<PAGE> 1
PROSPECTUS
ENTERPRISE [LOGO] BANKING
ENTERBANK HOLDINGS, INC.
451,612 SHARES OF COMMON STOCK
Enterbank Holdings, Inc., a Delaware corporation (the "Company"), is
offering a maximum of 451,612 shares and a minimum of 193,548 shares of its
$.01 par value common stock (the "Common Stock") for sale to prospective
investors at $15.50 per share. The offering price has been determined
solely by the Company without independent review by, or as a result of
negotiation with, an investment banker. See "Description of Capital
Stocks." Prior to this offering, there has been no public market for the
Common Stock of the Company. An established public trading market is not
expected to develop following the offering. The minimum subscription per
subscriber under this offering is 650 shares costing $10,075. A total of
77,736 shares of the Common Stock included in this offering are being
reserved for sale to certain directors of the Company and its subsidiary,
Enterprise Bank. See "Plan of Distribution."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 5 OF THIS PRELIMINARY PROSPECTUS.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER
OBLIGATIONS OF A BANK, FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
============================================================================================================================
<CAPTION>
PRICE SALES PROCEEDS TO
TO PUBLIC COMMISSION<F1> COMPANY<F2>
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share............................................. $ 15.50 $0 $ 14.88<F3>
$ 15.23<F4>
- ----------------------------------------------------------------------------------------------------------------------------
Minimum Per Subscription $ 10,075 $0 $ 9,672<F3>
(650 Shares)......................................... $ 9,902<F4>
- ----------------------------------------------------------------------------------------------------------------------------
Total Minimum Offering
(193,548 shares)..................................... $3,000,000 $0 $2,880,000
- ----------------------------------------------------------------------------------------------------------------------------
Total Maximum Offering
(451,612 shares)..................................... $7,000,000 $0 $6,880,000
============================================================================================================================
<FN>
<F1> The Common Stock is being offered by the Company solely through the efforts
of certain officers and directors of the Company when, as, and if issued by
the Company. No commissions or other remuneration will be paid in
connection with the sale of the Common Stock. (See "Plan of
Distribution").
<F2> After deducting offering expenses estimated at approximately $120,000
payable by the Company.
<F3> Based on proposed minimum offering.
<F4> Based on proposed maximum offering.
</TABLE>
The shares of Common Stock are being offered to the public by the Company on
a "best efforts" basis solely through the efforts of certain officers and
directors of the Company. Funds paid by subscribers will be deposited in an
interest-bearing escrow account and will be promptly refunded with interest,
and without deduction therefrom if 193,548 shares are not sold on or before
January 28, 1997, or by the end of any extended date, up to an additional 120
days, if the Company elects to extend the offering time. See "Plan of
Distribution". A subscriber has no right to withdraw his investment during
the offering.
These shares are being offered subject to prior sale, to acceptance of an
offer to purchase by the Company, and to the right to reject any offer to
purchase in whole or in part. In the event the offering is oversubscribed,
the Company reserves the right to allocate the shares among the subscribers
in any manner deemed appropriate by the Company in its sole discretion.
THE DATE OF THIS PROSPECTUS IS DECEMBER 19, 1996.
Prior to this offering, the Company has not been a reporting company with
the Securities and Exchange Commission. Subsequent to this offering, the
Company intends to furnish, to the extent required by law, its security
holders with annual reports containing financial statements and quarterly
reports for the first three quarters of each fiscal year containing
unaudited interim financial information.
<PAGE> 2
The Company intends to furnish its shareholders with annual reports
which include audited financial statements and an opinion thereon expressed
by the Company's independent accountants and such other periodic reports as
the Company may determine to be appropriate or as may be required by law.
<PAGE> 3
PROSPECTUS SUMMARY
------------------
This summary should be read in conjunction with, and is qualified in its
entirety by, the more detailed information and the Company's consolidated
financial statements, including the accompanying notes, appearing elsewhere
in this Prospectus. Prospective investors should consider carefully the
information set forth under the heading "Risk Factors."
THE COMPANY
Enterbank Holdings, Inc. (together with its consolidated subsidiaries the
"Company") is a one-bank holding company headquartered in St. Louis County,
Missouri. The Company conducts its banking activities through its wholly-owned
subsidiary, Enterprise Bank (the "Bank"). The Bank began operations in
1988 as a newly-formed financial institution and has grown rapidly. The bank
holding company structure was added in 1995. The philosophy of the
organization is to provide a complete range of financial services to
closely-held businesses, their owners and employees, and to professional
persons. The Company's target market area consists of the entire St. Louis
metropolitan area, including the City of St. Louis, the Missouri counties of
St. Louis, St. Charles, Jefferson, Franklin, Lincoln and Warren and the
Illinois county of St. Clair. The Company's goal is to grow its operation
within its defined market niche by being well managed, well capitalized, and
disciplined in its approach to managing and expanding its operations as
growth opportunities arise.
The Company was incorporated under the laws of the State of Delaware and
was formed for the purpose of becoming a holding company for the ownership of
the Bank. The Company's principle executive offices are located at 150 N.
Meramec, Clayton, Missouri 63105, and its telephone number is (314) 725-5500.
FINANCIAL SUMMARY
At September 30, 1996, the Company had approximately $160.8 million in
assets, $129.7 million in loans, $145.6 million in deposits, and $14.3
million in Shareholders' equity. From 1991 to 1995, the Company's net income
increased from $207,000 to $1.3 million and net income per share increased
from $.14 to $.79. During the same period, return on average equity
increased from 2.42% to 11.13%. From December 31, 1991 to December 31, 1995,
the Company's net loans increased from $53.3 million to $110.5 million, total
assets increased from $80.5 million to $153.7 million and total deposits
increased from $71.4 million to $141.1 million. During this same period, the
Company's non-performing loans to total loans decreased from 1.35% to .10%.
<PAGE> 4
As displayed in the following graphs, the Company has experienced significant
growth in Earnings Per Share, Net Income, and Total Assets over the past five
years.
[EARNINGS PER SHARE GRAPH]
[NET INCOME GRAPH]
[TOTAL ASSETS GRAPH]
2
<PAGE> 5
<TABLE>
The Offering
<S> <C>
Common Stock Offered 193,548 minimum - 451,612 maximum shares of Common Stock.
Common Stock Outstanding
After the Offering Maximum of 2,113,972 shares<F1>
Use of Proceeds Of the $6,880,000 estimated net proceeds to the Company from the offering (assuming the
sale of all 451,612 shares pursuant to the offering), approximately $6,580,000 will be
used for general corporate purposes and the working and regulatory capital necessary to
allow for the future growth and physical expansion of the Bank into the St. Charles
County and Sunset Hills markets pursuant to the Bank's internal business plan.
Approximately $300,000 will be used to retire the Company's bank debt.
Risk Factors The securities offered hereby involve a high degree of risk and prospective purchasers
should consider the factors discussed herein under "Risk Factors."
Plan of Distribution The securities offered hereby are being offered solely by designated officers and
directors of the Company. The Company has reserved in the aggregate up to 77,736 shares
of Common Stock for sale to certain directors of the Company who previously have not
been significant owners of the Company's common stock. See "Plan of Distribution."
<FN>
- ----------------
<F1> Does not include options to purchase 213,000 shares of common stock granted
to officers and employees of the Company. See "Management - Stock Option
Plans."
</TABLE>
SUMMARY OF SELECTED FINANCIAL DATA
The table on the following page summarizes selected financial data for the
nine month periods ended September 30, 1996 and 1995, and for the years
ended December 31, 1995, 1994, 1993, 1992 and 1991. For the interim period
information presented, the information was summarized from the Company's
internal accounting records. For the fiscal year period information
presented, the information was summarized from the Company's independently
audited financial statements and/or internal accounting records, as
applicable. As discussed in Note 1 to the accompanying consolidated
financial statements, on May 9, 1995, Enterbank Holdings, Inc. was formed
as a bank holding company. Enterbank Holdings, Inc. exchanged 1,463,400
shares of Enterbank Holdings, Inc. common stock for all 73,170 (100%) of
the outstanding shares of Enterprise Bank in a twenty-for-one stock
exchange. The merger represented a combination of entities under common
control and, accordingly, was accounted for in a manner similar to a
pooling of interest. Therefore, results of operations for periods
presented prior to May 9, 1995 reflect the results of operations of
Enterprise Bank. Additionally, Enterprise Capital Resources, Inc. was
formed as a small business investment company in 1995 and, on May 11,
1995, Enterbank Holdings, Inc. acquired 100% of the outstanding shares
of Enterprise Capital Resources, Inc.
3
<PAGE> 6
<TABLE>
Summary of Selected Financial Data
<CAPTION>
Nine Months Ended
September 30, Year Ended December 31,
----------------- -----------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(Dollars and number of shares in Thousands except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 9,108 $ 7,927 $ 10,914 $ 7,374 $ 5,770 $ 5,297 $ 5,583
Interest expense 3,990 3,511 4,887 2,570 2,083 2,355 3,126
Net interest income 5,118 4,416 6,027 4,804 3,687 2,942 2,457
Provision for possible loan losses 144 290 631 450 162 181 435
Net interest income after provision for
possible loan losses 4,974 4,126 5,396 4,354 3,525 2,761 2,022
Noninterest income 780 608 836 805 744 652 683
Noninterest expense 3,696 3,237 4,187 3,551 3,106 2,623 2,370
Income before income tax expense 2,058 1,497 2,045 1,608 1,163 790 335
Income tax expense 792 587 741 607 411 285 128
Net income 1,266 910 1,304 1,001 752 505 207
Net income per common share 0.74 0.55 0.79 0.62 0.48 0.33 0.14
Cash dividends per common share $ 0.06 $ 0.05 $ 0.07 $ 0.06 $ 0.05 $ -- $ --
Weighted average common shares outstanding 1,497 1,463 1,463 1,461 1,460 1,460 1,460
BALANCE SHEET
Cash and due from banks $ 7,029 $ 11,357 $ 8,110 $ 5,930 $ 4,872 $ 2,650 $ 3,091
Federal funds sold 5,625 25,280 16,230 11,300 10,125 9,450 12,275
Investments in debt securities:
Available-for-sale 14,918 13,663 16,065 15,740 2,999 -- 6,149
Held-to-maturity 938 1,173 842 802 6,680 6,620 4,037
Total Investments 15,856 14,836 16,907 16,542 9,679 6,620 10,186
Loans, less unearned loan fees 129,721 97,698 110,464 85,687 72,215 57,553 53,380
Allowance for loan losses 1,555 1,290 1,400 1,000 722 606 565
Total assets 160,767 151,448 153,706 122,212 99,266 79,398 80,461
Total deposits 145,561 139,368 141,140 104,799 89,113 69,612 71,397
Notes payable 300 -- -- -- -- -- --
Shareholders' equity 14,323 11,677 12,052 10,781 9,943 9,264 8,759
Book value per common share 8.62 7.98 8.24 7.38 6.81 6.35 6.00
Tangible book value per common share $ 8.61 $ 7.97 $ 8.23 $ 7.38 $ 6.81 $ 6.34 $ 5.98
SELECTED RATIOS
Return on average assets 1.15% 0.95% 0.99% 0.96% 0.84% 0.66% 0.32%
Return on average equity 13.65 10.97 11.13 9.71 7.83 5.62 2.42
Total capital to risk-adjusted assets 10.84 11.07 10.27 10.75 13.16 14.65 15.80
Net yield on average earning assets 8.92 9.01 9.00 7.78 7.14 7.63 7.36
Cost of interest-bearing liabilities 4.85 4.90 4.94 3.36 3.11 4.10 6.28
Net interest margin 5.01 5.02 4.98 5.07 4.57 4.24 4.09
Nonperforming loans as a percent of loans 0.08 0.02 0.10 0.00 0.78 0.91 1.35
Nonperforming assets as a percent of assets 0.61 0.82 0.64 1.45 2.08 2.58 1.82
Net loan charge offs (recoveries)
as a percent of average loans (0.01) 0.00 0.24 0.23 0.07 0.25 0.70
Allowance for possible loan losses as a
percent of net loans 1.20 1.32 1.27 1.17 1.00 1.05 1.06
Leverage ratio 8.92% 7.73% 7.85% 8.89% 10.02% 11.66% 10.84%
</TABLE>
4
<PAGE> 7
RISK FACTORS
------------
In addition to the other information contained in this Prospectus, the
following factors should be considered carefully in evaluating an investment
in the shares of Common Stock offered hereby.
DEPENDENCE ON SENIOR MANAGEMENT
The Company's growth and development to date have been largely the result
of contributions by the senior executive officers of the Company and its
subsidiaries. The loss of the services of one or more of such individuals
could have a material adverse effect on the Company's business and develop-
ment. No assurance can be given that replacements for any of these officers
could provide similar leadership if these officers' services were no longer
available. The Company has not entered into any employment contracts with
its executive officers or any other key personnel. The Company maintains key
employee insurance on Fred H. Eller, President and Chief Executive Officer of
the Company. See "Management."
DIVIDEND POLICY; RESTRICTIONS ON PAYMENT OF DIVIDENDS
Historically, the Company has limited the payment of dividends in order to
retain earnings sufficient to support its growth. Therefore, it is not
anticipated the Company will provide dividend yields competitive with those
of its peers in the banking industry. Because the Company's principal
business operations are conducted through the Bank, cash available to pay
dividends is derived primarily, if not entirely, from dividends paid to it by
the Bank. The Bank's ability to pay dividends to the Company and the
Company's ability to pay dividends to Shareholders are subject to and limited
by legal and regulatory restrictions. See "Dividends" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
ABSENCE OF PUBLIC MARKET
Prior to this offering, there has been no public market for the Common
Stock. Moreover, an established public trading market for the Common Stock
is not expected to develop following the offering. Accordingly, it is likely
the shares of Common Stock will not be readily marketable and the purchasers
of stock through the offering may be required to bear the economic risk of
the investment for an indefinite period of time and may not be able to
readily liquidate their investment in the event of an emergency.
DETERMINATION OF OFFERING PRICE
The offering price of the Common Stock has been determined solely by the
Company without independent review by, or as a result of negotiation with, an
investment banker. The Board of Directors considered and analyzed many
factors prior to establishing the price for shares of Common Stock pursuant
to this offering. The primary source of the analysis was the performance and
trends exhibited by the Company's primary asset, the Bank, including the
historical earnings of the Bank, the strengths and weaknesses of its
operation and loan portfolio, the development and growth of its customer
base, the depth of management, the Bank's business plan and philosophy,
projection of asset growth and earnings performance, an evaluation of
comparable financial institution stock prices and the economy of its market
area. Recent trading history of the Company's Common Stock was also reviewed
where the price of the transfer was known. As such, the offering price may
bear no relationship to the market price of the Common Stock after this
offering.
5
<PAGE> 8
CONTROL BY MANAGEMENT
Following completion of this offering, the Company's and Bank's directors
and executive officers will beneficially own and control in the aggregate
approximately 37% of the outstanding shares of Common Stock, determined based
upon completion of the minimum offering, the exercise of all stock options
exercisable by such officers and directors as of November 30, 1996, and the
purchase by such officers and directors of only the 77,736 shares of Common
Stock reserved for sale to certain directors. Therefore, to the extent they
vote together, the directors and executive officers of both the Company and
Bank will have the ability to exert significant influence over the election of
the Company's Board of Directors and other corporate actions requiring
shareholder approval. See "Beneficial Ownership of Securities," "Plan of
Distribution - Shares Reserved for Sale" and "Description of Capital Stock."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding up to
2,113,972 shares of Common Stock, assuming the maximum number of shares are
sold pursuant to the offering. Of these shares, 1,915,012 will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by affiliates of the Company, which
shares will be subject to some or all of the resale limitations of Rule 144.
Since an established public trading market for the Common Stock is not
expected to develop following the offering, the sale of even a small number
of shares of Common Stock following this offering, or the potential of such
sales, could adversely affect the prevailing market price of the shares. See
"Description of Capital Stock - Shares Eligible for Future Sale."
DELAWARE LAW PROVISIONS
The Company was organized under Delaware law and as a result has certain
takeover defenses in place. Section 203 of the Delaware General Corporation
Law prevents a business combination with an interested shareholder (an owner
of 15% or more of the Company's outstanding voting stock) for a period of 3
years unless the Board of Directors gives prior approval to the transaction
or prior approval by a supermajority (66 2/3%) of the outstanding voting
stock not held by the interested shareholder. The Company did not elect in
its original Certificate of Incorporation nor have the shareholders amended
the Company's Certificate of Incorporation or bylaws, not to be governed by
this Section. This may impede the takeover of the Company without the
approval of the Board of Directors and may result in the Company being less
attractive to potential acquirors. See "Description of Capital Stock -
Certain Anti-Takeover Effects."
CREDIT RISK; ADEQUACY OF ALLOWANCE FOR LOAN LOSSES
There are risks inherent in making any loan, including risks with respect
to the period of time over which the loan may be repaid, risks resulting from
changes in economic and industry conditions, risks inherent in dealing with
individual borrowers and risks resulting from uncertainties as to the future
value of the collateral. The Bank maintains an allowance for loan losses
based upon several factors, including but not limited to, historical
experience, an evaluation of economic conditions, and regular reviews of
delinquencies and loan portfolio quality. Using such factors, the Bank makes
various assumptions and judgments about the ultimate collectibility of the
loan portfolio and provides an allowance for potential loan losses based upon
a percentage of the aggregate outstanding balances of the entire portfolio
and special allowances for specific loans when their ultimate collectibility
is considered questionable. Although the Bank believes that its allowance
for loan losses is adequate, there can be no assurance that the allowance
will prove sufficient to cover
6
<PAGE> 9
future losses. Future adjustments may be necessary if economic conditions
differ or adverse developments arise with respect to the Bank's nonperforming
or performing loans. Material additions to the Bank's allowance for loan
losses would result in a material decrease in the Bank's net income and,
possibly, its capital, and could result, among other consequences, in its
inability to pay dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation - Provision for Loan Losses."
LOCAL ECONOMIC CONDITIONS
The success of the Company and the Bank is dependent to a certain extent
upon the general economic conditions in the St. Louis metropolitan area,
particularly the conditions for entrepreneurial entities and small businesses
which are the focus of the Bank's customer base. Although the Company
expects that economic conditions will be favorable in this market, no
assurance can be given that favorable economic conditions will continue.
Adverse changes in economic conditions in the St. Louis metropolitan area
could impair the Bank's ability to collect loans and could otherwise have a
negative effect on the overall financial condition of the Company. See
"Business - Market Areas and Approach to Expansion."
COMPETITION
The financial institution industry is highly competitive. The Bank
competes with other financial intermediaries including commercial banks,
savings and loan associations, credit unions, mortgage banking companies,
securities brokerage companies, insurance companies, and money market mutual
funds operating in Missouri and elsewhere. Many of these competitors have
greater resources and lending limits than the Company and offer services that
the Company does not currently provide. In addition, non-depository
institution competitors are generally not subject to the extensive regulation
applicable to the Company. Recently enacted federal legislation is pending
which may permit commercial banks to establish operations nationwide, further
increasing competition from out-of-state financial institutions. See
"Supervision and Regulation."
REGULATORY ENVIRONMENT
The banking industry is heavily regulated. The success of the Company and
the Bank depends not only on competitive factors but also on the cost of
complying with state and federal regulations affecting banks, and bank
holding companies. The Bank is subject to regulation and supervision by the
Federal Deposit Insurance Corporation (the "FDIC") and the Missouri Division
of Finance (the "Division of Finance"), while the Company is subject to
regulation and supervision by the Board of Governors of the Federal Reserve
System (the "FRB"). The burden imposed by federal and state regulations puts
banks at a competitive disadvantage compared to lesser regulated competitors
such as finance companies, mortgage banking companies and leasing companies.
Banking industry regulations are primarily intended to protect depositors,
not shareholders, and are undergoing continuous change. The ultimate effect
of such changes cannot be predicted. In September 1994, the Community
Development and Regulatory Improvement Act and the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 were enacted. Additional
statutes affecting financial institutions have been proposed and may be
enacted. Regulations now affecting the Company may be modified at any time.
There is no assurance that the cost of complying with government regulations
will not adversely affect the business and economic performance of the
Company. See "Supervision and Regulation."
7
<PAGE> 10
DILUTION
Purchasers of the Common Stock offered hereby will experience an
immediate substantial dilution of the net tangible book value per share
from the public offering purchase price. See "Dilution." Additional dilution
may also occur upon the exercise of options to purchase up to 213,000 shares
of Common Stock which are currently outstanding, of which options to
purchase 176,200 shares were exercisable as of November 30, 1996. See
``Management--Stock Option Plans.''
NO ASSURANCE AS TO SALE OF COMMON STOCK
The offering requires a minimum of 193,548 shares to be sold, which means
that no shares will be sold unless 193,548 shares are sold to the public.
Accordingly, there is no assurance that the minimum number of shares will be
sold.
LACK OF DIVERSIFICATION
As a bank holding company subject to federal and state regulation, the
Company may not engage in businesses other than those approved by the Board
of Governors of the Federal Reserve System as closely related to the business
of banking. Thus, the Company will not have the benefit of reducing risks by
diversifying among a broader portfolio of operating subsidiaries.
ASSET/LIABILITY MANAGEMENT
The Company's profitability depends to a great extent upon the Bank's level
of net interest income, which is the difference between the interest income
earned on loans and investments and the interest expense paid on deposits and
other borrowings. Although the maturities of the Bank's assets are well
balanced in relation to maturities of liabilities, the management of interest
rate risk is an ongoing issue which must be addressed continuously to
estimate changes in the general level of interest rates and the impact of
such change on the yields earned on assets and the rates paid on liabilities.
Rate changes can vary depending upon the level of rates and the competitive
factors. If the maturities of assets and liabilities are not properly
balanced, a rapid increase or decrease in interest rates could have an
adverse effect on the net interest margins and results of operations of the
Bank and the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Interest Rate
Sensitivity".
The results of operations of the Company are affected by the credit
policies of monetary authorities, particularly the Federal Reserve. There
can be no assurance that the effect of actions by monetary and fiscal
authorities, including the Federal Reserve, will not have an adverse effect
on the deposit levels, net interest margin, loan demand, or the business and
earnings of the Company.
