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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, 2002
[ ] 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 ____________
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ENTERPRISE FINANCIAL SERVICES CORP
(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 1, 2002:
Common Stock, $.01 par value---9,381,451 shares outstanding as of May 1, 2002
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ENTERPRISE FINANCIAL SERVICES CORP 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, 2002 and December 31, 2001 .............................................. 2
Consolidated Statements of Operations
Three Months Ended March 31, 2002 and 2001 ........................................... 3
Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 2002 and 2001 ........................................... 4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2002 and 2001 ........................................... 5
Notes to Consolidated Financial Statements ........................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ....................................................... 9
Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk .................. 18
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ................................................ II-1
Signatures ............................................................................... II-2
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
At March 31, December 31,
Assets 2002 2001
------ ------------ ------------
Cash and due from banks $ 25,492,303 $ 32,178,155
Federal funds sold 11,745,467 48,624,680
Interest-bearing deposits 379,002 3,433,351
Investments in debt and equity securities:
Available for sale, at estimated fair value 47,738,568 45,952,142
Held to maturity, at amortized cost (estimated
fair value of $15,535 at March 31, 2002
and $116,633 at December 31, 2001) 15,268 116,214
------------ ------------
Total investments in debt and equity securities 47,753,836 46,068,356
------------ ------------
Loans held for sale 2,628,057 8,936,042
Loans, less unearned loan fees 687,260,649 642,053,483
Less allowance for loan losses 7,856,330 7,295,916
------------ ------------
Loans, net 679,404,319 634,757,567
------------ ------------
Other real estate owned 138,000 138,000
Fixed assets, net 9,838,479 9,999,432
Accrued interest receivable 3,748,688 3,140,912
Goodwill 2,087,537 2,087,537
Prepaid expenses and other assets 6,188,403 5,885,531
------------ ------------
Total assets $789,404,091 $795,249,563
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $120,378,852 $126,648,048
Interest-bearing transaction accounts 56,702,389 71,574,686
Money market accounts 332,937,297 309,355,326
Savings 8,516,100 7,761,917
Certificates of deposit:
$100,000 and over 80,275,499 89,323,516
Other 105,279,644 109,689,672
------------ ------------
Total deposits 704,089,781 714,353,165
Guaranteed preferred beneficial interests in EBH-subordinated debentures 11,000,000 11,000,000
Federal Home Loan Bank advances 15,508,590 14,032,385
Notes payable 1,866,667 1,366,667
Accrued interest payable 1,610,487 1,208,549
Other liabilities 2,757,267 1,392,194
------------ ------------
Total liabilities 736,832,792 743,352,960
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; 20,000,000
shares authorized; 9,315,451 issued and
outstanding at March 31, 2002, and 9,270,667
issued and outstanding at December 31, 2001 93,155 92,707
Surplus 37,619,433 37,288,725
Retained earnings 15,039,230 14,330,784
Accumulated other comprehensive (loss) income (180,519) 184,387
------------ ------------
Total shareholders' equity 52,571,299 51,896,603
------------ ------------
Total liabilities and shareholders' equity $789,404,091 $795,249,563
============ ============
See accompanying notes to unaudited consolidated financial statements.
2
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Operations (Unaudited)
Three months ended March 31,
2002 2001
----------- -----------
Interest income:
Interest and fees on loans $10,461,904 $12,907,376
Interest on debt and equity securities:
Taxable 445,040 784,114
Nontaxable 917 5,757
Interest on federal funds sold 91,826 500,972
Interest on interest-bearing deposits 17,132 1,804
Dividends on equity securities 12,644 43,854
----------- -----------
Total interest income 11,029,463 14,243,877
----------- -----------
Interest expense:
Interest-bearing transaction accounts 68,411 178,940
Money market accounts 1,274,365 3,107,322
Savings 20,720 45,938
Certificates of deposit:
$100,000 and over 829,276 1,387,733
Other 1,211,436 1,621,695
Other borrowed funds 199,841 146,663
Guaranteed preferred beneficial interests
in EBH-subordinated debentures 258,500 252,578
----------- -----------
Total interest expense 3,862,549 6,740,869
----------- -----------
Net interest income 7,166,914 7,503,008
Provision for loan losses 590,000 265,000
----------- -----------
Net interest income after
provision for loan losses 6,576,914 7,238,008
----------- -----------
Noninterest income:
Service charges on deposit accounts 411,894 299,561
Trust and financial advisory income 629,056 252,346
Other service charges and fee income 90,433 115,769
Gain on sale of mortgage loans 360,337 180,023
Gain on sale of securities - 29,687
Loss from Merchant Banc investments - (38,629)
----------- -----------
Total noninterest income 1,491,720 838,757
----------- -----------
Noninterest expense:
Salaries 3,460,082 3,228,895
Payroll taxes and employee benefits 689,646 631,804
Occupancy 457,576 396,987
Furniture and equipment 251,990 217,489
Data processing 253,044 296,214
Amortization of goodwill - 47,642
Other 1,520,349 1,382,383
----------- -----------
Total noninterest expense 6,632,687 6,201,414
----------- -----------
Income before income tax expense 1,435,947 1,875,351
Income tax expense 564,589 715,299
----------- -----------
Net income $ 871,358 $ 1,160,052
----------- -----------
Per share amounts
Basic earnings per share $ 0.09 $ 0.13
Basic weighted average common shares outstanding 9,298,749 9,117,286
Diluted earnings per share $ 0.09 $ 0.12
Diluted weighted average common shares outstanding 9,577,312 9,646,791
See accompanying notes to unaudited consolidated financial statements.
