<PAGE> 1
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
/x/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
[Fee Required] For the fiscal year ended December 31, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
[No Fee Required] For the transition period from to
Commission file number 333-14737
ENTERBANK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 43-1706259
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification Number)
150 NORTH MERAMEC, CLAYTON, MO 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 314-725-5500
------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of Form 10-K /x/
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 15, 1998:
Common Stock, par value $.01, $47,996,738
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of March 15, 1998:
Common Stock, par value $.01, 2,305,112 shares outstanding
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<PAGE> 2
<TABLE>
ENTERBANK HOLDINGS, INC.
1997 ANNUAL REPORT ON FORM 10-K
<CAPTION>
Page
----
<S> <C>
Selected Financial Data 1
Business 2
Market for Common Stock 6
Dividends 6
Description of Capital Stock 6
Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
Supervision and Regulation 23
Management 26
Beneficial Ownership of Securities 29
Certain Related Party Transactions 30
Independent Auditors' Report 31
Consolidated Financial Statements 32
Signatures 56
Exhibit Index 57
</TABLE>
<PAGE> 3
<TABLE>
SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(Dollars and number of shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 18,759 $ 12,554 $ 10,914 $ 7,374 $ 5,770
Interest expense 8,582 5,569 4,887 2,570 2,083
-------- -------- -------- -------- -------
Net interest income 10,177 6,985 6,027 4,804 3,687
Provision for loan losses 775 345 631 450 162
-------- -------- -------- -------- -------
Net interest income after provision
for loan losses 9,402 6,640 5,396 4,354 3,525
Noninterest income 476 1,239 836 805 744
Noninterest expense 6,339 5,146 4,187 3,551 3,106
-------- -------- -------- -------- -------
Income before income tax expense 3,539 2,733 2,045 1,608 1,163
Income tax expense 1,317 1,031 741 607 411
-------- -------- -------- -------- -------
Net income 2,222 1,702 1,304 1,001 752
======== ======== ======== ======== =======
Basic earnings per share 1.06 1.11 0.89 0.68 0.51
Diluted earnings per share 1.00 0.97 0.77 0.62 0.48
Cash dividends per common share .09 0.08 0.07 0.06 0.05
Basic weighted average common
shares and common stock
equivalents outstanding<F1> 2,095 1,538 1,463 1,462 1,460
Diluted weighted average common
shares and common stock
equivalents outstanding<F1> 2,225 1,751 1,685 1,614 1,561
===========================================================================================================================
BALANCE SHEET DATA
Cash and due from banks $ 13,897 $ 9,261 $ 8,110 $ 5,930 $ 4,872
Federal funds sold 32,825 23,250 16,230 11,300 10,125
Investments in debt and equity securities:
Available for sale 12,515 14,006 16,065 15,740 2,999
Held to maturity 919 1,240 842 802 6,680
-------- -------- -------- -------- -------
Total investments 13,434 15,246 16,907 16,542 9,679
-------- -------- -------- -------- -------
Loans, net of unearned loan fees <F2> 225,560 134,133 110,464 85,687 72,215
Allowance for loan losses 2,510 1,765 1,400 1,000 722
Total assets 291,365 184,584 153,706 122,212 99,266
Total deposits 264,301 168,961 141,140 104,799 89,113
Note payable -- 300 -- -- --
Shareholders' equity 26,067 14,758 12,052 10,781 9,943
Book value per common share 11.34 8.88 8.24 7.38 6.81
Tangible book value per common share 11.32 8.84 8.19 7.38 6.81
===========================================================================================================================
SELECTED RATIOS
Return on average assets 0.97% 1.12% 0.99% 0.96% 0.84%
Return on average equity 9.78 12.73 11.13 9.71 7.83
Total capital to risk-weighted assets 12.28 11.53 11.40 11.75 14.12
Leverage ratio 8.93 7.96 7.81 8.89 10.02
Net yield on average earning assets 8.84 8.90 9.00 7.78 7.14
Cost of interest-bearing liabilities 5.03 4.89 4.94 3.36 3.11
Net interest margin 4.79 4.96 4.98 5.07 4.57
Nonperforming loans as a percent of loans 0.02 0.12 0.10 0.00 0.78
Nonperforming assets as a percent of assets 0.29 0.56 0.64 1.45 2.08
Net loan charge offs (recoveries)
as a percent of average loans 0.02 (0.02) 0.24 0.23 0.07
Allowance for loan losses as a percent
of loans, net of unearned loan fees 1.11 1.32 1.27 1.17 1.00
===========================================================================================================================
<FN>
<F1> Reflects the results of a stock offering and a private placement of
common stock in February and October 1997 (see "Market for Common
Stock".
<F2> Excludes loans held for sale.
</TABLE>
1
<PAGE> 4
BUSINESS
--------
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") in May 1995 through a tax-free exchange by Bank
shareholders. The bank holding company ownership structure gives the Bank a
source of capital and financial strength and allows the organization some
flexibility in expanding the products and services offered to clients.
The Bank began operations on May 9, 1988 as a newly formed and charted
Missouri financial institution. From 1988 through 1996, commercial banking
services had been provided to Bank customers from a single location in the
City of Clayton, St. Louis County, Missouri. During 1996, the Bank received
regulatory approval for two additional facilities located in St. Charles
County and the City of Sunset Hills which opened in their permanent
facilities in July and September 1997, respectively.