THE COMPANY
-----------
Enterbank Holdings, Inc. (the "Company"), was incorporated under the laws
of the State of Delaware on December 30, 1994, and was formed for the sole
purpose of providing a holding company structure for the ownership of
Enterprise Bank, a Missouri banking corporation. The Company acquired
Enterprise Bank (the "Bank") through a tax-free exchange by Bank shareholders
in May 1995. The bank holding company ownership structure gives the Bank a
source of capital and financial strength and allows the organization some
flexibility in expanding the products and services offered to clients.
8
<PAGE> 11
The Bank began operation on May 9, 1988, as a newly formed and chartered
Missouri financial institution. Commercial banking services have been
provided to Bank customers from a single location in the City of Clayton, St.
Louis County, Missouri. There are plans to add additional facilities in the
near future in St. Charles County and the Sunset Hills area of St. Louis
County.
The Company organized Enterprise Capital Resources, Inc. ("Capital
Resources") in 1995 as a wholly-owned subsidiary to provide merchant banking
services to closely-held businesses and their owners. Capital Resources has
formed a wholly-owned subsidiary, Enterprise Capital Management, Inc.
("Capital Management"), which manages and acts as the general partner of The
Enterprise Fund, L.P., a licensed Small Business Investment Company ("SBIC")
under the regulations of the Small Business Administration providing venture
capital to growing companies.
As used herein, unless the context indicates otherwise, the term "Company"
refers to Enterbank Holdings, Inc. Enterprise Bank is referred to herein as
the "Bank". Enterbank Holdings, Inc. and all of its subsidiaries are
referred collectively as the "Organization".
The Company's executive offices are located at 150 North Meramec, Clayton,
Missouri. The Company's telephone number is (314) 725-5500.
USE OF PROCEEDS
---------------
The net proceeds to the Company from the sale of the Common Stock, after
deducting estimated expenses of the Offering, will be approximately
$2,880,000 if the minimum number of shares are sold and $6,880,000 if the
maximum number are sold.
The Company intends to use the net proceeds of the offering as follows:
<TABLE>
<CAPTION>
Minimum Maximum
Approximate Percent Approximate Percent
Use Amount of Total Amount of Total
--- ------ -------- ------ --------
<S> <C> <C> <C> <C>
Retirement of debt $ 300,000 10.4% $ 300,000 4.4%
General corporate purposes and working capital 2,580,000 89.6% 6,580,000 95.6%
---------- ---- ---------- ----
Total $2,880,000 100% $6,880,000 100%
</TABLE>
The retirement of debt section relates to the current outstanding balance
of the Company's $1,000,000 unsecured line of credit. This line of credit is
a one-year revolving line of credit bearing interest at the lender's prime
rate, currently 8.25%, and maturing April 23, 1997. A portion of the net
proceeds will be used to retire the outstanding balance under such line of
credit.
The remaining net proceeds of the Offering will be used to strengthen the
Company's capital base and in turn the Bank's capital base as the Company
makes additional capital contributions to the Bank. The Bank requires
additional capital from time to time to assure the Bank meets or exceeds
required regulatory capital ratios. The business plan for the Company
provides for future growth and expansion of the Bank by establishing
facilities in St. Charles County and the Sunset Hills area of St. Louis
County, and it is anticipated that the additional business generated by such
facilities may require additional capital in order to assure that the Bank
continues to meet or exceed such regulatory capital ratios. However, the
net proceeds of the Offering are not necessary in order
9
<PAGE> 12
for the Bank to continue to meet the requisite capital ratios. See
``Management's Discussion and Analysis of Financial Condition and Results of
Operations--Capital Adequacy.''
Pending such uses, the net proceeds will be invested in a variety of
short-term assets, including federal funds, interest-bearing deposits in other
banks, and similar investments.
CAPITALIZATION
--------------
The following table sets forth the capitalization of the Company as of
September 30, 1996 and the pro forma capitalization as of such date to give
effect to the issuance of the minimum and maximum number of shares of Common
Stock offered hereby and the application of the proceeds.
<TABLE>
<CAPTION>
As Adjusted
------------
If 193,548 If 451,612
Actual at Shares Shares
September 30, 1996 Are Sold Are Sold
------------------ -------- --------
<S> <C> <C> <C>
Short-term debt $ 300,000 -- --
=========== ========== ==========
Shareholders' equity:
Common stock $ 16,624 18,559 21,140
Additional paid-in surplus 9,595,956 12,474,021 16,471,440
Retained earnings, net of
unrealized losses on available
for sale securities 4,710,725 4,710,725 4,710,725
----------- ---------- ----------
Total Shareholders' equity $14,323,305 17,203,305 21,203,305
=========== ========== ==========
</TABLE>
DILUTION
--------
Purchasers of the Common Stock being offered hereby will pay $15.50 per
share. As of September 30, 1996, the Company had an aggregate of 1,662,360
shares of Common Stock outstanding and a net tangible book value, as
reflected on its balance sheet of $14,312,305 or $8.61 per share. "Net
tangible book value per share" represents the Company's total tangible assets
less its liabilities, divided by the number of shares of Common Stock
outstanding.
After giving pro forma effect to this Offering, the Company will have an
aggregate of 2,113,972 shares of Common Stock outstanding (assuming the
maximum 451,612 shares offered hereby are sold) and a net tangible book value
of $21,192,305, or approximately $10.02 per share. As a result of the
Company's shares being sold for an amount greater than the net tangible book
value per share, new Shareholders will experience an immediate dilution in
net tangible book value per share of Common Stock of $5.48 from the $15.50
per share purchase price, while the present Shareholders will receive an
immediate increase in the net tangible book value of the Common Stock of
$1.41 per share. Such dilution represents the difference between the public
offering price per share and the book value per share immediately after
completion of the offering. The increase in book value per share of Common
Stock held by the current Shareholders would be solely
10
<PAGE> 13
attributable to the cash paid by new Shareholders for their Common Stock. In
the event the Company sells only 193,548 shares, the Company will have an
aggregate of 1,855,908 shares of Common Stock outstanding and a net tangible
book value of $17,192,305, or approximately $9.26 per share. New Shareholders
will experience an immediate dilution in net tangible book value per share of
Common Stock of $6.24 from the $15.50 purchase price, while the present
Shareholders will receive an immediate increase in the net tangible book value
of Common Stock of $0.65 per share.
The following table illustrates such dilution in net tangible book value to
new investors:
<TABLE>
<CAPTION>
If 193,548 If 451,612
Shares Shares
Are Sold Are Sold
-------- --------
<S> <C> <C>
Price per share $15.50 $15.50
Net tangible book value per share before offering 8.61 8.61
Net tangible book value per share before offering
assuming exercise of 176,200 outstanding
vested options 8.32 8.32
Pro forma net tangible book value after offering 9.26 10.02
Pro forma net tangible book value after offering
assuming exercise of 176,200 outstanding
vested options 8.95 9.69
</TABLE>
The following table summarizes, on a pro forma basis as of September 30,
1996, the number of shares of Common Stock previously purchased from the
Company, the total consideration paid, and the average price paid per share
by the existing Shareholders and by the new investors purchasing the shares
of Common Stock offered hereby:
<TABLE>
<CAPTION>
If 193,548 shares are sold.
Shares Purchased<F1> Total Consideration Average
Price Per
Number Percent Amount Percent Share
<S> <C> <C> <C> <C> <C>
Existing Shareholders 1,662,360 89.6% $ 9,612,580 76.9% $ 5.78
New Investors 193,548 10.4 2,880,000 23.1 15.50
--------- ----- ----------- -----
Total 1,855,908 100.0% $12,492,580 100.0%
========= ===== =========== =====
<CAPTION>
If 451,621 shares are sold.
Shares Purchased<F1> Total Consideration Average
Price Per
Number Percent Amount Percent Share
<S> <C> <C> <C> <C> <C>
Existing Shareholders 1,662,360 78.6% $ 9,612,580 58.3% $ 5.78
New Investors 451,612 21.4 6,880,000 41.7 15.50
--------- ----- ----------- -----
Total 2,113,972 100.0% $16,492,580 100.0%
========= ===== =========== =====
<FN>
- ------------------------
<F1> Does not include total shares of Common Stock issuable upon exercise of
options under the Company's Stock Option Plans. See "Management - Stock
Option Plans."
</TABLE>
11
<PAGE> 14
BUSINESS
--------
GENERAL
The Company is a one-bank holding company headquartered in St. Louis
County, Missouri. The Company conducts its banking activities through its
wholly-owned subsidiary, Enterprise Bank (the "Bank"). Additionally, the
Company operates other subsidiaries related to its merchant banking
activities.
STRATEGY
The Company's strategy is to provide a complete range of financial services
designed to appeal to closely-held businesses and their owners and employees,
and to professional persons in the St. Louis metropolitan area, consisting of
the City of St. Louis, Missouri, the Missouri counties of St. Louis, St.
Charles, Jefferson, Franklin, Lincoln and Warren and the Illinois County of
St. Clair. The Company's goal is to grow its operations within its defined
market niche by being well-managed, well-capitalized, and disciplined in its
approach to managing and expanding its operations as growth opportunities
arise. The Company believes its goals for such growth can be accomplished
while providing attractive returns on Shareholders' equity. Operations
growth and return on Shareholders' equity are the financial measures the
Company considers most critical in measuring success.
The Company currently delivers a full range of commercial banking services
to the closely-held business market through the Bank, which was founded in
1988. Merchant banking and venture capital services are conducted through
the Company's subsidiaries, Enterprise Capital Resources, Inc. and Enterprise
Capital Management, Inc. The Company began offering merchant banking and
venture capital services in 1995. The Company plans to continue to expand
the range of services it provides within its market niche while expanding the
base of customers to which it provides its current services.
THE BANK
The Bank offers a broad range of commercial and personal banking services
to its customers. Loans include commercial, commercial real estate,
financial and industrial development, real estate construction and
development, residential real estate and a small amount of consumer loans.
Other services include merchant credit card processing services, cash
management services, safe-deposit boxes, and lock boxes. The Bank does not
have trust powers.
Deposit services include certificates of deposit, checking and other demand
deposit accounts, interest-bearing checking accounts, savings accounts, and
money market accounts. The Bank provides ATM cards to its customers and
encourages their use by allowing a number of transactions per month at no
charge to the customer.
Management believes that the Bank is able to compete effectively in its
market because: (i) the Company's officers and senior management maintain
close working relationships with their commercial customers and their
businesses; (ii) the Bank's management structure enables it to react more
quickly to customer requests for deposit services and loan requests than
larger competitors; (iii) the Bank's management and officers have significant
experience in the communities serviced by the Bank; (iv) the Company's focus
on the closely-held business and professional market; and (v) industry
consolidation has resulted in fewer independent banks and fewer banks serving
the Bank's target market niche. Management believes that the Bank is the
only bank in its market area whose primary strategy is to focus on closely-held
businesses, and their owners and employees.
12
<PAGE> 15
The Bank's historical growth strategy has been both customer and asset
driven. The Bank continuously seeks to add customers that fit its target
market. This strategy has enabled the Bank to attract customers whose
borrowing needs have grown along with the Bank's increasing capacity to fund
loan requests. Additionally, the Bank has increased its loan portfolio based
on lending opportunities developed by calling officers, which meet the Bank's
underwriting standards. The Bank funds its loan growth by attracting
deposits from its business and professional customers and by attracting
wholesale deposits which are considered stable deposit sources and which are
priced at levels below the Bank's alternative cost of borrowing funds. The
Bank has generally not advertised for deposits.
The Bank's operating strategy results in efficient operating ratios despite
its increasing investment in sales personnel whose goal is to expand the
number and depth of the Bank's customer relationships. The Bank can expand
its customer relationships and control operating costs by: (i) operating a
small number of offices with a high per office asset base; (ii) emphasizing
commercial loans which tend to be larger in size than retail loans;
(iii) employing an experienced staff, all of whom are rewarded on the basis
of sales and customer service; (iv) improving data processing and operational
systems to increase productivity and control risk; (v) leasing facilities so
that capital can be deployed more effectively to support growth in earning
assets; and, (vi) outsourcing services where possible.
The Bank has a strong orientation toward commercial banking, with a
specific focus on closely-held businesses, and their owners and employees,
and professionals located in its target service areas. The Bank stresses
personal service, flexibility in structuring loans and deposit relationships
to meet the customer's needs, and timely responsiveness to the needs of its
customers. Senior management of the Bank makes it a practice to maintain
close working relationships and personal contact with its commercial
customers.
The Bank's Board of Directors is comprised primarily of business owners and
professionals who fit the target customer profile of the Bank. The Board of
Directors takes an active role in the Bank's business development activities
and the credit review process. Its input and understanding of the needs of
the Bank's current and target customers is considered to be a critical factor
in the Bank's past success and its plans for future growth.
The Bank has historically had a low turnover of relationship officers, and
its policy is to keep officers assigned to accounts for long periods of time.
This practice improves each officer's understanding of clients' businesses
and results in knowledgeable credit assessments and superior customer
service. Relationship officers are supported by credit analysts and other
support personnel who are familiar with each assigned customer, thus creating
a team approach to serving a customer's needs. A significant portion of the
Bank's new business results from referrals from existing customers.
The Bank's growth in loans and profitability has been due in large measure
to its strategy of targeting closely-held businesses, and to the business and
personal relationships and long experience of the Bank's management and
directors in the St. Louis community, rather than as a result of greater
risk-taking or price concessions.
The Bank's current legal lending limit is in excess of $3,000,000. Any
loan request in excess of $400,000 requires approval by a committee of the
Bank's Board of Directors. Loan requests in excess of $1,500,000 require
approval by the Bank's full Board of Directors. As of September 30, 1996 the
Bank had 21 customers with outstanding loans or unfunded commitments
exceeding $1,000,000, but none in excess of $2,000,000. None of these large
loans are considered by management to be problem credits.
13
<PAGE> 16
Recent acquisitions and mergers in the St. Louis market have resulted in
few remaining banks in the $100 million to $1 billion asset size and, in the
belief of management, none whose primary focus is small and medium-sized
commercial customers. Management believes that these conditions will
continue into the foreseeable future and provide the basis for the Bank's
continued growth in the coming years. Additionally, the Company plans to
continue to expand the range of services it provides to both current and
future customers who fit within its market niche.
MARKET AREAS AND APPROACH TO EXPANSION
The Company plans to expand its Bank operations using its current strategy
and delivering its services to new business markets through new facilities
located in areas of high growth for the Company's established market niche.
As mentioned above, the Company believes that local management and the
involvement of a Board of Directors comprised of local business persons and
professionals are key ingredients for success. Management believes that
credit decisions, pricing matters, business development strategies, etc.
should be made locally by managers, all of whom either have or following the
offering will have an equity stake in the Company, along with the Bank's
Board of Directors. See "Management." The Company's plans to grow its St.
Charles County and Sunset Hills units are built upon such local involvement
and presence. The Company, as part of its expansion effort, plans to
continue its strategies of operating a small number of offices with a high
per office asset base, emphasizing commercial loans, and employing
experienced staff who are rewarded on the basis of sales and customer
service.
The following is a list of the Bank's current and planned facilities:
<TABLE>
<CAPTION>
Operating Unit Address
- -------------- -------
<S> <C>
Current
- -------
Enterprise Bank, Clayton 150 North Meramec, Clayton, Missouri 63105
Planned
- -------
Enterprise Bank, St. Charles<F1> 300 St. Peters Center Blvd., St. Peters, Missouri 63376
Enterprise Bank, Sunset Hills<F2> 3890 South Lindbergh Blvd., Sunset Hills, Missouri 63127
<FN>
<F1> The St. Charles facility currently operates from a temporary facility
located on the site of its permanent location. The facility can make loans,
collect deposits, and offers substantially all of the products and services
that will be offered from the Bank's permanent facility. The targeted
opening date for the permanent facility is June of 1997.
<F2> The lease for the planned office is contingent upon approval of the
location by the Missouri Commissioner of Finance and the FDIC. The Sunset
Hills facility is expected to be operational in July of 1997.
</TABLE>
ENTERPRISE CAPITAL RESOURCES
Enterprise Capital Resources, Inc. ("Capital Resources"), a wholly-owned
subsidiary of the Company, was organized in 1995 to provide merchant banking
services to closely-held businesses and their owners as part of the Company's
overall strategy to deliver financial services to that market.
14
<PAGE> 17
Operations to date have consisted of formation of a Small Business Investment
Company (SBIC) which is managed by Enterprise Capital Management, Inc. ("Capital
Management"), a wholly-owned subsidiary of Capital Resources, and, to a
lesser extent, fee-based services related to capital formation and company
acquisition. Capital Management acts as the general partner of The
Enterprise Fund, L.P. ("Enterprise Fund"), a licensed SBIC formed in 1995
under the regulations of the Small Business Administration ("SBA"). The
Enterprise Fund provides venture capital to growing companies in need of
additional capital which qualify under the SBA's definition of a small
business eligible for investment by an SBIC. The Enterprise Fund may also
participate in certain qualifying management buy out situations involving
companies eligible for investment by an SBIC. The Enterprise Fund began its
operations in the fourth quarter of 1995. The Fund's committed capital is
approximately $10 million, of which $1 million was committed by the Company
as a limited partner. Capital Management collects annual management fees of
2% of committed capital, plus an incentive payment based upon the investment
results achieved over the ten year life of Enterprise Fund.
LENDING ACTIVITIES
The Company provides a broad range of commercial and retail lending
services, including commercial revolving lines of credit, residential and
commercial real estate mortgage loans and, to a lesser extent, consumer
loans. The Company's primary lending focus is on commercial loans to small
and medium-sized businesses and professionals. At September 30, 1996,
substantially all loans outstanding were to customers within the Company's
market area. See "Business-Market Areas and Approach to Expansion."
Interest rates charged on loans vary with the degree of risk, maturity,
underwriting and servicing costs, loan amount, and extent of other banking
relationships maintained with customers, and are further subject to
competitive pressures, money market rates, availability of funds and
government regulations. Approximately 73% of the loans in the Company's
portfolio at September 30, 1996 had interest rates that float with the
Company's base rate or some other reference rate.
INVESTMENTS
The Company's investment policy is designed to enhance net income and
return on equity through prudent management of risk; to ensure liquidity for
cash-flow requirements; to help manage interest rate risk; to ensure
collateral is available for public deposits, advances and repurchase
agreements; and to manage asset diversification. The Company, through its
Asset/Liability Management Committee ("ALCO"), monitors investment activity
and manages the Company's liquidity by structuring the maturity dates of the
Company's investments to maintain necessary liquidity. However, the primary
goal of the Company's investment policy is to maintain an appropriate
relationship between assets and liabilities while maximizing interest rates
spreads. Accordingly, the ALCO monitors the sensitivity of its assets and
liabilities with respect to changes in interest rates and maturities and
directs the overall acquisition and allocation of funds.
DEPOSITS
The Company's primary source of funds has historically been customer
deposits. The Company offers a variety of accounts for depositors designed
to attract both short-term and long-term deposits. These accounts include
certificates of deposit, savings accounts, money market accounts, checking
and negotiable order of withdrawal accounts and individual retirement
accounts. Interest-bearing accounts earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types of maturities or deposits.
15
<PAGE> 18
FACILITIES
The Company's principal office is located at 150 N. Meramec, Clayton,
Missouri 63105. This facility is leased under an agreement that expires in
1999. The operating lease for the Company's principal facility has options
to renew the leases for additional periods with future rentals based upon
increases in the consumer price index. The lease provides that the Company
pay taxes, maintenance, insurance, and certain other operating expenses
generally applicable to the leased premises. Rent expense, net of income
from the sublet portions of premises, amounted to $202,784 and $200,125 and
$180,844 in 1995, 1994, and 1993 respectively.
The future minimum rental commitments required under the operating lease
for 150 N. Meramec are as follows:
<TABLE>
<S> <C>
1996 $294,318
1997 307,068
1998 307,068
1999 102,356
</TABLE>
The Company has signed preliminary leases for the Sunset Hills and St.
Charles locations which are contingent upon obtaining regulatory approval for
the facilities. Both of these buildings are currently under construction and
are expected to be completed in mid 1997. The lease payments begin upon
completion of the buildings and leasehold improvements. Annual rental
expense for the Sunset Hills and St. Charles locations are expected to
approximate $176,000 and $172,000 respectively.
EMPLOYEES
At September 30, 1996, the Company had approximately 58 employees, which
included 53 full-time employees. None of the Company's employees is covered
by a collective bargaining agreement and management believes that its
relationship with its employees is good.
16
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
INTRODUCTION
The following discussion and analysis is intended to review the significant
factors of the financial condition and results of operations of the Company
for the nine months ended September 30, 1996 and September 30, 1995,
respectively, and the three-year period ended December 31, 1995. Reference
should be made to those statements and the selected financial data presented
elsewhere herein for an understanding of the following review.
OVERVIEW
Since its inception, the Company's objective has been to maximize its
return on shareholders' equity and to retain earnings sufficient to support
its growth strategy. From December 31, 1991 to September 30, 1996, the
Company's shareholders' equity increased 62.5% from $8.8 million to $14.3
million with tangible book value per share increasing from $5.98 to $8.61.
From December 31, 1991 to September 30, 1996, the Company's total assets
increased 99.8% from $80.5 million to $160.8 million. During this same
period, net income per share was $.14, $.33, $.48, $.62 and $.79, for the
years ended December 31, 1991, 1992, 1993, 1994 and 1995, respectively and
$.74 per share for the nine months ending September 30, 1996. From December
31, 1991 to September 30, 1996, the Company's outstanding loans increased by
142.5% from $53.4 million to $129.5 million. This significant increase has
been primarily the result of the Company's focus on local relationship
banking and emphasis on commercial lending to privately held businesses and
professionals.
NET INCOME ANALYSIS
Net income for 1995 was $1,304,000 as compared to $1,001,000 for 1994 and
$752,000 for 1993. The increase in net income for 1995 as compared to 1994
was due primarily to an increase in net interest income of $1,227,000,
partially offset by a $636,000 increase in noninterest expense. The increase
in net income for 1994 as compared to 1993 was primarily due to a $1,124,000
increase in net interest income, partially offset by a $445,000 increase in
noninterest expense. The Company continues to realize the benefits from the
economies of size associated with growth of its earning asset base.
Net income was $1,266,000 as compared to $910,000 for the nine months ended
September 30, 1996 and 1995, respectively. The earnings increase was due
primarily to an increase in net interest income, loan fee income and
noninterest expense control in relationship to asset growth.
