATA
Interest income $ 32,137 $ 25,414 $ 18,759 $ 12,554 $ 10,914
Interest expense 14,352 11,869 8,582 5,569 4,887
---------- ---------- ---------- ---------- ----------
Net interest income 17,785 13,545 10,177 6,985 6,027
Provision for loan losses 1,021 711 775 345 631
---------- ---------- ---------- ---------- ----------
Net interest income after provision
for loan losses 16,764 12,834 9,402 6,640 5,396
Noninterest income 2,565 2,079 476 1,239 836
Noninterest expense 13,386 10,052 6,339 5,146 4,187
---------- ---------- ---------- ---------- ----------
Income before income tax expense 5,943 4,861 3,539 2,733 2,045
Income tax expense 2,244 1,850 1,317 1,031 741
---------- ---------- ---------- ---------- ----------
Income before cumulative effect of a
change in accounting principle 3,699 3,011 2,222 1,702 1,304
========== ========== ========== ========== ==========
Cumulative effect on prior years of a
change in asset classification 121 -- -- -- --
---------- ---------- ---------- ---------- ----------
Net income 3,820 3,011 2,222 1,702 1,304
========== ========== ========== ========== ==========
Basic earnings per share(1) 0.54 0.43 0.35 0.37 0.30
Diluted earnings per share(1) 0.50 0.40 0.33 0.32 0.26
Cash dividends per common share(1) 0.04 0.033 0.030 0.027 0.023
Basic weighted average common
shares and common stock
equivalents outstanding(1) 7,136 7,053 6,285 4,614 4,389
Diluted weighted average common
shares and common stock
equivalents outstanding(1) 7,705 7,545 6,675 5,252 5,056
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BALANCE SHEET DATA
Cash and due from banks $ 14,798 $ 29,701 $ 13,897 $ 9,261 $ 8,110
Federal funds sold 54,825 14,250 32,825 23,250 16,230
Investments in debt and equity securities:
Trading, at fair value 910 -- -- -- --
Available for sale 23,808 45,592 12,515 14,006 16,065
Held to maturity 680 699 919 1,240 842
---------- ---------- ---------- ---------- ----------
Total investments 25,398 46,291 13,434 15,246 16,907
---------- ---------- ---------- ---------- ----------
Loans, net of unearned loan fees (2) 385,102 273,818 225,560 134,133 110,464
Allowance for loan losses 4,235 3,200 2,510 1,765 1,400
Total assets 488,001 375,304 291,365 184,584 153,706
Total deposits 435,798 339,180 264,301 168,961 141,140
Guaranteed preferred beneficial interests
in EBH-subordinated debentures 11,000 -- -- -- --
Borrowings 6,920 6,000 -- 300 --
Shareholders' equity 32,764 29,240 26,067 14,758 12,052
Book value per common share(1) 4.59 4.11 3.78 2.96 2.75
Tangible book value per common share(1) 4.59 4.11 3.77 2.95 2.73
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SELECTED RATIOS
Return on average assets 0.94% 0.94% 0.97% 1.12% 0.99%
Return on average equity 12.31 10.86 9.78 12.73 11.13
Total capital to risk-weighted assets 11.82 10.97 12.28 11.53 11.40
Leverage ratio 10.74 9.16 11.42 9.62 9.11
Net yield on average earning assets 8.39 8.59 8.84 8.90 9.00
Cost of interest-bearing liabilities 4.49 4.88 5.03 4.89 4.94
Net interest margin 4.66 4.59 4.79 4.96 4.98
Nonperforming loans as a percent of loans 0.08 0.00 0.02 0.12 0.10
Nonperforming assets as a percent of assets 0.14 0.22 0.29 0.56 0.64
Net loan charge offs (recoveries)
as a percent of average loans (0.00) 0.01 0.02 (0.02) 0.24
Allowance for loan losses as a percent
of loans, net of unearned loan fees 1.10 1.17 1.11 1.32 1.27
Dividend payout ratio 7.41 7.81 8.49 7.21 7.87
Average equity to average assets ratio 7.60 8.70 9.97 8.76 8.89
- ----------------------------------------------------------------------------------------------------------------------
(1) Adjusted to give retroactive effect to a 3 for 1 stock split effective
September 29, 1999.
(2) Excludes mortgage loans held for sale.
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ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The following discussion and analysis is intended to review the significant
factors of the financial condition and results of operations of the Company for
the three-year period ended December 31, 1999. Reference should be made to the
accompanying consolidated financial statements and the selected financial data
presented elsewhere and herein for an understanding of the following review.
FISCAL 1999 COMPARED TO FISCAL 1998
The Company has a history of approximately 30% growth in total assets for the
last several years. This has been accomplished for several reasons. The St.
Peters and Sunset Hills banking units started in 1997 experienced 29% and 75%
growth, respectively in 1999. The Company also grows with the addition of
business development officers. The Company hired 7 business development officers
during 1999. In addition, the economy in which the Company conducts business has
been very good for the past several years. These factors have contributed to the
Company's continued growth.
FINANCIAL CONDITION
Total assets at December 31, 1999 were $488 million, an increase of $113
million, or 30%, over total assets of $375 million at December 31, 1998. Loans
were $385 million, an increase of $111 million, or 41%, over total loans of $274
million at December 31, 1998. Federal funds sold and investment securities were
$80 million, an increase of $19 million, or 31%, from total federal funds sold
and investment securities of $61 million at December 31, 1998.
Total deposits at December 31, 1999 were $436 million, an increase of $97
million, or 29%, over total deposits of $339 million at December 31, 1998. Most
of the deposit growth occurred in the money market deposits, and certificates of
deposit. Money market deposits grew $49 million, or 33%, during 1999.
Certificates of deposit grew $38 million or 37% during 1999. Growth in
transaction and money market deposit accounts is attributed primarily to direct
calling efforts by relationship officers. Growth in certificates of deposit is
also due to an enhanced presence in the marketplace and an increase of 55% in
network CDs. 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 refers to such deposits as network CDs.
Total shareholders equity at December 31, 1999 was $32.8 million, an increase of
$3.6 million 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 $3.5
million for the twelve months ended December 31, 1999, and the exercise of
incentive stock options by employees, less dividends paid to shareholders.
RESULTS OF OPERATIONS
Net income was $3.8 million for the year ended December 31, 1999, an increase of
27% over net income of $3.0 million for the same period in 1998. Diluted
earnings per share for the years ended December 31, 1999 and 1998 were $0.50 and
$0.40, respectively. The Company's net income increased due to growth in
interest earning assets and an increase in noninterest income offset by an
increase in interest bearing liabilities and noninterest expenses.
NET INTEREST INCOME
The largest component of the Company's income is net interest income. Net
interest income (presented on a tax equivalent basis) was $17.9 million, which
yielded a net interest margin of 4.66%, for the year ended December 31, 1999,
compared to net interest income and net interest margin of $13.6 million and
4.59%, for the same period in 1998.
9
12
The $4.3 million, or 32%, increase in net interest income was driven by a 30%,
or $88 million, increase in average earning assets, a change in the mix of
earning assets and a decrease in the yield on interest bearing liabilities.
Average earning assets increased to $385 million for the year ended December 31,
1999. The mix of earning assets shifted from lower earning investment securities
and federal funds sold to higher yielding loans. The increase in the earning
assets and shift in mix 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. Some of the increase was offset by a lower average
earning asset yield and growth in interest bearing deposits.
Average loans as a percent of average total assets increased to 83.92% in 1999
from 79.06% in 1998. For the same periods, the yield on average loans was 8.80%
and 9.16%, respectively. The decrease in loan yield in 1999 compared to 1998
partially offset the margin benefits obtained by increasing the loan to asset
ratio during the same period.
The yield on average earning assets decreased to 8.39% for the year ended
December 31, 1999 from 8.59% for the same period in 1998. The decrease in asset
yield was primarily due to a general decrease in average yield on loans and
federal funds sold.
The yield on interest bearing liabilities decreased to 4.49% for the year ended
December 31, 1999 from 4.88% for the same period in 1998. The yield on all
deposits decreased in 1999 as compared to 1998. This drop is due to a concerted
effort by the Asset/Liability Committee to decrease the interest paid on
deposits. This general drop in yields was partially offset by deposits shifting
to higher yielding money market accounts.
FISCAL 1998 COMPARED TO FISCAL 1997
FINANCIAL CONDITION
Total assets at December 31, 1998 were $375 million, an increase of $84 million,
or 29%, over total assets of $291 million at December 31, 1997. Loans were $274
million, an increase of $48 million, or 21%, over total loans of $226 million at
December 31, 1997. Federal funds sold and investment securities were $61
million, an increase of $15 million, or 33%, from total federal funds sold and
investment securities of $46 million at December 31, 1997.
Total deposits at December 31, 1998 were $339 million, an increase of $75
million, or 28%, over total deposits of $264 million at December 31, 1997. Most
of the deposit growth occurred in the money market deposits, demand deposits and
certificates of deposit $100,000 and over. Money market deposits grew $51
million, or 51%, during 1998. Certificates of deposit $100,000 and over grew $11
million or 32% during 1998. Demand deposits grew $15 million, or 33%, during
1998. Growth in transaction and money market deposit accounts is attributed
primarily to direct calling efforts of relationship officers and $16 million in
money market accounts referred by Moneta. Growth in certificates of deposit is
also due to an established presence in the marketplace.
Total shareholders' equity increased $3.2 million primarily due to retained
earnings of $2.8 million for the year and the exercise of incentive stock
options by employees.
RESULTS OF OPERATIONS
Net income was $3.0 million for the year ended December 31, 1998, an increase of
36% over net income of $2.2 million for the same period in 1997. Diluted
earnings per share for the years ended December 31, 1998 and 1997 were $0.40 and
$0.33, respectively.
NET INTEREST INCOME
The largest component of the Company's net income is net interest income. Net
interest income (presented on a tax equivalent basis) was $13.6 million, which
yielded a net interest margin of 4.59%, for the year ended December 31, 1998,
compared to net interest income and net interest margin of $10.2 million and
4.79%, for the same period in 1997.
10
13
The $3.4 million, or 33%, increase in net interest income was driven primarily
by a 39%, or $84 million, increase in average earning assets to $297 million for
the year ended December 31, 1998 compared to $71 million of earning asset growth
during the same period in 1997. 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. Some of the increase was offset by a lower average earning asset yield
and growth in interest bearing deposits.
The yield on average earning assets decreased to 8.59% for the year ended
December 31, 1998 from 8.84% for the same period in 1997. The decrease in asset
yield was primarily due to three 0.25% drops in the prime rate during the third
and fourth quarters of 1998 and a general decrease in average yield on loans.
Average loans as a percent of average total assets increased to 79.06% in 1998
from 77.89% in 1997. For the same periods, the yield on average loans was 9.16%
and 9.48%, respectively. The decrease in loan yield in 1998 compared to 1997
offset the margin benefits obtained by increasing the loan to asset ratio during
the same period.
The yield on interest bearing liabilities decreased to 4.88% for the year ended
December 31, 1998 from 5.03% for the same period in 1997. The yield on all
deposits decreased in 1998 as compared to 1997. This drop is due to the above
mentioned drops in the prime rate and a concerted effort by the ALCO committee
to decrease the interest paid on deposits. This general drop in yields was
offset by deposits shifting to higher yielding money market accounts.
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 each of the three years
ended December 31, 1999.
11
14
Year ended December 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 (1) $342,565 83.92% $30,134 8.80% 251,916 79.06% $23,084 9.16%
Taxable investments in debt securities 18,687 4.58 979 5.24 15,887 4.99 878 5.53
Non-taxable investments in debt securities(2) 622 0.15 40 6.43 619 0.19 40 6.46
Federal funds sold 22,637 5.54 1,113 4.92 27,679 8.69 1,469 5.31
Interest earning deposits 20 - 1 5.00 795 0.25 40 5.03
-------- ------ ------- -------- ------ -------
Total interest-earning assets 384,531 94.19 32,267 8.39 296,896 93.18 25,511 8.59
Non-interest-earning assets:
Cash and due from banks 18,178 4.45 17,422 5.47
Office equipment & leasehold improvements 3,068 0.75 2,686 0.84
Minority interest in EMB LLC 175 0.04
Prepaid expenses and other assets 5,846 1.43 4,609 1.45
Allowance for possible loan losses (3,530) (0.86) (2,985 (0.94)
-------- ------ -------- ------
Total assets $408,268 100.00% $318,628 100.00%
======== ====== ======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 26,430 6.47% $ 491 1.86% 20,503 6.43% $ 492 2.40%
Money market 178,423 43.70 7,833 4.39 117,027 36.74 5,361 4.58
Savings 1,789 0.44 44 2.46 1,496 0.47 37 2.47
Certificates of deposit 102,277 25.05 5,386 5.27 102,897 32.29 5,912 5.75
Notes payable 1,029 0.25 79 7.68 - - - -
Federal funds purchased 27 0.01 2 5.83 - - - -
Federal Home Loan Bank advances 6,788 1.66 331 4.88 1,447 0.45 67 4.63
Guaranteed preferred beneficial interests
in EBH-Subordinated Debentures 1,978 0.48 186 9.40 - - - -
-------- ------ ------- -------- ------ -------
Total interest-bearing liabilities 318,741 78.06 14,352 4.50 243,370 76.38 11,869 4.88
Noninterest-bearing liabilities:
Demand deposits 56,568 13.86 46,326 14.54
Other liabilities 1,930 0.47 1,213 0.38
-------- ------ -------- ------
Total liabilities 377,239 92.40 290,909 91.30
Shareholders' equity 31,029 7.60 27,719 8.70
-------- ------ -------- ------
Total liabilities & shareholders' equity $408,268 100.00% 318,628 100.00%
======== ====== ======== ======
Net interest income $17,915 $13,642
======= =======
Net interest margin 4.66% 4.59%
==== ====
Year ended December 31,
-----------------------------------------
1997
-----------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- ----------
Assets
Interest-earning assets:
Loans (1) 177,532 77.89% $16,834 9.48%
Taxable investments in debt securities 17,859 7.84 1,018 5.70
Non-taxable investments in debt securities(2) 805 0.35 52 6.46
Federal funds sold 16,679 7.32 909 5.45
Interest earning deposits 38 0.02 2 5.26
-------- ------ -------
Total interest-earning assets 212,913 93.42 18,815 8.84
Non-interest-earning assets:
Cash and due from banks 11,580 5.08
Office equipment & leasehold improvements 1,677 0.74
Minority interest in EMB LLC
Prepaid expenses and other assets 3,829 1.68
Allowance for possible loan losses (2,085) (0.91)
-------- ------
Total assets $227,914 100.00%
======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction accounts 15,840 6.95% $ 452 2.85%
Money market 77,198 33.87 3,604 4.67
Savings 1,270 0.56 32 2.52
Certificates of deposit 77,081 33.82 4,521 5.87
Notes payable 25 0.01 3 12.00
Federal funds purchased - - - -
Federal Home Loan Bank advances 105 0.05 11 10.48
Guaranteed preferred beneficial interests
in EBH-Subordinated Debentures - - - -
-------- ------ -------
Total interest-bearing liabilities 171,519 75.26 8,623 5.03
Noninterest-bearing liabilities:
Demand deposits 33,247 14.59
Other liabilities 426 0.19
-------- ------
Total liabilities 205,192 90.03
Shareholders' equity 22,722 9.97
-------- ------
Total liabilities & shareholders' equity 227,914 100.00%
======== ======
Net interest income $10,192
=======
Net interest margin 4.79%
====
(1) Average balances include non-accrual loans and loans held for sale. The
income on such loans is included in interest but is recognized only upon
receipt. Loan fees included in interest income are approximately $961,000,
$625,000 and $671,000, for 1999, 1998 and 1997, respectively.
(2) Non-taxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
15
During 1999, an increase in the average volume of earning assets resulted in an
increase in interest income of $7,863,000,partially offset by a decrease of
$1,107,000 due to a decrease in rates on earning assets. Increases in the
average volume of interest-bearing demand deposits, savings and money market
accounts, and notes payable and other borrowing resulted in an increase in
interest expense of $3,193,000. Changes in interest rates on the average volume
of interest-bearing liabilities resulted in a decrease in interest expense of
$710,000. The increase in the volume of both earning assets and interest bearing
liabilities are due to the previously mentioned 30% growth the Company
experienced during 1999. The decrease in the average rate of earning assets was
a result of interest rate pressures and competition in the Company's market. The
decrease in the average rate of interest bearing liabilities was a result of a
concerted effort by the Asset/Liability Committee to decrease the interest paid
on deposits. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during 1999 as compared to 1998 increased
interest income by $6,756,000 while the net effect of the volume and rate
changes associated with all categories of interest-bearing liabilities increased
interest expense by $2,483,000.
