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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 For the quarterly period
ended March 31, 2000
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number ____________
____________
ENTERBANK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 43-1706259
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
150 NORTH MERAMEC, CLAYTON, MO 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-5500
____________
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the Registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
Yes X No
------ ------
Indicate the number of shares outstanding of each of the registrant's
classes of common stock as of May 10, 2000:
Common Stock, $.01 par value 7,165,236 shares outstanding
as of May 10, 2000
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
Page
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited):
Consolidated Balance Sheets
At March 31, 2000 and December 31, 1999.....................................................1
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 1999..................................................2
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2000 and 1999..................................................3
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 1999..................................................4
Notes to Consolidated Financial Statements..................................................5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..............................................................7
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk-
There have been no material changes from the information provided
in the December 31, 1999 Annual Report on Form 10-K
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K......................................................15
Signatures.....................................................................................16
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PART I - ITEM 1
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited)
At March 31, At December 31,
Assets 2000 1999
------------ ---------------
Cash and due from banks $ 18,371,993 $ 14,798,216
Federal funds sold 44,725,000 54,825,000
Interest-bearing deposits 8,025 469
Investments in debt and equity securities:
Trading, at fair value - 910,000
Available for sale, at estimated fair value 33,047,600 23,807,572
Held to maturity, at amortized cost
(estimated fair value of $523,384 at March 31,
2000, and $676,851 at December 31, 1999) 526,752 679,806
------------ --------------
Total investments in debt and equity securities 33,574,352 25,397,378
------------ --------------
Loans held for sale 2,641,578 1,438,335
Loans, less unearned loan fees 394,711,848 385,101,759
Less allowance for loan losses 4,382,000 4,235,000
------------ --------------
Loans, net 390,329,848 380,866,759
------------ --------------
Other real estate owned 396,072 396,072
Office equipment and leasehold improvements 3,463,699 3,228,256
Accrued interest receivable 2,822,335 2,473,781
Investment in Enterprise Merchant Banc, LLC 643,247 572,009
Investment in Enterprise Fund, L.P. 564,726 546,710
Prepaid expenses and other assets 2,814,075 3,458,459
------------ --------------
Total assets $ 500,354,950 $ 488,001,444
============ ==============
Liabilities and Shareholders' Equity
Deposits:
Demand $ 64,099,423 $ 62,486,092
Interest-bearing transaction accounts 30,540,932 31,532,705
Money market accounts 212,248,708 197,935,760
Savings 1,958,529 2,736,638
Certificates of deposit:
$100,000 and over 69,670,020 67,031,719
Other 68,399,362 74,074,916
------------ --------------
Total deposits 446,916,974 435,797,830
Guaranteed preferred beneficial interests in
EBH-subordinated debentures 11,000,000 11,000,000
Federal Home Loan Bank advances 6,910,028 6,920,386
Accrued interest payable 949,098 962,205
Accounts payable and accrued expenses 975,480 557,338
------------ --------------
Total liabilities 466,751,580 455,237,759
------------ --------------
Shareholders' equity:
Common stock, $.01 par value; authorized
20,000,000 shares; issued and outstanding
7,163,952 shares at March 31, 2000 and
7,143,636 shares at December 31, 1999 71,630 71,436
Surplus 19,377,715 19,285,957
Retained earnings 14,234,161 13,476,400
------------ --------------
Accumulated other comprehensive income (loss) (80,136) (70,108)
------------ --------------
Total shareholders' equity 33,603,370 32,763,685
------------ --------------
Total liabilities and shareholders' equity $ 500,354,950 $ 488,001,444
------------ --------------
- -----------------------------
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income (unaudited)
Three months ended March 31,
2000 1999
---------- ----------
Interest income:
Interest and fees on loans $ 8,956,835 $ 6,335,238
Interest on debt securities:
Taxable 418,801 321,851
Nontaxable 6,377 6,669
Interest on federal funds sold 684,570 277,920
Interest on interest earning deposits 152 177
---------- ----------
Total interest income 10,066,735 6,941,855
---------- ----------
Interest expense:
Interest-bearing transaction accounts 121,252 111,931
Money market accounts 2,511,885 1,704,840
Savings 10,950 9,470
Certificates of deposit:
$100,000 and over 1,008,936 652,083
Other 990,534 640,190
Federal funds purchased 1,667 --
Guaranteed preferred debenture expense 265,873 --
Federal Home Loan Bank advances 84,999 75,027
---------- ----------
Total interest expense 4,996,096 3,193,541