3
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income (Unaudited)
Three months ended March 31,
2002 2001
--------- ----------
Net income $ 871,358 $1,160,052
Other comprehensive (loss) income:
Unrealized (loss) gain on investment securities
arising during the period, net of tax (139,186) 64,848
Less reclassification adjustment for realized gain
included in net income, net of tax - 19,593
Unrealized loss on cash flow type derivative
instruments arising during the period, net of tax (225,720) -
--------- ----------
Total other comprehensive (loss) income (364,906) 45,255
--------- ----------
Total comprehensive income $ 506,452 $1,205,307
========= ==========
See accompanying notes to unaudited consolidated financial statements.
4
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Three months ended March 31,
2002 2001
------------ -------------
Cash flows from operating activities:
Net income $ 871,358 $ 1,160,052
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 430,826 339,491
Provision for loan losses 590,000 265,000
Net amortization (accretion) of debt and equity securities 215,777 (12,806)
Gain on sale of available for sale investment securities - (29,687)
Loss from Merchant Banc investments - 38,629
Mortgage loans originated (16,379,841) (15,236,542)
Proceeds from mortgage loans sold 23,048,163 11,972,886
Gain on sale of mortgage loans (360,337) (180,023)
Noncash compensation expense attributed to stock option grants 52,899 44,265
(Increase) decrease in accrued interest receivable (607,776) 377,850
Increase (decrease) in accrued interest payable 401,938 (12,565)
Other, net 905,110 (201,836)
------------ ------------
Net cash provided by (used in) operating activities 9,168,117 (1,475,286)
------------ ------------
Cash flows from investing activities:
Purchases of available for sale debt and equity securities (11,936,942) (2,978,117)
Proceeds from sale of available for sale debt securities - 279,687
Proceeds from maturities and principal paydowns on available for sale
debt and equity securities 9,724,797 20,443,114
Proceeds from maturities and principal paydowns on held to maturity
debt securities 100,000 300,000
Net increase in loans (45,260,969) (27,208,218)
Recoveries of loans previously charged off 24,217 34,556
Proceeds from sale of fixed assets 11,079 -
Purchases of fixed assets (277,875) (523,181)
------------ ------------
Net cash used in investing activities (47,615,693) (9,652,159)
------------ ------------
Cash flows from financing activities:
Net decrease in non-interest bearing deposit accounts (6,269,196) (14,173,676)
Net (decrease) increase in interest bearing deposit accounts (3,994,188) 4,173,945
Decrease in federal funds purchased - (1,225,000)
Maturities and paydowns of Federal Home Loan Bank advances (23,795) (10,986)
Proceeds from borrowings of Federal Home Loan Bank advances 1,500,000 1,000,000
Proceeds from borrowings of notes payable 500,000 -
Cash dividends paid (162,916) (137,029)
Proceeds from the exercise of common stock options 278,257 571,923
------------ ------------
Net cash used in financing activities (8,171,838) (9,800,823)
------------ ------------
Net decrease in cash and cash equivalents (46,619,414) (20,928,268)
Cash and cash equivalents, beginning of period 84,236,186 84,276,370
------------ ------------
Cash and cash equivalents, end of period $ 37,616,772 $ 63,348,102
============ ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,460,611 $ 6,753,434
Income taxes - 1,607,000
============ ============
See accompanying notes to consolidated financial statements.
5
Notes to Unaudited Consolidated Financial Statements
ENTERPRISE FINANCIAL SERVICES CORP AND SUBSIDIARIES
(1) Basis of Presentation
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America 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 accounting principles
generally accepted in the United States of America for complete
consolidated financial statements. The accompanying consolidated financial
statements of Enterprise Financial Services Corp and subsidiaries (the
"Company" or "Enterprise Financial") 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, 2001. 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,
2002 are not necessarily indicative of the results that may be expected for
any other interim period or for the year ending December 31, 2002. The
consolidated financial statements include the accounts of Enterprise
Financial Services Corp (which changed its name from Enterbank Holdings,
Inc. on April 29, 2002) 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, 2001 have been reclassified to conform to the 2002
presentation. Such reclassifications had no effect on previously reported
consolidated net income or shareholders' equity.
(2) Segment Disclosure
Management segregates the Company into three distinct businesses for
evaluation purposes. The three segments are Enterprise Banking, Enterprise
Trust and Corporate. The segments are evaluated separately on their
individual performance, as well as, their contribution to the Company as a
whole.
The Corporate, Intercompany, and Reclassifications segment includes the
holding company and trust preferred securities activities. The Company
incurs general corporate expenses and owns Enterprise Bank and Enterprise
Merchant Banc, Inc.