During 1998, an increase in the average volume of earning assets resulted in an
increase in interest income of $7,335,000, partially offset by a decrease of
$639,000 due to a decrease in rates on earning assets. Increases in the average
volume of interest-bearing demand deposits, savings and money market accounts,
time deposits and notes payable resulted in an increase in interest expense of
$3,463,000. Changes in interest rates on the average volume of interest-bearing
liabilities resulted in a decrease in interest expense of $217,000. The net
effect of the volume and rate changes associated with all categories of
interest-earning assets during 1998 as compared to 1997 increased interest
income by $6,696,000 while the net effect of the volume and rate changes
associated with all categories of interest-bearing liabilities increased
interest expense by $3,246,000.
The following table sets forth, on a tax-equivalent basis for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in yield/rates and volume:
1999 Compared to 1998 1998 Compared to 1997
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------- ------------------------------
Volume(1) Rate(2) Net Volume(1) (Rate(2) Net
--------- ------- --- --------- -------- ---
(Dollars in Thousands)
Interest earned on:
Loans $ 8,007 $ (957) $ 7,050 $ 6,834 $ (584) $ 6,250
Taxable investments in debt
and equity securities 149 (48) 101 (111) (29) (140)
Nontaxable investments in debt
and equity securities (3) -- -- -- (12) -- (12)
Federal funds sold (254) (102) (356) 584 (24) 560
Certificates of deposit (39) -- (39) 40 (2) 38
------- ------- ------- ------- ------- -------
Total interest-earning assets $ 7,863 $(1,107) $ 6,756 $ 7,335 $ (639) $ 6,696
------- ------- ------- ------- ------- -------
Interest paid on:
Interest-bearing demand deposits $ 124 $ (125) $ (1) $ 119 $ (79) $ 40
Money market rate deposits 2,704 (232) 2,472 1,826 (69) 1,757
Savings deposits 7 -- 7 6 (1) 5
Time deposits (35) (491) (526) 1,485 (94) 1,391
Notes payable 39 40 79 (2) (1) (3)
Federal Home Loan Bank Advances 260 4 264 34 33 56
Federal funds purchased 1 1 2 (5) (6) (11)
Guaranteed Preferred Debt 93 93 186 -- -- --
------- ------- ------- ------- ------- -------
Total $ 3,193 $ (710) $ 2,483 $ 3,463 $ (217) $ 3,246
------- ------- ------- ------- ------- -------
Net interest income $ 4,670 $ (397) $ 4,273 $ 3,872 $ (422) $ 3,450
======= ======= ======= ======= ======= =======
(1) Change in volume multiplied by yield/rate of prior period.
(2) Change in yield/rate multiplied by volume of prior period.
(3) Nontaxable investments in debt securities are presented on a fully
tax-equivalent basis assuming a tax rate of 34%.
NOTE: The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute dollar
amounts of the change in each.
13
16
LOAN PORTFOLIO
Loans, as a group, are the largest asset and the primary source of interest
income for the Company. Diversification among different categories of loans
reduces the risks associated with any single type of loan. The following table
sets forth the composition of the Company's loan portfolio by type of loans at
the dates indicated:
December 31,
--------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------- ---------------- ---------------- --------------- ----------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
Commercial and industrial $ 99,646 25.86% $ 81,346 29.70% $ 69,490 30.81% $ 43,876 32.71% $ 43,728 39.59%
Real estate:
Commercial 51,756 13.43 33,242 12.14 37,349 16.56 24,946 18.60 25,507 23.09
Construction 88,237 22.90 76,739 28.03 47,771 21.18 23,362 17.42 11,634 10.53
Residential 72,311 18.76 69,978 25.56 63,772 28.27 37,449 27.92 24,537 22.21
Consumer and other 73,152 19.05 12,513 4.57 7,178 3.18 4,500 3.35 5,058 4.58
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans $385,102 100.00% $273,818 100.00% $225,560 100.00% $134,133 100.00% $110,464 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======== ======
The Company's subsidiary bank grants commercial, residential and consumer loans
primarily in the St. Louis metropolitan area. The Company has a diversified loan
portfolio, with no particular concentration of credit in any one economic
sector; however, a substantial portion of the portfolio is secured by real
estate. As of December 31, 1999, $212 million in loans, or 55% of the loan
portfolio, involved real estate as part or all of the collateral package, as
compared to $180.0 million or 66% and $148.9 million or 66% in 1998 and 1997,
respectively. Of these loans, $90.0 million or 42%, for 1999, were personal and
business loans and loans on owner-occupied properties as compared to $75.6
million or 28% and $55.2 million or 37% for 1998 and 1997, respectively.
Management views these types of loans as having less risk than traditional real
estate loans because the primary source of repayment for these loans is not
dependent upon the cash flow or sale of the real estate securing the loans. When
evaluating the appropriateness of the allowance for loan losses, these loans are
evaluated based on commercial considerations such as the financial condition,
cash flow and income of the borrower as well as the value of all collateral
securing the loans, including the market value of any real estate securing the
loan. During 1999, the Company reexamined its loan classifications. The result
was a movement of approximately $50 million from the real estate category into
the consumer and other loan category. Going forward the Company intends to
report its loans with this new classification.
14
17
The following table sets forth the interest rate sensitivity of the loan
portfolio at December 31, 1999:
Loans Maturing or Repricing
---------------------------------------------------------------------
After One
In One Through After
Year or Less Five Years Five Years Total
---------------- -------------- ----------- --------------
(Dollars in Thousands)
FIXED RATE LOANS (1)
Commercial and industrial $ 6,368 $ 30,822 $ 873 $ 38,063
Real estate:
Commercial 5,568 28,280 2,237 36,085
Construction 6,822 15,302 1,771 23,895
Residential 9,103 26,305 804 36,212
Consumer and other 3,035 24,735 12 27,782
---------------- -------------- ----------- -------------
Total $ 30,896 $ 125,444 $ 5,697 $ 162,037
=============== ============= ========== ============
VARIABLE RATE LOANS (1)
Commercial and industrial $ 61,583 $ -- $ -- $ 61,583
Real estate:
Commercial 15,672 -- -- 15,672
Construction 64,342 -- -- 64,342
Residential 36,100 -- -- 36,100
Consumer and other 45,368 -- -- 45,368
---------------- -------------- ----------- -------------
Total $ 223,065 $ -- $ -- $ 223,065
=============== ============= ========== =============
TOTAL LOANS (1)
Commercial and industrial $ 67,951 $ 30,822 $ 873 $ 99,646
Real estate:
Commercial 21,240 28,280 2,237 51,757
Construction 71,164 15,302 1,771 88,237
Residential 45,203 26,305 804 72,312
Consumer and other 48,403 24,735 12 73,150
---------------- -------------- ----------- -------------
Total $ 253,961 $ 125,444 $ 5,697 $ 385,102
=============== ============= ========== =============
(1) Loan balances are shown net of unearned loan fees and loans held for sale.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $1,021,000, $711,000, and $775,000 in 1999,
1998, and 1997 respectively. During 1999, the increase in provision reflects
loan growth of $111 million during 1999 versus loan growth of $48 million during
the same period in 1998. The provision for loan losses did not increase with the
loan growth because the Company experience continued quality of the loan
portfolio and net recoveries of $14,000.
During 1998, the decrease in provision reflects a decrease in net loan
charge-offs to $21,000 as compared to net charge-offs of $30,000 for the year
ended December 31, 19997. In addition, the Company experienced loan growth of
$48 million during 1998 versus loan growth of $92 million during the same period
in 1997.
The Company has charged off a total of $473,000 in loans from January 1, 1995
through December 31, 1999. Total recoveries for the same period are $225,000,
resulting in a five-year net charge-off experience of $248,000, or 0.05% per
year of average loans for the same period.
15
18
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:
December 31,
---------------------------------------------------------------------
1999 1998 1997 1996 1995
-------- --------- --------- --------- --------
(Dollars in Thousands)
Allowance at beginning of period $ 3,200 $ 2,510 $ 1,765 $ 1,400 $ 1,000
-------- -------- -------- -------- --------
Loans charged off:
Commercial and industrial 19 30 90 -- 19
Real estate:
Commercial -- 19 45 -- 118
Construction -- -- -- -- --
Residential -- -- 27 -- 106
Consumer and other -- -- -- -- --
-------- -------- -------- -------- --------
Total loans charged off 19 49 162 -- 243
-------- -------- -------- -------- --------
Recoveries of loans previously
charged off:
Commercial and industrial 18 18 44 -- --
Real estate:
Commercial 15 10 50 4 12
Construction -- -- -- -- --
Residential -- -- 38 15 --
Consumer and other -- -- -- 1 --
-------- -------- -------- -------- --------
Total recoveries of
loans previously
charged off 33 28 132 20 12
-------- -------- -------- -------- --------
Net loans charged
off (recovered) (14) 21 30 (20) 231
-------- -------- -------- --------- --------
Provisions charged to operations 1,021 711 775 345 631
-------- -------- -------- -------- --------
Allowance at end of period $ 4,235 $ 3,200 $ 2,510 $ 1,765 $ 1,400
======== ======== ======== ======== ========
Average loans $342,565 $251,916 $177,532 $120,849 $ 94,737
Total loans 385,102 273,818 225,560 134,133 110,464
Nonperforming loans 294 2 50 161 107
Net charge-offs (recoveries)
to average loans (0.00)% 0.01% 0.02% (0.02)% 0.24%
Allowance for loan losses to loans 1.10 1.17 1.11 1.32 1.27
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. Basically, 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 within 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
16
19
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 detailed lists of loans
on the watch list and summaries of the entire loan portfolio by risk rating.
These are coupled with analyses of changes in the risk profiles of the
portfolios, changes in past due and nonperforming 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 nonaccrual, past due or restructured loans if such assets were
loans.
Management believes the allowance for loan losses is adequate to absorb probable
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance 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. 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, all of which impact the credit risk associated with the Company's
loan portfolio.
As of December 31, 1999, 1998, and 1997, the Company had twelve, thirteen, and
eleven impaired loans in the aggregate amounts of $1,064,000, $1,087,000, and
$967,000 respectively, all of which are considered potential problem loans.
Non-performing assets decreased from $808,000 as of December 31, 1998 to
$690,000 as of December 31, 1999. The Company sold half of its foreclosed
property in December 1999. Non-performing assets decreased from $856,000 as of
December 31, 1997 to $808,000 as of December 31, 1998.
17
20
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
As of December 31,
------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------- -------- --------- --------- ----------
(Dollars in Thousands)
Nonaccrual loans $ 294 $ 2 $ 50 $ 131 $ 107
Loans past due 90 days or more
and still accruing interest -- -- -- 30 --
Restructured loans -- -- -- -- --
--------- -------- --------- --------- ----------
Total nonperforming loans 294 2 50 161 107
Foreclosed property 396 806 806 874 881
-------- -------- --------- --------- ----------
Total nonperforming assets $ 690 $ 808 $ 856 $ 1,035 $ 988
======== ======== ========= ========= ==========
Total assets $488,001 $375,304 $ 291,365 $ 184,584 $ 153,706
Total loans, net of unearned
loan fees 385,102 273,818 225,560 134,133 110,464
Total loans plus foreclosed property 385,498 274,624 226,366 135,007 111,345
Nonperforming loans to total loans 0.08% 0.00% 0.02% 0.12% 0.10%
Nonperforming assets to total loans
plus foreclosed property 0.18 0.29 0.38 0.77 0.89
Nonperforming assets to total assets 0.14 0.22 0.29 0.56 0.64
The Company's policy is to discontinue the accrual of interest on loans when
principal or interest is due and has remained unpaid for 90 days or more.
The following table sets forth the allocation of the allowance for loan losses
by loan category as an indication of the estimated risk of loss for each loan
type. The unallocated portion of the allowance is intended to cover loss
exposure related to potential problem loans for which no specific allowance has
been estimated and for the possible risks in the remainder of the loan
portfolio.
As of December 31,
----------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
------------------- ---------------- ------------------ ------------------ ------------------
Percent Percent Percent Percent Percent
of of of of of
Category Category Category Category Category
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ------ --------- ------ ---------- -----
(Dollars in Thousands)
Commercial and industrial $1,404 25.86% $ 848 29.70% $ 656 30.81% $ 423 32.71% $ 348 39.59%
Real estate:
Commercial 494 13.43 447 12.14 316 16.56 253 18.60 265 23.09
Construction 763 22.90 679 28.03 465 21.18 413 17.42 93 10.53
Residential 817 18.76 798 25.56 605 28.27 381 27.92 510 22.21
Consumer and other 592 19.05 112 4.57 82 3.18 56 3.35 44 4.58
Not allocated 165 -- 316 -- 386 -- 239 -- 140 --
------ ----- ------- ------ ------- ------ ------ ------ ------ ------
Total $4,235 100.00% $ 3,200 100.00% $ 2,510 100.00% $1,765 100.00% $1,400 100.00%
====== ====== ======= ====== ======= ====== ====== ====== ====== ======
The above allocation by loan category does not mean that actual loan charge-offs
will be incurred in the categories indicated. The risk factors considered in
determining the above allocation are the same as those used when determining the
overall level of the allowance.
18
21
NONINTEREST INCOME
The following table depicts the annual changes in various noninterest income
categories:
December 31, December 31,
1999 versus 1998 1998 versus 1997
------------------------------------------ -------------------------------------
$ Change 1999 1998 $ Change 1998 1997
---------- ----------- ---------- ----------- ---------- ----------
Merchant Banc management fee $ (101,600) $ 90,000 $ 191,600 $ 33,000 $ 191,600 $ 158,600
Merchant Banc consulting fees (220,000) 12,500 232,500 224,500 232,500 8,000
Financial Advisory Income 594,810 594,810 -- N/A -- --
Gain on trading assets 202,454 202,454 -- N/A -- --
Service charges on deposit accounts 368,599 621,472 252,873 79,421 252,873 173,452
Gain on sale of ORE 130,050 130,050 -- N/A -- --
Gain on sale of mortgage loans (433,759) 809,110 1,242,869 1,163,921 1,242,869 78,948
Loss on investment in the Enterprise
Fund L.P. (5,564) (7,763) (2,199) 2,705 (2,199) (4,904)
Other noninterest income (47,966) 113,103 161,069 99,190 161,069 61,879
------- ------- ------- ------ ------- ------
Total noninterest income $ 487,024 $2,565,736 $2,078,712 $ 1,602,737 $2,078,712 $ 475,975
========== ========== ========== =========== ========== ==========
Total noninterest income was $2,565,736 in 1999, representing a $487,024
increase from 1998. The increase was primarily the result of increases in
Financial advisory income, service charges on deposit accounts, gain on trading
assets and a gain on the sale of ORE property. The Company began offering
financial advisory and trust services in October 1998. The $594,810 increase in
fees was the result of several life insurance and financial planning transaction
fees. The $368,599 increase in service charges on deposit accounts was due to a
concerted effort by the Company's management to alter service charges and other
fees to stay competitive in the marketplace. In connection with the adoption of
SFAS 133, the Company elected to reclassify an equity investment from
held-to-maturity to trading. The Company recorded a $197,546 gain on marking the
asset to market during the second quarter of 1999, which is treated as a
cumulative effect of change in account principle. In the fourth quarter of 1999
the Company obtained a purchase agreement for the equity investment which
resulted in a $202,454 gain in the fair value. This gain was recognized as
noninterest income. The asset was subsequently sold on February 2, 2000. The
$130,050 gain on sale of ORE was a result of the sale on foreclosed property the
company has owned since 1992. The above mentioned increases were offset by a
$321,600 decrease in Merchant Banc income, a $433,759 decrease on the sale of
mortgage loans and a $47,966 decrease in other income. The decrease in Merchant
Banc fees were a result of the aforementioned restructuring. The decrease in the
gain on sale of mortgages was due to an increase in interest rates during 1999.