---------- ----------
Net interest income 5,070,639 3,748,314
Provision for loan losses 145,436 80,000
---------- ----------
Net interest income after
provision for loan losses 4,925,203 3,668,314
---------- ----------
Noninterest income:
Service charges on deposit accounts 173,149 130,655
Financial advisory income 97,308 --
Gain on sale of trading security 500 --
Other service charges and fee income 37,970 78,953
Gain on sale of mortgage loans 80,767 335,424
Income from investment in Enterprise Merchant Banc, LLC 30,112 --
Gain on investment in Enterprise Fund, L.P. 18,015 6,806
---------- ----------
Total noninterest income 437,821 551,838
---------- ----------
Noninterest expense:
Salaries 1,936,401 1,558,556
Payroll taxes and employee benefits 411,999 325,986
Occupancy 277,486 228,410
Furniture and equipment 119,591 100,524
Data processing 125,137 109,930
Other 1,115,897 752,288
---------- ----------
Total noninterest expense 3,986,511 3,075,694
---------- ----------
Income before income tax expense 1,376,513 1,144,458
Income tax expense 529,350 406,675
---------- ----------
Net income $ 847,163 $ 737,783
========== ==========
Per share amounts
Basic earnings per share $ 0.12 $ 0.10
Basic weighted average common shares and
common stock equivalents outstanding 7,152,241 7,122,312
Diluted earnings per share $ 0.11 $ 0.10
Diluted weighted average common shares and common
stock equivalents 7,773,274 7,611,268
- -----------------------
See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (unaudited)
Three months ended March 31,
2000 1999
------------- ------------
Net income $ 847,163 $ 737,783
------------- ------------
Other comprehensive income (loss), before tax:
Unrealized losses on securities:
Unrealized losses arising during period (15,194) (29,408)
------------- ------------
Other comprehensive income (loss), before tax (15,194) (29,408)
Income tax benefit related to items of
other comprehensive income 5,166 9,999
------------- ------------
Other comprehensive income (loss), net of tax (10,028) (19,409)
------------- ------------
Comprehensive income $ 837,135 $ 718,374
============= ============
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See accompanying notes to consolidated financial statements.
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ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited)
Three months ended March 31,
2000 1999
-------------- --------------
Cash flows from operating activities:
Net income $ 847,163 $ 737,783
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 174,616 148,726
Provision for loan losses 145,436 80,000
Gain on sale of trading security (500) --
Net accretion of debt and equity securities (29,526) (159,296)
Gain on investment in Enterprise Fund, L.P. (18,015) (6,808)
Mortgage loans originated (7,700,668) (20,888,068)
Proceeds from mortgage loans sold 6,578,192 26,525,466
Gain on sale of mortgage loans (80,767) (335,424)
Increase in accrued interest receivable (348,554) (272,518)
(Decrease) increase in accrued interest payable (13,107) 317,246
Other, net 1,062,524 (379,322)
------------- -------------
Net cash provided by operating activities 616,794 5,767,785
------------- -------------
Cash flows from investing activities:
(Purchases of) proceeds from interest-bearing deposits (7,556) 2,347
Purchases of available-for-sale debt securities (8,885,276) (7,439,465)
Purchases of available-for-sale equity securities (332,200) --
Proceeds from maturities of available-for-sale debt securities -- 34,000,000
Proceeds from maturities and principal paydown on
held-to-maturity debt securities 150,000 103,000
Proceeds from sale of trading security 910,500 --
Net increase in loans (9,608,525) (24,918,712)
Purchases of office equipment and leasehold improvements (410,059) (104,717)
Investment in Enterprise Merchant Banc, LLC (71,238) --
------------- -------------
Net cash (used in) provided by investing activities (18,254,354) 1,642,453
------------- -------------
Cash flows from financing activities:
Net increase in demand and savings accounts 14,156,397 16,019,086
Net decrease in certificates of deposit (3,037,253) (7,879,321)
Proceeds from Federal Home Loan Bank advances - 500,000
Principal payments on Federal Home Loan Bank advances (10,358) (1,776)
Cash dividends paid (89,401) (71,360)
Proceeds from the exercise of common stock options 91,952 54,799
------------- -------------
Net cash provided by financing activities 11,111,337 8,621,428
------------- -------------
Net (decrease) increase in cash and due from banks (6,526,223) 16,031,666
Cash and cash equivalents, beginning of period 69,623,216 43,951,018
------------- -------------
Cash and cash equivalents, end of period $ 63,096,993 $ 59,982,684
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 5,009,203 $ 3,367,843
Income taxes 1,172,000 527,309
============= =============
- -----------------------------
See accompanying notes to consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
(1) BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01
of Regulation S-X. They do not include all information and footnotes
required by generally accepted accounting principles for complete
consolidated financial statements. The accompanying consolidated financial
statements of Enterbank Holdings, Inc. and subsidiaries (the "Company" or
"Enterbank") are unaudited and should be read in conjunction with the
consolidated financial statements and notes thereto contained in the
Company's Annual Report on Form 10-K for the year ended December 31, 1999.