The majority of the Company's assets and income result from Enterprise
Banking (the "Bank"). Enterprise Banking consists of three banking branches
and an operations center in the St. Louis County area, two banking branches
in the Kansas City region and three banking branches in the Southeast
Kansas region. The products and services offered by the banking branches
include a broad range of commercial and personal banking services,
including certificates of deposit, individual retirement and other time
deposit accounts, checking and other demand deposit accounts, interest
checking accounts, savings accounts and money market accounts. Loans
include commercial, financial and agricultural, real estate construction
and development, commercial and residential real estate, consumer and
installment loans. Other financial services include mortgage banking, debit
and credit cards, automatic teller machines, internet account access, safe
deposit boxes, and treasury management services.
Enterprise Trust, which is a division of Enterprise Bank, provides
fee-based personal and corporate financial consulting and trust services.
Personal financial consulting includes estate planning, investment
management, and retirement planning. Corporate consulting services are
focused in the areas of retirement plans, management compensation and
management succession issues.
6
Following are the financial results for the Company's operating segments.
Corporate,
Intercompany,
Enterprise Enterprise and
Banking Trust Reclassifications Total
Three months ended March 31, 2002
Net interest income ............. $ 7,440,843 $ -- $ (273,929) $ 7,166,914
Provision for loan losses ....... 590,000 -- -- 590,000
Other noninterest income ........ 879,860 629,056 (17,196) 1,491,720
Other noninterest expense ....... 5,443,112 659,549 530,026 6,632,687
------------ ------------ ------------ ------------
Income (loss) before income tax
expense ......................... 2,287,591 (30,493) (821,151) 1,435,947
Income tax expense (benefit) .... 875,003 (11,282) (299,132) 564,589
------------ ------------ ------------ ------------
Net income (loss) ............... $ 1,412,588 $ (19,211) $ (522,019) $ 871,358
============ ============ ============ ============
At March 31, 2002
Loans, less unearned loan fees .. 687,260,649 -- -- 687,260,649
Deposits ........................ 704,344,000 -- (254,219) 704,089,781
Borrowings ...................... 15,508,590 -- 12,866,667 28,375,257
Total assets .................... $787,450,938 $ -- $ 1,953,153 $789,404,091
============ ============ ============ ============
Corporate,
Intercompany,
Enterprise Enterprise and
Banking Trust Reclassifications Total
Three months ended March 31, 2001
Net interest income ............. $ 7,754,390 $ -- $ (251,382) $ 7,503,008
Provision for loan losses ....... 265,000 -- -- 265,000
Other noninterest income ........ 577,676 266,680 (5,599) 838,757
Other noninterest expense ....... 5,228,912 599,716 372,786 6,201,414
------------ ------------ ------------ ------------
Income (loss) before income tax
expense ......................... 2,838,154 (333,036) (629,767) 1,875,351
Income tax expense (benefit) .... 1,083,509 (127,142) (241,068) 715,299
------------ ------------ ------------ ------------
Net income (loss) ............... $ 1,754,645 $ (205,894) $ (388,699) $ 1,160,052
============ ============ ============ ============
At March 31, 2001
Loans, less unearned loan fees .. 583,953,908 -- -- 583,953,908
Deposits ........................ 624,424,873 -- (1,987,167) 622,437,706
Borrowings ...................... 10,954,913 -- 11,000,000 21,954,913
Total assets .................... $697,097,036 $ -- $ 4,438,921 $701,535,957
============ ============ ============ ============
(3) Derivative Instruments and Hedging Activities
The Company began utilizing derivative instruments to assist in the management
of interest rate sensitivity and to modify the repricing, maturity and option
characteristics of certain assets and liabilities in the first quarter of 2002.
The
7
Company uses such derivative instruments solely to reduce its interest rate
exposure. The following is a summary of the Company's accounting policies for
derivative instruments and hedging activities under Statement of Financial
Accounting Standards (SFAS) No. 133, Accounting for Derivative Instrumenst and
Hedging Activities, as amended.
Interest Rate Swap Agreements - Cash Flow Hedges. Interest rate swap agreements
designated as cash flow hedges are accounted for at fair value. The effective
portion of the change in the cash flow hedge's gain or loss is initially
reported as a component of other comprehensive income net of taxes and
subsequently reclassified into noninterest income when the underlying
transaction affects earnings. The ineffective portion of the change in the cash
flow hedge's gain or loss is recorded in earnings on each monthly measurement
date. The swap agreements are accounted for on an accrual basis with the net
interest differential being recognized as an adjustment to interest income or
interest expense of the related asset or liability. For the three months ended
March 31, 2002, a net interest differential of $180,145 was included in interest
income on loans.
(4) New Accounting Standards
In September 2000, the FASB issued SFAS No. 140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities, which replaces
SFAS 125. This statement provides consistent standards for distinguishing
transfers of financial assets that are sales from transfers that are secured
borrowings. The standards are based on the consistent application of the
financial components approach, whereupon after a transfer, an entity recognizes
the financial and servicing assets it controls and the liabilities it has
incurred, and relieves financial liabilities when extinguished. This statement
is effective for transfers and servicing of financial assets and extinguishments
of liabilities occurring after March 31, 2001. This statement was effective for
recognition and reclassification of collateral and for disclosures relating to
securitization transactions and collateral for fiscal years ending after
December 15, 2000. The implementation of this statement did not have a material
effect on the Company's consolidated financial statements.