Over half of the gain on sale of mortgage loans in 1998 were due to refinancing.
The demand for refinanced mortgage loans dramatically decreased with the rise in
interest rates. Most of the mortgage loans originated during 1999 were from the
purchase of new or existing homes.
Total noninterest income was $2,078,712 in 1998, representing a $1,602,737
increase from 1997. The increase was primarily the result of a $1,163,921
increase on the gain on sale of mortgage loans. The company started offering
mortgage products during the third quarter of 1997. In addition, Merchant Banc
consulting fees increased $224,500 in 1998 as compared to 1997. These fees were
a result of increased business activity in this company from the new office in
Kansas. Noninterest income, excluding Merchant Banc consulting fees and gain on
sale of mortgage loans increased $214,316 in 1998 as compared to 1997. This
increase was due to an increase in service charges on a larger deposit base and
other fees.
NONINTEREST EXPENSE
Total noninterest expense was $13,386,172 in 1999 representing a $3,334,470 or
33% increase from 1998. The increase in noninterest expenses were primarily
attributable to: 1) the new financial advisory services started in 1998, 2)
growth in the new banking facilities opened during 1997 in St. Peters and Sunset
Hills; and 3) expenses related to growth in the Company. During 1999, the
Company's financial advisory division increased its staff and other expenses to
support the Company's growth in this business segment. The Company added 35
employees to support its growth and established market presence.
19
22
The following table depicts changes in noninterest expenses in the above
mentioned operations:
December 31, December 31,
---------------------------------------- -------------------------------------
1999 versus 1998 1998 versus 1997
---------------------------------------- -------------------------------------
$ Change 1999 1998 $ Change 1998 1997
----------- ----------- ----------- ----------- ----------- ----------
Merchant banking division $ (123,959) $ 467,778 $ 591,737 $ 409,361 $ 591,737 $ 182,376
St. Peters and Sunset Hills banking
units 1,317,255 5,246,240 3,928,985 1,871,666 3,928,985 2,057,319
Mortgage operations (37,986) 817,419 855,405
724,830 855,405 130,575
Enterprise Financial Advisors 953,434 1,163,497 210,063 210,063 210,063 --
Other operations 1,225,726 5,691,238 4,465,512 497,206 4,465,512 3,968,306
----------- ----------- ----------- ----------- ----------- ----------
Total noninterest expense $ 3,334,470 $13,386,172 $10,051,702 $ 3,713,126 $10,051,702 $6,338,576
=========== =========== =========== =========== =========== ==========
The increases were primarily due to increases in salaries and benefits expense,
occupancy and equipment expense and other operating expenses related to the
above mentioned operations and staff additions.
Total noninterest expense was $10,051,702 in 1998 representing a $3,713,126 or
59% increase from 1997. The increase in noninterest expenses were primarily
attributable to: 1) a new merchant bank office in Kansas City opened in March,
1998 2) new banking facilities opened during 1997 in St. Peters and Sunset
Hills, 3) the new financial advisory services started in 1998; and 4) expenses
related to the origination and sale of mortgage loans. The increases were
primarily due to increases in salaries and benefits expense, occupancy and
equipment expense and other operating expenses related to the above mentioned
operations. Noninterest expenses attributable to other operations increased 13%
in 1998 as compared to 1997 which was due to normal increases related to growth.
INCOME TAXES
Income tax expense was $2,244,404, $1,850,275 and $1,316,590 for 1999, 1998, and
1997, respectively. The effective tax rate was 38%, 38% and 37% for the years
ended December 31, 1999, 1998, and 1997, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio, maturities
in the investment portfolio, amortization of term loans, and by the Company's
deposit inflows, proceeds from borrowings, and retained earnings.
20
23
The following table reflects the Company's GAP analysis (rate sensitive assets
minus rate sensitive liabilities) as of December 31, 1999:
Over Over After
3 Months 1 Year 5 Years
3 Months Through 12 Through or No Stated
or Less Months 5 Years Maturity Total
-------------- ------------ ------------- -------- -------------
(Dollars in Thousands)
Assets:
Investments in debt and
equity securities $ 151 $ 18,729 $ 4,462 $ 2,055 $ 25,397
Interest-bearing deposits 1 -- -- -- 1
Loans, net of unearned loan fees 231,188 22,773 125,444 5,697 385,102
Federal funds sold 54,825 -- -- -- 54,825
-------------- ------------- ---------- -------- -------------
Total interest-sensitive
assets $ 286,165 $ 41,502 $ 129,906 $ 7,752 $ 465,325
-------------- ------------- ---------- -------- -------------
Liabilities:
Interest-bearing transaction
accounts $ 31,533 -- -- -- 31,533
Money market and savings
accounts 200,672 -- -- -- 200,672
Certificates of deposit 32,264 91,030 17,786 26 141,106
Guaranteed preferred
beneficial interests in
EBH-subordinated
debentures -- -- -- 11,000 11,000
Federal Home Loan Bank
advances -- -- 6,000 920 6,920
-------------- ------------- ---------- -------- -------------
Total interest-sensitive
liabilities $ 264,469 $ 91,030 $ 23,786 $ 11,946 $ 391,231
============== ============= ========== ======== =============
Interest-sensitivity GAP
GAP by period $ 21,696 $ (49,528) $ 106,120 $ (4,194) $ 74,094
============== ============= ========== ======== =============
Cumulative GAP $ 21,696 $ (27,832) $ 78,288 $ 74,094 $ 74,094
============== ============= ========== ======== =============
Ratio of interest-sensitive assets
to interest-sensitive liabilities:
Periodic 1.08 0.46 5.46 0.65 1.19
Cumulative GAP 1.08 0.92 1.21 1.19 1.19
============== ============= ========== ======== ============
The Company made certain assumptions in preparing the table above. These
assumptions included: Loans will repay at historic repayment speeds;
interest-bearing demand accounts and savings accounts are interest sensitive due
to immediate repricing of remaining balance for each period presented; and fixed
maturity deposits will not be withdrawn prior to maturity. A significant
variance in actual results from one or more of these assumptions could
materially affect the results reflected in the table.
As indicated in the preceding table, the Company was asset sensitive on a
cumulative basis for all periods except the 3 to 12 month period at December 31,
1999 based on contractual maturities. In this regard, a decrease in the general
level of interest rates would generally have a negative effect on the Company's
net interest income as the repricing of the larger volume of interest sensitive
assets would create a larger reduction in interest income as compared to the
reduction in interest expense created by the repricing of the smaller volume of
interest sensitive liabilities. Likewise, an increase in the general level of
interest rates would have a positive effect on net interest margin.
As a policy, the Company focuses more attention to the cumulative GAP ratios
than any specific periods ratios since the cumulative GAP takes into account the
repricing nature of the assets and liabilities for a specific period plus all
previous periods which would have been affected by interest rate movements.
21
24
ITEM 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current fair
market values. The objective is to measure the effect on net interest income and
to adjust the balance sheet to minimize the inherent risk while at the same time
maximizing income. Management realizes certain risks are inherent and that the
goal is to identify and minimize those risks. Tools used by management include
the standard GAP report subject to different rate shock scenarios. At December
31, 1999, the rate shock scenario models indicated that annual net interest
income would change by less than 5% should rates rise or fall within 200 basis
points from their current level over a one year period.
22
25
The following tables present the scheduled maturity of market risk sensitive
instruments at December 31, 1999:
Beyond 5
Years or
No
Stated
Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total
-------- -------- -------- -------- -------- -------- ---------
Assets:
Investment in debt and
equity securities $ 19,792 $ 4,459 $ -- $ -- $ -- $ 1,146 $ 25,397
Interest-bearing
deposits 1 -- -- -- -- -- 1
Federal funds sold 54,825 -- -- -- -- -- 54,825
Loans, net of unearned
loan fees 248,863 25,970 44,079 21,746 36,562 7,882 385,102
------- -------- ------ ------- -------- -------- ---------
Total $323,481 $ 30,429 $ 44,079 $21,746 $ 36,562 $ 9,028 $ 465,325
======= ======== ====== ======= ======= ======== =========
Liabilities:
Savings, Now,
Money Market deposits $232,206 $ -- $ -- $ -- $ -- $ -- $ 232,206
Certificates of deposit 123,294 15,278 1,013 1,417 78 26 141,106
Guaranteed preferred
beneficial interests
in EBH-subordinated
debentures -- -- -- -- -- 11,000 11,000
Federal Home Loan
Bank advances -- 3,000 -- 3,000 -- 920 6,920
-------- -------- ---------- ------- -------- -------- ---------
Total $355,500 $ 18,278 $ 1,013 $ 4,417 $ 78 $ 11,946 $ 391,232
======== ======== ========== ======= ======== ======== =========
Average Estimated
Total Interest Rate Fair Value
----- ------------- ----------
Assets:
Investment in debt and
equity securities $25,397 5.28% $ 25,394
Interest-bearing
deposits 1 5.00 1
Federal funds sold 54,825 4.92 54,825
Loans, net of unearned
loan fees 385,102 8.80 384,491
------- ----------
Total $ 465,325 $ 464,711
Liabilities:
Savings, Now, Money
Market deposit $ 232,206 4.05% $ 232,206
Certificates of deposit 141,106 5.27 141,438
Guaranteed preferred
Beneficial interests
in EBH-subordinated
debentures 11,000 9.40% 11,000
Federal Home Loan
Bank advances 6,920 4.88 6,925
----- -----
Total $ 391,232 $ 391,569
23
26
BALANCE SHEET TREND
The following table summarizes certain trends in the Company's balance sheet
during the three-year period ended December 31, 1999:
December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------- --------------
(Dollars in Thousands)
Total assets $ 488,001 $ 375,304 $ 291,365
Earning assets 465,325 334,364 271,967
Deposits 435,798 339,180 264,301
Loans to deposits 88.37% 80.73% 85.34%
Loans to total assets 78.91 72.96 77.41
Investment securities to total assets 5.20 12.33 4.61
Earning assets to total assets 95.35 89.09 93.34
============= ============= =============
Loans $ 385,146 $ 273,915 $ 225,608
Unearned loan fees (44) (97) (48)
------------- ------------- -------------
Net loans $ 385,102 $ 273,818 $ 225,560
============= ============= =============
Investment securities - HFT $ 910 $ -- $ --
Investment securities - AFS 23,807 45,592 12,515
Investment securities - HTM 680 699 919
------------- ------------- -------------
Total investments $ 25,397 $ 46,291 $ 13,434
============= ============= =============
Investment securities - AFS $ 23,807 $ 45,592 $ 12,515
Investment securities - HTM 680 699 919
Investment securities - HFT 910 -- --
Federal funds sold 54,825 14,250 32,825
Interest-bearing deposits 1 5 148
Net loans 385,102 273,818 225,560
------------- ------------- --------------
Total earning assets $ 465,325 $ 334,364 $ 271,967
============= ============= ==============
The ratio of earning assets was 95.35%, 89.09% and 93.34% for years ending
December 31, 1999, 1998 and 1997, respectively. Earning assets increased
$130,961,000 and $62,397,000, or 39% and 23%, for the years ended December 31,
1999 and 1998, respectively. Total assets increased $112,697,000 and
$83,939,000, or 30% and 29%, during the same periods, respectively.
The following table shows, for the periods indicated, the average annual amount
and the average rate paid by type of deposit:
December 31,
---------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- --------------------------- ---------------------------
(Dollars in Thousands)
Average Interest Average Interest Average Interest
Balance Expense Rate Balance Expense Rate Balance Expense Rate
-------- -------- ---- -------- -------- ---- -------- ------- ----
Noninterest-bearing
demand deposits $ 56,568 $ -- --% $ 46,326 $ -- --% $ 33,247 $ -- --%
Interest-bearing transaction
accounts 26,430 491 1.86 20,503 492 2.40 15,840 452 2.85
Money market accounts 178,423 7,833 4.39 117,027 5,361 4.58 77,198 3,604 4.67
Savings accounts 1,789 44 2.46 1,496 37 2.47 1,270 32 2.52
Certificates of deposit 102,277 5,386 5.27 102,897 5,912 5.75 77,081 4,521 5.87
-------- -------- ---- -------- -------- ---- -------- ------ ----
$365,487 $ 13,754 3.76% $288,249 $ 11,802 4.09% $204,636 $8,609 4.21%
======== ======== ==== ======== ======== ===== ======== ====== ====
24
27
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to aggressive direct calling efforts of relationship officers and
sustained economic growth in the local market served by the Company. Recent
growth is also attributed to the new locations in St. Charles County and the
City of Sunset Hills. Management has pursued closely-held businesses whose
management desires a close working relationship with a locally-managed,
full-service bank. Due to the relationships developed with these customers,
management views large deposits from this source a stable deposit base.
Additionally, the Company belongs to a national network of time depositors
(primarily credit unions) who place time deposits with the Company, typically in
increments of $99,000. The Company has used this source of deposits for over
five years and considers it to be a stable source of deposits that allows the
Company to acquire funds at a cost below its alternative cost of funds. There
were $45 million at December 31, 1999, $29 million at December 31, 1998 and $31
million at December 31, 1997 and 1996 in deposits from the national network.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at December 31, 1999:
Remaining Maturity Amount
------------------ ------
(Dollars in Thousands)
Three months or less $ 10,188
Over three through six months 10,522
Over six through twelve months 28,799
Over twelve months 6,812
----------
$ 56,321
==========
The table below sets forth the carrying value of investment securities held by
the Company at the dates indicated:
December 31,
------------------------------------------------------------------------------------
1999 1998 1997
------------------------- ------------------------- -------------------------
Percent Percent Percent
of Total of Total of Total
Amount Securities Amount Securities Amount Securities
--------- ---------- ------- ---------- ------- ----------
(Dollars in Thousands)
U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies $ 22,685 89.33% $ 44,720 96.61% $ 11,963 89.05%
Municipal bonds 656 2.58 669 1.45 881 6.56
Mortgage-backed securities 24 0.09 30 0.06 38 0.28
Federal Home Loan Bank stock 1,122 4.42 872 1.88 552 4.11
Trading securities 910 3.58 -- N/A -- N/A
-------- -------- -------- --------- --------- --------
$ 25,397 100.00% $ 46,291 100.00% $ 13,434 100.00%
======== ======== ======== ========= ========= ========
As of December 31 1999, debt securities with an amortized cost of $679,806 were
classified as held to maturity securities and debt and equity securities with an
amortized cost of $23,913,796 were classified as available for sale securities.
The market valuation account for the available for sale securities was adjusted
to approximately $106,000 to decrease the recorded balance of such securities at
December 31, 1999 to fair value on that date. The Company had one security
classified as a trading asset with a fair value of $910,000 at December 31,
1999. The trading asset was sold at for $910,500 on February 2, 2000.
As of December 31 1998, debt securities with an amortized cost of $698,609 were
classified as held to maturity securities, and debt and equity securities with
an amortized cost of $45,576,239 were classified as available for sale
securities. The market valuation account for the available for sale securities
was adjusted to approximately $16,088 to increase the recorded balance of such
securities at December 31, 1998 to fair value on that date.
25
28
As of December 31, 1997, debt securities with an amortized cost of $919,163 were
classified as held-to-maturity securities; debt and equity securities with an
amortized cost of $12,516,952 were classified as available-for-sale securities;
the market valuation account for the available-for-sale securities was adjusted
to approximately $2,231 to decrease the recorded balance of such securities at
December 31, 1997 to fair value on that date.
The following table summarizes maturity and yield information on the investment
portfolio at December 31, 1999:
Carrying
Value Yield (1)
--------------- ------------
(Dollars in Thousands)
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies:
0 to 1 year $ 18,729 5.63%
1 to 5 years 3,956 5.36
5 to 10 years -- --
No stated maturity -- --
-------------- -------------
Total $ 22,685 5.58%
============== =============
Municipal bonds:
0 to 1 year $ 150 6.75%
1 to 5 years 506 5.27
5 to 10 years -- --
No stated maturity -- --
-------------- -------------
Total $ 656 5.61%
============== =============
Mortgage-backed securities:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 24 5.85%
-------------- -------------
Total 24 5.85%
============== =============
Federal Home Loan Bank stock:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 1,122 6.71%
-------------- -------------
Total $ 1,122 6.71%
============== =============
Trading Securities
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 910 33.00%
-------------- -------------
Total $ 910 6.10%
============== =============
Total
0 to 1 year $ 18,880 5.64%
1 to 5 years 4,462 5.35
5 to 10 years -- --
No stated maturity 2,056 18.34
-------------- -------------
Total $ 25,397 6.61%
============== =============
(1) Weighted average tax-equivalent yield
26
29
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
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 to average 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.