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
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. In March 1998, Capital Resources changed its
name to Enterprise Merchant Banc, Inc. ("Merchant Banc").
In 1997, the Company organized Enterprise Financial Advisors ("Financial
Advisors") as a division of the Bank to provide fee-based personal financial
planning, estate planning, and corporate planning services to the Company's
target market. The Company entered into solicitation and referral agreements
with Moneta Group, Inc., a financial planning company, as part of the
organization of Financial Advisors.
As used herein, unless the context indicates otherwise, 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 63105. The Company's telephone number is (314) 725-5500.
STRATEGY
The Company's strategy is to provide a complete range of financial services
designed to appeal to closely-held businesses, their owners, and to
professionals in the St. Louis metropolitan area, which encompasses the city
of St. Louis, Missouri, the Missouri counties of St. Louis, St. Charles,
Jefferson, Franklin, Lincoln and Warren and the Illinois county of St.
Clair. The Company's merchant banking operation targets a larger geographic
area which includes all of Missouri and the adjoining states. The Company's
goal is to grow its operations within its defined market niche by being
well-managed, well-capitalized and disciplined in its approach to managing
and expanding its operations as growth opportunities arise. The Company
believes its goals can be achieved while providing attractive returns to
shareholders. Growth and return on shareholders' equity are the financial
performance indicators the Company considers most critical in measuring
success.
Through the Bank, the Company currently delivers a full range of commercial
banking services to the closely-held business market. Merchant banking and
venture capital services are conducted through Merchant Banc and Capital
Management. Financial planning services are offered through Financial
Advisors. The Company plans to continue to expand the range of services it
provides within its market niche while expanding the base of customers to
which it provides its current services.
2
<PAGE> 5
THE BANK
The Bank offers a broad range of commercial and personal banking services to
its customers. Loans include commercial, commercial real estate, financial
and industrial development, real estate construction and development,
residential real estate and a small amount of consumer loans. Other services
include cash management, safe-deposit boxes, and lock boxes.
The Company's primary source of funds has historically been customer
deposits. The Company offers a variety of accounts for depositors designed
to attract both short-term and long-term deposits. These accounts include
certificates of deposit, savings accounts, money market accounts, checking
and negotiable order to withdrawal accounts, and individual retirement
accounts. Interest-bearing accounts earn interest at rates established by
management based on competitive market factors and management's desire to
increase or decrease certain types of deposits.
Management believes the Bank is able to compete effectively in its market
because the Company's officers and senior management maintain close working
relationships with their commercial customers and their businesses; the
Bank's management structure enables it to react to customer requests for loan
and deposit services more quickly than larger competitors; the Bank's
management and officers have significant experience in the communities
serviced by the Bank; and the Company continues to target the closely-held
business and professional market. Additionally, industry consolidation has
resulted in fewer independent banks and fewer banks serving the Bank's target
market niche. Management believes the Bank is the only bank in its market
area whose primary strategy is to focus on closely-held businesses, their
owners and the professional market.
The Bank's historical growth strategy has been both customer and asset
driven. The Bank continuously seeks to add customers that fit its target
market. This strategy has enabled the Bank to attract customers whose
borrowing needs have grown along with the Bank's increasing capacity to fund
its customers' loan requests. Additionally, the Bank has increased its loan
portfolio based on lending opportunities developed by relationship officers.
The Bank funds its loan growth by attracting deposits from its business and
professional customers 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'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 operating a small
number of offices with a high per office asset base; emphasizing commercial
loans which tend to be larger than retail loans; employing an experienced
staff, all of whom are rewarded on the basis of performance and customer
service; improving data processing and operational systems to increase
productivity and control risk; leasing facilities so that capital can be
deployed more effectively to support growth in earning assets; and
outsourcing services where possible.
The Bank has a strong orientation toward commercial banking, with a specific
focus on closely-held businesses, their owners, and professionals located in
its target service areas. The Bank stresses personal service, flexibility in
structuring loan and deposit relationships which meet customers' needs and
timely responsiveness to the needs of customers. Senior management of the
Bank makes it a practice to maintain close working relationships and personal
contact with each of its commercial customers.
The Bank's Board of Directors is comprised primarily of business owners and
professionals who fit the current and target customer profile of the Bank.
The Board of Directors takes an active role in the Bank's business
development activities and the credit review process. Its input and
understanding of the needs of the Bank's current and target customers has
been critical in the Bank's past success and will be critical in the Bank's
plans for future growth.
The Bank has historically had low turnover of relationship officers, and its
policy is to keep officers assigned to accounts for long periods of time.
This practice improves each officer's understanding of clients' businesses
resulting in knowledgeable credit assessments and superior customer service.
3
<PAGE> 6
Relationship officers are supported by credit analysts and other support
personnel who are familiar with each assigned customer, creating a team
approach to serving customers' needs. A significant portion of the Bank's
new business results from referrals from existing customers.
The Bank's growth in loans has been due in large measure to its strategy of
targeting closely-held businesses and to the relationships and experience of
the Bank's management and directors in the St. Louis community.