In July 2001, the FASB issued SFAS 141, Business Combinations, and SFAS No. 142,
Goodwill and Other Intangible Assets. SFAS 141 requires that the purchase method
of accounting be used for all business combinations initiated after June 30,
2001 as well as all purchase method business combinations completed after June
30, 2001. SFAS 141 also specifies criteria intangible assets acquired in a
purchase method business combination must meet to be recognized and reported
apart from goodwill. SFAS 142 requires that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of SFAS 142. SFAS
142 also requires that intangible assets with definite useful lives be amortized
over their respective estimated useful lives to their estimated residual values,
and reviewed for impairment in accordance with SFAS 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
As of March 31, 2002 and December 31, 2001, the Company has unamortized goodwill
in the amount of $2,087,537, no unamortized identifiable intangible assets, and
no negative goodwill, which will be subject to the transition provisions of SFAS
141 and SFAS 142. Amortization expense related to goodwill was $0 and $47,642
for the three months ended March 31, 2002 and 2001 respectively, and $190,567
for the year ended December 31, 2001. The goodwill intangible asset and related
amortization expense are reported in the Enterprise Banking segment. The Company
will determine the fair value of the reporting unit associated with the goodwill
in the second quarter of 2002 as required by SFAS 142.
The adoption of SFAS 141 and SFAS 142 has no impact on the basic or diluted
earnings per share reported for the Company in the three months ended March 31,
2002 or 2001 (on a pro-forma basis).
In August 2001, the FASB issued SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets which addresses financial accounting and reporting
for the impairment or disposal of long-lived assets. While SFAS No. 144
supercedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, it retains many of the fundamental
provisions of that statement. SFAS No. 144 also supercedes the accounting and
reporting provisions of APB Opinion No. 30, Reporting the Results of
Operations-Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transaction, for
the disposal of a segment of a business. However, it retains the requirement in
Opinion No. 30 to report
8
separately discontinued operations and extends that reporting to a component of
an entity that either has been disposed of (by sale, abandonment, or in a
distribution to owners) or is classified as held for sale. SFAS No. 144 is
effective for fiscal years beginning after December 15, 2001 and interim
financial periods within those fiscal years. The adoption of this statement did
not have a material effect on the Company's consolidated financial statements.
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, 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
Enterprise Financial Services Corp'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 Enterprise Financial Services
Corp's actual results to differ from those set forth in the forward-looking
statements.
Introduction
This 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, 2002 compared to the three months
ended March 31, 2001 and the year ended December 31, 2001. 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, 2001.
Financial Condition
Total assets at March 31, 2002 were $789 million, a decrease of $6 million
compared to total assets of $795 million at December 31, 2001. Loans less
unearned loan fees were $687 million, an increase of $45 million, or 7%, over
total loans of $642 million at December 31, 2001. The increase in loans is
attributed, in part, to the success of the Company's relationship officers'
efforts. Federal funds sold and investment securities were $59 million, a
decrease of $39 million, or 40%, from total federal funds sold and investment
securities of $98 million at December 31, 2001. The decrease resulted from the
shift in interest earning assets from short-term investments into loans during
the first three months of 2002.
Total deposits at March 31, 2002 were $704 million, a decrease of $10 million
compared to total deposits of $714 million at December 31, 2001.
Total shareholders' equity at March 31, 2002 was $52.6 million, an increase of
$0.7 million over total shareholders' equity of $51.9 million at December 31,
2001. The increase in equity is primarily due to net income of $871,000 for the
three months ended March 31, 2002, and the exercise of incentive stock options
by employees, less dividends paid to shareholders and a $365,000 decrease in
accumulated other comprehensive income.
Results of Operations
Net income was $871,358 for the three month period ended March 31, 2002, a
decrease of $288,694 or 25% compared to net income of $1,160,052 for the same
period ended March 31, 2001. Basic earnings per share for the three month
periods ended March 31, 2002 and 2001 were $0.09 and $0.13, respectively.
Diluted earnings per share for the three
9
month periods ended March 31, 2002 and 2001 were $0.09 and $0.12, respectively.
The decrease in net income for the three month period ended March 31, 2002 as
compared to the same period ended March 31, 2001 is due to a decrease in net
interest income, an increase in the provision for loan losses and an increase in
noninterest expenses, offset by an increase in noninterest income.