The following table summarizes the Company's risk-based capital and leverage
ratios at the dates indicated:
December 31,
---------------------------------
1999 1998 1997
------ ------ ------
Tier 1 capital to risk weighted assets 10.78% 9.89% 11.20%
Total capital to risk weighted assets 11.82 10.97 12.28
Leverage ratio (Tier 1 capital to
average assets) 10.74 9.16 11.42
Tangible capital to tangible assets 6.71 8.63 9.79
At December 31, 1999, the Company's Tier 1 capital was $43.8 million compared to
$29.2 million and $26.0 million at December 31, 1998 and 1997, respectively. At
December 31, 1999, the Company's total capital was $48.1 million compared to
$32.4 million and $28.6 million at December 31, 1998 and 1997, respectively.
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 Cost of Y2K Compliance:
The total cost to the Company to assess, correct and verify Y2K issues was
approximately $185,000, consisting of $125,000 in salaries and benefit costs
allocated to Y2K projects and $60,000 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
27
30
frequently. If these non-systems related costs become significant and
quantifiable, they will be disclosed at that time.
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 could be material to the operations and financial performance
of the Company and its subsidiaries. As of March 1, 2000 the Company had
encountered no significant Y2K related problems.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities." This statement 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.
In connection with the adoption of SFAS 133, the Company elected to reclassify
an equity investment from held-to-maturity to trading. The Company recorded a
$197,546 gain on marking the asset to market during the second quarter of 1999,
which is treated as a cumulative effect of change in account principal. In the
fourth quarter of 1999 the Company obtained a purchase agreement for the equity
investment which resulted in a $202,454 gain in the fair value. This gain was
recognized as noninterest income. The asset was sold on February 2, 2000 for
$910,500.
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.
SUPERVISION AND REGULATION
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide
for general regulatory oversight with respect to virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions. Any change in applicable
laws or regulations may have a material effect on the business and prospects of
the Company. The numerous regulations and policies promulgated by the regulatory
authorities creates a difficult and ever-changing atmosphere in which to
operate. The Company and the Bank commit substantial resources in order to
comply with these statutes, regulations and policies. The Company is unable to
predict the nature or the extent of the effect on its business and earnings that
fiscal or monetary policies, economic control, or new federal or state
legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company under the definition of the Bank Holding
Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is subject to
periodic examination by the Federal Reserve and is required to file periodic
reports of its operations and such additional information as the
28
31
Federal Reserve may require. The Company's and the Bank's activities are limited
to banking, managing or controlling banks, furnishing services to or performing
services for its subsidiaries, or engaging in any other activity that the
Federal Reserve determines to be closely related to banking.
Investments, Control and Activities. With certain limited exceptions, the BHCA
requires every bank holding company to obtain the prior approval of the Federal
Reserve before (i) acquiring substantially all the assets of any bank, (ii)
acquiring direct or indirect ownership or control of any voting shares of any
bank if after such acquisition it would own or control more than 5% of the
voting shares of such bank (unless it already owns or controls the majority of
such shares), or (iii) merging or consolidating with another bank holding
company. Federal legislation permits bank holding companies to acquire control
of banks throughout the United States.
In addition, and subject to certain exceptions, the BHCA and the Change in Bank
Control Act, together with regulations thereunder, require Federal Reserve
approval (or, depending on the circumstances, no notice of disapproval) prior to
any person or company acquiring "control" of a bank holding company, such as the
Company. Control is conclusively presumed to exist if an individual or company
acquires 25% or more of any class of voting securities of the bank holding
company. Under Federal Reserve regulations applicable to the Company, control
will be refutably presumed to exist if a person acquires at least 10% of the
outstanding shares of any class of voting securities once the Company registers
the common stock under the Securities and Exchange Act of 1934. The regulations
provide a procedure for challenge of the rebuttable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of any
company engaged in, nonbanking activities, unless the Federal Reserve, by order
of regulation, has found those activities to be so closely related to banking or
managing or controlling banks as to be a related activity. Some of the
activities that the Federal Reserve has determined by regulation to be proper
incidents to the business of banking include investment in and management of
Small Business Investment Companies, making or servicing loans and certain types
of leases, engaging in certain insurance and brokerage activities, performing
data processing services, acting in certain circumstances as a fiduciary or
investment or financial advisor, owning savings associations, and making
investments in limited projects designed primarily to promote community welfare.
Recent Developments: The Gramm-Leach-Bliley Act ("GLBA") was signed into law on
November 12, 1999. This major banking legislation now permits affiliation among
depository institutions and entities whose activities are considered "financial
in nature" or incidental or complementary to such activities. Activities which
are expressly considered financial in nature include, among other things,
securities and insurance underwriting and agency, investment management and
merchant banking. With certain exceptions, GLBA similarly expanded the
authorized activities of subsidiaries of national banks (and indirectly through
the wild card powers provisions of state law, Missouri banks). These provisions
become effective March 11, 2000.
In general, these expanded powers are reserved to bank holding companies, to be
known as financial holding companies ("FHC") and banks, where all depository
institutions affiliated with them are well capitalized and well managed based on
applicable banking regulations and meet specified Community Reinvestment Act
ratings. GLBA authorizes the Federal Reserve and the United States Treasury, in
cooperation with one another, to determine what additional activities are
permissible as financial in nature. Maintenance of activities which are
financial in nature will require FHC's and banks to continue to satisfy
applicable well capitalized and well managed requirements. Bank holding
companies which do not qualify for FHC status are limited to non-banking
activities deemed closely related to banking prior to adoption of GLBA.
To become an FHC, the Company would file a declaration with the Federal Reserve
electing to engage in activities permissible for an FHC and certifying that it
is eligible to do so because it meets the requirements outlined above. The
Company currently meets the requirements to make an election to become a FHC;
however, the Company's management has not determined at this time whether it
will seek such an election. The Company is examining its strategic business plan
to determine whether, based on market conditions, the relative financial
conditions of Company and its subsidiaries, regulatory
29
32
capital requirements, general economic conditions, and other factors, Company
desires to utilize any of its expanded powers provided in GLBA.
In addition to the creation of FHC's, GLBA establishes a scheme of "functional
regulation" of financial services businesses which is intended to reflect the
primacy of regulation over activities and entities by regulators routinely
responsible for such activities and entities and with the appropriate expertise
in the area of regulation. This applies both in allocating responsibility for
supervising different companies within an FHC and in supervising different
activities within the same company. In this connection, GLBA clarifies the
regulation by states of insurance products sold by depository institutions,
repeals some of the exemptions enjoyed by banks under federal securities laws
relation to securities offered by banks and licensing of broker-dealers and
investment advisors.
GLBA also adopts restrictions on financial institutions regarding the sharing of
customer non-public personal information with non-affiliated third parties
unless the customer has had an opportunity to opt out of the disclosure. GLBA
also imposes periodic disclosure requirements concerning the financial
institution's policies and practices regarding data sharing with affiliated and
non-affiliated parties.
This act will be the subject of extensive rule making by federal banking
regulators and others. The effects of this legislation will only begin to be
understood over the next several years and at this time cannot be predicted with
any certainty.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve policy,
the Company is expected to act as a source of financial strength to the Bank and
to commit resources to support the Bank in circumstances in which the Company
might not otherwise do so. Under the BHCA, the Federal Reserve may require a
bank holding company to terminate any activity or relinquish control of a
nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve's determination that such activity or control constitutes a serious risk
to the financial soundness or stability of any subsidiary depository institution
of the bank holding company. Further, federal bank regulatory authorities have
additional discretion to require a bank holding company to divest itself of any
bank or nonbank subsidiary if the agency determines that divestiture may aid the
depository institution's financial condition.
BANK REGULATION
General. As of December 31, 1999, the Company is the holding company for a
single state bank. The Bank is not a member of the Federal Reserve system. The
Missouri Division of Finance and the FDIC are primary regulators for the Bank.
These regulatory authorities regulate or monitor all areas of the Bank's
operations, including security devices and procedures, adequacy of
capitalization and loss reserves, loans, investments, borrowings, deposits,
mergers, issuance of securities, payment of dividends, interest rates payable on
deposits, interest rates or fees chargeable on loans, establishment of branches,
corporate reorganizations, maintenance of books and records, and adequacy of
staff training to carry on safe lending and deposit gathering practices. The
Bank must maintain certain capital ratios and is subject to limitations on
aggregate investments in real estate, bank premises, and furniture and fixtures.
All insured institutions must undergo regular on-site examinations by their
appropriate banking agency. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate.
Insured institutions are required to submit annual and quarterly reports to the
FDIC and the appropriate agency and the state supervisor.
Once the merger with CGB is complete, the Company will control FCB N.A., a
nationally chartered bank. If the Company maintains their charter they will also
be subject to regulation by the Office of the Comptroller of Currency ("OCC").
Transactions With Affiliates and Insiders. The Bank is subject to the provisions
of Section 23A of the Federal Reserve Act, which place limits on the amount of
loans or extensions of credit to, investments in, or certain other transactions
with, affiliates and on the amount of advances to third parties collateralized
by the securities or obligations of affiliates. In addition, most of these loans
and certain other
30
33
transactions must be secured in prescribed amounts. The Bank is also subject to
the provisions of Section 23B of the Federal Reserve Act that, among other
things, prohibit an institution from engaging in certain transactions with
certain affiliates unless the transactions are on terms substantially the same,
or at least as favorable to such institution or its subsidiaries, as those
prevailing at the time for comparable transactions with nonaffiliated companies.
The Bank is subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders, and their related
interests. Such extensions of credit (i) must be made on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with third parties and (ii) must not involve more
than the normal risk of repayment or present other unfavorable features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
that, in connection with examinations of financial institutions within its
jurisdiction, the FDIC shall evaluate the record of the financial institutions
in meeting the credit needs of their local communities, including low and
moderate income neighborhoods, consistent with the safe and sound operation of
those institutions. These factors are also considered in evaluating mergers,
acquisitions, and applications to open a branch or facility. The company has a
satisfactory rating under CRA.
Other Regulations. Interest and certain other charges collected or contracted
for by the Bank are subject to state usury laws and certain federal laws
concerning interest rates. The Bank's loan operations are also subject to
certain federal laws applicable to credit transactions, such as the federal
Truth-In-Lending Act governing disclosures of credit terms to consumer
borrowers; the Home Mortgage Disclosure Act of 1975 requiring financial
institutions to provide information to enable the public and public officials to
determine whether a financial institution is fulfilling its obligation to help
meet the housing needs of the community it serves; the Equal Credit Opportunity
Act prohibiting discrimination on the basis of race, creed or other prohibited
factors in extending credit; the Fair Credit Reporting Act of 1978 governing
these and provision of information to credit reporting agencies; the Fair Debt
Collection Act governing the manner in which consumer debts may be collected by
collection agencies; and the rules and regulations of the various federal
agencies charged with the responsibility of implementing such federal laws. The
deposit operations of the Bank also are subject to the Right to Financial
Privacy Act, which imposes a duty to maintain confidentiality of consumer
financial records and prescribes procedures for complying with administrative
subpoenas of financial records, and the Electronic Funds Transfer Act and
Regulation E issued by the Federal Reserve Board to implement that act, which
governs automatic deposits to and withdrawals from deposit accounts and
customers' rights and liabilities arising from the use of automated teller
machines and other electronic banking services.
Deposit Insurance. The deposits of the Bank are currently insured by the FDIC to
a maximum of $100,000 per depositor, subject to certain aggregation rules. The
FDIC establishes rates for the payment of premiums by federally insured banks
for deposit insurance. An insurance fund (BIF) is maintained for commercial
banks, with insurance premiums from the industry used to offset losses from
insurance payouts when banks and thrifts fail. The FDIC has adopted a risk-based
deposit insurance premium system for all insured depository institutions,
including the Bank, which requires premiums from a depository institution based
upon its capital levels and risk profile, as determined by its primary federal
regulator on a semiannual basis.
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank to
the Company depends on the Bank's earnings and capital position and is limited
by federal and state law, regulations, and policies.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance-sheet exposure,
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance-sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies
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34
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of the
minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital ratio,
a portion of which must be Tier 1 capital. Tier 1 capital includes common
shareholders' equity, qualifying perpetual preferred stock, and minority
interests in equity accounts of consolidated subsidiaries, but excludes goodwill
and most other intangibles and excludes the allowance for loan and lease losses.
Tier 2 capital includes the excess of any preferred stock not included in Tier 1
capital, mandatory convertible securities, hybrid capital instruments,
subordinated debt and intermediate term-preferred stock, and general reserves
for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance-sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the 100%
risk category, except for first mortgage loans fully secured by residential
property and, under certain circumstance, residential construction loans, both
of which carry a 50% rating. Most investment securities are assigned to the 20%
category, except for municipal or state revenue bonds, which have a 50% rating,
and direct obligations of or obligations guaranteed by the United States
Treasury or United States Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage ratio,
which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Included on pages 35 through 40, below.
PART III
MANAGEMENT
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this item is incorporated herein by reference to
pages [4] through [10] of the Company's Proxy Statement for its annual meeting
to be held April 19, 2000.
All Directors of the Company are elected at the annual meeting of shareholders
and serve until their successors are duly elected and qualified or until their
earlier resignation or removal.
The Bank's entire Board of Directors performs the functions of audit and
compensation committees.
ITEM 11: EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by reference to
pages [4] through [6] of the Company's Proxy Statement for its annual meeting to
be held April 19, 2000.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
The information required by this item is incorporated herein by reference to
pages [8] through [10] of the Company's Proxy Statement for its annual meeting
to be held April 19, 2000.
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ITEM 13: CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
The Company and the Bank have and expect to continue to have banking and other
transactions in the ordinary course of business with directors and executive
officers of the Company and their affiliates, including members of their
families or corporations, partnerships or other organizations in which such
directors or executive officers have a controlling interest, on substantially
the same terms (including price, or interest rates and collateral) as those
prevailing at the time for comparable transactions with unrelated parties. Such
transactions are not expected to involve more than the normal risk of
collectibility nor present other unfavorable features to the Company and the
Bank. The Bank is subject to limits on the aggregate amount it can lend to the
Bank's and the Company's directors and officers as a group. This limit is
currently equal to two times the applicable entity's unimpaired capital and
surplus. Loans to individual directors and officers must also comply with the
Bank's lending policies and statutory lending limits, and directors with a
personal interest in any loan application are excluded from the consideration of
such loan application.
The Company's Clayton banking facility is leased from a limited partnership in
which Fred H. Eller, the Company's Chief Executive Officer, is a limited partner
and Robert E. Saur, a director of the Company, is a general partner. Terms of
the lease were negotiated by parties other than Fred H. Eller or Robert E. Saur
and based on the fair market value at origination. Rent expense, net of income
from the sublet portions of the premises, amounted to $279,725 in 1999.
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES
AND REPORTS ON FORM 8-K
(A) THE FOLLOWING DOCUMENTS ARE FILED OR INCORPORATED BY REFERENCE AS PART OF
THIS REPORT:
ENTERBANK HOLDINGS INC. AND SUBSIDIARIES
1. Financial Statements: Page Number
--------------------- -----------
Independent auditors report 34
Consolidated Balance Sheets
at December 31, 1999 and December 31, 1998 35
Consolidated Statements of Income for the years
ended December 31, 1999, 1998 and 1997 36
Consolidated Statements of Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 38
Consolidated Statements of Cash Flows for the
years ended December 31, 1999, 1998 and 1997 39
Consolidated Statements of Comprehensive Income
for the years ended December 31, 1999, 1998 and 1997 40
Notes to Consolidated Financial Statements 41
2. Financial Statement Schedules
-----------------------------
None other than those included in the Notes to Consolidated
Financial Statements.
3. Exhibits
See Exhibit Index
(B) REPORTS ON FORM 8-K
On October 7, 1999 Registrant filed a report on Form 8-K to report, under
Item 5, completion of its $10 million cumulative Preferred Securities
offering and to report its third quarter results.