The Loan Committee of the Bank consists of all members of the Board of
Directors, who serve on a rotating basis. Generally, loan requests over
$150,000 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 when the
aggregate loan balance of all the borrower's loans (including loans to
affiliated entities) is less than $625,000. Loan requests where the
borrower's aggregate loan balance is above $625,000 are also reviewed and
examined by the respective geographic banking units' board committees. Loan
requests when 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 $625,000, all such loans are subsequently reported to the full
Board of Directors for review and comment.
MARKET AREAS AND APPROACH TO EXPANSION
Recent expansion efforts include the establishment of banking facilities in
St. Charles County and the City of Sunset Hills based on the high
expectations for growth in those markets and the high concentration of
closely-held businesses and professionals in those markets. As mentioned
above, the Company believes that local management and the involvement of a
Board of Directors comprised of local business persons and professionals are
key ingredients for success. Management believes that credit decisions,
pricing matters, business development strategies, etc. should be made locally
by managers who have an equity stake in the Company (see "Management.") The
Company, as part of its expansion effort, plans to continue its strategies of
operating a small number of offices with a high per office asset base,
emphasizing commercial loans, and employing experienced staff who are
rewarded on the basis of performance and customer service.
The following is a list of the Bank's current facilities:
<TABLE>
<CAPTION>
Operating Unit Address
- -------------- -------
<S> <C>
Enterprise Bank, Clayton 150 North Meramec, Clayton, Missouri 63105
Enterprise Bank, St. Charles 300 St. Peters Center Blvd., St. Peters, Missouri 63376
Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd., Sunset Hills, Missouri 63127
</TABLE>
ENTERPRISE MERCHANT BANC
Merchant Banc, 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. Operations to date have consisted of the formation
of the Enterprise Fund (the "Fund"), a licensed SBIC formed in 1995 under the
regulations of the Small Business Administration ("SBA") and, to a lesser
extent, fee-based services related to capital formation and company
acquisition. Capital Management, a wholly owned subsidiary of Merchant Banc,
manages and acts as the general partner of the Fund. The Fund provides
venture capital to growing companies which qualify under the SBA's definition
of a small business eligible for investment by an SBIC. The Fund may also
participate in certain qualifying management buy-out situations involving
companies eligible for investment by an SBIC. The Fund began its operations
in the fourth quarter of 1995. The Fund's committed capital is approximately
$10.3 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 the Fund.
4
<PAGE> 7
ENTERPRISE FINANCIAL ADVISORS
Financial Advisors, a division of the Bank, was organized in October of 1997
to provide fee-based personal financial planning, estate planning, and
corporate planning services to the Company's target market. As part of the
organization of Financial Advisors, the Company entered into solicitation and
referral agreements with Moneta Group, Inc. ("Moneta"). These agreements
call for Moneta to provide planning services for Financial Advisors'
customers under a revenue sharing agreement. In addition, Moneta will refer
customers, when appropriate, to the Bank and receive a share of the revenue
generated in the form of options in the Company's common stock. The
agreements with Moneta also allow Financial Advisors to immediately begin
offering a full range of products and services with the depth and expertise
of a large planning firm. Financial Advisors will continue to expand
products and services available to customers as the division develops.
INVESTMENTS
The Company's investment policy is designed to enhance net income and return
on equity through prudent management of risk; ensure liquidity to meet
cash-flow requirements; help manage interest rate risk; ensure collateral is
available for public deposits, advances and repurchase agreements; and manage
asset diversification. The Company, through the Asset/Liability Management
Committee ("ALCO"), monitors investment activity and manages its liquidity by
structuring the maturity dates of its investments to meet anticipated
customer funding needs. However, the primary goal of the Company's
investment policy is to maintain an appropriate relationship between assets
and liabilities while maximizing interest rate spreads. Accordingly, the
ALCO monitors the sensitivity of its assets and liabilities with respect to
changes in interest rates and maturities and directs the overall acquisition
and allocation of funds.
FACILITIES
The Company's banking facilities are leased under agreements that expire in
1999, 2015, and 2012 for Clayton, St. Charles County and the City of Sunset
Hills, respectively. The Company has the option to renew the Clayton
facility lease for three additional five-year periods with future rentals to
be agreed upon. The Company has no future rental options for the St. Charles
County facility; however, during the term of the lease, the monthly rentals
are adjusted periodically based on then current market conditions and
inflation. The Company has the option to renew the Sunset Hills facility
lease for two additional five-year periods with future rentals to be agreed
upon. One section of the Clayton facility is sublet and the proceeds are
used to reduce the Company's occupancy expenses. Rent expense amounted to
$436,524, $319,002 and $285,178 in 1997, 1996 and 1995, respectively, and
sublease rental income amounted to $35,422, $77,568 and $82,394 in 1997, 1996
and 1995 respectively. The Company leases its Clayton facility from a
partnership in which a director and an officer have an ownership interest.
The future minimum rental commitments required under the leases are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $684,957
1999 480,243
2000 377,887
2001 377,887
2002 377,887
========
</TABLE>
For leases which renew or are subject to periodic rental adjustments, the
monthly rental payments will be adjusted based on then current market
conditions and rates of inflation.