In the opinion of management, all adjustments consisting of normal
recurring accruals considered necessary for a fair presentation of the
results of operations for the interim periods presented herein have been
included. Operating results for the three month period ended March 31, 2000
are not necessarily indicative of the results that may be expected for any
other interim period or for the year ending December 31, 2000. The
consolidated financial statements include the accounts of Enterbank
Holdings, Inc. and its subsidiaries. All significant intercompany accounts
and transactions have been eliminated.
Certain amounts in the consolidated financial statements for the year ended
December 31, 1999 have been reclassified to conform to the 2000
presentation. Such reclassifications had no effect on previously reported
consolidated net income or shareholders' equity.
(2) MERGER AGREEMENT
On January 5, 2000 the Company announced that it signed a Merger Agreement
with Commercial Guaranty Bancshares, Inc. ("CGB"), the bank holding company
for First Commercial Bank, N.A. headquartered in Overland Park, Kansas. On
March 22, 2000 the Company formed Enterbank Acquisition Corp. I
("Acquisition Corp") as a wholly owned subsidiary of Enterbank Holdings,
Inc. Acquisition Corp. was formed for the sole purpose of facilitating the
pending merger transaction between the Company and Commercial Guaranty
Bancshares, Inc. Acquisition Corp is a Kansas Corporation with 100 shares
of common stock, par value $0.01, all of which are issued to Enterbank
Holdings, Inc. In the merger, Acquisition Corp will be merged into CGB and
CGB will become a wholly owned subsidiary of Enterbank. As a result of the
merger, each share of CGB common stock outstanding at the effective time of
the merger, other than shares with respect to which dissenters' rights are
perfected, will be converted into 2.1429 shares of Enterbank common stock.
The merger is intended to be a tax-free reorganization for federal income
tax purposes and will be accounted for as a pooling of interests. The
merger is subject to the approval of the shareholders of both companies and
regulatory approval, and is expected to be completed sometime in the middle
of 2000. More information is contained in the Merger Agreement on file with
the Securities and Exchange Commission as an exhibit to Enterbank's Annual
Report on Form 10-K for the year ended December 31, 1999.
(3) DEFERRED COMPENSATION PLAN
On December 20, 1999 the Company adopted the Enterbank Holdings, Inc.
Deferred Compensation Plan I ("the Plan"). The Plan was established to
provide deferred compensation benefits to selected executives of the
Company, under the meaning of ERISA, in addition to other employee benefits
programs offered by the Company. The Plan is intended to be a "top-hat",
unfunded plan which will assist the participants in retirement planning and
planning for their longer-term financial needs. The plan year began on
January 1, 2000 and all deferral elections were made in advance.
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(4) SEGMENT DISCLOSURE
Management of the Company reviews the financial performance of its operation
segments on an after-tax basis. The Company's four major operating segments in
2000 and 1999 include Enterbank Holdings, Inc., Enterprise Bank, Enterprise
Financial Advisors and Enterprise Merchant Banc, Inc. Enterbank Holdings
includes general corporate expenses not allocated to the operating segments as
well as assets and income 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.
Enterprise Merchant Banc offers merchant banking and venture capital services.