Net Interest Income
Net interest income (on a tax equivalent basis) was $7.2 million, or 3.92% of
average interest-earning assets for the three months ended March 31, 2002,
compared to $7.5 million, or 4.69%, of average interest-earning assets, for the
same period in 2001. The $340,000 decrease in net interest income for the three
months ended March 31, 2002 as compared to the same period in 2001 was the
result of a decrease in the interest rates of average interest-earning assets
and an increase in average interest-bearing liabilities offset by an increase in
average interest-earning assets and a decrease in the interest rates on average
interest-bearing liabilities. Average interest-earning assets for the three
months ended March 31, 2002 were $744 million, which is a $94 million, or 14%,
increase over $650 million for the three months ended March 31, 2001. The
increase in average interest-earning assets is attributed to the continued
calling efforts of the Company's relationship officers. The yield on average
interest-earning assets decreased to 6.02% for the three month period ended
March 31, 2002 compared to 8.89% for the three month period ended March 31,
2001. The decrease in asset yield was primarily due to a 325 basis point
decrease in the prime rate since March 31, 2001 and a general decrease in the
average yield on loans and investment securities. Average interest-bearing
liabilities increased to $610 million for the three months ended March 31, 2002
from $542 million for the same period in 2001. The increase in interest-bearing
transaction and money market accounts is attributed to continued calling efforts
of the Company's relationship officers. The cost of interest-bearing liabilities
decreased to 2.57% for the three months ended March 31, 2002 compared to 5.04%
for the same period in 2001. This decrease is attributed mainly to declines in
market interest rates for all sources of funding.
10
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, 2002 and 2001:
Three months ended March 31,
----------------------------------------------------------------------------------------------
2002 2001
--------------------------------------------- --------------------------------------------
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)(2) $668,497 85.58% $ 10,479 6.36% $568,178 82.74% $ 12,927 9.23%
Taxable investments in debt and
equity securities 47,924 6.13 458 3.87 44,538 6.49 828 7.54
Non-taxable investments in debt
and equity securities (2) 73 0.01 1 7.72 457 0.07 9 7.75
Federal funds sold 24,068 3.08 92 1.55 37,242 5.42 501 5.46
Interest-earning deposits 3,397 0.43 17 2.05 33 - - 3.59
-------- ------ -------- -------- ------ --------
Total interest-earning assets 743,959 95.23 $ 11,047 6.02 650,448 94.72 $ 14,265 8.89
Noninterest-earning assets:
Cash and due from banks 24,614 3.15 22,252 3.24
Fixed assets, net 9,953 1.27 8,926 1.30
Prepaid expenses and other assets 10,267 1.31 12,316 1.79
Allowance for loan losses (7,569) (0.96) (7,224) (1.05)
-------- ------ -------- ------
Total assets $781,224 100.00% $686,718 100.00%
======== ====== ======== ======
Liabilities and Shareholders' Equity
- ------------------------------------
Interest-bearing liabilities:
Interest-bearing transaction
accounts $ 66,297 8.48% $ 68 0.42% $ 53,783 7.83% $ 179 1.35%
Money market accounts 317,383 40.62 1,274 1.63 267,359 38.94 3,107 4.71
Savings 8,328 1.07 21 1.02 7,223 1.05 46 2.58
Certificates of deposit 190,740 24.42 2,041 4.34 191,819 27.94 3,009 6.36
Borrowed funds 16,689 2.13 200 4.86 11,290 1.64 147 5.27
Guaranteed preferred beneficial
interests in EBH-subordinated
debentures 11,000 1.41 259 9.55 11,000 1.60 253 9.31
--------- ------ -------- -------- ------ --------
Total interest-bearing liabilities 610,437 78.13 $ 3,863 2.57 542,474 79.00 $ 6,741 5.04
Noninterest-bearing liabilities:
Demand deposits 115,739 14.82 87,166 12.69
Other liabilities 2,100 0.27 2,325 0.34
-------- ------ -------- ------
Total liabilities 728,276 93.22 631,965 92.03
Shareholders' equity 52,948 6.78 54,753 7.97
-------- ------ -------- ------
Total liabilities and shareholders'
equity $781,224 100.00% $686,718 100.00%
-------- ------ -------- ------
Net interest income $ 7,184 $ 7,524
-------- --------
Net interest spread 3.45% 3.85%
Net interest rate margin(3) 3.92% 4.69%
----- -----
(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 $335,000 and
$345,000 for the three months ended March 31, 2002 and 2001, respectively.
(2) Non-taxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
(3) Net interest income divided by average total interest earning assets.
11
During the three months ended March 31, 2002, an increase in the average volume
of interest-earning assets resulted in an increase in interest income of
$1,960,000. Interest income decreased $5,178,000 due to a decrease in rates on
average interest-earning assets. Increases in the average volume of
interest-bearing demand deposits, savings and money market accounts, time
deposits and borrowed funds resulted in an increase in interest expense of
$582,000. Changes in interest rates on the average volume of interest-bearing
liabilities resulted in a decrease in interest expense of $3,460,000. The net
effect of the volume and rate changes associated with all categories of
interest-earning assets during the three months ended March 31, 2002 as compared
to the same period in 2001 was a decrease in interest income of $3,218,000,
while the net effect of the volume and rate changes associated with all
categories of interest-bearing liabilities was a decrease in interest expense of
$2,878,000.