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INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Enterbank Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Enterbank
Holdings, Inc. and subsidiaries (the Company) as of December 31, 1999 and
1998, and the related consolidated statements of income, shareholders'
equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Enterbank Holdings, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999, in conformity with
generally accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, the
Company adopted Statement of Financial Accounting standards No. 133,
Accounting for Derivative Instruments and Hedging Activities.
/s/ KPMG LLP
February 18, 2000
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1999 and 1998
Assets 1999 1998
------ ------------- -------------
Cash and due from banks $ 14,798,216 $ 29,701,018
Federal funds sold 54,825,000 14,250,000
Interest-bearing deposits 469 5,035
Investments in debt and equity securities:
Trading, at fair value 910,000 --
Available for sale, at estimated fair value 23,807,572 45,592,327
Held to maturity, at amortized cost
(estimated fair value of $676,851 in 1999
and $704,723 in 1998) 679,806 698,609
------------ ------------
Total investments in debt and equity securities 25,397,378 46,290,936
------------ ------------
Loans held for sale 1,438,335 6,272,124
Loans, less unearned loan fees 385,101,759 273,817,522
Less allowance for loan losses 4,235,000 3,200,000
------------ ------------
Loans, net 380,866,759 270,617,522
------------ ------------
Other real estate owned 396,072 806,072
Office equipment and leasehold improvements 3,228,256 3,063,123
Accrued interest receivable 2,473,781 1,648,775
Investment in Enterprise Merchant Banc LLC 572,009 --
Investment in Enterprise Fund, L.P. 546,710 424,484
Prepaid expenses and other assets 3,458,459 2,224,829
------------ ------------
Total assets $ 488,001,444 $ 375,303,918
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 62,486,092 $ 61,114,961
Interest-bearing transaction accounts 31,532,705 24,234,717
Money market accounts 197,935,760 149,177,922
Savings 2,736,638 1,471,647
Certificates of deposit:
$100,000 and over 56,321,178 43,326,061
Other 84,785,457 59,854,862
------------ ------------
Total deposits 435,797,830 339,180,170
Guaranteed preferred beneficial interests in
EBH-subordinated debentures 11,000,000 --
Federal Home Loan Bank advances 6,920,386 6,000,000
Accrued interest payable 962,205 608,056
Accounts payable and accrued expenses 557,338 275,563
------------ ------------
Total liabilities 455,237,759 346,063,789
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 20,000,000 shares; issued and
outstanding 7,143,636 shares at December
31, 1999 and 7,115,511 shares at December 31, 1998 71,436 71,155
Surplus 19,285,957 19,216,564
Retained earnings 13,476,400 9,941,792
Accumulated other comprehensive gain (loss) (70,108) 10,618
------------ ------------
Total shareholders' equity 32,763,685 29,240,129
------------ ------------
Total liabilities and shareholders' equity $ 488,001,444 $ 375,303,918
============ ============
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------------- -------------- ---------------
Interest income:
Interest and fees on loans $ 30,018,530 $ 23,001,165 $ 16,795,887
Interest on debt and equity securities:
Taxable 978,651 878,147 1,017,897
Nontaxable 26,102 26,565 34,630
Interest on federal funds sold 1,112,929 1,468,652 909,326
Interest on interest bearing deposits 697 39,740 1,289
-------------- -------------- --------------
Total interest income 32,136,909 25,414,269 18,759,029
-------------- -------------- --------------
Interest expense:
Interest-bearing transaction accounts 490,791 492,581 410,915
Money market accounts 7,833,783 5,361,463 3,604,225
Savings 43,942 36,918 32,357
Certificates of deposit:
$100,000 and over 2,160,871 2,189,803 1,658,554
Other 3,224,838 3,722,039 2,862,256
Federal funds purchased 1,597 -- 11,035
Guaranteed preferred debenture expense 186,605 -- --
Federal Home Loan Bank advances 331,042 66,527 --
Notes payable 78,650 -- 2,888
-------------- -------------- --------------
Total interest expense 14,352,119 11,869,331 8,582,230
-------------- -------------- --------------
Net interest income 17,784,790 13,544,938 10,176,799
Provision for loan losses 1,021,256 710,899 775,064
-------------- -------------- --------------
Net interest income after
provision for loan losses 16,763,534 12,834,039 9,401,735
-------------- -------------- --------------
Noninterest income:
Service charges on deposit accounts 621,472 252,873 173,452
Gain on sale of ORE 130,050 -- --
Financial advisory income 594,810 -- --
Gain on trading assets 202,454 -- --
Other service charges and fee income 212,669 585,169 228,479
Gain on sale of mortgage loans 809,110 1,242,869 78,948
Income from investments in EMB, LLC 2,934 -- --
Loss on investment in Enterprise Fund, L.P. (7,763) (2,199) (4,904)
-------------- -------------- --------------
Total noninterest income 2,565,736 2,078,712 475,975
-------------- -------------- --------------
Noninterest expense:
Salaries 6,748,905 5,103,863 3,221,147
Payroll taxes and employee benefits 1,386,603 999,579 620,438
Occupancy 977,422 879,046 552,063
Furniture and Equipment 431,005 389,274 227,061
FDIC insurance 30,139 40,638 21,846
Data processing 457,529 306,691 237,248
Other 3,354,569 2,332,611 1,458,773
-------------- -------------- --------------
Total noninterest expense 13,386,172 10,051,702 6,338,576
-------------- -------------- --------------
Income before income tax expense 5,943,098 4,861,049 3,539,134
Income tax expense 2,244,404 1,850,275 1,316,590
-------------- -------------- --------------
Income before cumulative effect of a change
income accounting principle $ 3,698,694 $ 3,010,774 $ 2,222,544
============== -------------- --------------
Cumulative effect on prior years of a change in
asset classification, net of taxes 121,491 -- --
-------------- -------------- --------------
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------------- --------------- ---------------
Per share amounts (1)
Basic earnings per share:
Income before cumulative effect of
change in accounting principle $ 0.52 $ 0.43 $ 0.35
Cumulative effect on prior years of a
change in asset classification $ 0.02 $ -- $ --
================ =============== ===============
Net income $ 0.54 $ 0.43 $ 0.35
================ =============== ===============
Basic weighted average common shares
common stock equivalents
outstanding 7,135,697 7,052,289 6,286,077
Diluted earnings per share:
Income before cumulative effect of a
change in accounting principle $ 0.48 $ 0.40 $ 0.33
Cumulative effect on prior years of a
change in asset classification $ 0.02 $ -- $ --
================ =============== ===============
Net income $ 0.50 $ 0.40 $ 0.33
================ =============== ===============
Diluted weighted average common
shares and common stock
equivalents outstanding 7,704,800 7,544,820 6,674,901
- -----------------------------------------------------------
See accompanying notes to consolidated financial statements.
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40
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholder's Equity
Years Ended December 31, 1999, 1998, and 1997
Net
unrealized
holding
gains
(losses) on Total
Common Stock available- share-
------------------------- Retained for-sale holders'
Shares Amount Surplus earnings securities equity
------------------------- -------------- ------------- ------------ -------------
Balance, December 31, 1996 4,987,080 $ 49,870 $ 9,562,710 $ 5,138,612 $ 6,701 $ 14,757,893
Net income -- -- -- 2,222,544 -- 2,222,544
Dividends declared
($.03 per share) -- -- -- (195,085) -- (195,085)
Stock options exercised 160,500 1,605 265,895 -- -- 267,500
Issuance of Common Stock 1,747,656 17,477 9,004,637 9,022,114
Other comprehensive income -- -- -- -- (8,174) (8,174)
----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1997 6,895,236 68,952 18,833,242 7,166,071 (1,473) 26,066,792
Net income -- -- -- 3,010,774 -- 3,010,774
Dividends declared
($.03 per share) -- -- -- (235,053) -- (235,053)
Stock options exercised 220,275 2,203 383,322 -- -- 385,525
Other comprehensive income -- -- -- -- 12,091 12,091
----------- ------------ -------------- ------------- ------------ -------------
Balance, December 31, 1998 7,115,511 71,155 19,216,564 9,941,792 10,618 29,240,129
Net income -- -- -- 3,820,185 -- 3,820,185
Dividends declared
($.04 per share) -- -- -- (285,577) -- (285,577)
Stock options exercised 28,125 281 69,393 69,674
Other comprehensive income -- -- -- -- (80,726) (80,726)
----------- ------------ -------------- ------------- ------------- --------------
Balance, December 31, 1999 7,143,636 $ 71,436 $ 19,285,957 $ 13,476,400 $ (70,108) $ 32,763,685
=========== ============ ============== ============= ============= ==============
See accompanying notes to consolidated financial statements.
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41
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------ ------------ -------------
Cash flows from operating activities:
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of change in accounting principle, net of taxes (121,491) -- --
Depreciation and amortization 592,101 488,790 311,132
Provision for loan losses 1,021,256 710,899 775,064
Write-downs and losses on other real estate owned, net -- -- 24,259
Gain on sale of other real estate owned (130,050) (26,546) --
Net accretion of debt and equity securities (188,295) (288,951) (207,715)
Net increase in trading securities asset (788,509) -- --
Loss on investment in Enterprise Fund, L.P. 7,763 2,199 4,904
Mortgage loans originated (56,541,117) (94,433,924) (8,455,878)
Proceeds from mortgage loans sold 62,184,016 90,728,913 7,210,582
Gain on sale of mortgage loans (809,110) (1,242,869) (78,948)
Increase in accrued interest receivable (825,006) (200,432) (512,479)
Increase in accrued interest payable 354,149 58,997 239,549
Other, net (951,856) (526,545) (700,997)
------------ ------------ -------------
Net cash provided by (used in) operating activities 7,624,036 (1,718,695) 832,017
------------ ------------ -------------
Cash flows from investing activities:
Purchases of interest-bearing deposits -- -- (148,349)
Proceeds from maturity of interest-bearing deposits 4,566 143,314 --
Purchases of available for sale debt securities (27,241,172) (49,683,878) (18,788,955)
Purchases of available for sale equity securities (250,700) (320,000) (90,500)
Purchases of held to maturity debt securities (100,000) (256,689) (101,076)
Proceeds from maturities of available for sale debt securities 49,400,000 17,250,000 20,580,000
Proceeds from maturities and principal paydowns on
held to maturity debt securities 103,000 460,785 407,956
Net increase in loans (111,270,493) (48,275,994) (91,597,180)
Proceeds from sale of other real estate owned 540,050 24,327 184,095
Purchases of office equipment and leasehold improvements (757,234) (1,225,736) (1,520,563)
Write-down of office equipment and leasehold improvements -- 2,522 --
Investment in Enterprise Merchant Banc LLC (572,009) -- --
Investment in Enterprise Fund, L.P. (129,989) (201,000) 319,500
------------ ------------ -------------
Net cash used in investing activities (90,273,981) (82,082,349) (90,755,072)
------------ ------------ -------------
Cash flows from financing activities:
Net increase in demand and savings accounts 58,691,948 67,358,128 65,187,192
Net increase in certificates of deposit 37,925,712 7,521,408 30,152,353
Increase in Federal Home Loan Bank Advances 920,386 6,000,000 --
Proceeds from issuance of guaranteed preferred subordinated debentures 11,000,000 -- --
Decrease increase in notes payable -- -- (300,000)
Cash dividends paid (285,577) (235,053) (195,085)
Proceeds from the issuance of common stock -- -- 9,022,114
Proceeds from the exercise of stock warrants and common stock options 69,674 385,525 267,500
------------ ------------ -------------
Net cash provided by financing activities 108,322,143 81,030,008 104,134,074
------------ ------------ -------------
Net increase (decrease) in cash and due from banks 25,672,198 (2,771,036) 14,211,019
Cash and cash equivalents, beginning of year 43,951,018 46,722,054 32,511,035
------------ ------------ -------------
Cash and cash equivalents, end of year $ 69,623,216 $ 43,951,018 $ 46,722,054
============ ============ =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 14,003,833 $ 11,810,334 $ 8,342,681
Income taxes 2,239,000 2,014,266 1,509,322
============ ============ =============
Noncash transactions:
Transfers to other real estate owned in settlement of loans -- 97,781 140,000
Loans made to facilitate the sale of other real estate owned 515,240 100,000 --
Transfer of held to maturity security to trading 510,000 -- --
============ ============ =============
See accompanying notes to consolidated financial statements.
39
42
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1999, 1998 and 1997
1999 1998 1997
------------- -------------- --------------
Net income $ 3,820,185 $ 3,010,774 $ 2,222,544
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period (122,312) 18,319 (12,385)
------------- -------------- --------------
Other comprehensive income, before tax (122,312) 18,319 (12,385)
Income tax benefit (expense) related to items of
other comprehensive income 41,586 (6,228) 4,211
------------- -------------- --------------
Other comprehensive income, net of tax (80,726) 12,091 (8,174)
------------- -------------- --------------
Comprehensive income $ 3,739,459 $ 3,022,865 $ 2,214,370
============= ============== ==============
See accompanying notes to consolidated financial statements.
40
43
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1999, 1998 and 1997
NOTE 1--ORGANIZATION
On May 9, 1995, Enterbank Holdings, Inc. (the "Company") was formed as a bank
holding company. Enterbank Holdings, Inc. exchanged 4,390,200 shares of
Enterbank Holdings, Inc. for all 73,170 (100%) of outstanding shares of
Enterprise Bank in a sixty-for-one stock exchange. The merger represented a
combination of entities under common control and, accordingly, was accounted for
in a manner similar to a pooling of interest.
Additionally, Enterprise Capital Resources, Inc. ("ECR") was formed as a small
business investment company in 1995 and, on May 11, 1995, Enterbank Holdings,
Inc. acquired 100% of the outstanding shares of ECR. Subsequent to December 31,
1997, ECR changed its name to Enterprise Merchant Banc, Inc. ("Merchant Banc").
In 1997, the Company organized Enterprise Financial Advisors ("Financial
Advisors") as a division of the Bank to provide fee-based personal financial
planning, estate planning, and corporate planning services to the Company's
target market. The Company entered into solicitation and referral agreements
with Moneta Group, Inc., a financial planning company, as part of the
organization of Financial Advisors. In 1998, Financial Advisors obtained trust
powers. The Company renegotiated the agreements with Moneta with the
introduction of trust services.
In 1999, the Company formed EBH Capital Trust I ("EBH Trust"). EBH Trust is a
Delaware business trust created for the single purpose of offering trust
preferred securities and purchasing the junior subordinated debentures of
Enterbank Holdings.
On January 5, 2000, the Company signed a merger agreement with Commercial
Guaranty Bancshares, Inc. located in Overland Park, Kansas. Commercial Guaranty
("CGB") is the bank holding company for First Commercial Bank, N.A. ("FCB"). The
Company expects the merger to be completed sometime in the middle of 2000. The
agreement provides for CGB shareholders to receive 2.1429 shares of Enterbank
common stock in a tax-free exchange utilizing the pooling of interests method of
accounting.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company provides a full range of banking services to individual and
corporate customers located within St. Louis, Missouri and the surrounding
communities through its subsidiary, Enterprise Bank (the Bank). The Company is
subject to competition from other financial and nonfinancial institutions
providing financial services in the markets served by the Company's
subsidiaries. Additionally, the Company and its subsidiaries are subject to the
regulations of certain federal and state agencies and undergo periodic
examinations by those regulatory agencies.
The more significant accounting policies used by the Company in the preparation
of the consolidated financial statements are summarized below:
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company and its subsidiaries have
been prepared in conformity with generally accepted accounting principles and
conform to predominant practices within the banking industry. In preparing the
consolidated financial statements, management is required to make estimates and
assumptions which significantly affect the reported amounts in the consolidated
financial statements. Estimates which are particularly susceptible to change in
a short period of time include the determination of the allowance for loan
losses and the valuation of real estate acquired in connection with foreclosures
or in satisfaction of amounts due from borrowers on loans. Actual amounts could
differ from those estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company; its
banking subsidiary, Enterprise Bank (100% owned) and its merchant banking
company, Merchant Banc (100% owned). All significant intercompany accounts and
transactions have been eliminated.
41
44
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company currently classifies investments in debt and equity securities as
follows:
Trading - includes securities which the Company has bought and held
principally for the purpose of selling them in the near term.