The following are the financial results for the Company's operating segments for
the three-month periods ended March 31, 2000 and 1999:
Enterprise
Enterbank Financial Enterprise
Holdings Enterprise Bank Advisors Merchant Banc Eliminations Consolidated
-------------------------------------------------------------------------------------------
Three months ended March 31, 2000
Interest income $ 9,505 $ 10,066,735 $ - $ - $ (9,505) $ 10,066,735
Interest expense 275,378 4,730,223 - - (9,505) 4,996,096
Net interest margin (265,873) 5,336,512 - - - 5,070,639
Provision for loan losses - 145,436 - 145,436
Gross income prior to direct
expense 18,515 241,461 171,143 36,708 - 467,827
Direct expense - - 30,006 - - 30,006
Noninterest income 18,515 241,461 141,137 36,708 - 437,821
Noninterest expense 360,124 3,243,935 382,445 7 - 3,986,511
------------- ------------ ------------- ----------- ------------ ------------
Income (loss) before income
tax expense (benefit) (607,482) 2,188,602 (241,308) 36,701 - 1,376,513
Income tax expense (benefit) (207,167) 826,828 (104,456) 14,145 - 529,350
------------- ------------ ------------- ----------- ------------ ------------
Net income (loss) $ (400,315) $ 1,361,774 $ (136,852) $ 22,556 $ - $ 847,163
============= ============ ============= =========== ============ ============
Total assets $ 6,068,784 $497,829,888 $ 65,521 $ 1,016,671 $ (4,625,914) $500,354,950
------------- ------------ ------------- ----------- ------------ ------------
Three months ended March 31, 1999
Interest income $ - $ 6,941,855 $ - $ 10 $ (10) $ 6,941,855
Interest expense - 3,193,551 - - (10) 3,193,541
Net interest margin - 3,748,304 - 10 - 3,748,314
Provision for loan losses - 80,000 - - - 80,000
Gross income prior to direct 726 484,466 26,570 52,081 - 563,843
Direct expense - - 12,005 - - 12,005
Noninterest income 726 484,466 14,565 52,081 - 551,838
Noninterest expense 180,556 2,504,713 219,140 171,285 - 3,075,694
------------- ------------ ------------ ----------- ------------ ------------
Income (loss) before income
tax expense (benefit) (179,830) 1,648,057 (204,575) (119,194) - 1,144,458
Income tax expense (benefit) (47,739) 580,691 (78,184) (48,093) - 406,675
------------- ------------ ------------ ----------- ------------ ------------
Net income (loss) $ (132,091) $ 1,067,366 $ (126,391) $ (71,101) $ - $ 737,783
============= ============ ============ =========== ============ ============
Total assets $ 1,006,014 $383,475,768 $ 28,918 $ 548,778 $ (108,511) $384,950,967
------------- ------------ ------------ ----------- ------------ ------------
As demonstrated in the table, Enterprise Bank ("the Bank") is the primary source
of income and assets for the Company. The Bank contributed $114 million in
assets at March 31, 2000 over assets at March 31, 1999. Most of the asset growth
experienced by the Company is attributable to the Bank. The Bank also provides
much of the income to the Company. The Bank experienced a 28% increase in net
income during the three-month period ended March 31, 2000 compared to the same
period in 1999. The Company experienced a 15% increase in net income for the
same period. Enterprise Financial Advisors began operations during the second
half of 1998 and is experiencing net losses primarily because it is currently in
early stages of growth. During 1999 and 2000, Enterprise Merchant Banc raised
capital for a second
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equity fund and completed a restructuring, which resulted in a net operating
profit for the first quarter of 2000. Enterbank Holdings has some assets in the
form of small investments. Enterbank Holdings also has interest expense related
to its Trust Preferred Securities and noninterest expenses related to
consolidated items of the Company.
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, this Form 10-Q contains forward looking statements which are inherently
subject to risks and uncertainties that could cause actual results to differ
materially from those contemplated by such statements. Factors that could cause
or contribute to such differences include, but are not limited to, the effect
that changes in interest rates and our cost of funds have on our earnings and
assets, our level of loan defaults and delinquencies, our ability to
successfully grow and realize profits from our commercial banking operations and
our strategic non-banking lines of business, concentrations of our loans in one
geographic area, our ability to retain key personnel, the degree and nature of
our competition, and changes in government regulation of our business, as well
as those discussed in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
INTRODUCTION
The discussion summarizes the significant factors affecting the consolidated
financial condition, results of operations, liquidity and cash flows of the
Company for the three months ended March 31, 2000 compared to the three months
ended March 31, 1999 and the year ended December 31, 1999. This discussion
should be read in conjunction with the consolidated financial statements and
notes thereto contained in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
FINANCIAL CONDITION
Total assets at March 31, 2000 were $500 million, an increase of $12 million, or
3%, over total assets of $488 million at December 31, 1999. Loans less unearned
loan fees, were $395 million, an increase of $10 million, or 3%, over total
loans and leases of $385 million at December 31, 1999. Federal funds sold and
investment securities were $78 million, a decrease of $2 million, or 2%, from
total Federal funds sold and investment securities of $80 million at December
31, 1999. The decrease resulted from the shift in earnings assets from
short-term investments into loans during the first three months of 2000.
Total deposits at March 31, 2000 were $447 million, an increase of $11 million
over total deposits of $436 million at December 31, 1999.