The following table sets forth on a tax equivalent basis, for the three months
ended March 31, 2002 compared to the same period ended March 31, 2001, a summary
of the changes in interest income and interest expense resulting from changes in
yield/rates and volume:
2002 Compared to 2001
Increase (Decrease) Due to
-----------------------------------
Volume(1) Rate(2) Net
--------- ------- --------
(Dollars in Thousands)
Interest earned on:
Loans $2,026 $(4,474) $(2,448)
Taxable investments in debt and
equity securities 59 (429) (370)
Nontaxable investments in debt
and equity securities (3) (8) - (8)
Federal funds sold (135) (274) (409)
Interest-bearing deposits 18 (1) 17
------- ------- ------
Total interest-earning assets $1,960 $(5,178) $(3,218)
------ ------- -------
Interest paid on:
Interest-bearing transaction
accounts $ 35 $ (146) $ (111)
Money market accounts 496 (2,329) (1,833)
Savings 6 (31) (25)
Certificates of deposit (17) (951) (968)
Borrowed funds 62 (9) 53
Guaranteed preferred beneficial
interests in EBH-subordinated
debentures - 6 6
------ ------- -------
Total 582 (3,460) (2,878)
------ ------- -------
Net interest income $1,378 $(1,718) $ (340)
====== ======= =======
(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.
Provision for Loan Losses
The provision for loan losses was $590,000 for the three months ended March 31,
2002, compared to $265,000 for the same period in 2001. The Company's asset
quality remained sound with net chargeoffs of $30,000 for the three months ended
March 31, 2002, compared to net chargeoffs of $13,000 for the same period in
2001. Loan growth remained strong during the first three months of 2002. The
increase in provision expense in the first quarter of 2002 as compared to the
same period in 2001 was due to an increase of $890,000 in nonperforming loans, a
higher level of internally criticized credits as a percentage of bank capital
plus loan loss reserves, and the continued increase in loans outstanding.
12
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 the provision:
Three months ended
March 31,
---------------------
2002 2001
---------- ---------
(Dollars in thousands)
Allowance at beginning of period $ 7,296 $ 7,097
Loans charged off:
Commercial and industrial 31 5
Real estate:
Commercial 14 35
Construction - -
Residential - -
Consumer and other 9 7
--------- --------
Total loans charged off 54 47
--------- --------
Recoveries of loans previously charged off:
Commercial and industrial 10 8
Real estate:
Commercial 5 20
Construction - -
Residential - 3
Consumer and other 9 3
--------- --------
Total recoveries of loans previously charged off 24 34
--------- --------
Net loans charged off 30 13
--------- --------
Provision for loan losses 590 265
--------- --------
Allowance at end of period $ 7,856 $ 7,349
========= ========
Average loans $668,497 $568,178
Total loans $687,261 $583,954
Nonperforming loans $ 2,834 $ 1,944
Net charge-offs to average loans (annualized) 0.02% 0.01%
Allowance for loan losses to total loans 1.14% 1.26%
The Company's credit management policies 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 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
13
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 three
months, which are then discussed in formal meetings with the Asset Quality/Risk
Management Area and the Executive Loan Committee. 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 Executive
Loan Committee generally at the time of the formal quarterly watch list review
meetings.
Each month, management prepares 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. The calculated allowance for loan
losses required for the portfolios are then compared to the actual allowance
balances to determine the provision necessary to maintain the allowance for loan
losses at an appropriate level. 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 operations.
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 probable
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance for loan losses 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.
The allowance for loan losses to total loans of 1.14% at March 31, 2002 is down
from 1.26% at March 31, 2001 due to several large charge-offs in 2001 on loans
that had specific reserves allocated to them. This same ratio was 1.14% at
December 31, 2001.
14
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
March 31, March 31,
2002 2001
-------- ---------
(Dollars in thousands)
Non-accrual loans $ 2,834 $ 1,944
Foreclosed property 138 338
-------- --------
Total nonperforming assets $ 2,972 $ 2,282
======== ========
Total assets $789,404 $701,536
Total loans $687,261 $583,954
Total loans plus foreclosed property $687,399 $584,292
Nonperforming loans to loans 0.41% 0.33%
Nonperforming assets to loans plus
foreclosed property 0.43% 0.33%
Nonperforming assets to total assets 0.38% 0.33%
As of March 31, 2002, a large portion, $1.9 million or 69%, of the nonaccrual
loans are three separate loans from one customer relationship. At March 31,
2001, $1.6 million or 81% of the nonaccrual loans were a result of one customer
relationship. The loans related to this relationship were subsequently
restructured and $270,000 was charged off during May 2001.
Noninterest Income
Noninterest income was $1,491,720 for the three months ended March 31, 2002,
compared to $838,757 for the same period in 2001. The 78% increase is primarily
attributed to a $376,710 increase in trust and financial advisory income, a
$180,314 increase in the gain on sale of mortgage loans and a $112,333 increase
in service charges on deposit accounts. Trust and financial advisory income was
$629,056 for the three months ended March 31, 2002, as compared to $252,346 for
the same period in 2001. The increase in fees was the result of increased assets
under management in Enterprise Trust and commissions on insurance sales activity
in the financial advisory area. The gain on sale of mortgage loans was $360,337
for the three months ended March 31, 2002, as compared to $180,023 for the three
months ended March 31, 2001. The increase in the gain on sale of mortgage loans
was due to a dramatic decrease in interest rates during 2001 resulting in higher
purchase and refinancing activity on residential mortgage loans. Most of these
loans are sold into the secondary market without retention of the servicing
rights. The service charges on deposit accounts were $411,894 for the three
months ended March 31, 2002 as compared to $299,561 for the three months ended
March 31, 2001. The increase in service charges on deposit accounts is a result
of a decrease in the earnings credit rate on business accounts and an increase
in deposit balances outstanding. These increases were slightly offset by a
$29,687 decrease in the gain on sale of securities and a $25,336 decrease in
other service charges and fee income. The Company had no sales of investment
securities during the three month period ended March 31, 2002. The Company wrote
off its assets related to Merchant Banc investments during December 2001. The
Company is pursuing recoveries on those Merchant Banc investment losses. There
were no gains or further losses recorded on these Merchant Banc investments
during the three months ended March 31, 2002.