NET INTEREST INCOME
The largest component of the Company's net income is its net interest
income. Net interest income is the difference between interest income,
principally from loans and investment securities, and interest expense,
principally on customer deposits and borrowings. Changes in net interest
income result from changes in volume, net interest spread and net interest
margin. Volume refers to the average dollar levels of interest-earning
assets and interest-bearing liabilities. Net interest spread refers to the
difference between the average yield on interest-earning assets and the
average cost of interest-bearing liabilities. Net interest margin refers to
net interest income divided by average interest-earning assets and is
influenced by the level and relative mix of interest-earning assets and
interest-bearing liabilities. The Company's net interest income increased by
25% to $6,041,000 during 1995 after an increase of 30%
17
<PAGE> 20
in 1994. The net interest margin was 4.98% in 1995 as compared to 5.07% and
4.57% in 1994 and 1993, respectively.
The decrease in the net interest margin during 1995 primarily resulted from
the change in the mix of earning assets from higher yielding loans to lower
yielding securities and federal funds sold. The Company's average loan to
asset ratio decreased to 71.84% from 73.41% for 1995 and 1994, respectively.
The Company also increased its average yield on earning assets from 7.78% in
1994 to 9.00% in 1995. For the same periods, the average cost of interest-
bearing liabilities increased from 3.36% to 4.94%, primarily resulting from a
general rise in the interest rate environment. The Company's average federal
funds sold position increased from $8,603,000 in 1994 to $12,837,000 in 1995.
This shift in asset mix further impacted the net interest margin.
The increase in the net interest margin during 1994 versus 1993 primarily
resulted from an overall increase in the level of interest rates.
Additionally, the average yield on earning assets increased to 7.78% in 1994
versus 7.14% in 1993. This compares to an average yield of 3.36% in 1994, up
from 3.11% in 1993 on interest-bearing liabilities.
During 1995, an increase in the average volume of earning assets caused an
increase in interest income of $2,146,000. Additionally, interest income
increased $1,398,000 due to an increase in rates on earning assets.
Increases in the average volume of interest-bearing demand deposits, savings
and money market accounts, time deposits and federal funds purchased resulted
in an increase in interest expense of $1,132,000. Changes in interest rates
on the average volume of interest-bearing liabilities resulted in an increase
in interest expense of $1,185,000. The net effect of the volume and rate
changes associated with all categories in interest-earning assets during 1995
as compared to 1994 increased interest income by $3,544,000 while the net
effect of the volume and rate changes associated with all categories of
interest-bearing liabilities increased interest expense by $2,317,000.
During 1994, increases in the average volume of all interest-earning assets
resulted in an increase in interest income of $1,113,000. Changes in
interest rates on the average volume of loans, investment securities, federal
funds sold and other interest bearing assets resulted in an increase in
interest income of $498,000. Increases in the average balances of all
interest-bearing liabilities resulted in an increase in interest expense of
$372,000. Changes in interest rates on the average volume of interest-bearing
liabilities resulted in an increase in interest expense of $115,000.
The net effect of the volume and rate changes associated with all categories
of interest-earning assets during 1994 as compared to 1993 increased interest
income by $1,611,000, while the net effect of the volume and rate changes
associated with all categories of interest-bearing liabilities increased
interest expense by $487,000.
Net interest income was $5,118,076 for the first nine months of 1996, a
15.9% increase from the same period in 1995. Interest income increased
$1,181,206 for the first nine months of 1996, and interest expense increased
$479,231 as compared to the same period of 1995. These increases are
primarily attributable to the increased volume of earning assets and
interest-bearing deposits.
The following table presents, on a tax equivalent basis for the periods
indicated, certain information related to the Company's average balance sheet
items or accounts and its average yield on assets and average cost of
liabilities. Such yields are derived by dividing income or expense by the
average balance of the corresponding assets or liabilities. Average balances
have been derived from quarterly averages, which are indicative of daily
averages.
18
<PAGE> 21
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Percent Interest Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
- -------------------------------------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1> $ 94,737 71.84% $ 9,394 9.92% $ 76,263 73.41% $6,612 8.67%
Taxable investments in debt
securities 13,093 9.93 745 5.69 9,407 9.06 369 3.92
Non-taxable investments in debt
securities<F2> 687 0.52 42 6.11 561 0.54 33 5.88
Federal funds sold 12,837 9.73 745 5.80 8,603 8.28 367 4.27
Certificates of deposit 63 0.05 2 3.17 98 0.09 3 3.06
-------- ------ ------- ---- -------- ------ ------ ----
Total interest-earning assets 121,417 92.07 10,928 9.00 94,932 91.38 7,384 7.78
------- ==== ------ ====
Noninterest-earning assets:
Cash and due from banks 7,856 5.96 6,430 6.19
Office equipment and leasehold
improvements 766 0.58 629 0.61
Prepaid expenses and other assets 3,025 2.30 2,773 2.67
Allowance for loan losses (1,196) (0.91) (879) (0.85)
-------- ------ -------- ------
Total Assets $131,868 100.00% $103,885 100.00%
======== ====== ======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction
accounts 14,002 10.62% 352 2.51% 14,226 13.69% 292 2.05%
Money market 38,084 28.88 1,741 4.57 33,548 32.29 1,053 3.14
Savings 1,068 0.81 32 3.00 1,275 1.23 33 2.59
Certificates of deposit 45,669 34.63 2,760 6.04 27,440 26.41 1,190 4.34
Federal funds purchased 41 0.03 2 4.88 36 0.03 2 5.56
-------- ------ ------- ---- -------- ------ ------ ----
Total interest-bearing liabilities 98,864 74.97 4,887 4.94 76,525 73.65 2,570 3.36
------- ==== ------ ====
Noninterest-bearing liabilities:
Demand deposits 20,532 15.57 16,686 16.07
Other liabilities 755 0.57 369 0.36
-------- ------ -------- ------
Total Liabilities 120,151 91.11 93,580 90.08
Shareholders' equity 11,717 8.89 10,305 9.92
-------- ------ -------- ------
Total Liabilities and Shareholders'
equity $131,868 100.00% $103,885 100.00%
======== ====== ======== ======
Net Interest Income $ 6,041 $4,814
======= ======
Net Interest Margin 4.98% 5.07%
==== ====
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------
1993
- -----------------------------------------------------------------------------------
Percent Interest Average
Average of Total Income Yield/
Balance Assets Expense Rate
- -----------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans<F1> $ 64,290 71.89% $ 5,211 8.11%
Taxable investments in debt
securities 7,667 8.57 295 3.85
Non-taxable investments in debt
securities<F2> 101 0.11 8 7.92
Federal funds sold 8,357 9.35 243 2.91
Certificates of deposit 402 0.46 16 3.98
-------- ------ ------- ----
Total interest-earning assets 80,817 90.38 5,773 7.14
------- ====
Noninterest-earning assets:
Cash and due from banks 6,287 7.03
Office equipment and leasehold
improvements 605 0.68
Prepaid expenses and other assets 2,396 2.67
Allowance for loan losses (682) (0.76)
-------- ------
Total Assets $ 89,423 100.00%
======== ======
Liabilities and Shareholders' Equity
Interest-bearing liabilities:
Interest-bearing transaction
accounts 14,590 16.32% 371 2.54%
Money market 30,976 34.64 883 2.85
Savings 740 0.83 22 2.97
Certificates of deposit 20,627 23.07 807 3.91
Federal funds purchased -- -- -- --
-------- ------ ------- ----
Total interest-bearing liabilities 66,933 74.86 2,083 3.11
------- ====
Noninterest-bearing liabilities:
Demand deposits 12,457 13.93
Other liabilities 426 0.48
-------- ------
Total Liabilities 79,816 89.27
Shareholders' equity 9,607 10.73
-------- ------
Total Liabilities and Shareholders'
equity $ 89,423 100.00%
======== ======
Net Interest Income $ 3,690 4.57%
======= ====
Net Interest Margin
<FN>
- ------------------------
<F1> Average balances include non-accrual loans. The income on such loans is
included in interest but is recognized only upon receipt. Loan fees included
in interest income are approximately $385,000, $293,000, and $295,000 for
December 31, 1995, 1994, and 1993, respectively.
<F2> Non-taxable investment income is presented on a fully tax-equivalent
basis assuming a tax rate of 34%.
</TABLE>
19
<PAGE> 24
The following table sets forth, on a tax-equivalent basis for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in yield/rates and volume:
<TABLE>
<CAPTION>
Amount of Increase (Decrease)
-------------------------------------------------------------
1995 Compared to 1994 1994 Compared to 1993
Increase (Decrease) Due to Increase (Decrease) Due to
-------------------------------------------------------------
Volume<F1> Rate<F2> Net Volume<F1> Rate<F2> Net
---------- -------- --- ---------- -------- ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans $1,746 $1,036 $2,782 $1,020 $ 381 $1,401
Taxable investments in debt securities 175 201 376 68 6 74
Non-taxable investments in debt securities<F3> 8 1 9 28 (3) 25
Federal funds sold 218 160 378 7 117 124
Certificates of deposit (1) -- (1) (10) (3) (13)
------ ------ ------ ------ ----- ------
Total interest-earning assets 2,146 1,398 3,544 1,113 498 1,611
------ ------ ------ ------ ----- ------
Interest paid on:
Interest-bearing transaction accounts (5) 65 60 (9) (70) (79)
Money Market 157 531 688 77 93 170
Savings (6) 5 (1) 14 (3) 11
Certificates of deposit 986 584 1,570 288 95 383
Federal funds purchased -- -- -- 2 -- 2
------ ------ ------ ------ ----- ------
Total interest-bearing liabilities 1,132 1,185 2,317 372 115 487
------ ------ ------ ------ ----- ------
Net interest income $1,014 $ 213 $1,227 $ 741 $ 383 $1,124
====== ====== ====== ====== ===== ======
<FN>
- ---------------
<F1> Change in volume multiplied by yield/rate of prior period.
<F2> Change in yield/rate multiplied by volume of prior period.
<F3> 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.
</TABLE>
20
<PAGE> 23
LOAN PORTFOLIO
Loans, as a group, are the largest asset and the primary source of interest
income for the Company. Diversification among different categories of loans
reduces the risks associated with any single type of loan. The following
table sets forth the composition of the Company's loan portfolio by type of
loans at the dates indicated:
<TABLE>
<CAPTION>
September 30, December 31,
------------------- --------------------------------------------------------------------
1996 1995 1994 1993
-------------------------------------------------------------------------------------------
Percent Percent Percent Percent
of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 42,360 32.66% $ 43,728 39.59% $ 30,001 35.01% $ 30,896 42.78%
Real estate:
Commercial 23,918 18.43 25,507 23.09 22,333 26.06 16,746 23.19
Construction 23,940 18.46 11,634 10.53 10,186 11.89 7,638 10.58
Residential 36,013 27.76 24,537 22.21 21,483 25.07 16,109 22.31
Consumer and other 3,490 2.69 5,058 4.58 1,684 1.97 826 1.14
-------- ------ -------- ------ -------- ------ -------- ------
Total Loans $129,721 100.00% $110,464 100.00% $ 85,687 100.00% $ 72,215 100.00%
======== ====== ======== ====== ======== ====== ======== ======
</TABLE>
The Company's subsidiary bank grants commercial, residential and consumer
loans primarily in the St. Louis metropolitan area. The Company has a
diversified loan portfolio, with no particular concentration of credit in
any one economic sector; however, a substantial portion of the portfolio
is secured by real estate. As of year end 1995, $61,678,000 in loans, or 56%
of the loan portfolio, involved real estate as part or all of the collateral
package. Of these loans, $23,533,000, or 38%, were personal and business loans
and loans on owner-occupied properties. Management views these types of loans
as having less risk than traditional real estate loans because the primary
source of repayment for the loans is not dependent upon the cash flow or sale
of the real estate securing the loans. When evaluating the appropriateness
of the allowance for loan losses, these loans are evaluated based on
commercial considerations such as the financial condition, cash flow and
income of the borrower as well as the value of all collateral securing the
loans, including the market value of any real estate securing the loan.
21
<PAGE> 24
The following table sets forth the interest rate sensitivity of the loan
portfolio at December 31, 1995:
<TABLE>
<CAPTION>
Loans Maturing or Repricing
-----------------------------------------------------
After One
In One Year Through After
or Less Five Years Five Years Total
------- ---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FIXED RATE LOANS
- ----------------
Commercial and industrial $ 2,606 $ 2,766 $ -- $ 5,372
Real estate:
Commercial 2,218 5,131 13 7,362
Construction -- -- -- --
Residential 2,134 4,935 12 7,081
Consumer and other 112 3,168 -- 3,280
------- ------- ------- --------
Total $ 7,070 $16,000 $ 25 $ 23,095
======= ======= ======= ========
VARIABLE RATE LOANS
- -------------------
Commercial and industrial $38,349 $ -- $ -- $ 38,439
Real estate:
Commercial 18,149 -- -- 18,149
Construction 11,634 -- -- 11,634
Residential 17,459 -- -- 17,459
Consumer and other 1,778 -- -- 1,778
------- ------- ------- --------
Total $87,369 $ -- $ -- $ 87,369
======= ======= ======= ========
TOTAL LOANS
- -----------
Commercial and industrial $40,955 $ 2,766 $ -- $ 43,721
Real estate:
Commercial 20,367 5,131 13 25,511
Construction 11,634 -- -- 11,634
Residential 19,593 4,935 12 24,540
Consumer and other 1,890 3,168 -- 5,058
------- ------- ------- --------
Total $94,439 $16,000 $ 25 $110,464
======= ======= ======= ========
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses charged to expense was $631,000, $450,000 and
$162,000 in 1995, 1994 and 1993, respectively. Although the Company has not
experienced significant loan losses with any one particular category or class
of loans, management remains cognizant of the credit risks associated with
the business and the Company's increase in loan volume. The Company has
charged-off a total of $492,717 in principal from January 1, 1993 through
September 30, 1996. Total recoveries for the same period are $54,820,
resulting in historical net charge-off experience of $437,897.
The allowance for loan losses is maintained at a level considered adequate
to provide for potential losses. The provision for loan losses is based on a
periodic analysis which considers, among other factors, current economic
conditions, loan portfolio composition, past loan loss experience,
independent appraisals, loan collateral and payment experience. In addition
to the allowance for estimated losses on identified problem loans, an overall
unallocated allowance is established to provide for unidentified credit
losses inherent in the portfolio. As adjustments to the allowance for loan
losses become necessary, they are reflected in the results of operations in
the periods in which they become known.
22
<PAGE> 25
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. Such agencies may require the Company
to increase the allowance for loan losses based on their judgments and
interpretations about information available to them at the time of their
examinations.
While the Company has benefited from very low historical net charge-off
experience during an extended period of rapid loan growth, management remains
cognizant that historical loan loss and nonperforming asset experience may
not be indicative of future results. If the experience were to deteriorate
and additional provisions for loan losses were required, future operating
results would be negatively impacted. Both management and the Board
continually monitor changes in asset quality, market conditions,
concentration of credit and other factors which impact the credit risk
associated with the Company's loan portfolio.
The provision for loan losses charged to operations was $144,000 for the
nine months ended September 30, 1996 compared to $290,000 for the same period
in 1995. The decrease in provision for loan losses resulted from an increase
in the overall quality of the loan portfolio and net recoveries of $11,000.
The allowance for loan losses increased $155,000 to $1,555,000 during the
nine months ended September 30, 1996 to account for loan growth of $19 million
and improved asset quality. During the same period, impaired loans decreased
from $1,055,000 to $475,588 and the allowance for loan losses to
non-performing loans increased from 1,308% to 1,453%. The Company increased
the allowance for loan losses during the nine months ending September 30,
1995 due to loan growth of $12 million in the same period and the effects
of an anticipated charge off of two specific loans in the fourth quarter of
1995. During the fourth quarter of 1995 the Company incurred net charge offs
of $231,000 and increased the allowance for loan losses an additional $110,000.
As of December 31, 1995 and September 30, 1996, the Company had 5 and 7
impaired loans in the amount of $1,055,000 and $475,588 respectively, all of
which are considered potential problem loans. Non-performing assets
decreased during the nine months ended September 30, 1996 by $7,000, from
$988,000 as of December 31, 1995.
23
<PAGE> 26
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
----------------------------------
September
1996 1995 1994 1993
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Non-accrual loans $ 107 $ 107 $ -- $ 566
Loans past due 90 days or more -- -- -- --
Restructured loans -- -- -- --
-------- -------- -------- -------
Total non-performing loans 107 107 0 566
Foreclosed property 874 881 1,776 1,496
-------- -------- -------- -------
Total non-performing assets $ 981 $ 988 $ 1,776 $ 2,062
======== ======== ======== =======
Total Assets $160,767 $153,706 $122,212 $99,266
Total Loans 129,721 110,464 85,687 72,215
Total Loans plus Foreclosed Property $130,383 $111,345 $ 87,463 $73,711
Non-performing loans to total loans 0.08% 0.10% 0.00% 0.78%
Non-performing assets to loans plus
foreclosed property 0.75 0.89 2.03 2.80
Non-performing assets to total assets 0.61% 0.64% 1.45% 2.08%
</TABLE>
24
<PAGE> 27
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:
<TABLE>
<CAPTION>
December 31,
----------------------------------
September 30,
1996 1995 1994 1993
---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Allowance at beginning of period $ 1,400 $ 1,000 $ 722 $ 606
-------- -------- ------- -------
Loans charged off:
Commercial and industrial -- 19 45 27
Real estate:
Commercial -- 118 132 --
Construction -- -- -- --
Residential -- 106 -- 32
Consumer and other -- -- 14 --
-------- -------- ------- -------
Total loans charged off $ -- $ 243 $ 191 $ 59
======== ======== ======= =======
Recoveries of loans previously charged off:
Commercial and industrial $ -- $ -- $ 18 $ 9
Real estate:
Commercial -- 12 -- --
Construction -- -- -- --
Residential 10 -- -- 3
Consumer and other 1 -- 1 1
-------- -------- ------- -------
Total recoveries of loans previously charged off 11 12 19 13
-------- -------- ------- -------
Net loans charged off (recovered) (11) 231 172 46
-------- -------- ------- -------
Provisions charged to operations 144 631 450 162
-------- -------- ------- -------
Allowance at end of period $ 1,555 $ 1,400 $ 1,000 $ 722
======== ======== ======= =======
Average Loans $116,958 $ 94,737 $76,263 $64,290
Total Loans 129,721 110,464 85,687 72,215
Nonperforming Loans 107 107 -- 566
Net charge-offs (recoveries) to average
loans (0.01)% 0.24% 0.23% 0.07%
Allowance for loan losses to
loans 1.20 1.27 1.17 1.00
Allowance for loan losses to
non-performing loans 1,453.27 % 1,308.41% N/A 127.56%
</TABLE>
25
<PAGE> 28
The following table sets forth the allocation of the allowance for loan
losses by loan category as an indication of the estimated risk of loss for
each loan type. The unallocated portion of the allowance is intended to
cover loss exposure related to potential problem loans for which no specific
allowance has been estimated and for the possible risks in the remainder of
the loan portfolio.
<TABLE>
<CAPTION>
December 31,
--------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------
Percent of Percent of Percent of
Loans in Each Loans in Each Loans in Each
Category to Category to Category to
Allowance Total Loans Allowance Total Loans Allowance Total Loans
--------- ----------- --------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 348 39.59% $ 247 35.01% $ 212 42.78%
Real estate:
Commercial 264 23.09 218 26.06 145 23.19
Construction 93 10.53 69 11.89 41 10.58
Residential 510 22.21 350 25.07 214 22.31
Consumer and other 44 4.58 16 1.97 110 1.14
Not allocated 140 -- 100 -- -- --
------- ------- ------- ------- ------ -------
$ 1,400 100.00% $ 1,000 100.00% $ 722 100.00%
======= ======= ======= ======= ===== =======
</TABLE>
The above allocation by loan category does not mean that actual loan
charge-offs will be incurred in the categories indicated. The risk factors
considered in determining the above allocation are the same as those used
when determining the overall level of the allowance.
The policy of the Company is to discontinue the accrual of interest on
loans when principal or interest is due and has remained unpaid for 90 days
or more.
NONINTEREST INCOME
In 1995, the Company's noninterest income was $836,271, representing a
3.85% increase from 1994 results. In comparison, 1994 noninterest income of
$805,264 represented a 8.28% increase over 1993 results. Service charges on
deposit accounts decreased by $36,000, or 21.43%, in 1995 due to a general
increase in interest rates and a subsequent increase in the earnings credit
offsetting the service charges on commercial checking accounts. Credit card
merchant income represented $562,449, $434,991 and $401,967 of non-interest
income of 1995, 1994 and 1993, respectively. Corresponding direct expenses
relating to the credit card merchant income were $455,718, $321,217 and
$301,368 for the same periods.
Noninterest income increased in 1996 due to income from Capital Resources,
the merchant banking subsidiary. Capital Management earned management fee
income of $98,675 in 1995 and $156,075 for the nine months ending September
30, 1996. Other fee income earned by Capital Resources consisted of $8,000
in 1995 and $16,000 for the nine months ending September 30, 1996.
26
<PAGE> 29
Subsequent to September 30, 1996, the Company entered into a contract to
sell its merchant credit card processing portfolio. The terms of the sale
call for $400,000 cash upon closing and a three year agency and non-compete
agreement with the purchaser. The agency agreement is a revenue sharing
agreement based on business referred to the purchaser.
Noninterest income for the nine months ended September 30, 1996 was
$780,444 as compared to $607,945 for the same period in 1995.
NONINTEREST EXPENSE
Noninterest expense increased $635,974 and $445,036 or 17.91% and 14.33%,
respectively, for 1995 and 1994 over the previous year. Noninterest expense
for the nine month periods ending September 30, 1996 and 1995 was $3,695,888
and $3,236,842 respectively. Salaries and employee benefits, the largest
component of noninterest expense, increased by $528,887 and $191,240, or
34.93% and 14.46%, respectively, for 1995 and 1994. For the nine months
ending September 30, 1996 and 1995 salaries and employee benefits were
$2,022,917 and $1,528,863 respectively. These increases are primarily
attributable to the rapid growth experienced by the Company. The increase in
salaries and employee benefits was slightly offset by a decrease in Federal
Deposit Insurance Corporation (FDIC) premiums. FDIC insurance expense was
$114,944, $194,231 and $154,660 for 1995, 1994 and 1993 respectively. FDIC
insurance expense was $1,500 and $102,871 for the nine months ending
September 30, 1996 and 1995 respectively.