Held to maturity - includes debt securities which the company has the
positive intent and ability to hold until maturity.
Available for sale - includes debt and marketable equity securities not
classified as held-to-maturity or trading (i.e., investments which the
company has no present plans to sell but may be sold in the future
under different circumstances).
Debt securities classified as held to maturity are carried at amortized cost,
adjusted for the amortization or accretion of premiums or discounts. Unrealized
holding gains and losses for held-to-maturity securities are excluded from
earnings and shareholders' equity. Debt and equity securities classified as
available for sale are carried at estimated fair value. Unrealized holding gains
and losses for available-for-sale securities are excluded from earnings and
reported as a net amount in a separate component of shareholders' equity until
realized. All previous fair value adjustments included in the separate component
of shareholders' equity are reversed upon sale. Debt and equity securities
classified as trading are carried at estimated fair value. The realized and
unrealized gains and losses on trading securities are included in noninterest
income.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with transfers
of securities from the held-to-maturity category to the available-for-sale
category are recorded as a separate component of shareholders' equity.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary results in a charge to
earnings and the establishment of a new cost basis for the security.
For securities in the held to maturity and available for sale categories,
premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income is recognized when earned. Realized gains and
losses for securities classified as trading, available for sale and held to
maturity are included in earnings and are derived using the
specific-identification method for determining the cost of securities sold.
LOANS HELD FOR SALE
During 1997, the Company began mortgage banking operations. Mortgage banking
activities include the origination of residential mortgage loans for sale to
various investors. Mortgage loans are originated and intended for sale in the
secondary market, principally under programs with the Government National
Mortgage Association (GNMA) or the Federal National Mortgage Association (FNMA).
Mortgage loans held for sale are carried at the lower of cost or fair value,
which is determined on a specific identification method. Mortgage banking
revenues, including origination fees, net gains on sales of servicing rights,
net gains or losses on sales of mortgages and other fee income, which is
determined on a specific identification method, were less than five percent of
the Company's total revenue for the year ended December 31, 1999. The Company
does not retain servicing on any loans originated and sold, nor did the Company
have any purchased mortgage servicing rights at December 31, 1999.
INTEREST AND FEES ON LOANS
Interest income on loans is accrued and credited to income based on the
principal amount outstanding. The recognition of interest income is discontinued
when a loan becomes 90 days past due or a significant deterioration in the
borrower's credit has occurred which, in management's opinion, negatively
impacts the collectibility of the loan. Subsequent interest payments received on
such loans are applied to principal if any doubt exists as to the collectibility
of such principal; otherwise, such receipts are recorded as interest income.
Loans are returned to accrual status when management believes full
collectibility of principal and interest is expected.
42
45
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company defers the recognition of loan origination fees, net of the cost
associated with originating such loans. Deferred loan fees are accreted into
income over the contractual life of the loan using the straight-line method,
which approximates the interest method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense and
is available to absorb charge-offs, net of recoveries. Management utilizes a
systematic, documented approach in determining the appropriate level of the
allowance for loan losses. Management's approach, which provides for general and
specific allowances, is based on current economic conditions, past losses,
collection experience, risk characteristics of the portfolio, assessments of
collateral values by obtaining independent appraisals for significant
properties, and such other factors which, in management's judgment, deserve
current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb possible
losses in the loan portfolio. While management uses available information to
recognize losses on loans, future additions to the allowance may be necessary
based on changes in economic conditions and other factors. In addition, various
regulatory agencies, as an integral part of the examination process,
periodically review the Bank's loan portfolio. Such agencies may require the
Bank to add to the allowance for loan losses based on their judgments and
interpretations of information available to them at the time of their
examinations.
ACCOUNTING FOR IMPAIRED LOANS
A loan is considered impaired when it is probable the Bank will be unable to
collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired loan are discounted at the loan's effective
interest rate. Alternatively, impairment is measured by reference to an
observable market price, if one exists, or the fair value of the collateral for
a collateral-dependent loan. Regardless of the measurement method used,
historically, the Bank measures impairment based on the fair value of the
collateral when foreclosure is probable. Additionally, impairment of a
restructured loan is measured by discounting the total expected future cash flow
at the loan's effective rate of interest as stated in the original loan
agreement. The Bank recognizes interest income on nonaccrual loans only when
received and on impaired loans continuing to accrue interest as earned.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the Company's subsidiary bank in lieu of foreclosure on loans on which
the borrowers have defaulted as to the payment of principal and interest. Other
real estate owned is recorded on an individual asset basis at the lower of cost
or fair value less estimated costs to sell. Subsequent reductions in fair value
are expensed or recorded in a valuation reserve account through a provision
against income. Subsequent increases in the fair value are recorded through a
reversal of the valuation reserve, but not below zero.
Gains and losses resulting from the sale of other real estate owned are credited
or charged to current period earnings. Costs of maintaining and operating other
real estate owned are expensed as incurred, and expenditures to complete or
improve other real estate owned properties are capitalized if the expenditures
are expected to be recovered upon ultimate sale of the property.
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Office equipment and leasehold improvements are stated at cost less accumulated
depreciation and amortization is computed using the straight-line method over
their respective estimated useful lives. Bank equipment is depreciated over
three to ten years and leasehold improvements over ten to 30 years.
43
46
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax returns.
Deferred tax assets and liabilities are recognized for the estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
in effect for the year in which those temporary differences are expected to be
recovered or settled.
CASH FLOW INFORMATION
For purposes of reporting cash flows, the Company considers cash and due from
banks and federal funds sold to be cash and cash equivalents.
RECLASSIFICATION
Certain reclassifications have been made to the prior year amounts to conform to
the present year presentation.
STOCK OPTIONS
The Corporation accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. As such, compensation
expense is recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the Company
adopted Financial Accounting Standards Board (FASB) Statement of Financial
Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation,
which permits entities to expense the fair value of stock-based awards, as
measured on the date of grant, over their vesting period. Alternatively, SFAS
123 also allows entities to continue to apply the provisions of APB Opinion No.
25 and provide pro forma net income and pro forma net income per share
disclosures for employee stock option grants made in 1995 and future years as if
the fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.
NEW ACCOUNTING STANDARDS
Effective April 1, 1999, the Company adopted SFAS 133, "Accounting for
Derivative Instruments and Hedging Activities. This statement 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.
NOTE 3--EARNINGS PER SHARE
Basic earnings per share data is calculated by dividing net income 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. All share and per share calculations have been adjusted to
give retroactive effect to a 3 for 1 stock split effective September 29, 1999.
44
47
ENTEBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of basic earnings per share are as follows:
1999 1998 1997
-------------- -------------- --------------
BASIC
Net income attributable to
common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
Weighted average common
shares outstanding 7,135,697 7,052,289 6,286,077
============== ============== ==============
Basic earnings per share $ 0.54 $ 0.43 $ 0.35
==== ==== ====
The components of diluted earnings per share are as follows:
1999 1998 1997
-------------- -------------- --------------
DILUTED
Net income attributable to
common shareholders' equity $ 3,820,185 $ 3,010,774 $ 2,222,544
============== ============== ==============
Weighted average common
shares outstanding 7,135,697 7,052,289 6,286,077
Stock options 569,103 492,531 388,824
-------------- -------------- --------------
Diluted weighted average
common shares outstanding $ 7,704,800 $ 7,544,820 $ 6,674,901
============== ============== ==============
Diluted earnings per share $ 0.50 $ 0.40 $ 0.33
==== ==== ====
NOTE 4--REGULATORY RESTRICTIONS
The Company's subsidiary bank is subject to regulations by regulatory
authorities, which require the maintenance of minimum capital standards, which
may affect the amount of dividends the Company's subsidiary bank can pay.
At December 31, 1999 and 1998, approximately $849,000 and $8,001,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by the Bank in accordance with Federal Reserve Bank
requirements. During 1999, the Company restructured its deposit categories to
reduce the required reserves.
45
48
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5--INVESTMENTS IN DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as available for sale at December 31, 1999 and 1998 is as
follows:
1999
--------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
U. S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 22,791,596 $ 612 $ 106,836 $ 22,685,372
Federal Home Loan Bank stock 1,122,200 -- -- 1,122,200
-------------- -------------- -------------- ---------------
$ 23,913,796 $ 612 $ 106,836 $ 23,807,572
============== ============== ============== ===============
1998
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
U. S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 44,704,739 $ 24,142 $ 8,054 $ 44,720,827
Federal Home Loan Bank stock 871,500 -- -- 871,500
-------------- -------------- -------------- ---------------
$ 45,576,239 $ 24,142 $ 8,054 $ 45,592,327
============== ============== ============== ===============
The amortized cost and estimated fair value of debt and equity securities
classified as available for sale at December 31, 1999, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
-------------- ---------------
Due in one year or less $ 18,823,017 $ 18,729,091
Due after one year through five years 3,968,579 3,956,281
Securities with no stated maturity 1,122,200 1,122,200
-------------- ---------------
$ 23,913,796 $ 23,807,572
============== ===============
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as held to maturity at December 31, 1999 and 1998 is as
follows:
1999
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
Mortgage-backed securities $ 23,538 $ 44 $ -- $ 23,582
Municipal bonds 656,268 353 3,352 653,269
-------------- -------------- -------------- ---------------
$ 679,806 $ 397 $ 3,352 $ 676,851
============== ============== ============== ===============
1998
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
-------------- -------------- -------------- ---------------
Mortgage-backed securities $ 30,106 $ 245 $ -- $ 30,351
Municipal bonds 668,503 5,908 39 674,372
-------------- -------------- -------------- ---------------
$ 698,609 $ 6,153 $ 39 $ 704,723
============== ============== ============== ===============
46
49
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The amortized cost and estimated fair value of debt and equity securities
classified as held to maturity at December 31, 1999, by contractual maturity,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
Amortized Estimated
Cost Fair Value
---- ----------
Due in one year or less $ 150,670 $ 150,283
Due after one year through five years 505,598 502,986
Mortgage-backed securities 23,538 23,582
-------------- ---------------
$ 679,806 $ 676,851
============== ===============
There were no sales of investments in debt and equity securities in 1999, 1998
or 1997. Debt and equity securities having a carrying value of $4,362,575 and
$6,941,888 at December 31, 1999 and 1998, respectively, were pledged as
collateral to secure public deposits and for other purposes as required by law.
As a member of the Federal Home Loan Bank system administered by the Federal
Housing Finance Board, the Bank is required to maintain an investment in the
capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount
equal to the greater of 1% of the aggregate outstanding balance of loans secured
by dwelling units at the beginning of each year or .3% of its total assets. The
FHLB stock is recorded at cost which represents redemption value.
In connection with the adoption of SFAS 133, the Company elected to reclassify
an equity investment from held-to-maturity to trading. The Company recorded a
$197,546 gain on marking the asset to market during the second quarter of 1999,
which is treated as a cumulative effect of change in accounting principle. In
the fourth quarter of 1999 the Company obtained a purchase agreement for the for
the equity investment which resulted in a $202,454 gain in the fair value. This
gain was recognized as noninterest income. The asset was subsequently sold on
February 2, 2000 for $910,500.
NOTE 6--LOANS
A summary of loans by category at December 31, 1999 and 1998 is as follows:
1999 1998
--------------- --------------
Commercial and industrial $ 99,646,173 $ 81,346,004
Loans secured by real estate 212,304,020 179,959,303
Other 73,195,370 12,609,494
--------------- --------------
385,145,563 273,914,801
Less unearned loan fees 43,804 97,279
--------------- --------------
$ 385,101,759 $ 273,817,522
=============== ==============
The breakdown of loans secured by real estate at December 31, 1999 and 1998 is
as follows:
1999 1998
--------------- --------------
Business and personal loans $ 68,065,594 $ 65,011,812
Income-producing properties 67,443,642 55,283,273
Owner-occupied properties 21,946,035 10,628,492
Real estate development properties 54,848,749 49,035,726
--------------- --------------
$ 212,304,020 $ 179,959,303
=============== ==============
The Company's subsidiary bank grants commercial, residential, and consumer
loans throughout its service area, which consists primarily of the immediate
area in which the Bank is located. The Company has a diversified loan portfolio,
with no particular concentration of credit in any one economic sector; however,
a substantial portion of the portfolio is concentrated in and secured by real
estate. The ability of the Company's borrowers to honor their contractual
obligations is dependent upon the local economy and its effect on the real
estate market.
47
50
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of activity for the year ended December 31, 1999 of
loans to executive officers and directors or to entities in which such
individuals had beneficial interests as a shareholder, officer, or director.
Such loans were made in the normal course of business on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with other customers and did not involve more than
the normal risk of collectibility.
Balance, January 1, 1999 $ 7,633,721
New loans 24,047,408
Payments and other reductions (3,716,500)
---------------
Balance, December 31, 1999 $ 27,964,629
===============
A summary of activity in the allowance for loan losses for the years ended
December 31, 1999, 1998 and 1997 is as follows:
1999 1998 1997
----------------- --------------- ---------------
Balance at beginning of year $ 3,200,000 $ 2,510,000 $ 1,765,000
Provisions charged to operations 1,021,256 710,899 775,064
Loans charged off (19,243) (48,854) (161,799)
Recoveries of loans previously
charged off 32,987 27,955 131,735
----------------- --------------- ---------------
Balance at end of year $ 4,235,000 $ 3,200,000 $ 2,510,000
================= =============== ===============
A summary of impaired loans, which include nonaccrual loans, at December 31,
1999, 1998 and 1997 is as follows:
1999 1998 1997
------------- ------------ -------------
Nonaccrual loans $ 293,750 $ 2,000 $ 50,000
Impaired loans continuing
to accrue interest 770,455 1,084,658 916,803
------------- ------------ -------------
Total impaired loans $ 1,064,205 $ 1,086,658 $ 966,803
============= ============ =============
Allowance for losses on specific
impaired loans $ 245,095 $ 157,870 $ 191,804
Impaired loans with no related
allowance for loan losses -- -- --
Average balance of impaired
loans during the year $ 1,034,744 $ 915,260 $ 563,943
============= ============ =============
If interest on nonaccrual loans had been accrued, such income would have been
$6,953, $31 and $1,537 for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount recognized as interest income on nonaccrual loans was
$10,621, $138 and $4,864 for the years ended December 31, 1999, 1998 and 1997,
respectively. The amount recognized as interest income on impaired loans
continuing to accrue interest was $125,097, $126,355 and $94,801 for the years
ended December 31, 1998, 1997 and 1996, respectively.
48
51
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 7--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of office equipment and leasehold improvements at December 31, 1999
and 1998 is as follows:
1999 1998
----------------- ----------------
Data processing equipment $ 1,325,003 $ 903,851
Furniture, fixtures and equipment 2,439,009 2,299,995
Leasehold improvements 1,825,613 1,633,585
Automobile 29,023 29,023
----------------- ----------------
5,618,648 4,866,454
Less accumulated depreciation
and amortization 2,390,392 1,803,331
----------------- ----------------
Office equipment and leasehold improvements, net $ 3,228,256 $ 3,063,123
================= ================
Depreciation and amortization of office equipment and leasehold improvements
included in occupancy expense amounted to $592,101 in 1999, $488,790 in 1998 and
$311,132 in 1997.
All of the Company's banking facilities are leased under agreements that expire
in various years through 2016. The Company's aggregate rent expense totaled
$814,538, $749,086 and $436,524 in 1999, 1998 and 1997, respectively, and
sublease rental income totaled $60,550, $42,816 and $35,422 in 1999, 1998 and
1997, respectively. The Company leases its Clayton facility from a partnership
in which a director and an officer have an ownership interest.
The future aggregate minimum rental commitments required under the leases are as
follows:
Year Amount
---- ----------
2000 $1,034,379
2001 1,043,145
2002 1,053,740
2003 1,019,589
2004 955,437
2005 and thereafter 3,784,092
For leases which renew or are subject to periodic rental adjustments, the
monthly rental payments will be adjusted based on then current market conditions
and rates of inflation.
NOTE 8--INVESTMENT IN ENTERPRISE FUND, L.P.