Total shareholders' equity at March 31, 2000 was $33.6 million, an increase of
$840,000 over total shareholders' equity of $32.8 million at December 31, 1999.
The increase in equity is due to net income of $847,163 for the three months
ended March 31, 2000, and the exercise of incentive stock options by employees,
less dividends paid to shareholders.
RESULTS OF OPERATIONS
Net income was $847,163 for the three month period ended March 31, 2000, an
increase of 15% over net income of $737,783 for the same period in fiscal 1999.
Basic earnings per share for the three month periods ended March 31, 2000 and
1999 were $0.12 and $0.10, respectively. Diluted earnings per share for the
three-month periods ended March 31, 2000 and 1999 were $0.11 and $0.10,
respectively.
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NET INTEREST INCOME
Net interest income (presented on a tax equivalent basis) was $5.1 million, or
4.36% of average earnings assets, for the three months ended March 31, 2000,
compared to $3.8 million, or 4.45% of average earning assets, for the same
period in 1999. The $1.3 million, or 35% increase, in net interest income for
the three months ended March 31, 2000 resulted primarily from a $125 million
increase in average earnings assets to $470 million, from $345 million during
the same period in 1999. The increase in earning assets is attributable to the
continued calling efforts of the Company's relationship officers and sustained
economic growth in the local market served by the Company. The yield on average
earning assets increased to 8.63% for the three month period ended March 31,
2000 compared to 8.20% for the three month period ended March 31, 1999. The
increase in asset yield was primarily due to five 0.25% increases, for a total
of a 1.25% increase in the prime rate since July of 1999 and a general increase
in average yield on loans. The increase in asset yield was also attributed to a
change in the mix of assets from noninterest earning assets to interest earning
assets. Interest earning assets increased to 95.51% of total assets for the
three months ended March 31, 2000 from 92.48% for the same period in 1999. Most
of the increase occurred in federal funds sold. The increase in net interest
margin was offset by a $107 million increase in average interest-bearing
liabilities to $397 million for the three months ended March 31, 2000 from $290
million during the same period in 1999. The yield on interest-bearing
liabilities increased to 5.05% for the three months ended March 31, 2000
compared to 4.47% for the same period in 1999. This increase is attributed to
the above mentioned increases in the prime rate and the addition of $11 million
in guaranteed preferred beneficial interests in EBH-subordinated debentures. The
increase in the interest paid on interest bearing liabilities was also
attributed to a change in the mix of liabilities. Total interest-bearing
liabilities increased to 80.72% of total average assets for the three months
ended March 31, 2000 from 77.74% for the same period in 1999. This increase is
attributed to the above mentioned guaranteed preferred beneficial interests in
EBH-subordinated debentures and an increase in certificates of deposit.
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The following table sets forth, on a tax-equivalent basis, certain information
relating to the Company's average balance sheet and reflects the average yield
earned on interest-earning assets, the average cost of interest-bearing
liabilities and the resulting net interest income for the three month periods
ended March 31, 2000 and 1999:
Three months ended March 31,
--------------------------------------------------------------------------------------------
2000 1999
--------------------------------------------------------------------------------------------
Percent Interest Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
-------- --------- ---------- ------- --------- -------- -------- -------
ASSETS (Dollars in Thousands)
Interest-earning assets:
Loans (1) $391,379 79.57% $ 8,993 9.22% $ 295,261 79.25% $ 6,360 8.74%
Taxable investments in debt
securities 28,786 5.85 419 5.84 24,451 6.56 322 5.34
Non-taxable investments in debt
securities (2) 604 0.12 10 6.64 632 0.18 10 6.42
Federal funds sold 49,072 9.97 685 5.60 24,184 6.49 278 4.66
Interest earning deposits 14 0.00 0 4.29 17 0.00 0 4.27
-------- -------- --------- --------- ------- --------
Total interest-earning assets 469,855 95.51 10,107 8.63 344,545 92.48 6,970 8.20
Non-interest-earning assets:
Cash and due from banks 15,854 3.23 23,054 6.19
Office equipment and leasehold
improvements 3,426 0.70 3,052 0.82
Investment in EMB, LLC 304 0.06
Prepaid expenses and other assets 6,714 1.37 5,150 1.38
Allowance for loan losses (4,285) (0.87) (3,238) (0.87)
-------- -------- --------- -------
Total assets $491,868 100.00% $ 372,563 100.00%
======== ======== ========= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities:
Interest-bearing transaction
accounts $ 28,453 5.78% $ 121 1.71% $ 24,972 6.70% $ 112 1.82%
Money market accounts 207,806 42.24 2,512 4.85 158,787 42.62 1,705 4.35
Savings 1,788 0.36 11 2.47 1,554 0.42 9 2.47
Certificates of deposit 140,896 28.65 1,999 5.69 97,994 26.30 1,292 5.35