Increases in other expenses, comprised of occupancy, data processing,
furniture and equipment and other operating expenses have contributed to the
increase in noninterest expense exclusive of salaries and employee benefits.
On August 8, 1995, the FDIC voted to reduce the deposit insurance premiums
paid by most members of the Bank Insurance Fund (BIF) and to keep existing
assessment rates intact for members of the Savings Association Insurance Fund
(SAIF). The Company's banking subsidiary is member of the BIF. Under the
reduced assessment rate schedule for the BIF, the best rated institutions
will pay an annual rate of four cents per $100.00 of assessable deposits,
down from the previous rate of 23 cents per $100.00. The SAIF members will
continue to pay the 23 cents per $100.00 of assessable deposits. The
reduction in the BIF became effective June 1, 1995. In addition, as a result
of the continued improvement in the capitalization of the FDIC's BIF, the
assessment for the best rated BIF members was further reduced to the
statutory annual minimum payment of $2,000, effective January 1, 1996.
In response to concerns that the insurance premium disparity between the
BIF and the SAIF could have a negative effect on SAIF insured institutions
and the SAIF, legislation was enacted by Congress to, among other things,
eliminate the deposit insurance premium disparity by merging the BIF and SAIF
into a new Deposit Insurance Fund on January 1, 1999. This legislation is
not expected to have a significant effect on the Company.
INCOME TAXES
Income tax expense was $741,091 for 1995, $606,756 for 1994, and $410,908
for 1993. Income tax expense of $792,553 and $587,227 was recorded for the
nine months ended September 30, 1996 and 1995, respectively. The effective
tax rate was 36%, 38% and 35% for the years ended December 31, 1995, 1994,
and 1993 respectively. The effective income tax rate was 38% and 39% for the
nine months ended September 30, 1996 and 1995, respectively.
27
<PAGE> 30
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, and amortization of term loans, and
by the Company's deposit inflows, proceeds from borrowings, and retained
earnings.
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.
The following tables reflect the Company's GAP analysis (rate sensitive
assets minus rate sensitive liabilities) as of September 30, 1996 and
December 31, 1995:
<TABLE>
<CAPTION>
September 30, 1996
--------------------------------------------------------------------
Over Over
3 Months 1 Year
3 Months Through Through After
or Less 12 Months 5 Years 5 Years Total
------- --------- ------- ------- -----
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Investment securities $ 1,451 $ 9,604 $ 4,756 $ 45 $ 15,856
Loans 97,385 6,198 25,913 225 129,721
Federal funds sold 5,625 -- -- -- 5,625
Certificates of Deposit -- -- -- -- --
-------- -------- ------- ------- --------
Total interest-sensitive assets $104,461 $ 15,802 $30,669 $ 270 $151,202
Liabilities:
Interest-bearing transaction accounts $ 12,247 $ -- $ -- $ -- $ 12,247
Savings and money market accounts 47,403 -- -- -- 47,403
Certificates of deposit 16,084 36,306 6,143 -- 58,533
Note payable -- 300 -- -- 300
-------- -------- ------- ------- --------
Total interest-sensitive liabilities 75,734 36,606 6,143 -- 118,483
-------- -------- ------- ------- --------
Interest-sensitivity GAP at
September 30, 1996:
GAP by period 28,727 (20,804) 24,526 270 32,719
-------- -------- ------- ------- ========
Cumulative GAP $ 28,727 $ 7,923 $32,449 $32,719
======== ======== ======= =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 1.38 0.43 4.99 -- 1.28
========
Cumulative GAP 1.38 1.07 1.27 1.28
======== ======== ======= =======
</TABLE>
28
<PAGE> 31
As indicated in the preceding table, the Company was asset sensitive on a
cumulative basis in the near term (3 months or less) at September 30, 1996
based on contractual maturities. In this regard, a decrease in the general
level of interest rates would generally have a negative effect on the
Company's net interest income as the repricing of the larger volume of
interest sensitive assets would create a larger reduction in interest revenue
as compared to the reduction in interest expense created by the repricing of
the smaller volume of interest sensitive liabilities. The Company's revenue
was also slightly asset sensitive on a one year basis.
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------------------------
Over Over
3 Months 1 Year
3 Months Through Through After
or Less 12 Months 5 Years 5 Years Total
------- --------- ------- ------- -----
Assets: (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Investment securities $ 3,160 $ 3,956 $ 8,160 $ 1,631 $ 16,907
Loans 88,919 5,520 16,000 25 110,464
Federal funds sold 16,230 -- -- -- 16,230
-------- -------- ------- ------- --------
Total interest-sensitive assets $108,309 $ 9,476 $24,160 $ 1,656 $143,601
Liabilities:
Interest-bearing transaction accounts $ 21,663 $ -- $ -- $ -- $ 21,663
Savings and money market accounts 44,163 -- -- -- 44,163
Certificates of deposit 18,382 26,036 5,464 -- 49,882
-------- -------- ------- ------- --------
Total interest-sensitive liabilities 84,208 26,036 5,464 -- 115,708
-------- -------- ------- ------- --------
Interest-sensitivity GAP at December
31, 1995:
GAP by period 24,101 (16,560) 18,696 1,656 27,893
-------- -------- ------- ------- ========
Cumulative GAP $ 24,101 $ 7,541 $26,237 $27,893
======== ======== ======= =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 1.29 0.36 4.44 -- 1.24
========
Cumulative GAP 1.29 1.07 1.23 1.24
======== ======== ======= =======
</TABLE>
As indicated in the preceding table, the Company was asset sensitive on a
cumulative basis in the near term (three months or less) and on the one year
term at December 31, 1995 based on contractual maturities.
29
<PAGE> 32
The following table summarizes certain trends in the Company's balance
sheet during the three-year period ended December, 1995:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------
1995 1994 1993
----------------------------------------------------------------------------
(Dollars in Thousands)
<S> <C> <C> <C>
Total Assets $153,706 $122,212 $99,266
Earning Assets 143,601 113,627 92,117
Deposits 141,140 104,799 89,113
Loans to Deposits 78.27% 81.76% 81.04%
Loans to Total Assets 71.87 70.11 72.75
Investment Securities to Total Assets 11.00 13.54 9.75
- ----------------------------------------------------------------------------------------------------------------------
Loans $110,496 $ 85,718 $72,239
Unearned Loan Fees (32) (31) (24)
-------- -------- -------
Net Loans $110,464 $ 85,687 $72,215
======== ======== =======
Investment Securities - AFS<F1> $ 16,065 $ 15,740 $ 2,999
Investment Securities -HTM<F1> 842 802 6,680
-------- -------- -------
Total Investments $ 16,907 $ 16,542 $ 9,679
======== ======== =======
Investment Securities - AFS<F1> $ 16,065 $ 15,740 $ 2,999
Investment Securities - HTM<F1> 842 802 6,680
Federal Funds Sold 16,230 11,300 10,125
Interest-Bearing Deposits -- 98 98
Loans 110,496 85,718 72,239
Unearned Loan Fees (32) (31) (24)
-------- -------- -------
Total Earning Assets $143,601 $113,627 $92,117
======== ======== =======
<FN>
<F1> AFS (Available For Sale)
HTM (Held to Maturity)
</TABLE>
The composition of total assets and earning assets remained relatively
consistent over the three years ending December 31, 1995. For the nine
months ended September 30, 1996 total loans as a percentage of total assets
increased to 80.69% from 71.87% as of December 31, 1995.
Earning assets increased $29,973,819 or 26% from December 31, 1994 to
December 31, 1995 while total assets increased $31,494,295 or 26% during the
same period. Interest-bearing liabilities increased $34,353,722 while total
deposits increased $36,341,152 for the same period.
The Company's earning assets increased $7,601,485 from December 31, 1995 to
September 30, 1996 while total assets increased $7,060,832 during the same
period. Total deposit growth for the period was $4,421,203.
30
<PAGE> 33
The following table shows, for the periods indicated, the average annual
amount and the average rate paid by type of deposit:
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------------------------------------------------
1995 1994 1993
-------------------------------- ------------------------------- ------------------------------
(Dollars in Thousands)
Average Interest Average Interest Average Interest
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- ------- ---- ------- ------- ---- ------- ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
demand deposits $ 20,532 -- -- % $16,686 $ -- -- % $12,457 $ -- -- %
Interest-bearing
transaction accounts 14,002 352 2.51 14,226 292 2.05 14,590 371 2.54%
Money market accounts 38,084 1,741 4.57 33,548 1,053 3.14 30,976 883 2.85%
Savings accounts 1,068 32 3.00 1,275 33 2.59 740 22 2.97%
Certificates of deposit 45,669 2,760 6.04 27,440 1,190 4.34 20,627 807 3.91%
-------- ----- ---- ------- ------ ---- ------- ------ ----
$119,355 4,885 4.09% $93,175 $2,568 2.76% $79,390 $2,083 2.62%
======== ===== ==== ======= ====== ==== ======= ====== ====
</TABLE>
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to an aggressive direct calling effort 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. 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 three years and considers it to be a
stable source of deposits that allows the Company to acquire funds at a cost
below its alternative cost of funds. There were $16,488,000 of deposits from
the national network with the Company as of December 31, 1995. There were
$28,203,000 and $17,760,000 of time deposits from the national network with
the Company as of September 30, 1996 and September 30, 1995, respectively.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at December 31, 1995.
<TABLE>
<CAPTION>
Remaining Maturity Amount
------------------ ------
<S> <C>
Three months or less $10,415
Over three through six months 4,755
Over six through twelve months 5,824
Over twelve months 2,292
-------
TOTAL $23,286
=======
</TABLE>
31
<PAGE> 34
The table below sets forth the carrying value of investment securities
held by the Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------
1995 1994 1993
---------------------------------------------------------------------
Percent Percent Percent
of Total of Total of Total
Amount Securities Amount Securities Amount Securities
------ ---------- ------ ---------- ------ ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,698 92.85% $15,740 95.15% $9,398 97.10%
Municipal Bonds 792 4.68 746 4.51 213 2.20
Mortgage-backed securities 50 0.30 56 0.34 68 0.70
Federal Home Loan Bank Stock 367 2.17 -- -- -- --
------- ------ ------- ------ ------ ------
Total $16,907 100.00% $16,542 100.00% $9,679 100.00%
======= ====== ======= ====== ====== ======
</TABLE>
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") 115 for which the cumulative effect was
recorded on the consolidated balance sheet on that date. On January 1, 1994,
debt securities with an amortized cost of $280,553 were classified as
"held-to-maturity" securities; debt securities with an amortized cost of
$9,398,256 were classified as "available-for-sale" securities; a market
valuation account was established for the available-for-sale securities of
$44,207 to adjust the recorded balance of such securities at January 1, 1994 to
their fair value on that date; a deferred tax asset of $15,030 was recorded for
the tax effect of the market valuation account; and the net decrease resulting
from the market valuation adjustment at January 1, 1994 was recorded as a
separate component of shareholders' equity.
As of December 31, 1995, debt securities with an amortized cost of $841,732
were classified as held-to-maturity securities, debt and equity securities
with an amortized cost of $16,102,111 were classified as available-for-sale
securities, the market valuation account for the available-for-sale
securities was adjusted to $24,361 to decrease the recorded balance of such
securities at December 31, 1995 to fair value on that date. The change in
the market valuation account and related components resulted from
reinvestment of maturing investments at higher market rates in 1995.
As of September 30, 1996, debt securities with an amortized cost of
$938,266 were classified as held-to-maturity securities; debt and equity
securities with an amortized cost of $14,962,687 were classified as
available-for-sale securities; the market valuation account for the
available-for-sale securities was adjusted to approximately $29,677 to
decrease the recorded balance of such securities at September 30, 1996 to
fair value on that date. The change in the market valuation account and
related components resulted from an overall increase in the interest rate
environment during the nine months ended September 30, 1996.
32
<PAGE> 35
The following table summarizes maturity and yield information on the
investment portfolio at December 31, 1995:
<TABLE>
<CAPTION>
Weighted
Average
Carrying Tax-Equivalent
Value Yield
-------- --------------
(In thousands of dollars)
<S> <C> <C>
U.S. Treasury securities and obligations of U.S.
government corporations and agencies
0 to 1 year $ 6,749 5.31%
1 to 5 years 7,593 5.51
5 to 10 years 1,356 5.87
No stated maturity -- --
-------
Total $15,698 5.44%
======= ====
Municipal Bonds
0 to 1 year $ -- -- %
1 to 5 years 567 6.29
5 to 10 years 225 6.10
No stated maturity -- --
-------
Total $ 792 6.26%
======= ====
Mortgage-backed securities
0 to 1 year $ -- -- %
1 to 5 years -- --
5 to 10 years -- --
Over 10 years 50 6.38
-------
Total $ 50 6.38%
======= ====
Federal Home Loan Bank Stock
0 to 1 year $ -- -- %
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 367 5.28
-------
Total $ 367 5.28%
======= ====
Total
0 to 1 year $ 6,749 5.31%
1 to 5 years 8,160 5.57
5 to 10 years 1,581 5.89
Over 10 years 50 6.38
No stated maturity 367 5.28
-------
Total $16,907 5.53%
======= ====
</TABLE>
CAPITAL ADEQUACY
The Company's Shareholders' equity was $14,323,305 at September 30, 1996.
This represented an increase of 18.8% over Shareholders' equity at December
31, 1995. The $2,271,158 increase in Shareholders' equity was the result of
$1,266,339 in earnings for the first nine months of 1996, a $5,316 decrease
in the unrealized holding loss on investment securities available-for-sale
(adjusted for taxes), a
33
<PAGE> 36
$1,094,280 increase from the exercise of outstanding warrants for common stock,
and dividends of $84,146 paid to Shareholders during the nine month period ended
September 30, 1996.
In April 1996, the Company obtained a $1,000,000 unsecured line of credit.
The line of credit is a one year interest only note accruing interest at the
prime rate. The outstanding principal balance on the loan as of September
30, 1996 was $300,000.
The Company's Shareholders' equity was $12,052,147, and $10,780,913 at
December 31, 1995, and 1994, respectively. During 1995, shareholders' equity
increased $1,271,234, or 11.79%, as a result of net income of $1,304,267 and
a $63,904 decrease in the net unrealized holding loss on investment
securities available-for sale, offset by $102,437 in dividends paid. In
addition, equity increased in 1995 by $5,500 due to the exercise of warrants.
During 1994, Shareholders' equity increased $838,007, or 8.43%, as a result
of net income of $1,001,181 and $12,800 from a stock option exercise, offset
by a $59,088 increase in the net unrealized holding loss on investment
securities available for sale and $87,709 in dividends paid.
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 institutions and to provide for uniform requirements among the
various regulators. Currently, the risk-based capital guidelines require the
Company to meet a minimum total capital ratio of 8.0% of which at least 4.0%
must consist of Tier 1 capital. Tier 1 capital generally consists of
(a) common Shareholders' equity (excluding the unrealized market value
adjustments on the available for sale securities), (b) qualifying perpetual
preferred stock and related surplus subject to certain limitations specified
by the FDIC, and (c) minority interests in the equity accounts of
consolidated subsidiaries less goodwill and 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.
The following table summarizes the Company's risk-based capital and
leverage ratios at the dates indicated:
<TABLE>
<CAPTION>
December 31
Sept. 30, ----------------------------------
1996 1995 1994 1993
---- ---- ---- ----
<S> <C> <C> <C> <C>
Tier I Capital 10.83% 10.30% 10.76% 13.17%
Total Risk Based Capital 12.00 11.45 11.76 14.12
Leverage Ratio 8.92 7.85 8.89 10.02
Tangible Capital to Assets 9.89% 8.76% 9.71% 10.74%
</TABLE>
Primary capital, a measure of capital adequacy, includes equity capital,
allowance for possible loan losses, and debt considered equity for regulatory
capital purposes. Tangible primary capital represents primary capital
reduced by total intangible assets included in the balance sheet. At Decem-
ber 31, 1995, the Company's primary capital was $13,476,508 compared to
$11,869,178 and $10,664,906 at December 31, 1994 and 1993, respectively.
The Company's primary capital to asset ratio on a consolidated basis was
8.77%, 9.71%, and 10.74% at December 31, 1995, 1994, and 1993, respectively.
The Company's tangible primary capital was $13,463,508, $11,869,178 and
$10,664,906 at December 31, 1995, 1994, and 1993, respectively.
34
<PAGE> 37
RECENT SALES OF UNREGISTERED SECURITIES
On September 30, 1996, the Company issued 198,960 shares of its Common
Stock to holders of common stock of the Bank incidental to a plan of
reorganization for the purpose of making the Company the sole owner of Bank
capital stock. Such securities were issued in reliance on Section 4(2) of
the Securities Act of 1933.
RISK MANAGEMENT
The Company's management objective in structuring the balance sheet is to
maximize the return on shareholder's equity while minimizing associated
risks, including credit and asset/liability management risk. The risks the
Company assumes in providing products to customers is fundamental to its
business operation. The following discussion describes these risks as they
relate to the Company and the Company's management policies for monitoring
and controlling these risks.
Credit Risk Management. Credit risk management includes defining an accept-
able level of risk and return, establishing policies and procedures to govern
the credit process, and maintaining a thorough portfolio review function.
Credit policies are ultimately the responsibility of the Company's Board of
Directors and, as such, are reviewed and approved by the Board of Directors
on a regular basis. Additionally, directors of the Bank serve on loan
committees which meet semi-monthly to review and act upon loan requests which
bring the aggregate indebtedness of a single borrower (plus related entities)
above $400,000. Loan requests for less than $400,000 are reviewed and acted
upon by a committee of management which includes, among others, the President
of the Company, the Presidents of the various bank units, loan officers, and
credit analysts. Of equal importance in this risk management process are the
ongoing monitoring procedures performed by management.
Asset/Liability Management Risk. Interest rate risk, investment risk and
liquidity risk are dynamic risks associated with the Company's balance sheet.
The Asset Liability Committee ("ALCO") consists of management personnel and
reports to the Board of Directors. The ALCO meets periodically to review
exposure to these risks and recommend adjustments to the components of the
balance sheet to effectively manage these risks.
The ALCO determines the acceptable levels of each type of risk and
establishes policies to monitor and govern the risk assessment process.
Asset/Liability risks are ultimately the responsibility of the Company's
Board of Directors and, as such, the Board of Directors reviews and approves
the activities of the ALCO. Management of interest rate, liquidity and
investment risks is a dynamic process requiring continuous review. Daily
monitoring of these risks are an important part of management
responsibilities.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1995, the Company adopted SFAS 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by Creditors
for Impairment of a loan - Income Recognition and Disclosures", which amends
SFAS 114.
SFAS 114 (as amended by SFAS 118) defines the recognition criteria for loan
impairment and the measurement methods for certain impaired loans and loans
for which terms have been modified in troubled-debt restructurings (a
restructured loan). Specifically, a loan is considered impaired when it is
probable a creditor will be unable to collect all amounts due, both principal
and interest, according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired loan are
required to be discounted at the loan's effective interest rate.
Alternatively,
35
<PAGE> 38
impairment can be measured by reference to an observable market price, if one
exists, or the fair value of the collateral for a collateral dependent loan.
Regardless of the historical measurement method used, SFAS 114 requires a
creditor to measure impairment based on the fair value of the collateral when
the creditor determines foreclosure is probable.
SFAS 118 amends SFAS 114 to allow a creditor to use existing methods for
recognizing interest income on an impaired loan. The Company has elected to
continue to use its existing nonaccrual methods for recognizing interest on
impaired loans. The Company continues to apply all payments received on
impaired loans to the outstanding balance of the loan until such a time as
the loan balance is reduced to zero, after which payments are applied to
interest income until such time as the foregone interest is recovered, or
until such a time as an improvement in the condition of the loan has occurred
which would warrant resumption of interest accruals. The adoption of SFAS
114 and SFAS 118 resulted in no adjustment to the provision for possible loan
losses.
SFAS 119 requires disclosures about the amounts, nature, and terms of
derivative financial instruments that are not subject to SFAS No. 105,
"Disclosure of Information about Financial Instruments with Off-Balance-Sheet
risk and Financial Instruments with Concentrations of Credit Risk" because
they do not result in off-balance-sheet risk of accounting loss. SFAS 119
requires that a distinction be made between financial instruments held or
issued for trading purposes and financial instruments held or issued for
purposes other than trading.
SFAS 119 is effective for financial statements issued for fiscal years
ending after December 15, 1994, except for entities with less than $150
million in total assets. For those entities, SFAS 119 is effective for
financial statements issued for fiscal years ending after December 31, 1995.
SFAS 119 did not have a material effect on the consolidated balance sheet of
the Company.
EFFECT OF INFLATION
Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operation of all industries.
However, the asset and liability structure of commercial banks is
substantially different from that of an industrial company in that virtually
all assets and liabilities of commercial banks are monetary is nature.
Accordingly, changes in interest rates may have a significant impact on a
commercial bank's performance. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.
SUPERVISION AND REGULATION
--------------------------
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide
for general regulatory oversight with respect to virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any
change in applicable laws or regulations may have a material effect on the
business and prospects of the Company. Major legislative enactments have
been passed during the last several years, including the Community
Development and Regulatory Improvement Act and the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994, and additional legislation is
proposed. Compliance with the numerous regulations and policies promulgated
by the regulatory authorities is a difficult and ever-
36
<PAGE> 39
changing atmosphere in which to operate. The Company and the Bank commit
substantial resources in order to comply with these statutes, regulations and
policies. The operations of the Company and the Bank may be affected by
legislative changes and the policies of various regulatory authorities. The
Company is unable to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or new
federal or state legislation may have in the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve and is required to
file periodic reports of its operations and such additional information as
the Federal Reserve may require. The Company's and the Bank's activities are
limited to banking, managing or controlling banks, furnishing services to or
performing services for its subsidiaries, or engaging in any other activity
that the Federal Reserve determines to be closely related to banking.
Investments, Control and Activities. With certain limited exceptions, the
BHCA requires every bank holding company to obtain the prior approval of the
Federal Reserve before (i) acquiring substantially all the assets of any
bank, (ii) acquiring direct or indirect ownership or control of any voting
shares of any bank if after such acquisition it would own or control more
than 5% of the voting shares of such bank (unless it already owns or controls
the majority of such shares), or (iii) merging or consolidating with another
bank holding company. Recent federal legislation permits bank holding
companies to acquire control of banks throughout the United States.