Noninterest Expense
Noninterest expense was $6.6 million for the three months ended March 31, 2002,
compared to $6.2 million for the same period in 2001. The 7% increase in
noninterest expenses was primarily due to: 1) increased activity and growth in
the trust and financial advisory services which resulted in a $59,833, or 10%,
increase in noninterest expense; 2) increased
15
commissions of $63,535 related to the sale of mortgage loans; 3) recent
renovation and remodeling at the Clayton location in the fourth quarter of 2001
which increased noninterest expenses by $102,740; and 4) the opening of a new
banking facility in the Kansas City area which increased noninterest expenses by
$178,590.
Salaries, payroll and employee benefits increased $289,029, or 7%, for the three
month period ended March 31, 2002 as compared to the same period ended March 31,
2001. Most of this increase is related to an increase in commission based income
in the Mortgage and Financial Advisory areas. Occupancy expense increased
$60,589, or 15%, for the three month period ended March 31, 2002 as compared to
the same period ended March 31, 2001. The Clayton location acquired additional
space for the Holding Company and Trust offices and existing space was
remodeled. The Company opened a new banking facility in the Country Club Plaza
in Kansas City, Missouri during the fourth quarter of 2001, which also increased
occupancy and furniture equipment expenses. The Company upgraded its telephone
and voicemail systems during the fourth quarter of 2001 which increased
furniture and equipment expense during 2002. Furniture and equipment expense
increased $34,501, or 16%, for the three month period ended March 31, 2002 as
compared to the same period ended March 31, 2001. Data processing expense
decreased $43,170, or 15%, for the three months ended March 31, 2002 as compared
to the same period ended March 31, 2001. During the first quarter of 2001, the
Bank expanded the computer and data processing infrastructure for the additional
Kansas locations.
Other operating expenses increased $137,966 or 10% for the three month period
ended March 31, 2002 over the same period ended March 31, 2001. The Bank
recognized a $138,000 loss in March, 2002 associated with fraud that was
substantially recovered in April.
Liquidity
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan and investment
portfolios, and amortization of term loans, along with deposit inflows, and
proceeds from borrowings. At March 31, 2002, the loan to deposit ratio was 98%,
as compared to 90% at December 31, 2001. Federal funds sold and investment
securities were $59 million at March 31, 2002 as compared to $98 million at
December 31, 2000. During the three months ended March 31, 2002, the Company
experienced loan growth of $45 million, while deposits decreased $10 million.
This decrease in the Company's liquidity position resulted in the utilization of
federal funds sold balances to fund loan growth. The Company also increased its
Federal Home Loan Bank advances by $1.5 million to $15.5 million during the
three month period ended March 31, 2002.
This decrease in the Company's liquidity position during the first quarter of
the year is very typical. The Company's deposits tend to increase at year end
and decrease during the first quarter as its commercial customers payout year
end bonuses and taxes.
The Company closely monitors its current liquidity position and believes there
are sufficient backup sources of liquidity. As of March 31, 2002, the Company
has over $90 million available from the Federal Home Loan Bank of Des Moines
under a blanket loan pledge and $27 million from the Federal Reserve under a
pledged loan agreement. The Company also has access to over $50 million in
overnight federal funds purchased from various banking institutions.
Capital Adequacy
Enterprise Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
requirements can initiate certain mandatory and possibly 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
assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classifications
are also subject to qualitative judgments by the regulators about components,
risk weightings and other factors.
16
Quantitative measures established by regulations to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital (as defined in the regulations) to risk-weighted assets, and of Tier I
capital to average assets. Management believes Enterprise Bank is well
capitalized.
As of March 31, 2002, the most recent notification from the Company's primary
regulator categorized the Bank as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well capitalized,
Enterprise Bank must maintain minimum total risk-based, Tier I risk-based and
Tier I leverage ratios as set forth in the following table.