Federal funds purchased 110 0.02 2 6.08 -- -- -- --
Federal Home Loan Bank advances 7,026 1.43 85 4.85 6,328 1.70 75 4.81
Guaranteed preferred beneficial
interests in EBH-subordinated
debentures 11,000 2.24 266 9.69 -- -- -- --
-------- -------- --------- --------- ------- --------
Total interest-bearing liabilities 397,079 80.72 4,996 5.05 289,635 77.74 3,193 4.47
Noninterest-bearing liabilities:
Demand deposits 59,500 12.10 52,086 13.98
Other liabilities 1,950 0.40 1,166 0.31
-------- -------- --------- -------
Total liabilities 458,529 93.22 342,887 92.03
Shareholders' equity 33,339 6.78 29,676 7.97
-------- -------- --------- -------
Total liabilities and
shareholders' equity $491,868 100.00% $ 372,563 100.00%
======== ======== ========= =======
Net interest income $ 5,111 $ 3,777
========= ========
Net interest margin 4.36% 4.45%
(1) Average balances include non-accrual loans. The income on such loans is
included in interest but is recognized only upon receipt.
Loan fees included in interest income are approximately $272,000 and
$250,000, for 2000 and 1999, respectively.
(2) Non-taxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
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PROVISION FOR LOAN LOSSES
The provision for loan losses was $145,000 for the three months ended March 31,
2000, compared to $80,000 for the same period in 1999. The Company's asset
quality remained strong with net recoveries of $2,000 for the three months ended
March 31, 2000 compared to net recoveries of $1,000 for the same period in 1999.
Loan growth remained strong during the first three months of 2000. The Company
increased its allowance for loan losses by charging provision expense $145,000.
The increase in provision expense in the first quarter of 2000 as compared to
the same period in 1999 was made due to the continued increase in loans
outstanding.
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.
Three months ended
March 31,
-------------------------------
2000 1999
---- ----
(Dollars in Thousands)
Allowance at beginning of year $ 4,235 $ 3,200
----------- ------------
Loans charged off:
Commercial and industrial -- --
Real estate:
Commercial -- --
Construction -- --
Residential -- --
Consumer and other -- --
----------- ------------
Total loans charged off -- --
----------- ------------
Recoveries of loans previously charged off:
Commercial and industrial -- --
Real estate:
Commercial -- --
Construction -- --
Residential -- 1
Consumer and other 2 --
----------- ------------
Total recoveries of loans previously charged off 2 1
----------- ------------
Net loans (recovered) charged off (2) (1)
----------- ------------
Provisions charged to operations 145 80
----------- ------------
Allowance at end of period $ 4,382 $ 3,281
=========== ============
Average loans $ 391,379 $ 295,261
Total loans $ 394,712 $ 298,737
Nonperforming loans $ -- $ 29
Net charge-offs to average loans 0.00% 0.00%
Allowance for loan losses to loans 1.11% 1.10%
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The Company's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. The system requires rating all loans at
the time they are made.
Adversely rated credits, including loans requiring close monitoring which would
not normally be considered criticized credits by regulators, are included on a
monthly loan watch list. Loans may be added to the watch list for reasons which
are temporary and correctable, such as the absence of current financial
statements of the borrower or a deficiency in loan documentation. Other loans
are added whenever any adverse circumstance is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency of a scheduled loan payment, a deterioration in the borrower's
financial condition identified in a review of periodic financial statements, a
decrease in the value of the collateral securing the loan, or a change in the
economic environment in which the borrower operates. Loans on the watch list
require detailed loan status reports prepared by the responsible officer every
four months, which are then discussed in formal meetings with the loan review
and loan administration staffs. Downgrades of loan risk ratings may be initiated
by the responsible loan officer at any time. However, upgrades of risk ratings
may only be made with the concurrence of the loan review and credit
administration staffs generally at the time of the formal watch list review
meetings.
Each month, loan administration provides management with a detailed list of
loans on the watch list and summaries of the entire loan portfolio categorized
by risk rating. These are coupled with an analysis of changes in the risk
profiles of the portfolios, changes in past due and non-performing loans and
changes in watch list and classified loans over time. In this manner, the
overall increases or decreases in the levels of risk in the portfolios are
monitored continually. Factors are applied to the loan portfolios for each
category of loan risk to determine acceptable levels of allowance for 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 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
loan losses is adjusted. Such adjustments are reflected in the consolidated
statements of income.