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to
exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Under Federal Reserve regulations
applicable to the Company, control will be rebuttably presumed to exist if a
person acquires at least 10% of the outstanding shares of any class of voting
securities once the Company registers the Common Stock under the Securities
and Exchange Act of 1934. The regulations provide a procedure for challenge
of the rebuttable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, nonbanking activities, unless the Federal Reserve, by
order or regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a related activity. Some
of the activities that the Federal Reserve has determined by regulation to be
proper incidents to the business of banking include investment in and
management of Small Business Investment Companies, making or servicing loans
and certain types of leases, engaging in certain insurance and brokerage
activities, performing data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in limited projects designed
primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances in
which the Company might not otherwise do so. Under the BHCA, the Federal
Reserve may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness or stability of
any subsidiary
37
<PAGE> 40
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or nonbank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
THE BANK
General. The Company is the holding company for a single state bank. The
Bank is not a member of the federal reserve system. The Missouri Division of
Finance and the FDIC are primary regulators for the Bank. These regulatory
authorities regulate or monitor all areas of the Bank's operations, including
security devices and procedures, adequacy of capitalization and loss
reserves, loans, investments, borrowings, deposits, mergers, issuances of
securities, payment of dividends, interest rates payable on deposits,
interest rates or fees chargeable on loans, establishment of branches,
corporate reorganizations, maintenance of books and records, and adequacy of
staff training to carry on safe lending and deposit gathering practices. The
Bank must maintain certain capital ratios and is subject to limitations on
aggregate investments in real estate, bank premises, and furniture and
fixtures.
All insured institutions must undergo regular on-site examinations by their
appropriate banking agency. The cost of examinations of insured depository
institutions and any affiliates may be assessed by the appropriate agency
against each institution or affiliate as it deems necessary or appropriate.
Insured institutions are required to submit annual and quarterly reports to
the FDIC and the appropriate agency and the state supervisor.
Transactions With Affiliates and Insiders. The Bank is subject to the
provisions of Section 23A of the Federal Reserve Act, which place limits on
the amount of loans or extensions of credit to, or investments in, or certain
other transactions with, affiliates and on the amount of advances to third
parties collateralized by the securities or obligations of affiliates. In
addition, most of these loans and certain other transactions must be secured
in prescribed amounts. The Bank is also subject to the provisions of
Section 23B of the Federal Reserve Act that, among other things, prohibit an
institution from engaging in certain transactions with certain affiliates
unless the transactions are on terms substantially the same, or at least as
favorable to such institution or its subsidiaries, as those prevailing at the
time for comparable transactions with non-affiliated companies. The Bank is
subject to certain restrictions on extensions of credit to executive
officers, directors, certain principal shareholders, and their related
interests. Such extensions of credit (i) must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties and (ii) must not
involve more than the normal risk of repayment or present other unfavorable
features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA")
requires that, in connection with examinations of financial institutions
within its jurisdiction, the FDIC shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those institutions. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or
facility. The Company has a satisfactory rating under CRA.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain
federal laws concerning interest rates. The Bank's loan operations are also
subject to certain federal laws applicable to credit transactions, such as
the federal Truth-In-Lending Act governing disclosures of credit terms to
consumer borrowers, the Home Mortgage Disclosure Act of 1975 requiring
financial institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves, the
Equal Credit Opportunity Act prohibiting discrimination
38
<PAGE> 41
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978 governing the use and provision of information
to credit reporting agencies, the Fair Debt Collection Act governing the manner
in which consumer debts may be collected by collection agencies, and the
rules and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws. The deposit operations of
the Banks also are subject to the Right to Financial Privacy Act, which
imposes a duty to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E
issued by the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic banking services.
DEPOSIT INSURANCE
The deposits of the Bank are currently insured to a maximum of $100,000 per
depositor, subject to certain aggregation rules. The FDIC establishes rates
for the payment of premiums by federally insured banks for deposit insurance.
An insurance fund (BIF) is maintained for commercial banks, with insurance
premiums from the industry used to offset losses from insurance payouts when
banks and thrifts fail. The FDIC has adopted a risk-based deposit insurance
premium system for all insured depository institutions, including the Bank,
which requires premiums from a depository institution based upon its capital
levels and risk profile, as determined by its primary federal regulator on a
semiannual basis.
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank
to the Company depends on the Bank's earnings and capital position and is
limited by federal and state law, regulations, and policies.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet
exposure, and minimize disincentives for holding liquid assets. The
resulting capital ratios represent qualifying capital as a percentage of
total risk-weighted assets and off-balance sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies contemplating significant expansion programs should not allow
expansion to diminish their capital ratios and should maintain ratios well in
excess of the minimums. The current guidelines require all bank holding
companies and federally-regulated banks to maintain a minimum risk-based
total capital ratio, a portion of which must be Tier 1 capital. Tier 1
capital includes common shareholders' equity, qualifying perpetual preferred
stock, and minority interests in equity accounts of consolidated
subsidiaries, but excludes goodwill and most other intangibles and excludes
the allowance for loan and lease losses. Tier 2 capital includes the excess
of any preferred stock not included in Tier 1 capital, mandatory convertible
securities, hybrid capital instruments, subordinated debt and intermediate
term-preferred stock, and general reserves for loan and lease losses up to
1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50%, or 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are
assigned to the 100% risk category, except for first mortgage loans fully
secured by residential property and, under certain circumstances,
39
<PAGE> 42
residential construction loans, both of which carry a 50% rating. Most
investment securities are assigned to the 20% category, except for municipal or
state revenue bonds, which have a 50% rating, and direct obligations of or
obligations guaranteed by the United States Treasury or United States
Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity
capital base.
LEGISLATIVE DEVELOPMENTS
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain
of these proposals, if adopted, could significantly change the regulation of
banks and the financial services industry. The Company cannot predict
whether any of these proposals will be adopted or, if adopted, how these
proposals will affect the Company.
On September 30, 1996 Congress enacted the Deposit Insurance Funds Act of
1996. This legislation includes language requiring the merger of the BIF and
the SAIF into a new Deposit Insurance Fund, and addresses the disparity between
the deposit insurance premiums paid by banking institutions and savings
institutions. This legislation is not expected to have an immediate effect on
the Company. However, future deposit insurance assessments may be affected.
Under the current assessment rate schedule, the best rated institutions pay
an annual rate of four cents per $100 of assessable deposits. The Company's
banking subsidiary currently qualifies as a best rated institution for BIF
assessments. The Company has not been notified of any changes in the
assessment rate for the best rated institutions. As a result of the continued
improvement in the capitalization of the FDIC's BIF, effective January 1,
1996, the assessment for the best rated BIF members was further reduced to
the statutory annual minimum payment of $2,000. If the Company was required
to pay FDIC insurance based on the current assessment schedule, the annual
expense would be approximately $58,000 based on total deposits at
September 30, 1996.
40
<PAGE> 43
MANAGEMENT
----------
EXECUTIVE OFFICERS AND DIRECTORS OF THE COMPANY
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
PRESENT POSITION(S) PRINCIPAL OCCUPATION
NAME AND AGE WITH THE COMPANY DURING PAST 5 YEARS
- ------------ ---------------- --------------------
<S> <C> <C>
Fred H. Eller, 51 President and Chief Executive Officer, Director President, Chief Executive Officer and
Director of the Company (since 1995);
Chairman of the Board of the Bank (since
1996); Chief Executive Officer and Director
of the Bank (since 1988)
Ronald E. Henges, 64 Chairman of the Board, Director Chief Executive Officer, Creve Coeur Camera
(multi-store retailer of camera and video
equipment); President and Chief Executive
Officer of Henges Associates, Inc.
(manufacturer and installer of prefabricated
wall systems) 1991-1995; Chairman of the
Board of the Company (since 1995); Chairman
of the Board of the Bank, 1988-1996
Kevin C. Eichner, 45 Vice Chairman of the Board, Director President, The Financial Collaborative, Inc.
(a management consulting firm); Vice Chairman
of the Board of the Company (since 1996);
Vice Chairman of the Board of the Bank,
1991-1996
Joseph D. Garea, 41 Chief Financial Officer, Director Chief Financial Officer and Director of
the Company (since 1996); President,
Enterprise Capital Management, Inc.
(since 1995); President, Enterprise
Capital Resources, Inc. (since 1995);
Senior Vice President, United Postal
Savings, 1991-1994
Paul R. Cahn, 70 Director President, Elan Polo Imports, Inc. (importer
of women's and children's casual shoes);
Director of the Company (since 1996); Director
of the Bank, 1991-1993 and 1995-1996
Birch M. Mullins, 53 Director President, Baur Properties (developer of
commercial real estate properties); Director
of the Company (since 1996); Director of the
Bank, 1991-1996
41
<PAGE> 44
Robert E. Saur, 53 Director President, Conrad Properties (developer of
commercial and residential real estate
properties); Director of the Company (since
1995); Director of the Bank, 1991-1996
Henry D. Warshaw, 42 Director Principal, Moneta Group (provides financial
planning products and services to individuals);
Director of the Company (since 1996); Director
of the Bank, 1991-1996; Chairman of Clayton
Banking Unit (since 1996)
James L. Wilhite, 61 Director President, Stange Corporation (manufacturer of
marketing and incentive items); Director of
the Company (since 1996); Director of the
Bank (since 1996); Chairman of the St.
Charles Banking Unit (since 1996)
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS OF THE BANK
The executive officers and directors of the Bank (in addition to Mr. Eller,
Mr. Warshaw, and Mr. Wilhite discussed above) are as follows:
<TABLE>
<CAPTION>
PRESENT POSITION PRINCIPAL OCCUPATION
NAME AND AGE WITH THE BANK DURING PAST 5 YEARS
- ------------ ------------- -------------------
Clayton Banking Unit
<S> <C> <C>
David J. Mishler, 37 President, Clayton Unit, Director President of the Clayton Unit of the Bank
and Director (since 1996); Vice President
of the Bank 1991-1996
Mark S. Carlie, 41 Director Chief Executive Officer, Stone Carlie &
Company (public accounting firm); Director
of the Bank (since 1996)
Jeffrey W. Glik, 40 Director President, Glik's (multi-store retail chain
of women's clothing stores); Director of the
Bank (since 1995)
William H. McCormick, 46 Director President, Capital Communications
Corporation (telecommunications firm which
sells and services voice and data products);
Director of the Bank (since 1995)
Edward A. Schultz, 52 Director President, Code Consultants (consulting firm
which provides design and construction
consulting directed toward fire and safety
code compliance); Director of the Bank
(since 1989)
42
<PAGE> 45
Orville J. Middendorf, 64 Director President, Middendorf Meat Company (meat
wholesaler); Director of the Bank (since 1988)
James L. Stewart, 40 Director President, Stewart Properties (developer of
commercial and residential real estate
properties); Director of the Bank (since 1988)
<CAPTION>
Sunset Hills Banking Unit
<S> <C> <C>
James E. Graser, 36 President, Sunset Hills Unit, Director President of the Sunset Hills Unit of the
Bank and Director (since 1996); Vice
President of the Bank 1991-1996
Joseph E. Barry, 59 Director President, Barry Sales, Ltd. (manufacturer's
representative firm serving the plastics
industry); Director of the Bank (since 1995)
R. Bruce Earls, 50 Director President, Marlo Coil (manufacturer of air
handling systems and commercial heating and
cooling units); Director of Bank (since 1996)
Robert F. O'Loughlin, 52 Director President and Chief Executive Officer,
Lodging Hospitality Management Co. (firm which
provides hotel management services); Director
of the Bank (since 1996)
Robert H. Pecha, 63 Director President and Chief Executive Officer,
Fleming Printing Company (commercial printer
servicing primarily the multi-color
advertising market); Chairman of the Board,
Resource Packaging; Chairman of the Board,
Printfax Graphics; Director of the Bank
(since 1988)
Nancy R. Siwak, 59 Director Director of the Bank (since 1995)
James A. Williams, 44 Director President, Sunset Transportation (trucking
brokerage and consulting firm); Director of
the Bank (since 1996)
<CAPTION>
St. Charles Banking Unit
<S> <C> <C>
Richard C. Leuck, 38 President, St. Charles Unit, Director President of the St. Charles Unit of the
Bank and Director (since 1996); President
and Chief Executive Officer of Duchesne
Bank 1994-1996; Senior Lending Officer
of Duchesne Bank 1991-1994
Charles W. Bennett, 57 Director Owner and President, C. Bennett Building
Supply (wholesale supplier of home interior
finish items); Director of the Bank (since
1996)
43
<PAGE> 46
Ernie Dempsey, 55 Director Owner, Pio's Restaurant (a family owned
restaurant); Director of the Bank (since 1996)
John Kastner, 50 Director President, Client Services, Inc. (a collection
agency); Director of the Bank (since 1996)
John Gloss, 45 Director President, Barnes-Jewish St. Peter's
Hospital (a full service hospital); Director
of the Bank (since 1996)
Patricia Rodeheaver, 49 Director President, Custom Design Telephone
Systems, Inc. (firm which sells and services
telephone systems to businesses); Director
of the Bank (since 1996)
</TABLE>
All directors of the Company are elected at the annual meeting of
Shareholders and serve until their successors are duly elected and qualified
or until their earlier resignation or removal. All directors of the Bank are
elected by the Bank's shareholder and serve until their successors are duly
elected and qualified or until their earlier resignation or removal. Because
the Company is the sole shareholder of the Bank, it controls the election of
the Board of Directors of the Bank.
The Company has no standing committees. The Bank's entire Board of
Directors performs the functions of the Audit and Compensation Committees.
Each Bank Unit Board is comprised of local business owners and
professionals who fit the customer profile of the particular bank unit.
These Directors take an active role in the business activities and the credit
review processes of the particular unit over which they have oversight
responsibility.
The Loan Committee of the Bank consists of all members of the Board of
Directors, who serve on a rotating basis. All loan requests are initially
reviewed by a committee of management officials, which includes among others,
the Presidents of all geographic Banking Units and the Chief Executive
Officer. This group has authority to approve loans where the aggregate loan
balance of all the borrower's loans (including loans to affiliated entities)
is less than $400,000. Loan requests where the borrower's aggregate loan
balance is above $400,000 are also reviewed and examined by the respective
Board Committee of the geographic Banking Unit. Loan requests where the
borrower's aggregate loan balance is above $1,500,000 require approval of the
Bank's full Board of Directors. Notwithstanding the required Board Committee
approvals where the aggregate loan balance is greater than $400,000, all such
loans are subsequently reported to the full Board of Directors for review and
comment.
ADVISORY DIRECTORS
To assist in the continued evaluation of its services to the community, the
Bank has designated certain advisory directors. These individuals advise and
consult with the Bank's management from time to time on an informal basis. The
advisory directors have no formal duties, authority, or management obligations
and its members receive no compensation. The advisory directors and their
principal occupations are as follows:
44
<PAGE> 47
<TABLE>
<CAPTION>
Name Principal Occupation
- ---- --------------------
<S> <C>
David A. Bayer President, DBX Corporation
Glen Johnson Sheffield Mayor, City of Webster Groves (1991-1994)
Menlo F. Smith President, Sunmark Capital
George W. Von Hoffmann, Jr. President, GVH, Inc.
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS AND OTHERS
The following table shows the compensation paid by the Company or the Bank,
to the Company's Chief Executive Officer and each of the other executive
officers of the Company or the Bank who earned more than $100,000 per year in
compensation for any of the years ended December 31, 1995, 1994 and 1993:
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Name and Current Position Annual Compensation
Other
Year Salary Bonus Compensation<F1>
<S> <C> <C> <C> <C>
Fred H. Eller 1995 $165,000 $64,000 $6,950
President and Chief Executive Officer of 1994 150,000 23,500 3,640
the Company, Chairman and Chief 1993 150,000 15,000 3,291
Executive Officer of the Bank
Joseph D. Garea
Chief Financial Officer and Director of 1995 $100,000 $ 5,000 0
the Company, President, Enterprise 1994 8,333 0 0
Capital Management, Inc., President, 1993 N/A 0 0
Enterprise Capital Resources, Inc.
David Mishler 1995 $109,000 $25,000 $4,181
President of the Clayton Banking Unit, 1994 91,666 15,000 3,431
Director of the Bank 1993 82,000 12,500 3,076
James E. Graser 1995 $ 77,000 $24,500 $3,277
President of the Sunset Hills Banking 1994 68,500 13,000 2,751
Unit, Director of the Bank 1993 63,833 10,000 2,305
<FN>
<F1> Includes employer matching contribution pursuant to the Company's 401(k)
program and life insurance premiums paid by the Company.
</TABLE>
STOCK OPTION PLANS
In 1988 and 1992, the Bank established two Incentive Stock Option Plans
pursuant to which certain officers and employees of the Bank received the
right to purchase shares of Bank capital stock. Substantially all of the
options available under the two initial stock option plans have been granted.
Upon
45
<PAGE> 48
formation of the Company and in conjunction with the Company's plan to
acquire all of the outstanding common stock of the Bank, the options to
purchase Bank capital stock were exchanged for options to purchase an
aggregate of 213,000 shares of Company Common Stock.
As a result of those options issued under the 1988 stock option plan,
options to purchase 122,000 shares of Common Stock at a price of $5.00 per
share are outstanding, all of which are currently exercisable (``1988
Options''). In addition, options to purchase 91,000 shares of the Common
Stock are currently outstanding, representing those originally issued
under the 1992 stock option plan (``1992 Options''). Of the 1992 Options,
options to purchase 89,000 shares carry a purchase price of $7.00 per share,
of which 53,400 were exercisable as of November 30, 1996, and options to
purchase 2,000 shares carry a purchase price of $9.25 per share, of which
1,200 were exercisable as of November 30, 1996. All of the 1988 Options will
expire between May 9, 1998 and June 1, 1999, if not exercised. The expiration
dates for the 1992 Options are December 1, 2002 for those with a purchase
price of $7.00 per share, and June 15, 2004 for those with a purchase price of
$9.25 per share.
Earlier this year, the Company adopted by shareholder vote a Third
Incentive Stock Option Plan ("ISO Plan III"), which sets aside up to 200,000
shares of Company Common Stock to grant options to certain Key Employees of
the Company or any of its subsidiaries. There are limitations as to the
number of option which may be granted to any individual and additional
restrictions for options which may be granted to any individual who is also a
ten percent shareholder. The Company believes strongly in motivating its Key
Employees by encouraging ownership in the organization. To date, none of the
options available under ISO Plan III have been granted. The purchase price for
any option granted under ISO Plan III will be determined based upon the
market value of the Common Stock at the time such options are granted.
DIRECTORS' COMPENSATION
Non-employee directors of the Company and the Bank receive directors' fees
of $200 for each Board of Directors meeting and $50 for each committee
meeting they attend.
EXCULPATION AND INDEMNIFICATION
The Certificate of Incorporation of the Company contains a provision which,
subject to the exceptions described below, indemnifies a director from
individual liability to the Company or its Shareholders for monetary damages
for any breach of such director's fiduciary duty as a director. This
provision does not indemnify the director (i) for violating his duty of
loyalty to the Company or its Shareholders, (ii) for acts or omissions not in
good faith or involving intentional misconduct or a knowing violation of law,
(iii) for liability under Section 174 of the Delaware General Corporation Law
(the "DGCL") relating to unlawful dividends and distributions, or (iv) for
any transaction from which the director derived an improper personal benefit.
The Bylaws of the Company require the Company to indemnify any person who
was, is, or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of service by such person as a director or
officer of the Company. Such directors and officers are entitled to be
indemnified against judgments, penalties, fines, settlements, and reasonable
expenses (including attorneys' fees) actually incurred by the director or
officer in connection with the proceeding, except that no payments may be
made with respect to liability which is not eliminated pursuant to the
provision of the Company's Certificate of Incorporation described in the
preceding paragraph.
46
<PAGE> 49
In addition to the Bylaws of the Company, Section 145(c) of the DGCL
requires the Company to indemnify any director who has been successful on the
merits or otherwise in defending any proceeding described above. The DGCL
also provides that a court may order indemnification of a director if it
determines that the director is fairly and reasonably entitled to such
indemnification.
The Board of Directors of the Company also has the authority to extend to
its employees and agents the same indemnification rights held by officers and
directors, subject to all the accompanying conditions and obligations.
The Company, Capital Resources and Capital Management have collectively
entered into Indemnification Agreements with each of the directors of Capital
Management, pursuant to which the Company, Capital Resources and Capital
Management agreed to jointly and severally indemnify such directors in a
manner similar to that set out in the preceding paragraphs with respect to
the Company.
These Indemnification Agreements also provide for the advancement of expenses
incurred by the directors as a result of a qualifying proceeding subject to
certain conditions and limitations.
BENEFICIAL OWNERSHIP OF SECURITIES
----------------------------------
The following table provides information concerning those persons known by
the Company to be the beneficial owners of 5% or more of its outstanding
common stock, each director and executive officer, and all directors and
executive officers of the Company as a group. For purposes of the table, a
person is deemed to be a beneficial owner of the subject shares if the person
has or shares the power to vote or dispose of them.