5
<PAGE> 8
EMPLOYEES
At December 31, 1997, the Company had approximately 86 employees, which
included nine part-time employees. None of the Company's employees are
covered by a collective bargaining agreement. Management believes that its
relationship with its employees is good.
MARKET FOR COMMON STOCK
-----------------------
As of March 15, 1998, the Company had approximately 500 common stock
shareholders of record. The common stock has not been traded on an exchange
or in any established public trading market, although there have been a
limited number of transactions in the common stock that have been 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 1996, from $13.00 per
share to $13.75 per share and, during 1997, from $15.50 per share to $20.25
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.
On February 14, 1997, the Company completed a stock offering of 451,612
shares of common stock. These shares were offered to the public at $15.50
per share. The offering allowed for the sale of a minimum of 193,548 shares,
or $3,000,000, and a maximum of 451,612 shares, or $7,000,000, in common
stock. The maximum number of shares were sold at $15.50 per share.
On October 31, 1997, the Company completed a private placement of its common
stock allowing a maximum of 131,343 shares of common stock to be purchased.
These shares were offered in a private sale to Moneta principals related to
the previously mentioned agreements with Moneta. These shares were offered
at $16.75 per share, and 130,940 shares were sold at $16.75.
Since the Company does not expect to list its common stock on any exchange or
seek quotation of common stock on the National Association of Securities
Dealers Automated Quotation System (NASDAQ) in the near future, no
established public trading market for the common stock is expected to develop
in the foreseeable future.
DIVIDENDS
---------
The holders of shares of common sock of the Company are entitled to receive
dividends when, as, and if declared by the Company's Board of Directors out
of funds legally available for the purpose of paying dividends. The amount
of dividends, if any, that may be declared by the Company will 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 cmmon sock.
The Company declared and paid dividends quarterly during calendar years 1997,
1996 and 1995, in annual amounts of $.09, $.08 and $.07 per share,
respectively.
DESCRIPTION OF CAPITAL STOCK
----------------------------
COMMON STOCK
The authorized capital stock of the Company consists of 3,000,000 shares of
common stock, par value $.01 per share (the "Common Stock"). Holders of
Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote 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.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
---------------------------------------------
INTRODUCTION
The following discussion and analysis is intended to review the significant
factors of the financial condition and results of operations of the Company
for the three-year period ended December 31, 1997. Reference should be made
to the accompanying consolidated financial statements and the selected
financial data presented elsewhere and herein for an understanding of the
following review.
FINANCIAL CONDITION
Total assets at December 31, 1997 were $291 million, an increase of $106
million, or 57%, over total assets of $185 million at December 31, 1996.
Loans were $226 million, an increase of $92 million, or 69%, over total loans
of $134 million at December 31, 1996. Federal funds sold and investment
securities were $46 million, an increase of $8 million, or 21%, from total
federal funds sold and investment securities of $38 million at December 31,
1996.
Total deposits at December 31, 1997 were $264 million, an increase of $95
million, or 56%, over total deposits of $169 million at December 31, 1996.
Deposit growth occurred in all categories during 1997. Most of the deposit
growth occurred in the money market deposits. Money market deposits grew $44
million, or 81%, during 1997. Growth in transaction and money market deposit
accounts is attributed primarily to direct calling efforts of relationship
officers. Certificates of deposits under $100,000 grew $21 million, or 52%,
which is in line with total deposit growth of 56%. Growth in certificates of
deposits is due to an advertising program during the second half of the year.
The advertising program produced over $18 million net growth in certificates
of deposit during 1997.
Total shareholders' equity increased $11 million primarily due to retained
earnings of $2 million for the year, proceeds of $7 million and $2 million
from two separate sales of common stock in February and October, and the
exercise of incentive stock options by some employees.
RESULTS OF OPERATIONS
Net income was $2.2 million for the year ended December 31, 1997, an increase
of 29% over net income of $1.7 million for the same period in 1996 which was
a 31% increase over 1995 net income of $1.3 million. Diluted earnings per
share for the years ended December 31, 1997, 1996 and 1995 were $1.00, $0.97
and $0.77, respectively. In 1997, basic and diluted earnings per share did
not increase in line with the increase in net income due to an increase in
weighted average common stock equivalents. Weighted average common stock
equivalents increased primarily from the issuance of 451,612 and 130,940
shares of common stock on February 14, 1997 and October 31, 1997,
respectively, in two common stock offerings.
NET INTEREST INCOME
The largest component of the Company's net income is net interest income.
Net interest income (presented on a tax equivalent basis) was $10.2 million,
which yielded a net interest margin of 4.79%, for the year ended December 31,
1997, compared to net interest income and net interest margin of $7.0 million
and 4.96%, and $6.0 million and 4.98% for the same period in 1996 and 1995,
respectively.
The $3.2 million, or 46%, increase in net interest income was driven
primarily by a $71 million increase in average earning assets to $213 million
for the year ended December 31, 1997 compared to $20 million of earning
asset growth during the same period in 1996. Some of the increase was offset
by a lower average earning asset yield, growth in interest bearing deposits
and higher cost of deposits.
7
<PAGE> 10
The yield on average earning assets decreased to 8.84% for the year ended
December 31, 1997 from 8.90% and 9.00% for the same period in 1996 and 1995,
respectively. The mix of earning assets changed slightly from higher
yielding assets, such as loans, to lower yielding assets, such as federal
funds sold and investment securities. This change in asset mix accounts for
most of the .06% drop in the yield on earning assets between 1997 and 1996.