The Company and its subsidiaries have a combined 10% interest in a limited
liability small business investment partnership, The Enterprise Fund L.P., for
which a subsidiary of the company serves as the general partner. The Company has
no additional future capital commitments. The Company had a total commitment of
$1,005,000. The Company had made contributions of $502,500 and was released from
any future capital commitments with the restructuring of the Merchant Banking
Business. This investment, which is accounted for using the equity method of
accounting, had a carrying value of $546,710 and $424,484 at December 31, 1999
and 1998, respectively.
NOTE 9--FEDERAL HOME LOAN BANK ADVANCES
During 1998, the Bank maintained a $2 million line of credit from the Federal
Home Loan Bank of Des Moines. The Bank chose not to renew the line of credit at
the maturity date in February 1999. As a member of the Federal Home Loan Bank,
the Bank has access to Federal Home Loan Bank advances. Federal Home Loan Bank
advances are secured under a blanket agreement which assigns all Federal Home
Loan Bank stock, and one to four family mortgage loans equal to 130% of the
outstanding balance.
49
52
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes the type, term and rate of the Company's Federal
Home Loan Bank advances at December 31, 1999:
Outstanding
Type of Advance Balance Issue Date Term Rate
- --------------- ---------------- ---------------- -------------- -------------
Long term non-amortized advance $3,000,000 10/05/98 3 years 4.68%
Long term non-amortized advance 3,000,000 10/05/98 5 years 4.72
Mortgage matched advance 481,864 02/15/99 15 years 5.62
Mortgage matched advance 194,470 04/22/99 15 years 6.15
Mortgage matched advance 244,052 05/14/99 15 years 6.32
----------
Total Federal Home Loan Bank Advances $6,920,386 05/14/99 15 years 6.32%
==========
NOTE 10--MATURITY OF CERTIFICATES OF DEPOSIT
Following is a summary of certificates of deposit maturities at December 31,
1999:
$100,000
Maturity Period and Over Other Total
--------------- -------------- ------------- -------------
Less than 1 year $ 49,509,046 $ 73,784,584 $ 123,293,630
Greater than 1 year and less than 2 years 6,507,132 8,770,941 15,278,073
Greater than 2 years and less than 3 years 100,000 912,932 1,012,932
Greater than 3 years and less than 4 years 205,000 1,212,280 1,417,280
Greater than 4 years and less than 5 years -- 78,399 78,399
Over 5 years -- 26,321 26,321
-------------- ------------- -------------
$ 56,321,178 $ 84,785,457 $ 141,106,635
============== ============= =============
NOTE 11--NOTE PAYABLE
In March 1999, the Company obtained a $2,500,000 unsecured bank line of credit.
In July 1999, the Company increased the line to $5,000,000. 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%. The Company used a portion of the proceeds
from the Preferred Securities offering to pay off the $5,000,000 outstanding
balance on the note. On October 22, 1999 the Company reduced the line of credit
to $2,000,000 and paid off the remaining balance on October 22, 1999. For the
year ended December 31, 1999, the average balance and maximum month-end balance
of the note payable were $1,029,167 and $5,000,000, respectively. The Company
had no outstanding principal balance on the loan as of December 31, 1999.
As an extra safety liquidity precaution to shareholders and customers, the
Company obtained a secured line of credit from the Federal Reserve Bank of St.
Louis under a Y2K program. As of December 31, 1999, $109,567,935 was available
under this line. The Company did not draw on the line for any reason as it did
not experience any unusual liquidity demands with the rollover to the Year 2000.
NOTE 12--INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31,
1999, 1998 and 1997 are as follows:
1999 1998 1997
----------------- ----------------- -----------------
Current:
Federal $ 2,347,084 $ 1,821,571 $ 1,407,463
State and local 389,987 289,415 217,479
Deferred (492,667) (260,711) (308,352)
----------------- ----------------- -----------------
$ 2,244,404 $ 1,850,275 $ 1,316,590
================= ================= =================
50
53
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of expected income tax expense, computed by applying the
statutory federal income tax rate of 34% in 1999, 1998 and 1997, to income
before income taxes and the amounts reflected in the consolidated statements of
income is as follows:
1999 1998 1997
----------------- ----------------- -----------------
Income tax expense at statutory rate $ 2,020,653 $ 1,652,757 $ 1,203,306
Increase (reduction) in income taxes
resulting from:
Tax-exempt income (75,868) (55,510) (31,828)
State and local income tax
expense 257,391 191,014 143,536
Other, net 42,228 62,014 1,576
----------------- ----------------- -----------------
Total tax expense $ 2,244,404 $ 1,850,275 $ 1,316,590
================= ================= =================
A net deferred income tax asset of $1,567,339 and $1,033,086 is included in
prepaid expenses and other assets in the consolidated balance sheets at December
31, 1999 and 1998, respectively. The tax effect of temporary differences that
gave rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1999 and 1998 is as follows:
1999 1998
---------------- ---------------
Deferred tax assets:
Allowance for loan losses $ 1,480,735 $ 1,098,172
Unrealized losses on securities
available for sale 36,116 --
Deferred compensation 134,192 --
Other -- 8,297
---------------- ---------------
Total deferred tax assets 1,651,043 1,106,469
---------------- ---------------
Deferred tax liabilities:
Deferred loan fees 775 1,709
Office equipment and leasehold
improvements 81,557 66,204
Unrealized gains on securities
available for sale -- 5,470
Other 1,372 --
---------------- ---------------
Total deferred tax liabilities 83,704 73,383
---------------- ---------------
Net deferred tax asset $ 1,567,339 $ 1,033,086
================ ===============
A valuation allowance would be provided on deferred tax assets when it is more
likely than not that some portion of the assets will not be realized. The
Company has not established a valuation allowance as of December 31, 1999, due
to management's belief that all criteria for recognition have been met,
including the existence of a history of taxes paid sufficient to support the
realization of the deferred tax assets.
NOTE 13-- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possible additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Bank must meet specific
capital guidelines that involve quantitative measures of the Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier 1 capital to risk-weighted assets, and of Tier 1
capital to average assets. Management believes, as of December 31, 1999, that
the Bank meets all
51
54
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
capital adequacy requirements to which it is subject.
As of December 31, 1999, the most recent notification from the FDIC categorized
the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, the Bank must maintain
minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set
forth in the table. There are no conditions or events since that notification
that management believes have changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
As of December 31, 1999:
Total Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 48,068,793 11.82% $ 32,538,625 8.00% $ 40,673,282 10.00%
Enterprise Bank 41,215,654 10.22 32,253,615 8.00 40,317,018 10.00
Tier 1 Capital (to risk
weighted assets)
Enterbank Holdings, Inc. $ 43,833,793 10.78% $ 16,269,313 4.00% $ 24,403,969 6.00%
Enterprise Bank 36,980,654 9.17 16,126,807 4.00 24,190,211 6.00
Tier 1 Capital (to average
assets)
Enterbank Holdings, Inc. $ 43,833,793 10.74% $ 12,248,031 3.00% $ 20,413,385 5.00%
Enterprise Bank 36,980,654 9.09 12,201,701 3.00 20,336,168 5.00
As of 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 1 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 1 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 15,877,015 5.00
NOTE 14--GUARANTEED PREFERRED BENEFICIAL INTEREST IN EBH-SUBORDINATED DEBENTURES
On October 25, 1999, EBH Capital Trust I ("EBH Trust"), a newly-formed Delaware
business trust subsidiary of Enterbank Holdings, issued 1,375,000 shares of
9.40% Cumulative Trust Preferred Securities ("Preferred Securities") at $8 per
share in an unwritten public offering.
The debentures are the sole asset of EBH Trust. In connection with the issuance
of the Preferred Securities, Enterbank Holdings made certain guarantees and
commitments that, in the aggregate, constitute a full and unconditional
guarantee by Enterbank Holdings of the obligations of EBH Trust under the
Preferred Securities. Enterbank Holdings' proceeds from the issuance of the
Subordinated Debentures to EBH Trust, net of underwriting fees and offering
expenses, were $10.28 million. The Trust Preferred Securities are classified as
debt for reporting purposes a capital for regulatory reporting purposes.
NOTE 15--SHAREHOLDERS' EQUITY
On February 14, 1997, the Company completed a stock offering of 1,354,836
shares of common stock registered under the Securities Act of 1933 on Form S-1.
These shares were offered to the public at $5.17 per share. The offering allowed
for the sale of a minimum of 580,644 shares or $3,000,000, and a maximum of
1,354,836 shares
52
55
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
or $7,000,000 in common stock. The maximum number of shares were sold at $5.17
per share.
As part of the organization of Financial Advisors, 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. 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
immediately begin offering 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 392,820 shares of common stock exempt from registration under the
Securities Act of 1933 pursuant to Regulation D thereunder. These shares were
offered a $5.58 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 minimum of 179,103 shares, or $1,000,000, and a
maximum of 394,029 shares, or $2,200,000, in common stock. The Company sold
392,820 shares at $5.58 per share.
On September 29, 1999 the Company completed a 3 for 1 stock split in the form
of a stock dividend. All share and per share data have been restated to reflect
this stock split.
NOTE 16--COMPENSATION PLANS
STOCK OPTIONS PLANS
At December 31, 1999, the Company had four qualified incentive stock option
plans for the benefit of the employees of Enterbank Holdings and it's
subsidiaries. Plan I was adopted on April 20, 1988 with 432,000 options. As of
December 31, 1999, Plan I had 30,000 options outstanding and no options
available for future grant. Plan II was adopted on April 25, 1990 with 225,000
options. Plan II had 214,200 options outstanding and no options available for
grant. Plan III was adopted on June 19, 1996 with 600,000 options. Plan III has
556,800 options outstanding and 41,400 options available for future grants. Plan
IV was adopted on April 28, 1999 with 600,000 options Plan IV has no options
outstanding and 600,000 available for future grants.
In 1998, the Company adopted by Board Approval a nonqualified stock option plan
("the Nonqualified Plan"), which sets aside up to 105,000 shares of company
Common Stock to grant options to certain key employees of the Company or any of
its subsidiaries. There are limitations as to the number of options which my be
granted to any individual and additional restrictions for options which may be
granted to any individual who is also a ten percent shareholder. The purchase
price for any options granted under the Nonqualified Plan will be determined
based upon the market value of the Common Stock at the time such options are
granted. At December 31, 1999, the Nonqualified Plan had 84,000 options
outstanding and 21,000 options available for future grants.
53
56
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of the various stock option plan transactions:
Number Price
of shares per share Total
--------- -------------- ------------
December 31, 1996 639,000 $ 1.67 - 3.08 $ 1,251,500
Granted 606,000 5.33 - 5.58 3,233,500
Exercised 160,500 1.67 267,500
Forfeited 25,500 5.33 136,000
--------- -------------- ------------
December 31, 1997 1,059,000 $ 1.67 -5.58 $ 4,081,500
Granted 86,400 8.33-10.67 863,425
Exercised 220,275 1.67-5.33 385,525
Forfeited 36,000 3.08-5.33 186,600
--------- -------------- ------------
December 31, 1998 889,125 $ 1.67 -10.67 $ 4,372,800
Granted 33,600 10.33-15.17 386,280
Exercised 28,125 1.67-5.33 69,674
Forfeited 9,600 5.33 51,200
--------- -------------- ------------
December 31, 1999 885,000 $ 1.67-15.17 $ 4,638,204
========= ============== ============
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the Company's
stock-based compensation plans been determined based on the fair value at the
grant dates for awards under those plans consistent with the method contained in
SFAS No. 123, the Company's net income and earnings per share would have been
reduced to the pro forma amounts indicated below:
1999 1998 1997
---------- ----------- ------------
Net income
As reported $ 3,820 $ 3,011 $ 2,222
Pro forma 3,527 2,762 2,025
Earnings per share:
Basic:
As reported $ 0.54 $ 0.43 $ 0.35
Pro forma 0.49 0.39 0.32
Diluted:
As reported $ 0.50 $ 0.40 $ 0.33
Pro forma 0.46 0.37 0.30
The fair value of each option granted in 1999 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions; a risk-free interest rate of 4.72%, 5.18%, 5.79% and 6.11% for
January, April, July and October, respectively; a dividend yield of 0.67%;
vesting period for 5 years; expected lives of 10 years; and volatility of
24.13%. The weighted average fair value of the options granted in 1999 was
$4.93.
The fair value of each option granted in 1998 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: a risk-free interest rate of 5.50%, 5.46%, 5.40% and 4.67% for
February, June, August and September, respectively; a dividend yield of 0.67%;
vesting period for 5 years; expected lives of 10 years; and volatility of
27.23%. The weighted average fair value of the options granted in 1998 was
$4.56.
On April 1, 1999, the Company adopted a Stock Appreciation Rights ("SAR") Plan.
This Plan replaces the previous form of cash compensation for directors of the
Company and its subsidiaries and awards/vests based upon attendance and unit
performance. Under the plan, the Company has the option to pay vested SARs
either in the form of cash or Enterbank Common Stock. As of December 31, 1999
there were 88,800 SARs outstanding.
54
57
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Effective January 1, 1993, the company adopted a 401(k) thrift plan which
covers substantially all full-time employees over the age of 21. The amount
charged to expense for contributions to the plan was $170,152 for 1999, $153,621
for 1998, and $78,948 for 1997.
NOTE 17--LITIGATION
Various legal claims have arisen during the normal course of business which, in
the opinion of management, after discussion with legal counsel, will not result
in any material liability.
NOTE 18--DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Bank issues financial instruments with off-balance-sheet risk in the normal
course of the business of meeting the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. These instruments may involve, to varying degrees, elements of credit
and interest-rate risk in excess of the amounts recognized in the consolidated
balance sheets.
The Company's extent of involvement and potential exposure to credit loss in
the event of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by the
contractual amount of these instruments. The Bank uses the same credit policies
in making commitments and conditional obligations as it does for financial
instruments included on its balance sheets.
The contractual amount of off-balance-sheet financial instruments as of
December 31, 1999 and 1998 is as follows:
1999 1998
------------- ------------
Commitments to extend credit $ 221,296,117 $ 164,012,297
Standby letters of credit 12,002,773 10,368,944
============= ============
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Of the total commitments to extend credit at December
31, 1999, approximately $12,363,487 represents fixed rate loan commitments.
Since certain of the commitments may expire without being drawn upon, the total
commitment amounts do not necessarily represent future cash requirements. The
Bank evaluates each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank upon extension of
credit, is based on management's credit evaluation of the borrower. Collateral
held varies, but may include accounts receivable, inventory, premises and
equipment, and real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These standby letters
of credit are primarily issued to support contractual obligations of Bank
customers. The credit risk involved in issuing letters of credit is essentially
the same as the risk involved in extending loans to customers.
SFAS 107, Disclosures about Fair Value of Financial Instruments, extends
existing fair value disclosure for some financial instruments by requiring
disclosure of the fair value of such financial instruments, both assets and
liabilities recognized and not recognized in the consolidated balance sheets.
55
58
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Following is a summary of the carrying amounts and fair values of the Company's
financial instruments on the consolidated balance sheets at December 31, 1999
and 1998:
1999 1998
-------------------------------- --------------------------------
Carrying Estimated Carrying Estimated
Amount fair value Amount fair value
Balance sheet assets:
Cash and due from banks $ 14,798,216 $ 14,798,216 $ 29,701,018 $ 29,701,017
Federal funds sold 54,825,000 54,825,000 14,250,000 14,250,000
Interest-bearing deposits 469 469 5,035 5,035
Investments in securities 25,397,378 25,394,423 46,290,936 46,297,050
Loans held for sale 1,438,335 1,438,335 6,272,124 6,362,197
Loans, net 380,866,759 384,490,862 270,617,522 270,920,794
Accrued interest receivable 2,473,781 2,473,781 1,648,775 1,648,775
================ =============== ================ ===============
Balance sheet liabilities:
Deposits $ 435,797,830 $ 436,129,197 $ 339,180,170 $ 339,696,164
FHLB advances 6,920,386 6,925,250 6,000,000 6,004,397
Guaranteed preferred
beneficial interests in EBH
subordinated debentures 11,000,000 11,000,000 -- --
Accrued interest payable 962,205 962,205 608,056 608,056
================ =============== ================ ===============
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate such
value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash and due from banks, federal funds sold, and accrued interest
receivable (payable), the carrying amount is a reasonable estimate of fair
value, as such instruments reprice in a short time period.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS HELD FOR SALE
Loans held for sale are recorded at the lower of cost or fair value, using the
specific identification method.