<TABLE>
<CAPTION>
Percentage of Class<F1>
--------------------------------------
Ownership of After Offering
Holding Company -----------------------
Stock Before Before
Beneficial Owner Offering<F2><F3> Offering Minimum Maximum
---------------- ---------------- -------- ------- -------
Executive Officers and Directors of the Company
<S> <C> <C> <C> <C>
Fred H. Eller <F3><F5><F6> 88,260 4.80% 4.34% 3.86%
Ronald E. Henges <F3><F8> 135,140 7.35% 6.65% 5.90%
Kevin C. Eichner <F3> 73,193 3.98% 3.60% 3.20%
Joseph D. Garea <F7> 2,000 <F*> <F*> <F*>
Paul R. Cahn <F4> 67,467 3.67% 3.32% 2.95%
Birch M. Mullins 16,600 <F*> <F*> <F*>
Robert E. Saur 39,000 2.12% 1.92% 1.70%
Henry D. Warshaw <F9> 17,260 <F*> <F*> <F*>
James L. Wilhite 1 <F*> <F*> <F*>
<CAPTION>
Executive Officers and Directors of the Bank
<S> <C> <C> <C> <C>
David J. Mishler <F3><F13><F6> 31,309 1.70% 1.54% 1.38%
Mark S. Carlie 20 <F*> <F*> <F*>
Jeffrey W. Glik 3,060 <F*> <F*> <F*>
47
<PAGE> 50
William H. McCormick 20 <F*> <F*> <F*>
Edward A. Schultz <F15> 22,915 1.25% 1.13% 1.00%
Orville J. Middendorf <F12> 73,000 3.97% 3.59% 3.19%
James L. Stewart 12,850 <F*> <F*> <F*>
James E. Graser <F3><F11><F6> 10,250 <F*> <F*> <F*>
Joseph E. Barry <F10> 7,020 <F*> <F*> <F*>
R. Bruce Earls 1 <F*> <F*> <F*>
Robert F. O'Loughlin 1 <F*> <F*> <F*>
Robert H. Pecha <F14> 75,630 4.11% 3.72% 3.30%
Nancy R. Siwak <F16> 2,520 <F*> <F*> <F*>
James A. Williams 1 <F*> <F*> <F*>
Richard C. Leuck 1 <F*> <F*> <F*>
Charles W. Bennett 1 <F*> <F*> <F*>
Ernie Dempsey 1 <F*> <F*> <F*>
John Kastner 1 <F*> <F*> <F*>
John Gloss 1 <F*> <F*> <F*>
Patricia Rodeheaver 1 <F*> <F*> <F*>
<S> <C>
Fred H. Eller See information above
James L. Wilhite See information above
Henry D. Warshaw See information above
<S> <C> <C> <C> <C>
All Directors and Executive Officers as
a Group (28 individuals) <F6> 677,524 36.85% 33.34% 29.58%
<FN>
<F*> Less than 1%
<F1> Percentages are calculated based on 1,838,560 shares which represents
1,662,360 shares outstanding as of September 30, 1996, plus Options
outstanding and exercisable as of September 30, 1996 or within 60 days
thereafter totalling 176,200 shares; 2,032,108 shares if the minimum amount
is sold; and 2,290,172 shares if the maximum amount is sold.
<F2> Unless otherwise indicated, the named person has sole voting and
dispositive power for all shares shown.
<F3> Assumes the exercise of Options outstanding and exercisable as of
September 30, 1996 or within 60 days thereafter, including those beneficially
owned by the named person, as follows: Mr. Eichner, 26,000 shares; Mr. Eller,
49,000 shares; Mr. Henges, 26,000 shares; Mr. Graser, 6,000 shares; Mr.
Mishler, 19,000 shares; all directors and executive officers as a group,
126,000 shares.
<F4> Excludes 23,980 held by two adult children of Mr. Cahn. Includes 5,000
shares held in trust for the benefit of Mr. Cahn's spouse, to which Mr. Cahn
has voting power; 1,000 shares held in trust for the benefit of Mr. Cahn, to
which Mr. Cahn has voting power; and 61,447 shares held of record by Cahn
Family Partnership, L.P., to which Mr. Cahn has voting power.
<F5> Includes 39,240 shares held jointly by Mr. Eller and his spouse.
<F6> Excludes all of the 13,960 shares held of record by EBSP Partnership in
which each of Mr. Eller, Mr. Graser and Mr. Mishler hold a 1/7 partnership
interest, but for which none of the named persons holds voting power.
Excludes all of the 13,820 shares held of record by EBSP II Partnership in
which each of Mr. Eller, Mr. Graser and Mr. Mishler hold a 1/7 partnership
interest, but for which none of the named persons holds voting power.
<F7> Includes 2,000 shares held in trust for the benefit of Mr. Garea, to
which Mr. Garea has voting power.
48
<PAGE> 51
<F8> Excludes 11,600 shares held jointly by the adult daughter and son-in-law
of Mr. Henges; 2,740 shares held in an Individual Retirement Account for the
benefit of the adult daughter of Mr. Henges; 1,020 shares held by the adult
son of Mr. Henges; and 1,680 shares held in an Individual Retirement Account
for the benefit of the adult son of Mr. Henges. Includes 54,270 shares held
of record by MICALA Partnership Ltd., to which Mr. Henges has voting power;
22,285 shares held in an Individual Retirement Account for the benefit of Mr.
Henges, to which Mr. Henges has voting power; 3,285 shares held in an
Individual Retirement Account for the benefit of the spouse of Mr. Henges, to
which Mr. Henges has voting power; 3,600 shares held in trust for six minor
grandchildren of Mr. Henges, of which the spouse of Mr. Henges is trustee,
and to which Mr. Henges has voting power; and 25,680 shares held in six
separate trusts, each for the benefit of one of the grandchildren of Mr.
Henges, to which Mr. Henges has voting power. The address of Mr. Henges of
13398 Conway Road, St. Louis, Missouri 63141.
<F9> Includes 8,580 shares held in an Individual Retirement Account for the
benefit of Mr. Warshaw, to which Mr. Warshaw has voting power; and 8,660
shares held in an Individual Retirement Account for the benefit of the spouse
of Mr. Warshaw, to which Mr. Warshaw has voting power.
<F10> Includes 7,000 shares held in trust for the benefit of Mr. Barry, to
which Mr. Barry has voting power.
<F11> Includes 4,250 shares held jointly by Mr. Graser and his spouse.
<F12> Includes 72,980 shares held in trust for the benefit of Mr. Middendorf,
to which Mr. Middendorf has voting power.
<F13> Includes 9,678 shares held jointly by Mr. Mishler and his spouse; and
2,631 shares held in an Individual Retirement Account for the benefit of Mr.
Mishler, to which Mr. Mishler has voting power.
<F14> Includes 75,610 shares held in trust for the benefit of Mr. Pecha, to
which Mr. Pecha has voting power.
<F15> Includes 10,780 shares held jointly by Mr. Schultz and his spouse.
<F16> Includes 2,500 shares held in trust for the benefit of Ms. Siwak, to
which Ms. Siwak has voting power.
<F17> Includes 2,500 shares held in an Individual Retirement Account for the
benefit of Mr. Stewart, to which Mr. Stewart has voting power.
</TABLE>
DIVIDENDS
---------
The holders of Common Stock of the Company are entitled to dividends when,
as, and if declared by the Company's Board of Directors out of funds legally
available therefor. The amount of dividends, if any, that may be declared by
the Company will necessarily be dependent on many factors, including future
earnings, capital requirements and business conditions as they affect the
Bank. As a result, no assurance can be given that dividends will be paid in
the future with respect to the Common Stock.
Historically the Company's dividends have been limited as a result of the
Company's policy to retain earnings sufficient to sustain the Company's
growth. The Company declared and paid dividends quarterly during calendar
years 1993, 1994, and 1995, in annual amounts of $.05, $.06, and $.07 per
share, respectively. For the first three quarters of 1996, the Company has
declared and paid dividends of a total of $.0575 per share.
MARKET FOR COMMON STOCK
-----------------------
As of September 30, 1996, the Company had approximately 225 Common Stock
shareholders of record. Prior to the offering, the Common Stock had not been
traded on an exchange or in any established public trading market, although
there have been a limited number of private transactions in the shares that
have been made known to the Company. Based solely on the information made
available to the Company from a limited number of buyers and sellers, the
Company believes the selling prices for the Common Stock ranged, during 1995,
from $11.50 to $12.00 per share and, during 1996, from $13.00 per share to
$13.75 per share. There was a single transaction in 1996 between two
Directors of the Company at $15.00 per share involving additional
consideration beyond the purchase of the stock. There may have been other
transactions at other prices not known to the Company.
Since the Company does not expect to list its stock on any exchange or seek
quotation of its stock on NASDAQ in the near future, no established public
trading market for the Common Stock is expected to develop following the
offering.
49
<PAGE> 52
DESCRIPTION OF CAPITAL STOCK
----------------------------
GENERAL
The authorized capital stock of the Company consists of 3,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"). Reference is
made to the Certificate of Incorporation of the Company (the "Certificate"),
which is filed as an exhibit to the Registration Statement of which this
Prospectus forms a part, for a detailed description of the provisions thereof
summarized below.
COMMON STOCK
Holders of shares of the Common Stock are entitled to receive such
dividends as may from time to time be declared by the Board of Directors of
the Company out of funds legally available therefor. Holders of Common Stock
are entitled to one vote per share on all matters on which the holders of
Common Stock are entitled to vote and may cumulate their votes in any
election of directors. Holders of Common Stock have no preemptive,
conversion, redemption or sinking fund rights. In the event of a
liquidation, dissolution or winding-up of the Company, holders of Common
Stock are entitled to share equally and ratably in the assets of the Company,
if any, remaining after the payment of all debts and liabilities of the
Company. The outstanding shares of Common Stock are, and the shares of
Common Stock offered by the Company hereby when issued will be, fully paid
and nonassessable.
The Company has reserved 413,000 shares for issuance under the Stock Option
Plans. See "Management - Stock Option Plans."
OFFERING PRICE
The offering price has been established solely by the Company without
independent review by or as a result of negotiation with an investment
banker. See "Risk Factors -- Offering Price". The primary source of
financial information used to analyze and determine the offering price
relates to the historical performance and trends of the Company's primary
asset, its wholly-owned banking subsidiary. The Board reviewed the
historical earnings of the Bank, the strengths and weaknesses of its
operation and loan portfolio, the development of the growth of its customer
base, the depth of management, the Bank's business plan and its projected
growth and earnings performance, an evaluation of comparable banks and bank
holding companies, the current condition of the industry, and the economy of
the St. Louis metropolitan area. The recent trading history of the Company's
common stock where the price of such transfers has been brought to the
attention of Management was also reviewed.
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Certificate, the Bylaws and the Delaware Corporation
Law summarized in the following paragraphs may be deemed to have anti-takeover
effects and may delay, defer or prevent a tender offer or takeover attempt that
a shareholder might consider to be in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders, and may make removal of management more
difficult.
Authorized but Unissued Stock. The authorized but unissued shares of
Common Stock will be available for future issuance without shareholder
approval. These additional shares may be utilized for a variety of corporate
purposes, including future public offerings to raise additional capital,
corporate acquisitions and employee benefit plans. The existence of
authorized but unissued and unreserved
50
<PAGE> 53
Common Stock may enable the Board of Directors to issue shares to persons
friendly to current management, which could render more difficult or discourage
any attempt to obtain control of the Company by means of a proxy contest,
tender offer, merger or otherwise, and thereby protect the continuity of the
Company's management.
Section 203 of the Delaware Corporation Law. Subject to certain exclusions
summarized below, Section 203 of the Delaware Corporation Law ("Section 203")
prohibits any "Interested Shareholder" from engaging in a "Business
Combination" with a Delaware corporation for three years following the date
such person became an Interested Shareholder. "Interested Shareholder"
generally includes: (a) (i) any person who is the beneficial owner of 15% or
more of the outstanding voting stock of the corporation or (ii) any person who
is an affiliate or associate of the corporation and who was the beneficial
owner of 15% or more of the outstanding voting stock of the corporation at any
time within three years before the date on which such person's status as an
Interested Shareholder is determined; and (b) the affiliates and associates of
such person. Subject to certain exceptions, a "Business Combination" includes
(i) any merger or consolidation of the corporation or a majority-owned
subsidiary of the corporation, (ii) the sale, lease, exchange, mortgage,
pledge, transfer or other disposition of assets of the corporation or a
majority-owned subsidiary of the corporation having an aggregate market value
equal to 10% or more of either the aggregate market value of all assets of the
corporation determined on a consolidated basis or the aggregate market value of
all the outstanding stock of the corporation, (iii) any transaction that
results in the issuance or transfer by the corporation or a majority-owned
subsidiary of the corporation of any stock of the corporation or the subsidiary
to the Interested Shareholder, except pursuant to a transaction that effects a
pro rata distribution to all shareholders of the corporation, (iv) any
transaction involving the corporation or a majority-owned subsidiary of the
corporation that has the effect of increasing the proportionate share of the
stock of any class or series, or securities convertible into the stock of any
class or series, of the corporation or the subsidiary that is owned by the
Interested Shareholder and (v) any receipt by the Interested Shareholder of the
benefit (except proportionately as a shareholder) of any loans, advances,
guarantees, pledges or other financial benefits provided by or through the
corporation or a majority-owned subsidiary of the corporation.
Section 203 does not apply to a Business Combination if (i) before a person
became an Interested Shareholder, the board of directors of the corporation
approved either the transaction in which the Interested Shareholder became an
Interested Shareholder or the Business Combination, (ii) upon consummation of
the transaction that resulted in the person becoming an Interested Shareholder,
the Interested Shareholder owned at least 85% of the voting stock of the
corporation outstanding at the time the transaction commenced (other than
certain excluded shares), or (iii) following a transaction in which the person
became an Interested Shareholder, the Business Combination is (a) approved by
the board of directors of the corporation and (b) authorized at a regular or
special meeting of Shareholders (and not by written consent) by the affirmative
vote of the holders of at least two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Shareholder.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding up to
2,113,972 shares of Common Stock, assuming the maximum number of shares are
sold pursuant to the offering. Of these shares, 1,915,012 will be freely
tradeable without restriction or further registration under the Securities
Act, except for any shares purchased by "affiliates" of the Company (as that
term is defined in Rule 144 under the Securities Act, the "Affiliates"),
which shares will be subject to some or all of the resale limitations of
Rule 144. An affiliate of the issuer is defined in Rule 144 under the
Securities Act as a person that directly or indirectly, through one or more
intermediate, controls, is controlled by, or is under common control with the
issuer. Rule 405 under the Securities Act defines the term "control" to mean
51
<PAGE> 54
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of the person whether through the
ownership of voting securities, by contract or otherwise. For purposes of
Rule 144, all executive officers and directors of the Company, and certain
executive officers of the Bank, will be deemed to be affiliates of the Company.
The remaining 198,960 shares of Common Stock ("Restricted Securities")
currently outstanding may not be sold in the absence of registration under
the Securities Act unless an exemption from registration is available,
including the exemption contained in Rule 144.
In general, and except as set forth below, under Rule 144 as currently in
effect, an Affiliate of the Company or other person (or persons whose shares
are aggregated) who has beneficially owned Restricted Securities for at least
two years, may sell, within any three-month period, a number of such shares
that does not exceed the greater of (i) 1% of the then outstanding shares of
the Company's Common Stock (approximately 21,140 shares immediately after the
offering, assuming the maximum number of shares are purchased pursuant to the
offering) or (ii) the average weekly trading volume of the Common Stock on
all national securities exchanges or NASDAQ during the four calendar weeks
preceding the sale. It is not anticipated that shares of the Common Stock
will be listed on a national securities exchange or quoted on the NASDAQ.
Rule 144 also requires that (i) the securities must be sold in "brokers'
transactions," as defined in the Securities Act, and the person selling the
securities may not solicit orders or make any payment in connection with the
offer or sale of securities to any person other than the broker who executes
the order to sell the securities, and (ii) sales pursuant to Rule 144 are
subject to certain requirements relating to notices and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Securities for at least three years is
entitled to sell such shares under Rule 144(k) without regard to the
limitations described above. In general, Affiliates who purchased shares of
Common Stock of the Company prior to the offering pursuant to a Section
3(a)(12) exemption provided under the Securities Act for certain bank holding
company reorganizations, will also need to comply with the resale limitations
for Rule 144 described above, except for the two-year holding period.
Prior to the offering there has not been a public market for the Common
Stock of the Company. Since an established public trading market for the
Common Stock is not expected to develop following the offering, sales of even
a small number of shares of Common Stock, or the perception that such sales
could occur, could adversely affect the prevailing market price of the shares
of Common Stock.
TRANSFER AGENT AND REGISTRAR
The Company serves as its own transfer agent and registrar for the Common
Stock.
CERTAIN TRANSACTIONS
--------------------
The Company and the Bank have and expect to continue to have banking and
other transactions in the ordinary course of business with directors and
executive officers of the Company and their affiliates, including members of
their families or corporations, partnerships or other organizations in which
such directors or executive officers have a controlling interest, on
substantially the same terms (including price, or interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties. Such transactions are not expected to involve more than
the normal risk of collectibility nor present other unfavorable features to
the Company and the Bank. The Bank is subject to limits on the aggregate
amount it can lend to the Bank's and the Company's directors and
52
<PAGE> 55
officers as a group. This limit is currently equal to two times the applicable
entity's unimpaired capital and surplus. Loans to individual directors and
officers must also comply with the Bank's lending policies and statutory
lending limits, and directors with a personal interest in any loan application
are excluded from the consideration of such loan application.
The Company's Clayton banking facility is leased from a limited partnership
in which Fred H. Eller, the Company's Chief Executive Officer, is a limited
partner and Robert E. Saur, a director of the Company, is a general partner.
Rent expense, net of income from the sublet portions of the premises,
amounted to $202,784 in 1995.
During 1995 and 1996, the Company purchased its current telephone system
from Capital Communication Corp., of which William H. McCormick, a director
of the Bank, is the President, for a total of $45,428. Since January 7,
1995, a total of $56,757 has been paid by the Company to Capital
Communication Corp. for hardware, software and service related to the
telephone system.
During 1995, the Company purchased leasehold improvements in the aggregate
amount of $111,181 from Henges Associates, Inc., of which Ronald E. Henges,
the Chairman of the Company, was the President.
PLAN OF DISTRIBUTION
--------------------
PLAN OF DISTRIBUTION
The Company is offering up to 451,612 shares of its Common Stock, $.01 par
value at a cash purchase price of $15.50 per share. This offering is not
underwritten and the Company has not employed any dealers, brokers, or
salesmen in connection herewith. The Company is offering the Common Stock
through its directors, officers, and employees on a best efforts basis. None
of these individuals will be entitled to any commissions or other
remuneration for selling the Common Stock.
The Company has reserved the right to close the offering at any time the
Company has received Subscription Agreements acceptable to the Company for
not less than 193,548 shares of Common Stock. The Company has also reserved
the right to terminate the offering at any time. If the Company has not
received any acceptable Subscription Agreements for at least 193,548 shares
of Common Stock on or before January 28, 1997, or by the end of any extended
time, up to an additional 120 days, if the Company elects to extend the
offering time, the offering will be terminated and no shares of Common Stock
will be sold. Those shares of Common Stock which are reserved for sale to
certain directors of the Company and the Bank (as described below), and which
are actually subscribed for by such directors, will be included in determining
whether the minimum number of shares has been reached.
SHARES RESERVED FOR SALE
Based upon indications of interest received, the Company has reserved an
aggregate of 77,736 shares of Common Stock for sale to certain directors of
the Company and the Bank who have previously not been shareholders of the
Company (other than qualifying shares), in the amounts set forth below
opposite their respective names:
53
<PAGE> 56
<TABLE>
<CAPTION>
Company/Bank Directors No. of Shares Reserved for Purchase
---------------------- -----------------------------------
<S> <C>
Charles W. Bennett 6,451
Ernie Dempsey 9,677
John Gloss 9,677
John Kastner 6,451
Richard C. Leuck 6,451
Patricia Rodeheaver 6,451
James L. Wilhite 6,451
R. Bruce Earls 4,839
Robert O'Loughlin 6,451
James Williams 6,451
Joseph D. Garea 6,451
Nancy R. Siwak 1,935
------
77,736
======
</TABLE>
METHOD OF SUBSCRIPTION
Persons desiring to purchase the Common Stock offered hereunder may
subscribe to purchase such Common Stock by executing a Subscription Agreement
for the Common Stock and by mailing or delivering such Subscription
Agreement, together with the subscriber's check in the full amount of the
subscription price for the Common Stock subscribed for, to the Company in
care of the Jefferson Bank & Trust, as escrow agent. All checks should be
made payable to "Jefferson Bank & Trust, as Escrow Agent for Enterbank
Holdings, Inc."
Unless a lesser amount is approved by the Company in its sole discretion,
the minimum subscription per subscriber will be for 650 shares ($10,075) and
shall constitute an irrevocable offer to purchase the Common Stock subscribed
for. The Company reserves the right to reject, in whole or in part, the
Subscription Agreement of any subscriber for any reason. No Subscription
Agreement will entitle a subscriber to purchase Common Stock until such
person's Subscription Agreement has been accepted by the Company and the
Company has given written notice of acceptance thereof to the subscriber.
ESCROW OF SUBSCRIPTION PAYMENTS
All subscription payments will be deposited in an escrow account at
Jefferson Bank & Trust, pending the closing or termination of this offering,
whichever shall first occur. The deposits in the escrow account will earn
interest at prevailing money market rates. If this offering is terminated, all
funds so received will be promptly returned to the subscriber, with interest
thereon and without deduction therefrom. Any funds held in the escrow account
for any subscriber which are in excess of the purchase price for the number of
shares of Common Stock which such subscriber has been allocated by the Company
will be promptly refunded to each such subscriber, with interest. During the
selling period, subscribers will not have the right to demand return of their
subscriptions.
ISSUANCE OF STOCK
Certificates representing Common Stock duly subscribed and fully paid will
be issued as soon as practicable following the closing of the offering.
54
<PAGE> 57
LEGAL MATTERS
-------------
The validity of the Common Stock offered hereby has been passed on for the
Company by Polsinelli, White, Vardeman & Shalton, P.C., St. Louis, Missouri.
EXPERTS
-------
The consolidated financial statements of the Company as of December 31,
1995 and 1994 and for the years then ended, appearing in the Prospectus and
the Registration Statement have been audited by KPMG Peat Marwick LLP,
independent auditors, as stated in their report appearing elsewhere herein,
and is included in reliance upon such report given upon the authority of that
firm as experts in accounting and auditing. The consolidated financial
statements of Enterprise Bank for the year ended December 31, 1993 appearing
in this Prospectus and the Registration Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report appearing
elsewhere herein and in the Registration Statement, and are included in
reliance upon such reports, given upon the authority of such firm as experts
in accounting and auditing.
On April 27, 1994, the Company's independent auditors, Ernst & Young LLP,
were dismissed. The independent accountants' report issued by Ernst & Young
LLP on the Bank's consolidated financial statements as of and for the year
ended December 31, 1993 did not contain an adverse opinion or a disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to change accountants was recommended and
approved by the Board of Directors. There was no disagreement during 1993, or
any preceding year, between the Company and Ernst & Young LLP on any matters
or accounting principles or practices, financial statement disclosure, or
auditing scope of procedure, which disagreement, if not resolved to the
satisfaction of Ernst & Young LLP, would have caused it to make reference
to the subject matter of the disagreement in connection with its report.
On April 27, 1994, the Company engaged KPMG Peat Marwick LLP to serve as
the new independent auditors and to report on the Company's consolidated
financial statements as of and for the year ended December 31, 1994.