Average loans as a percent of average total assets decreased to 77.89% in
1997 from 79.14% in 1996 and increased from 71.84% in 1995. For the same
period, the yield on average loans was 9.48%, 9.47% and 9.92% respectively.
The decrease in loan yield in 1996 compared to 1995 offset the margin
benefits obtained by increasing the loan to asset ratio during the same
period.
The yield on interest bearing deposits increased to 5.03% for the year ended
December 31, 1997 from 4.89% for the same period in 1996. The yield on
interest-bearing deposits decreased to 4.89% for the year ended December 31,
1996 from 4.94% for the same period in 1995. Deposits shifted from lower
yielding transaction accounts to higher yielding money market accounts during
1997 resulting in the increase in interest expense.
The following table sets forth, on a tax-equivalent basis, certain
information relating to the Company's average balance sheet, and reflects the
average yield earned on interest-earning assets, the average cost of
interest-bearing liabilities and the resulting net interest income for the
year ended December 31:
8
<PAGE> 11
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------------------------------------------
1997 1996
--------------------------------------- ---------------------------------------
Percent Interest Average Percent Interest Average
Average of Total Income/ Yield/ Average of Total Income/ Yield/
Balance Assets Expense Rate Balance Assets Expense Rate
------- ------ ------- ---- ------- ------ ------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans <F1> $177,532 77.89% $16,834 9.48% $120,849 79.14% $11,449 9.47%
Taxable investments in debt
and equity securities 17,859 7.84 1,018 5.70 12,300 8.05 693 5.63
Nontaxable investments in
debt securities <F2> 805 0.35 52 6.46 860 0.56 57 6.63
Federal funds sold 16,679 7.32 909 5.45 7,526 4.93 396 5.26
Certificates of deposit 38 0.02 2 5.26 -- -- -- 0.0
-------- ------ ------- -------- ------ -------
Total interest-earning assets 212,913 93.42 18,815 8.84 141,535 92.68 12,595 8.90
------- -------
Noninterest-earning assets;
Cash and due from banks 11,580 5.08 8,686 5.69
Office equipment and leasehold
improvements 1,677 0.74 1,789 1.17
Prepaid expenses and other assets 3,829 1.68 2,215 1.45
Allowance for loan losses (2,085) (0.91) (1,520) (0.99)
-------- ------ -------- ------
Total assets $227,914 100.00% $152,706 100.00
======== ====== ======== ======
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction
accounts $ 15,840 6.95% $ 452 2.85% 13,180 8.63% $ 332 2.52%
Money market 77,198 33.87 3,604 4.67 44,710 29.28 2,007 4.49
Savings 1,270 0.56 32 2.52 1,105 0.72 33 2.99
Certificates of deposit 77,081 33.82 4,521 5.87 54,756 35.86 3,181 5.81
Notes payable 25 0.01 3 12.00 205 0.13 15 7.35
Federal funds purchased 105 0.05 11 10.48 18 0.01 1 5.56
-------- ------ ------- ----- -------- ------ ------- ----
Total interest-bearing liabilities 171,519 75.26 8,623 5.03 113,974 74.63 5,569 4.89
------- -------
Noninterest-bearing liabilities:
Demand deposits 33,247 14.59 24,427 16.00
Other liabilities 426 0.19 932 0.61
-------- ------ -------- ------
Total liabilities 205,192 90.03 139,333 91.24
Shareholders' equity 22,722 9.97 13,373 8.76
-------- ------ -------- ------
Total liabilities and
shareholder's equity $227,914 100.00% $152,706 100.00%
======== ====== ======== ======
Net interest income $10,192 $ 7,026
======= =======
Net interest margin 4.79% 4.96%
===== ====
<CAPTION>
Year ended December 31,
-----------------------------------------
1995
-----------------------------------------
Percent Interest Average
Average of Total Income/ Yield
Balance Assets Expense Rate
------- ------ ------- ----
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans <F1> $ 94,737 71.84% $ 9,394 9.92%
Taxable investments in debt
and equity securities 13,093 9.93 745 5.69
Nontaxable investments in
debt securities <F2> 687 0.52 42 6.11
Federal funds sold 12,837 9.73 745 5.80
Certificates of deposit 63 0.05 2 3.17
-------- ------ -------
Total interest-earning assets 121,417 92.07 10,928 9.00
-------
Noninterest-earning assets;
Cash and due from banks 7,856 5.96
Office equipment and leasehold
improvements 766 0.58
Prepaid expenses and other assets 3,025 2.30
Allowance for loan losses (1,196) (0.91)
-------- ------
Total assets $131,868 100.00
======== ======
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction
accounts $ 14,002 10.62% $ 352 2.51%
Money market 38,084 28.88 1,741 4.57
Savings 1,068 0.81 32 3.00
Certificates of deposit 45,669 34.63 2,760 6.04
Notes payable -- -- -- --
Federal funds purchased 41 0.03 2 4.88
-------- ------ -------
Total interest-bearing liabilities 98,864 74.97 4,887 4.94
-------
Noninterest-bearing liabilities:
Demand deposits 20,532 15.57
Other liabilities 755 0.57
-------- ------
Total liabilities 120,151 91.11
Shareholders' equity 11,717 8.89
-------- ------
Total liabilities and
shareholder's equity $131,868 100.00%
======== ======
Net interest income $ 6,041
=======
Net interest margin 4.98%
====
<FN>
- -----------------------
<F1> Average balances include non-accrual loans and loans held for sale.