The Company does not engage in foreign lending. Additionally, the Company does
not have any concentrations of loans exceeding 10% of total loans which are not
otherwise disclosed in the loan portfolio composition table. The Company does
not have a material amount of interest-bearing assets which would have been
included in non-accrual, past due or restructured loans if such assets were
loans.
Management believes the allowance for loan losses is adequate to absorb losses
in the loan portfolio. While management uses available information to recognize
loan losses, future additions to the allowance may be necessary based on changes
in economic conditions. In addition, various regulatory agencies, as an integral
part of their examination process, periodically review the allowance for loan
losses. Such agencies may require the Company to increase the allowance for loan
losses based on their judgments and interpretations about information available
to them at the time of their examinations.
While the Company has benefited from very low historical net charge-offs during
an extended period of rapid loan growth, management remains cognizant that
historical loan loss and non-performing asset experience may not be indicative
of future results. Were the experience to deteriorate, and additional provisions
for loan losses were required, future operational results would be negatively
impacted. Both management and the Board of Directors continually monitor changes
in asset quality, market conditions, concentration of credit and other factors,
all of which impact the credit risk associated with the Company's loan
portfolio.
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The following table sets forth information concerning the Company's
non-performing assets as of the dates indicated:
March 31, December 31,
2000 1999
-------------- ----------------
(Dollars in Thousands)
Non-accrual loans $ -- $ 294
Loans past due 90 days or more
and still accruing interest -- --
Restructured loans -- --
-------------- ----------------
Total nonperforming loans 294
Foreclosed property 396 396
-------------- ----------------
Total non-performing assets $ 396 $ 690
============== ================
Total assets $ 500,355 $ 488,001
Total loans $ 394,712 $ 385,102
Total loans plus foreclosed property $ 395,108 $ 385,498
Nonperforming loans to loans 0.00% 0.08%
Nonperforming assets to loans plus
foreclosed property 0.10% 0.18%
Nonperforming assets to total assets 0.08% 0.14%
NONINTEREST INCOME
Noninterest income was $437,821 for the three months ended March 31, 2000,
compared to $551,838 for the same period in 1999. The decrease is primarily
attributed to a $254,657 decrease in the gain on the sale of mortgage loans. The
decrease in the gain on sale of mortgage loans was due to an increase in
interest rates since July 1999. Over half of the gain on sale of mortgage loans
prior to March 1999 was due to refinancing. The demand for refinanced mortgage
loans dramatically decreased with the rise in interest rates. Most of the
mortgage loans originated during late 1999 and 2000 were for the purchase of new
or existing homes. The above mentioned decreases were offset slightly by
increases in financial advisory income, service charges on deposit accounts and
income from investments in Enterprise Merchant Banc, LLC. Financial advisory
income was $97,308 for the three month ended March 31, 2000 as compared to $0
for the same period in 1999. The Company began offering financial advisory and
trust services in October 1998 and started generating fees in the second quarter
of 1999. Service charges on deposit accounts were $173,149 for the three months
ended March 31, 2000, compared to $130,655 for the same period in 1999. The
increase in service charges is due to a concerted effort by the Company's
management to alter service charges and other fees to stay competitive in the
marketplace and an increase in the number of deposit accounts. The increase from
Enterprise Merchant Banc, LLC is a result of increased activity and a recent
restructuring of that business unit.
NONINTEREST EXPENSE
Noninterest expense was $4.0 million for the three months ended March 31, 2000,
compared to $3.1 million for the same period in 1999. Increases in noninterest
expenses are primarily due to: 1) increased activity and growth in the trust and
financial planning operations started during 1998; 2) an increase in the FDIC
insurance expense primarily due to a reclassification of the risk category for
the banking subsidiary; and 3) normal increases associated with continued
growth. Other noninterest expenses were $1,012,635 for the three months ended
March 31, 2000, an increase of $269,972, or 36%, over $742,663 for the three
months ended March 31, 1999. This increase is attributed to normal operating
expenses associated with growth.
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LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio, maturities
in the investment portfolio, amortization of term loans, deposit inflows,
proceeds from borrowings, and retained earnings.