The following table summarizes the Company's and Bank's risk-based capital and
leverage ratios at the dates indicated:
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
----------------------- -------------------- -----------------------
Amount Ratio Amount Ratio Amount Ratio
----------- ----- ----------- ----- ---------- -----
As of March 31, 2002:
Total Capital (to risk weighted assets)
Enterprise Financial Services Corp $69,520,611 10.17% $54,687,202 8.00% $ - - %
Enterprise Bank 69,611,652 10.21 54,530,948 8.00 68,163,685 10.00
Tier 1 Capital (to risk weighted assets)
Enterprise Financial Services Corp $61,664,281 9.02% $27,343,601 4.00% $ - - %
Enterprise Bank 61,755,322 9.06 27,265,474 4.00 40,898,211 6.00
Tier 1 Capital (to average assets)
Enterprise Financial Services Corp $61,664,281 7.91% $23,374,095 3.00% $ - - %
Enterprise Bank 61,755,322 7.94 23,337,347 3.00 38,895,579 5.00
As of December 31, 2001:
Total Capital (to risk weighted assets)
Enterprise Financial Services Corp $67,920,595 10.41% $52,203,818 8.00% $ - - %
Enterprise Bank 67,605,690 10.40 52,024,902 8.00 65,031,128 10.00
Tier 1 Capital (to risk weighted assets)
Enterprise Financial Services Corp $60,624,679 9.29% $26,101,909 4.00% $ - - %
Enterprise Bank 60,309,774 9.27 26,012,451 4.00 39,018,677 6.00
Tier 1 Capital (to average assets)
Enterprise Financial Services Corp $60,624,679 8.18% $22,232,250 3.00% $ - - %
Enterprise Bank 60,309,774 8.21 22,040,917 3.00 36,734,862 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.
17
Item 3: Quantitative and Qualitative Disclosures Regarding Market Risk
The Company's exposure to market risk is reviewed on a regular basis by its
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 interest risk while at the same time
maximizing income. Management realizes certain interest rate risks are inherent
in our business and that the goal is to identify and minimize those risks. Tools
used by management include the standard repricing or "GAP" report subject to
different rate shock scenarios. At March 31, 2002, the rate shock scenario
models indicated that annual net interest income would change by less than 5%
should rates rise or fall within 100 basis points from their current level over
a one year period. The Bank has no market risk sensitive instruments held for
trading purposes.
In January 2002, the Bank executed two interest rate swaps in order to limit
exposure from further falling interest rates. The first swap had a $40 million
notional amount, a term of two years and obligated the Bank to pay a floating
amount and receive a fixed amount. The second swap was also a "receive fixed"
but had a notional amount of $20 million and a term of three years. The swaps
qualify as "cash flow hedges" under SFAS 133, and so changes in the fair value
of the swaps are recognized as part of other comprehensive income.
18
The following tables present the scheduled maturity of the Company's market risk
sensitive instruments at March 31, 2002:
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 $ 25,221 9,794 5,541 4,866 1,002 1,330 $ 47,754
Interest-bearing
deposits 379 - - - - - 379
Federal funds sold 11,745 - - - - - 11,745
Loans 539,323 32,625 72,826 13,820 14,219 14,448 687,261
Loans held for sale 2,628 - - - - - 2,628
-------- ------ ------ ------ ------ ------ --------
Total $579,296 42,419 78,367 18,686 15,221 15,778 $749,767
======== ====== ====== ====== ====== ====== ========
LIABILITIES
Savings, money
market deposits $398,156 - - - - - $398,156
Certificates of deposit 161,322 19,314 1,979 2,545 395 - 185,555
Guaranteed
preferred beneficial
interests in
EBH-subordinated
debentures - - - - - 11,000 11,000
Borrowed funds 6,024 5,480 2,900 1,150 550 1,272 17,376
-------- ------ ------ ------ ------ ------ --------
Total $565,502 24,794 4,879 3,695 945 12,272 $612,087
======== ====== ====== ====== ====== ====== ========
Average
Interest
Rate for
Three
Months
Ended
Carrying March 31, Estimated
Value 2002 Fair Value
----------- ------------ -------------
ASSETS
Investment in debt
and equity securities $ 47,754 3.87% $ 47,754
Interest-earning
deposits 379 2.05 379
Federal funds sold 11,745 1.55 11,745
Loans 687,261 6.36% 701,883
Loans held for sale 2,628 2,628
-------- --------
Total 749,767 $764,389
======== ========
LIABILITIES
Savings, money
market deposits $398,156 1.41% $398,156
Certificates of deposit 185,555 4.34 187,500
Guaranteed preferred
beneficial interests
in EBH-subordinated
debentures 11,000 9.55 11,128
Borrowed funds 17,376 4.86% 17,550
-------- --------
Total $612,087 $614,334
======== ========
19
PART II - OTHER INFORMATION
---------------------------
Item 6. - Exhibits and Reports on Form 8-K
(a). Exhibits.
Exhibit
Number Description
------ -----------
11.1 (1) Statement Regarding Calculation of Earnings Per Share
(b). During the three months ended March 31, 2002, the Registrant filed one
Current Report on Form 8-K, dated March 22, 2002, in which the Registrant
announced a change in previously reported 2001 earnings.
- -------------
(1) Filed herewith.
I
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 9th day of May, 2002.
ENTERPRISE FINANCIAL SERVICES CORP
By: /s/ Fred H. Eller
-------------------------------------
Fred H. Eller
Chief Executive Officer
By: /s/ Frank H. Sanfilippo
-------------------------------------
Frank H. Sanfilippo
Chief Financial Officer
II