The Company had $1,324,244 in loans held for sale at December 31, 1997.
The income on non-accrual loans is included in interest but is recognized
only upon receipt. Loan fees included in interest income are approximately
$671,000, $474,000, and $385,000 for 1997, 1996 and 1995, respectively.
<F2> Nontaxable investment income is presented on a fully tax-equivalent basis
assuming a tax rate of 34%.
</TABLE>
9
<PAGE> 12
During 1997, an increase in the average volume of earning assets caused an
increase in interest income of $6,186,000. Interest income increased
$34,000 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 notes payable resulted in an increase in interest
expense of $2,890,000. Changes in interest rates on the average volume of
interest-bearing liabilities resulted in an increase in interest expense of
$164,000. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during 1997 as compared to 1996
increased interest income by $6,220,000 while the net effect of the volume
and rate changes associated with all categories of interest-bearing
liabilities increased interest expense by $3,054,000.
During 1996, an increase in the average volume of earning assets caused an
increase in interest income of $2,172,000. Interest income decreased
$505,000 due to a decrease in rates on earning assets. Increases in the
average volume of interest-bearing demand deposits, savings and money market
accounts, time deposits and notes payable resulted in an increase in interest
expense of $812,000. Changes in interest rates on the average volume of
interest-bearing liabilities resulted in a decrease in interest expense of
$130,000. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during 1996 as compared to 1995
increased interest income by $1,667,000 while the net effect of the volume
and rate changes associated with all categories of interest-bearing
liabilities increased interest expense by $682,000.
The following table sets forth, on a tax-equivalent basis for the periods
indicated, a summary of the changes in interest income and interest expense
resulting from changes in yield/rates and volume:
<TABLE>
<CAPTION>
1997 Compared to 1996 1996 Compared to 1995
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 $5,375 $ 10 $5,385 $2,490 $(435) $2,055
Taxable investments in debt
and equity securities 317 8 325 (45) (7) (52)
Nontaxable investments in debt
and equity securities <F3> (4) (1) (5) 14 1 15
Federal funds sold 498 15 513 (285) (64) (349)
Certificates of deposit -- 2 2 (2) -- (2)
------ ----- ------ ------ ----- ------
Total interest-earning assets $6,186 34 6,220 2,172 (505) 1,667
------ ----- ------ ------ ----- ------
Interest paid on:
Interest-bearing transaction
accounts $ 72 $ 48 $ 120 $ (21) $ 1 $ (20)
Money market 1,514 83 1,597 298 (32) 266
Savings 5 (6) (1) 1 -- 1
Certificates of deposit 1,309 31 1,340 520 (99) 421
Notes payable (18) 6 (12) 15 -- 15
Federal funds purchased 8 2 10 (1) -- (1)
------ ----- ------ ------ ----- ------
Total interest-bearing
liabilities 2,890 164 3,054 812 (130) 682
------ ----- ------ ------ ----- ------
Net interest income $3,296 $(130) $3,166 $1,360 $(375) $ 985
====== ===== ====== ====== ===== ======
<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>
10
<PAGE> 13
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>
December 31,
--------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
--------------------- ------------------- ------------------ ---------------- ----------------
Percent Percent Percent Percent Percent
of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 69,490 30.81% $ 43,876 32.71% $ 43,728 39.59% $30,001 35.01% $30,896 42.78%
Real estate:
Commercial 37,349 16.56 24,946 18.60 25,507 23.09 22,333 26.06 16,746 23.19
Construction 47,771 21.18 23,362 17.42 11,634 10.53 10,186 11.89 7,638 10.58
Residential 63,772 28.27 37,449 27.92 24,537 22.21 21,483 25.07 16,109 22.31
Consumer and other 7,178 3.18 4,500 3.35 5,058 4.58 1,684 1.97 826 1.14
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total loans $225,560 100.00% $134,133 100.00% $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 December 31, 1997, $148.9 million in loans, or
66% of the loan portfolio, involved real estate as part or all of the
collateral package, as compared to $85.8 million or 64% and $61.7 million or
56% in 1996 and 1995, respectively. Of these loans, $55.2 million or 37%,
for 1997, were personal and business loans and loans on owner-occupied
properties as compared to $32.6 million or 38% and $23.5 million or 38% for
1996 and 1995, respectively. Management views these types of loans as having
less risk than traditional real estate loans because the primary source of
repayment for these loans is not dependent upon the cash flow or sale of the
real estate securing the loans. When evaluating the appropriateness of the
allowance for loan losses, these loans are evaluated based on commercial
considerations such as the financial condition, cash flow and income of the
borrower as well as the value of all collateral securing the loans, including
the market value of any real estate securing the loan.