55
<PAGE> 58
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
<S> <C>
Independent Auditors' Report dated January 26, 1996 F-2
Independent Auditors' Report dated January 18, 1994 F-3
Consolidated Balance Sheets dated September 30, 1996 (unaudited) and December 31, 1995 and 1994 F-4
Consolidated Statements of Income for the Years Ended December 31, 1995, 1994, and 1993 and the Nine Months
ended September 30, 1996 and 1995 (unaudited) F-5
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994, and 1993 and
the Nine Months ended September 30, 1996 (unaudited) F-6
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993 and the Nine
Months ended September 30, 1996 and 1995 (unaudited) F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
F-1
<PAGE> 59
Independent Auditors' Report
----------------------------
The Board of Directors and Shareholders
Enterbank Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of Enterbank
Holdings, Inc. and subsidiaries (the Company) as of December 31, 1995 and
1994, and the related consolidated statements of income, shareholders' equity,
and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The accompanying consolidated statements of
income, shareholders' equity, and cash flows of Enterprise Bank for the year
ended December 31, 1993 were audited by other auditors whose report thereon,
dated January 18, 1994, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enterbank
Holdings, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
/s/KPMG Peat Marwick LLP
St. Louis, Missouri
January 26, 1996
F-2
<PAGE> 60
[LOGO] ERNST & YOUNG LLP / / Gateway One / / Phone: 314 259 1000
Suite 1400
701 Market Street
St. Louis, Missouri 63101
Report of Independent Auditors
The Board of Directors and Shareholders
Enterprise Bank
We have audited the consolidated statements of income, shareholders' equity,
and cash flows of Enterprise Bank for the year ended December 31, 1993 (see
Note 1 to consolidated financial statements of Enterbank Holdings, Inc.).
These financial statements are the responsibility of the Bank's management.
Our responsibility is to express an opinion on these financial statements
based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash
flows of Enterprise Bank for the year ended December 31, 1993 in conformity
with generally accepted accounting principles.
/s/Ernst & Young LLP
January 18, 1994
Ernst & Young LLP is a member of Ernst & Young International, Ltd.
F-3
<PAGE> 61
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
September 30, 1996 and December 31, 1995 and 1994
<CAPTION>
December 31
September 30 -------------------
1996 1995 1994
---- ---- ----
Assets (Unaudited)
-------
<S> <C> <C> <C>
Cash and due from banks $ 7,029,095 $ 8,109,804 $ 5,929,650
Certificates of deposit -- -- 98,000
Federal funds sold 5,625,000 16,230,000 11,300,000
Investments in debt securities:
Available-for-sale, at estimated fair value 14,917,725 16,065,201 15,739,904
Held-to-maturity, at amortized cost
(estimated fair value of $934,005 at
September 30, 1996, $840,566 in 1995
and $778,190 in 1994) 938,266 841,732 802,209
------------ ------------ ------------
Total investments in debt securities 15,855,991 16,906,933 16,542,113
------------ ------------ ------------
Loans, less unearned loan fees 129,721,178 110,463,751 85,686,752
Less allowance for loan losses 1,555,000 1,400,000 1,000,000
------------ ------------ ------------
Loans, net 128,166,178 109,063,751 84,686,752
------------ ------------ ------------
Other real estate owned 874,426 881,072 1,776,366
Office equipment and leasehold improvements 876,456 795,377 684,328
Accrued interest receivable 910,645 981,042 600,642
Prepaid expenses and other assets 1,429,108 738,088 593,921
------------ ------------ ------------
Total assets $160,766,899 $153,706,067 $122,211,772
============ ============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 27,379,121 $ 25,432,639 $ 23,445,209
Interest-bearing transaction accounts 12,246,838 21,662,697 15,450,658
Money market accounts 46,155,611 42,993,844 29,221,646
Savings 1,247,242 1,169,242 979,866
Certificates of deposit:
$100,000 and over 21,883,622 23,285,939 19,061,313
Other 36,648,833 26,595,703 16,640,220
------------ ------------ ------------
Total deposits 145,561,267 141,140,064 104,798,912
Federal funds purchased -- -- 6,500,000
Notes payable 300,000 -- --
Accounts payable and accrued expenses 582,327 513,856 131,947
------------ ------------ ------------
Total liabilities 146,443,594 141,653,920 111,430,859
------------ ------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000
at September 30, 1996, 1,879,000 in 1995 and
1994, issued and outstanding 1,662,360 shares
at September 30, 1996, 1,463,400 shares in 1995
and 1,462,400 shares in 1994 16,624 14,634 14,624
Surplus 9,595,956 8,503,666 8,498,176
Retained earnings 4,740,402 3,558,208 2,356,378
Net unrealized holding losses on
available-for-sale securities (29,677) (24,361) (88,265)
------------ ------------ ------------
Total shareholders' equity 14,323,305 12,052,147 10,780,913
------------ ------------ ------------
Total liabilities and shareholders' equity $160,766,899 $153,706,067 $122,211,772
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-4
<PAGE> 62
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Nine months ended September 30, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993
<CAPTION>
September 30, December 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $8,325,759 $6,856,245 $ 9,393,945 $6,612,560 $5,211,099
Interest on debt securities:
Available-for-sale 493,807 501,104 741,709 365,279 --
Held-to-maturity 28,544 22,729 30,674 25,573 300,246
Interest on federal funds sold 260,374 535,736 745,044 366,743 243,100
Interest on certificates of deposit -- 2,464 2,464 3,663 16,126
---------- ---------- ----------- ---------- ----------
Total interest income 9,108,484 7,927,278 10,913,836 7,373,818 5,770,571
---------- ---------- ----------- ---------- ----------
Interest expense:
Interest-bearing transaction accounts 251,667 259,983 351,998 291,801 370,843
Money market accounts 1,409,203 1,200,455 1,740,701 1,053,459 882,833
Savings 23,505 23,397 31,958 32,936 22,237
Certificates of deposit:
$100,000 and over 1,018,983 920,553 1,246,703 568,376 356,654
Other 1,277,152 1,104,108 1,513,251 621,537 450,755
Federal funds purchased 949 2,681 2,681 2,325 --
Notes payable 8,949 -- -- -- --
---------- ---------- ----------- ---------- ----------
Total interest expense 3,990,408 3,511,177 4,887,292 2,570,434 2,083,322
---------- ---------- ----------- ---------- ----------
Net interest income 5,118,076 4,416,101 6,026,544 4,803,384 3,687,249
Provision for loan losses 143,739 290,000 630,734 449,962 162,462
---------- ---------- ----------- ---------- ----------
Net interest income after
provision for loan losses 4,974,337 4,126,101 5,395,810 4,353,422 3,524,787
---------- ---------- ----------- ---------- ----------
Noninterest income:
Service charges on deposit accounts 95,034 97,878 131,640 168,018 171,634
Other service charges and fee income 744,788 514,363 712,853 624,346 492,849
Data processing fees -- -- -- 12,900 52,400
Loss on investment in Enterprise Fund, L.P. (59,378) (4,296) (8,222) -- --
Gain on sale of debt securities -- -- -- -- 26,774
---------- ---------- ----------- ---------- ----------
Total noninterest income 780,444 607,945 836,271 805,264 743,657
---------- ---------- ----------- ---------- ----------
Noninterest expense:
Salaries 1,676,699 1,299,819 1,710,740 1,231,596 1,056,433
Payroll taxes and employee benefits 346,218 229,044 332,220 282,477 266,400
Occupancy 236,598 205,526 275,179 269,259 266,358
FDIC insurance 1,500 102,871 114,944 194,231 154,660
Data processing 63,493 48,086 209,267 179,066 117,482
Other operating 1,371,380 1,351,496 1,544,373 1,394,120 1,244,380
---------- ---------- ----------- ---------- ----------
Total noninterest expense 3,695,888 3,236,842 4,186,723 3,550,749 3,105,713
---------- ---------- ----------- ---------- ----------
Income before income tax expense 2,058,893 1,497,204 2,045,358 1,607,937 1,162,731
Income tax expense 792,553 587,227 741,091 606,756 410,908
---------- ---------- ----------- ---------- ----------
Net income $1,266,340 $ 909,977 $ 1,304,267 $1,001,181 $ 751,823
========== ========== =========== ========== ==========
Earnings per share .74 .55 .79 .62 .48
Weighted average common shares 1,496,933 1,463,157 1,463,219 1,461,312 1,460,000
outstanding
See accompanying notes to consolidated financial statements.
</TABLE>
F-5
<PAGE> 63
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Nine months ended September 30, 1996 and
years ended December 31, 1995, 1994 and 1993
<CAPTION>
Net
unrealized
holding gains
(losses) on
Common Stock available- Total
------------ Retained for-sale shareholders'
Shares Amount Surplus earnings securities equity
------ ------ ------- -------- ---------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 1,460,000 $14,600 $8,485,400 $ 764,083 $ -- $ 9,264,083
Net income -- -- -- 751,823 -- 751,823
Dividends declared
($.05 per share) -- -- -- (73,000) -- (73,000)
--------- ------- ---------- ---------- -------- -----------
Balance, December 31, 1993 1,460,000 14,600 8,485,400 1,442,906 -- 9,942,906
Cumulative effect of change
in accounting for debt
securities, net of tax effect -- -- -- -- (29,177) (29,177)
Net income -- -- -- 1,001,181 -- 1,001,181
Dividends declared
($.06 per share) -- -- -- (87,709) -- (87,709)
Stock options exercised 2,400 24 12,776 -- -- 12,800
Change in net unrealized holding gains
(losses) on available-for-sale
securities, net of tax effect -- -- -- -- (59,088) (59,088)
--------- ------- ---------- ---------- -------- -----------
Balance, December 31, 1994 1,462,400 14,624 8,498,176 2,356,378 (88,265) 10,780,913
Net income -- -- -- 1,304,267 -- 1,304,267
Dividends declared
($.07 per share) -- -- -- (102,437) -- (102,437)
Stock warrants exercised 1,000 10 5,490 -- -- 5,500
Change in net unrealized holding gains
(losses) on available-for-sale
securities, net of tax effect -- -- -- -- 63,904 63,904
--------- ------- ---------- ---------- -------- -----------
Balance, December 31, 1995 1,463,400 14,634 8,503,666 3,558,208 (24,361) 12,052,147
Net income -- -- -- 1,266,340 -- 1,266,340
Dividends declared
($.06 per share) -- -- -- (84,146) -- (84,146)
Stock warrants exercised 198,960 1,990 1,092,290 -- -- 1,094,280
Change in net unrealized holding gains
(losses) on available-for-sale
securities, net of tax effect -- -- -- -- (5,316) (5,316)
--------- ------- ---------- ---------- -------- -----------
Balance, September 30, 1996
(unaudited) 1,662,360 $16,624 $9,595,956 $4,740,402 $(29,677) $14,323,305
========= ======= ========== ========== ======== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
F-6
<PAGE> 64
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flow
Nine months ended September 30, 1996 and 1995 and
years ended December 31, 1995, 1994 and 1993
<CAPTION>
September 30, December 31,
------------------- ----------------------------------
1996 1995 1995 1994 1993
---- ---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income $ 1,266,340 $ 909,977 $ 1,304,267 $ 1,001,181 $ 751,823
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 160,607 130,665 177,454 147,346 148,597
Provision for loan losses 144,000 290,000 630,734 449,962 162,462
Write-downs and losses on other real estate
owned, net 6,646 242,138 152,982 138,757 22,362
Net accretion of debt securities 23,832 (228,521) (149,398) (70,037) 38,808
Loss in investment in Enterprise Fund, L.P. 59,378 4,296 8,222 -- --
Gain on sale of debt securities -- -- -- -- (26,774)
(Increase) Decrease in accrued interest
receivable 70,397 (217,437) (380,400) (211,592) (45,799)
(Increase) Decrease in prepaid expenses and
other assets 71,208 (73,752) (106,635) (183,612) (10,254)
Increase (Decrease) in accounts payable and
accrued expenses (229,899) 241,541 425,670 31,393 (331,229)
----------- ------------ ------------ ------------ ------------
Net cash provided by operating activities 1,572,509 1,298,907 2,062,896 1,303,398 709,996
----------- ------------ ------------ ------------ ------------
Cash flows from investing activities:
Net increase in federal funds sold 10,605,000 (13,980,000) (4,930,000) (1,175,000) (675,000)
Purchases of available-for-sale debt securities (8,922,967) (13,677,537) (20,877,229) (10,994,009) --
Purchases of available-for-sale equity securities (94,200) (294,150) (366,800) -- --
Purchases of held-to-maturity debt securities (109,004) (111,600) (255,367) (538,811) (6,895,231)
Proceeds from sales of debt securities -- -- -- -- 1,530,083
Proceeds from maturities of available-for-sale
debt securities 10,140,000 16,000,000 21,200,000 4,588,662 --
Proceeds from maturities and principal paydowns on
held-to-maturity debt securities 5,229 104,152 180,799 17,155 2,993,000
Proceeds from maturity of certificates of deposit -- 98,000 98,000 -- --
Net increase in loans outstanding (19,246,427) (12,011,596) (24,557,838) (14,127,248) (14,826,075)
Capitalized expense on other real estate owned -- -- -- (50,673) (141,489)
Proceeds from sale of other real estate owned -- 302,011 292,417 115,244 270,683
Purchases of office equipment and leasehold
improvements (241,686) (198,497) (288,503) (194,835) (190,994)
Investment in Enterprise Fund, L.P. (520,500) (100,000) (100,500) -- --
----------- ------------ ------------ ------------ ------------
Net cash used in investing activities (8,384,555) (23,869,217) (29,605,021) (22,359,515) (17,935,023)
----------- ------------ ------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand and savings accounts (4,229,610) 22,473,762 22,161,043 4,076,677 8,617,844
Net increase in certificates of deposit 8,650,813 12,095,660 14,180,109 11,608,748 10,883,988
Net increase (decrease) in federal funds purchased -- (6,500,000) (6,500,000) 6,500,000 --
Proceeds from notes payable 300,000 -- -- -- --
Cash dividends paid (84,146) (76,827) (124,373) (84,023) (54,750)
Proceeds from exercise of stock warrants 1,094,280 5,500 5,500 -- --
Proceeds from exercise of common stock options -- -- -- 12,800 --
----------- ------------ ------------ ------------ ------------
Net cash provided by financing activities 5,731,337 27,998,095 29,722,279 22,114,202 19,447,082
----------- ------------ ------------ ------------ ------------
Net increase in cash and due from banks (1,080,709) 5,427,785 2,180,154 1,058,085 2,222,055
Cash and due from banks, beginning of year 8,109,804 5,929,650 5,929,650 4,871,565 2,649,510
----------- ------------ ------------ ------------ ------------
Cash and due from banks, end of year $ 7,029,095 $ 11,357,435 $ 8,109,804 $ 5,929,650 $ 4,871,565
=========== ============ ============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 4,017,213 $ 3,404,523 $ 4,759,095 $ 2,501,376 $ 2,054,447
Income taxes 739,759 586,500 779,900 706,480 768,056
Noncash transactions:
Transfers to other real estate owned in settlement
of loans 50,000 -- -- 483,382 118,010
Loans made to facilitate the sale of other real
estate owned 50,000 -- 449,895 -- 33,500
Transfer of held-for-sale securities to
available-for-sale debt securities -- -- -- 2,998,817 --
Transfer of held-to-maturity debt securities to
available-for-sale debt securities -- -- -- 6,399,439 --
=========== ============ ============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
F-7
<PAGE> 65
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 1--ORGANIZATION
On May 9, 1995, Enterbank Holdings, Inc. (the Company) was formed as a bank
holding company. Enterbank Holdings, Inc. exchanged 1,463,400 shares of
Enterbank Holdings, Inc. for all 73,170 (100%) of outstanding shares of
Enterprise Bank in a twenty-for-one stock exchange. The merger represented a
combination of entities under common control and, accordingly, was accounted
for in a manner similar to a pooling of interest. Therefore, results of
operations for periods prior to May 9, 1995 reflect the results of operations
for Enterprise Bank.
Additionally, Enterprise Capital Resources, Inc. was formed as a small
business investment company in 1995 and, on May 11, 1995, Enterbank Holdings,
Inc. acquired 100% of the outstanding shares of Enterprise Capital Resources,
Inc.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company provides a full range of banking services to individual and
corporate customers located within St. Louis, Missouri and the surrounding
communities through its subsidiary, Enterprise Bank (the Bank). The Company
is subject to competition from other financial and nonfinancial institutions
providing financial services in the markets served by the Company's
subsidiaries. Additionally, the Company and its subsidiaries are subject to
the regulations of certain federal and state agencies and undergo periodic
examinations by those regulatory agencies.
The more significant accounting policies used by the Company in the
preparation of the consolidated financial statements are summarized below:
BASIS OF FINANCIAL STATEMENT PRESENTATION
The consolidated financial statements of the Company and its subsidiaries
have been prepared in conformity with generally accepted accounting
principles and conform to predominant practices within the banking industry.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions which significantly affect the reported
amounts in the consolidated financial statements. Estimates which are
particularly susceptible to change in a short period of time include the
determination of the allowance for loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of amounts
due from borrowers on loans. Actual amounts could differ from those
estimates.
F-8
<PAGE> 66
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
CONSOLIDATION
The consolidated financial statements include the accounts of the Company;
its banking subsidiary, Enterprise Bank (100% owned) and its merchant banking
company, Enterprise Capital Resources, Inc. (100% owned). All significant
intercompany accounts and transactions have been eliminated.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company currently classifies investments in debt and equity securities as
follows:
Trading - includes securities which the Company has bought and held
principally for the purpose of selling them in the near term. The Company
has not held any trading securities.
Held-to-maturity - includes debt securities which the Company has the
positive intent and ability to hold until maturity.
Available-for-sale - includes debt and marketable equity securities not
classified as held-to-maturity or trading (i.e., investments which the
Company has no present plans to sell but may be sold in the future under
different circumstances).
Debt securities classified as held-to-maturity are carried at amortized cost,
adjusted for the amortization or accretion of premiums or discounts.
Unrealized holding gains and losses for held-to-maturity securities are
excluded from earnings and shareholders' equity. Debt and equity securities
classified as available-for-sale are carried at estimated fair value.
Unrealized holding gains and losses for available-for-sale securities are
excluded from earnings and reported as a net amount in a separate component
of shareholders' equity until realized. All previous fair value adjustments
included in the separate component of shareholders' equity are reversed upon
sale.
Transfers of securities between categories are recorded at fair value at the
date of transfer. Unrealized holding gains or losses associated with
transfers of securities from the held-to-maturity category to the available-
for-sale category are recorded as a separate component of shareholders'
equity.
A decline in the market value of any available-for-sale or held-to-maturity
security below cost that is deemed other than temporary results in a charge
to earnings and the establishment of a new cost basis for the security.
F-9
<PAGE> 67
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
For securities in the held-to-maturity and available-for-sale categories,
premiums and discounts are amortized or accreted over the lives of the
respective securities as an adjustment to yield using the interest method.
Dividend and interest income is recognized when earned. Realized gains and
losses for securities classified as available-for-sale and held-to-maturity
are included in earnings and are derived using the specific-identification
method for determining the cost of securities sold.
INTEREST AND FEES ON LOANS
Interest income on loans is accrued and credited to income based on the
principal amount outstanding. The recognition of interest income is
discontinued when a loan becomes 90 days past due or a significant
deterioration in the borrower's credit has occurred which, in management's
opinion, negatively impacts the collectibility of the loan. Subsequent
interest payments received on such loans are applied to principal if any doubt
exists as to the collectibility of such principal; otherwise, such receipts
are recorded as interest income. Loans are returned to accrual status when
management believes full collectibility of principal and interest is expected.
The Company defers the recognition of loan origination fees, net of the cost
associated with originating such loans. Deferred loan fees are accreted into
income over the life of the loan using the straight-line method, which
approximates the interest method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and is available to absorb charge-offs, net of recoveries. Management
utilizes a systematic, documented approach in determining the appropriate
level of the allowance for loan losses. Management's approach, which
provides for general and specific allowances, is based on current economic
conditions, past losses, collection experience, risk characteristics of the
portfolio, assessments of collateral values by obtaining independent
appraisals for significant properties, and such other factors which, in
management's judgment, deserve current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb
possible losses in the loan portfolio. While management uses available
information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions and other factors.
In addition, various regulatory agencies, as an integral part of the
examination process, periodically review the Bank's loan portfolio. Such
agencies may require the Bank to add to the allowance for loan losses based
on their judgments about and interpretations of information available to them
at the time of their examinations.
F-10
<PAGE> 68
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Effective January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 114, Accounting by Creditors for
Impairment of a Loan, as amended by SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures (SFAS 118). SFAS
114 defines the recognition criteria for loan impairment and the measurement
methods for certain impaired loans and loans for which terms have been
modified in troubled-debt restructurings. Impairment of a loan is measured
by discounting the total expected future cash flows at the loan's effective
rate of interest as stated in the original loan agreement or at the fair
value of the collateral for a collateral-dependent loan. SFAS 114 requires a
creditor to measure impairment based on the fair value of the collateral when
the creditor determines foreclosure is probable. SFAS 118 allows the
creditor to use existing methods for recognizing interest income on impaired
loans. The Company has elected to continue to use its existing nonaccrual
methods for recognizing interest income on impaired loans. The adoption of
SFAS 114 and SFAS 118 resulted in no prospective adjustment to the provision
for loan losses.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the Company's subsidiary bank in lieu of foreclosure on loans on
which the borrowers have defaulted as to the payment of principal and
interest. Other real estate owned is recorded on an individual asset basis
at the lower of (1) current fair value minus estimated selling costs or (2)
fair value at the time of the acquisition (cost). If the fair value minus
estimated selling costs is less than cost, the deficiency is expensed or
recorded in a valuation reserve account through a provision against income.
Subsequent increases in the fair value minus estimated selling costs are
recorded through a reversal of the valuation reserve, but not below zero.
Gains and losses resulting from the sale of other real estate owned are
credited or charged to current period earnings. Costs of maintaining and
operating other real estate owned are expensed as incurred, and expenditures
to complete or improve other real estate owned properties are capitalized if
the expenditures are expected to be recovered upon ultimate sale of the
property.
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Office equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization computed using the straight-line
method over their respective estimated useful lives.