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to the aggressive direct calling efforts of the Company's
relationship officers and sustained economic growth in the local market served
by the Company. Management has pursued privately held businesses who desire a
close working relationship with a locally managed, full service bank. Due to the
relationship developed with these customers, management views deposits from this
source as a stable deposit base. Additionally, the Company belongs to a national
network of time depositors (primarily credit unions) who place time deposits
with the Company, typically in increments of $99,000. The Company has used this
source of deposits for over four years and considers it to be a stable source of
deposits enabling the Company to acquire funds at a cost below its alternative
cost of funds. There were $41 million and $45 million of deposits from the
national network with the Company at March 31, 2000 and December 31, 1999,
respectively.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at March 31, 2000:
Remaining Maturity Amount
- ------------------------------------------ -------------
(Dollars in Thousands)
Three months or less $ 22,768
Over three through six months 40,201
Over six through twelve months 6,394
Over twelve months 307
-------------
$ 69,670
=============
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.
In March 2000, the Company renewed a $2,500,000 unsecured line of credit from
Jefferson Bank and Trust. The line of credit matures on March 31, 2001 and is an
interest only note accruing interest at a variable rate of Prime minus 0.50%.
There were no amounts outstanding under the line of credit at March 31, 2000.
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, (c)
minority interests in the equity accounts of consolidated subsidiaries less (d)
goodwill, (e) mortgage servicing rights within certain limits, and (f) any other
intangible assets and investments in subsidiaries that the FDIC determines
should be deducted from Tier 1 capital. The FDIC also requires a minimum
leverage ratio of 3.0%, defined as the ratio of Tier 1 capital less purchased
mortgage servicing rights to total assets, for banking organizations deemed the
strongest and most highly rated by banking regulators. A higher minimum leverage
ratio is required of less highly rated banking organizations. Total capital, a
measure of capital adequacy, includes Tier 1 capital, allowance for possible
loan losses, and debt considered equity for regulatory capital purposes.
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The following table summarizes the Company's risk-based capital and leverage
ratios at the dates indicated:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ------------------- -------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
At March 31, 2000:
Total Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 49,065,506 11.69% $ 33,568,529 8.00% $ 41,666,712 10.00%
Enterprise Bank $ 42,587,576 10.21% $ 33,371,765 8.00% $ 41,420,758 10.00%
Tier I Capital (to Risk Weighted Assets)
Enterbank Holdings, Inc. $ 44,683,506 10.65% $ 16,784,264 4.00% $ 25,000,027 6.00%
Enterprise Bank $ 38,205,576 9.16% $ 16,685,883 4.00% $ 24,852,455 6.00%
Tier I Capital (to Average Assets)
Enterbank Holdings, Inc. $ 44,068,793 9.08% $ 14,756,041 3.00% $ 24,610,401 5.00%
Enterprise Bank $ 38,205,576 7.80% $ 14,687,468 3.00% $ 24,479,113 5.00%
At 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 I 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 I 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%
EFFECT OF INFLATION
Changes in interest rates may have a significant impact on a commercial bank's
performance because virtually all assets and liabilities of commercial banks are
monetary in nature. Interest rates do not necessarily move in the same direction
or in the same magnitude as the prices of goods and services. Inflation does
have an impact on the growth of total assets in the banking industry, often
resulting in a need to increase equity capital at higher than normal rates to
maintain an appropriate equity-to-assets ratio.
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PART II - OTHER INFORMATION
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a). Exhibits.
Exhibit
Number Description
-------- -----------
10.1 (1) Enterbank Holdings, Inc. Deferred Compensation Plan I
10.2 Agreement and Plan of Merger dated January 5, 2000
between Enterbank Holdings, Inc. and Commercial
Guaranty Bancshares, Inc. (incorporated herein by
reference to Exhibit 10.4 of the Registrant's Annual
Report on Form 10-K for the period ending December 31,
1999 (File No. 000-24131))
11.1 (1) Statement regarding computation of per share earnings
27.1 (1) Financial Data Schedule (EDGAR only)
(b). During the three months ended March 31, 2000, the Registrant filed one
current report on form 8-K, dated January 5, 2000, in which the
Registrant announced the signing of the Agreement and Plan of Merger
(see Exhibit 10.4 above) between Enterbank Holdings, Inc. and
Commercial Guaranty Bancshares, Inc.
- ----------------------
(1) Filed herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned; thereunto duly authorized, in the City of Clayton, State of
Missouri on the 15th day of May, 2000.
ENTERBANK HOLDINGS, INC.
By: /s/ Fred H. Eller
------------------------------
Fred H. Eller
Chief Executive Officer
By: /s/ James C. Wagner
------------------------------
James C. Wagner
Chief Financial Officer
16