11
<PAGE> 14
The following table sets forth the interest rate sensitivity of the loan
portfolio at December 31, 1997:
<TABLE>
<CAPTION>
Loans Maturing or Repricing
---------------------------
After One
In One Through After
Year or Less Five Years Five Years Total
------------ ---------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
FIXED RATE LOANS <F1>
- ----------------
Commercial and industrial $ 2,234 12,015 592 14,841
Real estate:
Commercial 6,737 14,980 -- 21,717
Construction 3,701 3,888 -- 7,589
Residential 4,635 24,116 -- 28,751
Consumer and other 938 1,622 -- 2,560
-------- ------ --- -------
Total $ 18,245 56,621 592 75,458
======== ====== === =======
VARIABLE RATE LOANS <F1>
- -------------------
Commercial and industrial $ 54,649 -- -- 54,649
Real estate:
Commercial 15,632 -- -- 15,632
Construction 40,182 -- -- 40,182
Residential 35,022 -- -- 35,022
Consumer and other 4,617 -- -- 4,617
-------- ------ --- -------
Total $150,102 -- -- 150,102
======== ====== === =======
LOANS <F1>
- -----
Commercial and industrial $ 56,883 12,015 592 69,490
Real estate:
Commercial 22,369 14,980 -- 37,349
Construction 43,883 3,888 -- 47,771
Residential 39,657 24,115 -- 63,772
Consumer and other 5,555 1,623 -- 7,178
-------- ------ --- -------
Total $168,347 56,621 592 225,560
======== ====== === =======
<FN>
<F1> Loan balances are shown net of unearned loan fees.
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $775,000, $345,000 and $631,000 in 1997,
1996 and 1995, respectively. During 1997, the increase in provision
reflects an increase in net loan charge-offs to $30,000 as compared to net
recoveries of $20,000 for the year ended December 31, 1996. In addition, the
Company experienced loan growth of $92 million during 1997 versus loan growth
of $24 million during the same period in 1996.
The Company was able to decrease provision expense in 1996 as compared to
1995 based upon continued quality of the loan portfolio and net recoveries of
$20,000 during 1996 as compared to net losses of $231,000 during 1995. In
addition, the Company experienced loan growth of $24 million during 1996
versus $25 million during the same period in 1995. The Company has charged
off a total of $404,000 in loans from January 1, 1995 through December 31,
1997. Total recoveries for the same period are $163,000, resulting in a
three-year net charge-off experience of $241,000, or 0.06% per year of
average loans for the same period.
12
<PAGE> 15
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,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
--------- -------- -------- ------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 1,765 $ 1,400 $ 1,000 $ 722 $ 606
--------- -------- -------- ------- -------
Loans charged off:
Commercial and industrial 90 -- 19 45 27
Real estate:
Commercial 45 -- 118 132 --
Construction -- -- -- -- --
Residential 27 -- 106 -- 32
Consumer and other -- -- -- 14 --
--------- -------- -------- ------- -------
Total loans charged off 162 -- 243 191 59
--------- -------- -------- ------- -------
Recoveries of loans previously
charged off:
Commercial and industrial 44 -- -- 18 9
Real estate:
Commercial 50 4 12 -- --
Construction -- -- -- -- --
Residential 38 15 -- -- 3
Consumer and other -- 1 -- 1 1
--------- -------- -------- ------- -------
Total recoveries of
loans previously
charged off 132 20 12 19 13
--------- -------- -------- ------- -------
Net loans charged
off (recovered) 30 (20) 231 172 46
--------- -------- -------- ------- -------
Provisions charged to operations 775 345 631 450 162
--------- -------- -------- ------- -------
Allowance at end of period $ 2,510 $ 1,765 $ 1,400 $ 1,000 $ 722
========= ======== ======== ======= =======
Average loans $ 177,532 $120,849 $ 94,737 $76,263 $64,290
Total loans, net of unearned
loan fees 225,560 134,133 110,464 85,687 72,215
Nonperforming loans 50 161 107 -- 566
Net charge-offs (recoveries)
to average loans 0.02% (0.02%) 0.24% 0.23% 0.07%
Allowance for loan losses to total
loans, net of unearned loan fees 1.11 1.32 1.27 1.17 1.00
Allowance for loan losses to
nonperforming loans 5,020.00 1,096.27 1,308.41 N/A 127.56
</TABLE>
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.
13
<PAGE> 16
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. Such agencies may require the Company
to increase the allowance for loan losses based on their judgments and
interpretations about information available to them at the time of their
examinations.
While the Company has benefited from very low historical net charge-offs
during an extended period of rapid loan growth, management remains cognizant
that historical loan loss and 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 of Directors
continually monitor changes in asset quality, market conditions,
concentration of credit and other factors, all of which impact the credit
risk associated with the Company's loan portfolio.
As of December 31, 1997 and 1996, the Company had eleven and eight impaired
loans in the amount of $967,000 and $636,000, respectively, all of which are
considered potential problem loans. Non-performing assets decreased from
$1,035,000 as of December 31, 1996 to $856,000 as of December 31, 1997.
Nonperforming assets increased from $988,000 as of December 31, 1995 to
$1,035,000 as of December 31, 1996.