F-11
<PAGE> 69
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax
returns. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
EARNINGS PER SHARE
Earnings per share is calculated by dividing net income by the weighted
average number of common shares and common stock equivalents outstanding
using the treasury stock method. Common stock equivalents consist of stock
options and warrants to purchase common stock, neither of which have a
material dilutive effect on earnings per share.
CASH FLOW INFORMATION
For purposes of reporting cash flows, the Company considers cash and due from
banks to be cash and cash equivalents.
FINANCIAL INSTRUMENTS
For purposes of information included in note 13 regarding disclosures about
financial instruments, financial instruments are defined as cash, evidence of
an ownership interest in an entity, or a contract that both:
* Imposes on one entity a contractual obligation to deliver cash or
another financial instrument to a second entity or to exchange other
financial instruments on potentially unfavorable terms with the second
entity, and
* Conveys to that second entity a contractual right to receive cash or
another financial instrument from the first entity or to exchange other
financial instruments on potentially favorable terms with the first
entity.
F-12
<PAGE> 70
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
RECLASSIFICATION
Certain reclassifications have been made to the prior year amounts to conform
to the present year presentation.
NOTE 3--REGULATORY RESTRICTIONS
The Company's subsidiary bank is subject to regulations by regulatory
authorities which require the maintenance of minimum capital standards which
may affect the amount of dividends the Company's subsidiary bank can pay.
At December 31, 1995 and 1994, approximately $1,083,000 and $971,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by the Bank in accordance with Federal Reserve Bank
requirements.
NOTE 4--INVESTMENTS IN DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as available-for-sale at December 31, 1995 and 1994 is
as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,735,311 13,360 (50,270) 15,698,401
Federal Home Loan Bank Stock 366,800 -- -- 366,800
----------- ------ ------- ----------
$16,102,111 13,360 (50,270) 16,065,201
=========== ====== ======= ==========
<CAPTION>
1994
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $15,873,640 530 (134,266) 15,739,904
=========== ====== ======= ==========
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as available-for-sale at December 31, 1995, by contractual
maturity, are shown below.
F-13
<PAGE> 71
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Expected maturities may differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
------------ ----------
<S> <C> <C>
Due in one year or less $ 6,775,630 6,749,436
Due after one year through five years 7,604,953 7,593,099
Due after five years through ten years 1,354,728 1,355,866
Securities with no stated maturity 366,800 366,800
------------ ----------
$ 16,102,111 16,065,201
============ ==========
</TABLE>
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as held-to-maturity at December 31, 1995 and 1994
as follows:
<TABLE>
<CAPTION>
1995
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Municipal bonds $791,599 2,433 (4,226) 789,806
Mortgage-backed securities 50,133 627 -- 50,760
-------- ----- ------- -------
$841,732 3,060 (4,226) 840,566
======== ===== ======= =======
<CAPTION>
1994
---------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Estimated
cost gains losses fair value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Municipal bonds $746,276 -- (22,411) 723,865
Mortgage-backed securities 55,933 -- (1,608) 54,325
-------- ----- ------- -------
$802,209 -- (24,019) 778,190
======== ===== ======= =======
</TABLE>
The amortized cost and estimated fair value of debt securities classified as
held-to-maturity at December 31, 1995, by contractual maturity, are shown
below. Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or without
call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
cost fair value
--------- ----------
<S> <C> <C>
Due in one year or less $ -- --
Due after one year through five years 567,381 566,643
Due after five years through ten years 224,218 223,163
Mortgage backed securities 50,133 50,760
-------- -------
$841,732 840,566
======== =======
</TABLE>
F-14
<PAGE> 72
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
There were no sales of investments in debt securities in 1995 or 1994.
Proceeds from sales of investments in debt securities during 1993 were
$1,530,083 with gross gains of $26,774 realized on those sales. Debt
securities having a carrying value of $8,955,282 and $5,000,721 at December
31, 1995 and 1994, respectively, were pledged as collateral to secure public
deposits and for other purposes as required by law.
As a member of the Federal Home Loan Bank system administered by the Federal
Housing Finance Board, the Bank is required to maintain an investment in the
capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount
equal to the greater of 1% of the aggregate outstanding balance of loans
secured by dwelling units at the beginning of each year or .3% of the total
assets of Enterprise Bank. The stock is recorded at cost which represents
redemption value.
NOTE 5--LOANS
A summary of loans by category at December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commercial and industrial loans $ 43,727,848 30,001,231
Loans secured by real estate 61,679,002 54,002,216
Other 5,089,353 1,714,356
------------ ----------
110,496,203 85,717,803
Less deferred loan fees 32,452 31,051
------------ ----------
$110,463,751 85,686,752
============ ==========
</TABLE>
The breakdown of loans secured by real estate at December 31, 1995 and 1994
is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Business and personal loans $17,358,778 14,040,576
Income-producing properties 24,933,943 22,680,931
Owner-occupied properties 6,173,812 8,100,332
Real estate development properties 13,212,469 9,180,377
----------- ----------
$61,679,002 54,002,216
=========== ==========
</TABLE>
The Company's subsidiary bank grants commercial, residential, and consumer
loans throughout its service area, which consists primarily of the immediate
area in which the Bank is located. The Company has a diversified loan
portfolio, with no particular concentration of credit in any one economic
sector; however, a substantial portion of the portfolio is concentrated in
and secured by real estate. The ability of the Company's borrowers to honor
their contractual obligations is dependent upon the local economy and its
effect on the real estate market.
F-15
<PAGE> 73
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
In connection with the investment in FHLB Stock, the Bank has obtained a $2
million line of credit from the FHLB. As collateral for the line, the Bank
has entered into a blanket agreement which pledges first mortgage loans with
principal balances aggregating 150% of outstanding advances. No advances on
the line were made during 1995.
Following is a summary of activity for the year ended December 31, 1995 of
loans to executive officers and directors or to entities in which such
individuals had beneficial interest as Shareholders, officers, or directors.
Such loans were made in the normal course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and did not involve
more than the normal risk of collectibility.
<TABLE>
<S> <C>
Balance, December 31, 1994 $ 4,851,636
New loans 3,370,644
Payments and other reductions (1,855,221)
------------
Balance, December 31, 1995 $ 6,367,059
============
</TABLE>
A summary of activity in the allowance for loan losses for the years ended
December 31, 1995, 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $1,000,000 722,000 606,000
Provisions charged to operations 630,734 449,962 162,462
Loans charged off (242,734) (190,879) (59,104)
Recoveries of loans
previously charged off 12,000 18,917 12,642
---------- --------- -------
Balance at end of year $1,400,000 1,000,000 722,000
========== ========= =======
</TABLE>
F-16
<PAGE> 74
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
A summary of impaired loans, which include nonaccrual loans, at December 31,
1995, follows:
<TABLE>
<CAPTION>
Impaired loans Allowance for Impaired loans with
Nonaccrual continuing to Total impaired losses on no related allowance
loans accrue interest loans impaired loans for loan losses
- ---------- --------------- -------------- -------------- --------------------
<C> <C> <C> <C> <C>
$106,504 948,510 1,055,014 166,045 --
======== ======= ========= ======= ==========
</TABLE>
The average balance of impaired loans during 1995 was $1,252,362. Loans
listed as impaired have been considered by Bank management in the loan loss
reserve calculation.
A summary of interest income on nonaccrual and other impaired loans for the
year ended December 31, 1995, follows:
<TABLE>
<CAPTION>
Impaired loans
Nonaccrual continuing to
loans accrue interest Total
---------- --------------- -----
<S> <C> <C> <C>
Income recognized $ -- 90,251 90,251
======= ====== ======
Interest income had interest accrued $ 3,119 90,251 93,370
======= ====== ======
</TABLE>
At December 31, 1994, the Bank had no loans on a nonaccrual basis.
NOTE 6--OTHER REAL ESTATE OWNED
A summary of activity in the valuation allowance for other real estate owned
for the years ended December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Balance at beginning of year $ 75,000 --
Provision charged to operations 152,982 75,000
Charge-offs and reversals (207,982) --
--------- ------
Balance at end of year $ 20,000 75,000
========= ======
</TABLE>
F-17
<PAGE> 75
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 7--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of office equipment and leasehold improvements at December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Data processing equipment $ 536,037 470,261
Furniture, fixtures and equipment 733,505 616,880
Leasehold improvements 497,321 391,219
Automobile 26,426 26,426
---------- ---------
1,793,289 1,504,786
Less accumulated depreciation
and amortization 997,912 820,458
---------- ---------
$ 795,377 684,328
========== =========
</TABLE>
Depreciation and amortization of office equipment and leasehold improvements
included in occupancy expense amounted to $177,454 in 1995, $147,346 in 1994
and $148,597 in 1993.
The Company's banking facility is leased under an agreement that expires in
1999. The Company has options to renew the lease for three additional
five-year periods with future rentals to be agreed upon. This lease provides
that the Company pay taxes, maintenance, insurance, and certain other
operating expenses applicable to the leased premises. Two portions of the
premises are sublet and the proceeds are used to reduce the Company's
occupancy expenses. Rent expense amounted to $285,178, $240,905 and $224,044
in 1995, 1994 and 1993, respectively, and sublease rental income amounted to
$82,394 in 1995, $40,780 in 1994 and $43,200 in 1993. The Company leases its
operating facilities from a partnership in which a director and an officer
have an ownership interest. The future minimum rental commitments required
under the lease are as follows:
<TABLE>
<CAPTION>
Year Amount
---- --------
<S> <C>
1996 $294,318
1997 307,068
1998 307,068
1999 102,356
========
</TABLE>
Total minimum future rental payments in 1996 will be reduced by $52,214 of
sublease rentals to be received in the future under two noncancellable
subleases expiring on May 31, 1996 and October 31, 1996.
F-18
<PAGE> 76
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 8--INVESTMENT IN ENTERPRISE FUND, L. P.
The Company and its subsidiaries have a 10% interest in a limited liability
merchant banking partnership, Enterprise Fund L.P., for which a subsidiary of
the Company serves as the general partner. Through December 31, 1995, the
Company has invested $100,500 in the partnership, and has an additional
$904,500 in future capital commitments. These capital commitments are
payable at the partnership's discretion but cannot exceed $333,000 in any one
year. This investment, which is accounted for using the equity method of
accounting, had a carrying value of $92,278 at December 31, 1995.
NOTE 9--INCOME TAXES
The components of income tax expense for the years ended December 31, 1995,
1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal $711,751 572,540 387,110
State 84,086 90,622 70,698
Deferred (54,746) (56,406) (46,900)
-------- ------- -------
$741,091 606,756 410,908
======== ======= =======
</TABLE>
A reconciliation of expected income tax expense, computed by applying the
statutory federal income tax rate of 34% in 1995, 1994 and 1993, to income
before income taxes and the amounts reflected in the consolidated statements
of income is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Income tax expense at statutory rate $695,422 546,699 395,328
Increase (reduction) in income taxes
resulting from:
Tax-exempt income (24,660) (12,989) (5,018)
State and local income taxes,
net of federal income tax benefit 55,497 59,810 46,661
Other, net 14,832 13,236 (26,063)
-------- ------- -------
Total tax expense $741,091 606,756 410,908
======== ======= =======
</TABLE>
F-19
<PAGE> 77
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
A net deferred income tax asset of $337,701 and $315,877 is included in
prepaid expenses and other assets in the consolidated balance sheets at
December 31, 1995 and 1994, respectively. The tax effect of temporary
differences that gave rise to significant portions of the deferred tax assets
and deferred tax liabilities at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $412,140 290,064
Other real estate owned 7,493 53,194
Unrealized losses on securities available for sale 12,549 45,471
Other 11,493 --
-------- -------
Total deferred tax assets 443,675 388,729
Deferred tax liabilities:
Deferred loan fees 68,244 40,769
Office equipment and leasehold improvements 37,730 32,083
-------- -------
Total deferred tax liabilities 105,974 72,852
-------- -------
Net deferred tax asset $337,701 315,877
======== =======
</TABLE>
A valuation allowance would be provided on deferred tax assets when it is
more likely than not that some portion of the assets will not be realized.
The Company has not established a valuation allowance as of December 31,
1995, due to management's belief that all criteria for recognition have been
met, including the existence of a history of taxes paid sufficient to support
the realization of the deferred tax assets.
NOTE 10--SHAREHOLDERS' EQUITY
There were outstanding warrants to purchase 9,950 and 10,000 shares of the
Bank common stock at $110 per share on December 31, 1995 and 1994,
respectively. The warrants became exercisable in 1990 and expire on June 30,
1996. Warrants representing 50 shares have been exercised as of December 31,
1995 and exchanged for 1,000 shares of the Company's common stock.
NOTE 11--COMPENSATION PLANS
INCENTIVE STOCK OPTION PLAN
The Bank has a qualified stock option plan for the Bank's Executive Committee
and key employees. Under the Plan, no employee will be granted stock options
if that employee owns 10% or more of the stock. All options must be
exercised within a period of less than 10 years from the date of grant. The
exercise price of the options may not be less than the fair value of the
common stock at the time the options are granted.
F-20
<PAGE> 78
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
The first portion of the incentive stock option plan is for the benefit of
the Executive Committee. It gives the Bank's Board of Directors (the Board)
the discretion to grant members of the Executive Committee options to
purchase up to an aggregate of 5% of the 48,000 shares of common stock
originally issued by the Bank at the time of incorporation (2,400 shares).
During 1989, the Board granted options to Executive Committee members to
purchase 2,400 shares of Enterprise Bank common stock at an option price of
$100 per share. Options become exercisable at the rate of 20% per year.
The second portion of the incentive stock option plan is for the benefit of
selected employees of the Bank (key employees) and gives the Board the
discretion to award to such key employees options equal to 10% of the 48,000
shares of common stock originally issued by the Bank at the time of
incorporation (4,800 shares). During 1989, the Board granted options to key
employees to purchase 4,800 shares of Enterprise Bank common stock at an
option price of $100 per share. Options become exercisable at the rate of
20% per year. At December 31, 1995 and 1994, 100 shares forfeited by
participants were available for future issuance under the plan.
As a result of a secondary common stock offering in 1990, the Bank's
shareholders approved a second qualified stock option plan for members of the
Executive Committee and key employees. The provisions are identical to the
first plan described previously, and give the Board discretion to grant
additional options to purchase up to 1,250 shares to members of the Executive
Committee and up to 2,500 shares to key employees. Effective December 1,
1992, the Board of Directors granted options under this second plan to
Executive Committee members to purchase 1,250 shares of Enterprise Bank
common stock and key employees to purchase 2,500 shares with an exercise
price of $140 per share. At December 31, 1995, 80 shares forfeited by
participants were available for future issuance under the plan.
Following is a summary of the various plan transactions:
<TABLE>
<CAPTION>
Number Price
of shares per share Total
--------- --------- -----
<S> <C> <C> <C>
December 31, 1993 10,500 $ 100 - 140 $1,222,000
Granted 250 140 35,000
Exercised (120) 100 - 140 (12,800)
Forfeited (80) 140 (11,200)
------ ----------- ----------
December 31, 1994 10,550 $ 100 - 140 1,233,000
Granted 100 185 18,500
Forfeited -- -- --
------ ----------- ----------
December 31, 1995 10,650 $ 100 - 185 $1,251,500
====== =========== ==========
</TABLE>
F-21
<PAGE> 79
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Effective January 1, 1993, the Company adopted a 401(k) thrift plan which
covers substantially all full-time employees over the age of 21. The amount
charged to expense for contributions to the plan was $30,000 for both 1995
and 1994 and $22,452 in 1993.
NOTE 12--LITIGATION
Various legal claims have arisen during the normal course of business which,
in the opinion of management, after discussion with legal counsel, will not
result in any material liability.
NOTE 13--DISCLOSURES ABOUT FINANCIAL INSTRUMENTS
The Bank issues financial instruments with off-balance-sheet risk in the
normal course of the business of meeting the financing needs of its
customers. These financial instruments include commitments to extend credit
and standby letters of credit. These instruments may involve, to varying
degrees, elements of credit and interest-rate risk in excess of the amounts
recognized in the consolidated balance sheets.
The Company's extent of involvement and potential exposure to credit loss in
the event of nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit is represented
by the contractual amount of these instruments. The Bank uses the same
credit policies in making commitments and conditional obligations as it does
for financial instruments included on its balance sheets.
The contractual amount of off-balance-sheet financial instruments as of
December 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Commitments to extend credit $51,501,823 32,556,015
Standby letters of credit 3,114,206 2,403,889
=========== ==========
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Of the total commitments to extend
credit at December 31, 1995, approximately $63,500 represents fixed rate loan
commitments. Since certain of the commitments may expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies, but may include accounts
receivable, inventory, premises and equipment, and real estate.
F-22
<PAGE> 80
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These standby
letters of credit are primarily issued to support contractual obligations of
Bank customers. The credit risk involved in issuing letters of credit is
essentially the same as the risk involved in extending loans to customers.
At December 31, 1995, the Company adopted the provisions of SFAS 107,
Disclosures About Fair Value of Financial Instruments. SFAS 107 extends
existing fair value disclosure for some financial instruments by requiring
disclosure of the fair value of such financial instruments, both assets and
liabilities recognized and not recognized in the consolidated balance sheets.
Following is a summary of the carrying amounts and fair values of the
Company's financial instruments on the consolidated balance sheets at
December 31, 1995:
<TABLE>
<CAPTION>
1995
-----------------------
Carrying Estimated
amount fair value
-------- ----------
<S> <C> <C>
Balance sheet assets:
Cash and due from banks $ 8,109,804 8,109,804
Federal funds sold 16,230,000 16,230,000
Investments in debt and equity securities 16,906,933 16,905,767
Loans, net 109,063,751 110,714,776
Accrued interest receivable 981,042 981,042
============ ===========
Balance sheet liabilities:
Deposits $141,140,064 141,444,569
Accrued interest payable 287,199 287,199
============ ===========
</TABLE>
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate
such value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash and due from banks, federal funds sold and accrued interest
receivable (payable), the carrying amount is a reasonable estimate of fair
value, as such instruments reprice in a short time period.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer quotes.
F-23
<PAGE> 81
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
LOANS
The fair value of adjustable-rate loans approximates cost. The fair value of
fixed-rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, interest-bearing transaction accounts,
money market accounts and savings deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit
is estimated using the rates currently offered for deposits of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of credit
are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and
the present credit worthiness of such counterparties. The Company believes
such commitments have been made on terms which are competitive in the markets
in which it operates; however, no premium or discount is offered thereon and
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
LIMITATIONS - Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire holdings
of a particular financial instrument. Because no market exists for a
significant portion of the Company's financial instruments, fair value
estimates are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in nature and
involve uncertainties and matters of significant judgment, and therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Fair value estimates are based on existing on and off balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. In addition, the tax ramifications related to the
realization of the unrealized gains and losses can have a significant effect
on fair value estimates and have not been considered in many of the
estimates.
F-24
<PAGE> 82
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
NOTE 14--PARENT COMPANY ONLY FINANCIAL STATEMENTS
<TABLE>
Condensed Balance Sheets
<CAPTION>
December 31
1995
-----------
Assets
------
<S> <C>
Cash $ 26,466
Investment in Enterprise Bank 11,849,039
Investment in Enterprise Capital Resources 101,195
Investment in Enterprise Fund, L.P. 82,612
Other assets 13,000
-----------
Total assets $12,072,312
===========
Liabilities and Shareholders' Equity
------------------------------------
Accounts payable and other liabilities $ 20,165
Shareholders' equity 12,052,147
-----------
Total liabilities and shareholders' equity $12,072,312
===========
<CAPTION>
Condensed Statements of Operations
Year Ended
December 31
1995
-----------
<S> <C>
Income:
Dividends from subsidiaries $ 300,000
-----------
Expenses:
Loss on investment in Enterprise Fund, L.P. 7,388
Other expenses 27,460
-----------
Total expenses $ 34,848
-----------
Income before tax benefit and equity in
undistributed earnings of subsidiaries 265,152
Income tax benefit 13,590
-----------
Income before equity in undistributed earnings
of subsidiaries 278,742
Equity in undistributed earnings of subsidiaries 1,025,525
-----------
Net income $ 1,304,267
===========
</TABLE>
F-25
<PAGE> 83
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
<TABLE>
Condensed Statements of Cash Flow
<CAPTION>
Year Ended
December 31
1995
-----------
<S> <C>
Cash flows from operating activities:
Net Income $1,304,267
Adjustments to reconcile net income to net
cash provided by operating activities:
Net income of subsidiaries (1,325,525)
Dividends from subsidiaries 300,000
Other, net 14,553
----------
Net cash provided by (used in) operating
activities 293,295
----------
Cash flows from investing activities:
Capital contributions to subsidiaries (100,000)
Investment in Enterprise Fund, L.P. (90,000)
----------
Net cash provided by (used in) investing
activities (190,000)
----------
Cash flows from financing activities:
Payment of stock dividends (76,829)
----------
Net cash provided by (used in)
financing activities (76,829)
----------
Net increase (decrease) in cash
and cash equivalents 26,466
Cash and cash equivalents, beginning of year 0
----------
Cash and cash equivalents, end of year $ 26,466
==========
</TABLE>
NOTE 15--BASIS OF PRESENTATION--INTERIM FINANCIAL STATEMENTS (UNAUDITED)
The unaudited interim consolidated financial statements include the
accounts of the Company and its subsidiaries after elimination of all
significant intercompany accounts and transactions. The unaudited interim
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair statement of the results for the interim
periods presented. All adjustments made were of a normal recurring nature.
F-26
<PAGE> 84
=======================================================
<TABLE>
TABLE OF CONTENTS
<CAPTION>
Page
----
<S> <C>
Prospectus Summary 1
Risk Factors 5
The Company 8
Use of Proceeds 9
Capitalization 10
Dilution 10
Business 12
Management's Discussion and Analysis of
Financial Condition and Results of Operations 17
Supervision and Regulation 36
Management 41
Beneficial Ownership of Securities 47
Dividends 49
Market for Common Stock 49
Description of Capital Stock 50
Certain Transactions 52
Plan of Distribution 53
Legal Matters 54
Experts 55
Index to Financial Statements F-1
</TABLE>
---------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION
OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS
AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION AND
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY SECURITIES OTHER
THAN THE REGISTERED SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN
ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION
IS UNLAWFUL.
=======================================================
=======================================================
451,612 Shares
ENTERBANK HOLDINGS, INC.
Common Stock
------------------
Prospectus
December 19, 1996
------------------
=======================================================