LOANS
The fair value of adjustable-rate loans approximates cost. The fair value of
fixed-rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, interest-bearing transaction accounts, money
market accounts and savings deposits is the amount payable on demand at the
reporting date. The fair value of fixed-maturity certificates of deposit is
estimated using the rates currently offered for deposits of similar remaining
maturities.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of Federal Home Loan Bank advances is based on the discounted
value of contractual cash flows. The discount rate is estimated using rates on
borrowed money with similar remaining maturities.
56
59
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
GUARANTEED PREFERRED BENEFICIAL INTERESTS IN EBH SUBORDINATED DEBENTURES
Fair value of guaranteed preferred beneficial interests in EBH subordinated
debentures is assumed to equal carrying amount since the offering was completed
in the fourth quarter of 1999.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of credit
are estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the likelihood of the
counterparties drawing on such financial instruments, and the present
creditworthiness of such counterparties. The Company believes such commitments
have been made on terms which are competitive in the markets in which it
operates; however, no premium or discount is offered thereon and accordingly,
the Company has not assigned a value to such instruments for purposes of this
disclosure.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from offering
for sale at one time the Company's entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company's
financial instruments, fair value estimates are based on judgments regarding
future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment, and therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect on
fair value estimates and have not been considered in many of the estimates.
NOTE 19-LINE OF BUSINESS RESULTS
Management of the Company reviews the financial performance of its operating
segments on an after-tax basis. The company's three major operating segments in
1999 include Enterbank Holdings, Enterprise Bank and Enterprise Merchant Banc.
Enterbank Holdings includes general corporate expenses not allocated to the
operating segments as well as assets and income items related to EBH Trust.
Enterprise Bank provides a full range of commercial banking services. These
services include but are not limited to loans, demand and interest earning
accounts, safe deposit boxes, lock boxes and cash management services.
Enterprise Financial Advisors, a division of Enterprise Bank, offers financial
planning and trust services. The Merchant Banc segment offers merchant banking
and venture capital services. Following are the financial results for the
Company's operating segments.
57
60
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Enterbank Enterprise Bank Enterprise
Holdings Financial
Advisors
For the year ended December 31, 1999
Interest income $ -- $ 32,136,909 $ --
Interest expense 265,265 14,086,864 --
Net interest margin (265,265) 18,050,045 --
Provision for loan losses -- 1,021,256 --
Gross income prior to direct expenses 199,859 1,618,766 789,236
Direct expenses -- -- 140,572
Noninterest income 199,859 1,618,766 648,664
Noninterest expense 873,176 10,937,845 1,107,373
Income (loss) before income tax expense
(benefit) (938,582) 7,709,710 (458,709)
Income tax expense (benefit) (268,458) 2,870,422 (192,911)
-------- --------- --------
Income (loss) before cumulative effect of a
change in accounting principle (670,124) 4,839,288 (265,798)
Cumulative effect on prior years of a
change in asset classification 121,491 -- --
----------- ------------ ----------
Net income (loss) $ (548,633) $ 4,839,288 $ (265,798)
=========== ============ ==========
Total Assets $17,541,430 $484,731,647 $ 47,622
----------- ------------ ----------
For the year ended December 31, 1998
Interest income $ -- $ 25,414,269 --
Interest expense -- 11,869,335 --
Net interest margin -- 13,544,934 --
Provision for loan losses 710,899 --
Gross income prior to direct expenses 13,670 1,636,215 6,983
Direct expenses -- -- 717
Noninterest income 13,670 1,636,215 6,266
Noninterest expense 8,337,970 208,419
Income (loss) before income tax expense
(benefit) (901,876) 6,132,280 (202,153)
Income tax expense (benefit) 2,301,744 (75,000)
----------- ------------ ----------
Income (loss) before cumulative effect of
a change in accounting principle (587,402) 3,830,536 (127,153)
Cumulative effect on prior years of
a change in asset classification -- -- --
Net income (loss) 3,830,536 (127,153)
=========== ============ ==========
Total Assets $ 1,465,870 $374,052,914 $ 2,057
----------- ------------ ----------
For the year ended December 31, 1997
Interest income $ -- $ 18,759,029 $ --
Interest expense 8,580,451 --
Net interest margin (2,888) 10,178,578 --
Provision for loan losses 775,064 --
Gross income prior to direct expenses 13,441 300,241 --
Direct expenses -- -- --
Noninterest income 13,441 300,241 --
Noninterest expense 5,417,758 --
Income (loss) before income tax expense
(benefit) (732,018) 4,285,997
Income tax expense (benefit) 1,605,229 --
----------- ------------ ----------
Income (loss) before cumulative effect of a
change in accounting principle (449,124) 2,680,768 --
Cumulative effect on prior years of a
change in asset classification -- -- --
----------- ------------ ----------
Net income (loss) (449,124) 2,680,768 --
=========== ============ ==========
Total Assets $ 2,605,055 $290,505,483 $ --
----------- ------------ ----------
Merchant Banc Eliminations Consolidated
For the year ended December 31, 1999
Interest income $ 10 $ (10) $ 32,136,909
Interest expense -- (10) 14,352,119
Net interest margin 10 -- 17,784,790
Provision for loan losses -- -- 1,021,256
Gross income prior to direct expenses 98,447 -- 2,706,308
Direct expenses -- -- 140,572
Noninterest income 98,447 -- 2,565,736
Noninterest expense 467,778 -- 13,386,172
Income (loss) before income tax expense
(benefit) (369,321) -- 5,943,098
Income tax expense (benefit) (164,649) -- 2,244,404
Income (loss) before cumulative effect of a ------------- ------------- --------------
change in accounting principle (204,672) -- 3,698,694
Cumulative effect on prior years of a
change in asset classification -- -- 121,491
------------- ------------- --------------
Net income (loss) $ (204,672) $ -- $ 3,820,185
============= ============= ==============
Total Assets $ 979,970 $ (15,299,225) $ 488,001,444
------------- ------------- --------------
For the year ended December 31, 1998
Interest income $ 4 $ (4) $ 25,414,269
Interest expense -- (4) 11,869,331
Net interest margin 4 -- 13,544,938
Provision for loan losses -- -- 710,899
Gross income prior to direct expenses 422,561 -- 2,079,429
Direct expenses -- -- 717
Noninterest income 422,561 -- 2,078,712
Noninterest expense 589,767 -- 10,051,702
Income (loss) before income tax expense
(benefit) (167,202) -- 4,861,049
Income tax expense (benefit) (61,995) -- 1,850,275
------------- ------------- --------------
Income (loss) before cumulative effect of
a change in accounting principle (105,207) -- 3,010,774
Cumulative effect on prior years of
a change in asset classification -- -- --
Net income (loss) (105,207) -- 3,010,774
============= ============= ==============
Total Assets $ 425,291 $ (642,214) $ 375,303,918
------------- ------------- --------------
For the year ended December 31, 1997
Interest income $ 1,109 $ (1,109) $ 18,759,029
Interest expense -- (1,109) 8,582,230
Net interest margin 1,109 -- 10,176,799
Provision for loan losses -- -- 775,064
Gross income prior to direct expenses 162,293 -- 475,975
Direct expenses -- -- --
Noninterest income 162,293 -- 475,975
Noninterest expense 178,247 -- 6,338,576
Income (loss) before income tax expense
(benefit) (14,845) -- 3,539,134
Income tax expense (benefit) (5,745) -- 1,316,590
------------- ------------- --------------
Income (loss) before cumulative effect of a
change in accounting principle (9,100) -- 2,222,544
Cumulative effect on prior years of a
change in asset classification -- -- --
------------- ------------- --------------
Net income (loss) (9,100) -- 2,222,544
============= ============= ==============
Total Assets $ 134,799 $($25,392,992) $ 291,364,856
------------- ------------- --------------
58
61
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As demonstrated in the table, Enterprise Bank experienced asset growth of $113
million during 1999 and $83.5 million during 1998. The bank is also providing a
majority of the income for the Company. The Merchant Banc had increased activity
in 1999 and 1998 with the opening of the Kansas office. Enterbank Holdings has
some assets in the form of small investments and the $11 million in Trust
Preferred Securities. Enterbank Holdings also has noninterest expenses related
to items for the consolidated entity.
NOTE 20--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
Condensed Balance Sheets
December 31,
--------------------------------------
Assets 1999 1998
------ ---------------- ----------------
Cash $ 3,886,277 $ 437,727
Investment in Enterprise Bank 36,910,546 27,619,778
Investment in Enterprise Merchant Banc 1,221,542 403,089
Investment in Enterprise Fund, L.P. 546,710 380,129
Other assets 1,768,235 648,014
---------------- ---------------
Total assets $ 44,333,310 $ 29,488,737
================ ===============
Liabilities and Shareholders' Equity
Accounts payable and other liabilities $ 569,625 $ 248,608
Guaranteed preferred beneficial interests
in EBH-subordinated debentures 11,000,000 $ --
Shareholders' equity 32,763,685 29,240,129
----------------- ----------------
Total liabilities and shareholders' equity $ 44,333,310 $ 29,488,737
================= ================
Condensed Statements of Income
December 31,
--------------------------------------
1999 1998 1997
--------- --------- ---------
Income:
Gain on trading asset $ 202,454 $ -- $ --
Other income 5,168 13,670 13,441
--------- --------- ---------
Total income 207,622 13,670 13,441
--------- --------- ---------
Expenses:
Loss on investment in Enterprise Fund, L.P. 7,763 1,969 4,391
Interest expense-Guaranteed preferred
debenture expense 192,468 -- --
Interest expense-notes payable 78,650 -- --
Other expenses 873,176 913,577 741,068
--------- --------- ---------
Total expenses 1,152,057 915,546 745,459
--------- --------- ---------
Loss before tax benefit and equity
in undistributed earnings of subsidiaries (944,435) (901,876) (732,018)
Income tax benefit 268,458 314,474 282,894
--------- --------- ---------
Loss before equity in undistributed
earnings of subsidiaries (675,977) (587,402) (449,124)
--------- --------- ---------
Equity in undistributed earnings of subsidiaries 4,374,671 3,598,176 2,671,668
Cumulative effect on prior years of a change in
asset classification 121,491 -- --
--------- --------- ---------
Net income $3,820,185 $3,010,774 $ 2,222,544
========= ========= =========
59
62
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Condensed Statements of Cash Flow
December 31,
------------------------------------------------
1999 1998 1997
-------------- ------------ --------------
Cash flows from operating activities:
Net Income $ 3,820,185 $ 3,010,774 $ 2,222,544
Adjustments to reconcile net income to
net cash used in operating activities:
Undistributed net income
of subsidiaries (4,374,671) (3,598,176) (2,761,668)
Other, net (967,061) 123,160 (271,854)
-------------- ------------ --------------
Net cash used in operating
activities (1,521,547) (464,242) ( 810,978)
Cash flows from investing activities:
Capital contributions to subsidiaries (5,814,000) (900,000) (6,150,000)
Investment in Enterprise Fund L.P. -- (180,000) (90,000)
-------------- ------------ --------------
Net cash used in investing activities (5,814,000) (1,080,000) (6,240,000)
Cash flows from financing activities:
Proceeds from purchased funds and other
short-term borrowings $ 5,000,000 -- --
Repayments of purchased funds and other
short-term borrowings (5,000,000) -- --
Proceeds from issuance of guaranteed
preferred subordinated debentures 11,000,000 -- --
Payment of dividends (285,577) (235,053) (195,085)
Proceeds from issuance of common stock 69,674 385,525 9,289,614
(Decrease) increase in notes payable -- -- (300,000)
------------- ------------ --------------
Net cash provided by
financing activities 10,784,097 150,472 8,794,529
Net increase(decrease) in cash and cash
equivalents 3,448,550 (1,393,770) 1,743,551
Cash and cash equivalents, beginning of year 437,727 1,831,497 87,946
------------- ------------ --------------
Cash and cash equivalents, end of year $ 3,886,277 $ 437,727 $ 1,831,497
=============== ============ ===============
60
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15d of the Securities Act of 1934,
the undersigned Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Clayton,
State of Missouri, on 16th of February, 2000.
ENTERBANK HOLDINGS, INC.
By: /s/ Fred H. Eller
-----------------
Fred H. Eller
Chief Executive Office
Pursuant to the requirements of the Securities Act of 1934, this Report on Form
10-K has been signed by the following persons in the capacities and on the 16th
day of February 2000.
SIGNATURES TITLE
---------- -----
/s/ Fred H. Eller
- ---------------------------
Fred H. Eller Chief Executive Officer
and Director
/s/ Ronald E. Henges*
- ---------------------------
Ronald E. Henges Chairman of the Board
of Directors
/s/ Kevin C. Eichner
- ---------------------------
Kevin C. Eichner Vice Chairman of the
Board of Directors
/s/ Paul R. Cahn
- ---------------------------
Paul R. Cahn Director
/s/ Birch M. Mullins*
- ---------------------------
Birch M. Mullins Director
/s/ Robert E. Saur*
- ---------------------------
Robert E. Saur Director
/s/ James A. Williams*
- ---------------------------
James A. Williams Director
/s/ Henry D. Warshaw
- ---------------------------
Henry D. Warshaw Director
/s/ James L. Wilhite
- ---------------------------
James L. Wilhite Director
/s/ Ted C. Wetterau*
- ---------------------------
Ted C. Wetterau Director
/s/ Randall D. Humphreys*
- ---------------------------
Randall D. Humphreys Director
/s/ Paul L. Vogel
- ---------------------------
Paul L. Vogel Director
/s/ William B. Moskoff
- ---------------------------
William B. Moskoff Director
* By Fred H. Eller, James C. Wagner and Stacey Tate, as Attorney-in-Part
pursuant to Powers of Attorney executed by the persons listed above, which
Powers of Attorney and filed as Exhibit 24.1 hereto.
61
64
/s/ James C. Wagner
- --------------------
James C. Wagner Chief Financial Officer, Treasurer
and Vice President
/s/ Fred H. Eller /s/ James C. Wagner /s/ Stacey Tate
- -------------------- ---------------------- ------------------------
Fred H. Eller James C. Wagner Stacey Tate
Attorney-in-Part Attorney-in-Part Attorney-in-Part
62
65
EXHIBIT INDEX
-------------
Exhibit
No. Exhibit
--- -------
3.1 Certificate of Incorporation of the Registrant, as amended (incorporated
herein by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-1 dated December 19, 1996 (File No. 333-14737)).
3.2 Amendment to the Certificates of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-8 dated July 1, 1999 (File No.
333-82082)).
3.3 Amendment to the Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 of the Registrant's
Quarterly Report on Form 10-Q for the period ending September 30, 1999).
3.4(1) Bylaws of the Registrant, as amended.
3.5(1) Amendment to the Bylaws of the Registrant.
4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by
reference to Exhibit 4.3 of 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 to Exhibit 44.4 of 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 to Exhibit 4.5 of 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 on Form 14-A).
4.5 Enterbank Holdings Stock Appreciation Rights (SAR) Plan and Agreement
(incorporated herein by reference to Exhibit 4.5 of the Registrant's
Quarterly Report on Form 10-Q for the period ended March 31, 1999).
10.2 Customer Referral Agreement by and among Enterbank Holdings, Inc.,
Enterprise Bank and Moneta Group Investment Advisors, Inc. (incorporated
herein by reference to Exhibit 10 of the Registrant's Quarterly Report
on Form 10-Q for the period ended September 30, 1997).
10.3 Revised Customer Referral Agreement by and among Enterbank Holdings,
Inc., Enterprise Bank and Moneta Group Investment Advisors, Inc.
(incorporated herein by reference to Exhibit 10.3 of the Registrant's
Annual Report on Form 10-K for the period ended December 31, 1998).
10.4(1) Agreement and Plan of Merger date January 5, 2000 between Enterbank
Holdings, Inc. and Commercial Guaranty Bancshares, Inc.
11.1(1) Statement regarding computation of per share earnings.
- --------
(1) Filed herewith.
63
66
21.1(1) Subsidiaries of the Registrant.
23.1(1) Consent of KPMG, LLP.
24.1(1) Power of Attorney.
27.1(1) Financial Data Schedule. (EDGAR only)
- --------
(1) Filed herewith
64