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 50 $ 131 $ 107 $ -- $ 566
Loans past due 90 days or more
and still accruing interest -- 30 -- -- --
Restructured loans -- -- -- -- --
-------- -------- -------- -------- -------
Total nonperforming loans 50 161 107 -- 566
Foreclosed property 806 874 881 1,776 1,496
-------- -------- -------- -------- -------
Total nonperforming assets $ 856 $ 1,035 $ 988 $ 1,776 $ 2,062
======== ======== ======== ======== =======
Total assets $291,365 $184,584 $153,706 $122,212 $99,266
Total loans, net of unearned
loan fees 225,560 134,133 110,464 85,687 72,215
Total loans plus foreclosed property 226,366 135,007 111,345 87,463 73,711
Nonperforming loans to total loans 0.02% 0.12% 0.10% 0.00% 0.78%
Nonperforming assets to total loans
plus foreclosed property 0.38 0.77 0.89 2.03 2.80
Nonperforming assets to total assets 0.29 0.56 0.64 1.45 2.08
</TABLE>
The Company's policy is to discontinue the accrual of interest on loans when
principal or interest is due and has remained unpaid for 90 days or more.
14
<PAGE> 17
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,
-----------------------------------------------------------------------------------
1997 1996 1995
----------------------- ----------------------- ----------------------
Percent Percent Percent
of of of
Category Category Category
Total Total Total
Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 656 30.81% $ 423 32.71% $ 348 39.59%
Real estate:
Commercial 316 16.56 253 18.60 265 23.09
Construction 465 21.18 413 17.42 93 10.53
Residential 605 28.27 381 27.92 510 22.21
Consumer and other 82 3.18 56 3.35 44 4.58
Not allocated 386 -- 239 -- 140 --
------ ------ ------ ------ ------ ------
Total $2,510 100.00% $1,765 100.00% $1,400 100.00%
====== ====== ====== ====== ====== ======
<CAPTION>
December 31,
----------------------------------------------------
1994 1993
---------------------- ---------------------
Percent Percent
of of
Category Category
Total Total
Allowance Loans Allowance Loans
--------- ----- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Commercial and industrial $ 247 35.01% $212 42.78%
Real estate:
Commercial 218 26.06 145 23.19
Construction 69 11.89 41 10.58
Residential 350 25.07 214 22.31
Consumer and other 16 1.97 110 1.14
Not allocated 100 -- -- --
------ ------ ---- ------
Total $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.
NONINTEREST INCOME
The following table depicts the annual changes in various noninterest income
categories:
<TABLE>
<CAPTION>
1996 versus 1997 1995 versus 1996
------------------------------------- -------------------------------------
$ Change 1997 1996 $ Change 1996 1995
-------- -------- --------- -------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
Merchant Banc management fee (49,500) $158,600 208,100 109,425 $ 208,100 98,675
Service charges on deposit accounts 44,038 173,452 129,414 (2,226) 129,414 131,640
Merchant credit card income (600,981) -- 600,981 38,532 600,981 562,449
Gain on sale of mortgage loans 78,948 78,948 -- -- -- --
Gain on sale of credit card operation (320,000) -- 320,000 320,000 320,000 --
Loss on investment in the Enterprise
Fund L.P. 57,786 (4,904) (62,690) (54,468) (62,690) (8,222)
Other noninterest income 25,892 69,879 43,987 (7,742) 43,987 51,729
-------- -------- --------- ------- ---------- -------
Total noninterest income (763,817) $475,975 1,239,792 403,521 $1,239,792 836,271
======== ======== ========= ======= ========== =======
</TABLE>
Total noninterest income was $475,975 in 1997, representing a $763,817 or 62%
decrease from 1996. The decrease is primarily attributed to merchant credit
card income. The company sold its merchant credit card portfolio in November
1996 for a gain of $320,000. Noninterest income, excluding merchant credit
card income and the gain on the sale of the credit card operation, increased
$157,164 or 49%, in 1997 as compared to 1996. This increase is attributed to
the gain on sale of mortgage loans and an increase in service charges on a
larger deposit base.
Total noninterest income was $1,239,792 in 1996, representing a $403,521 or
48% increase from 1995. The increase is primarily the result of a $109,425
increase in the management fee earned by Merchant Banc and a $320,000 gain on
the sale of the credit card operations.
15
<PAGE> 18
NONINTEREST EXPENSE
The following table depicts the annual changes in various noninterest expense
categories:
<TABLE>
<CAPTION>
1996 versus 1997 1995 versus 1996
--------------------------------------------------------------------------------------
$ Change 1997 1996 $ Change 1996 1995
---------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Salaries and employee benefits $ 975,945 3,841,585 2,865,640 $ 822,680 2,865,640 2,042,960
Occupancy 218,268 552,063 333,795 58,616 333,795 275,179
Equipment 81,560 227,061 145,501 24,907 145,501 120,594
FDIC insurance premiums 19,846 21,846 2,000 (122,944) 2,000 114,944
Data processing (10,448) 237,248 247,696 38,429 247,696 209,267
Merchant credit card expense (441,991) -- 441,991 (13,727) 441,991 455,718
Other noninterest expense 349,062 1,458,773 1,109,711 141,650 1,109,711 968,061
---------- --------- --------- --------- --------- ---------
Total noninterest income $1,192,242 6,338,576 5,146,334 $ 959,611 5,146,334 4,186,723
========== ========= ========= ========= ========= =========
</TABLE>
Noninterest expense increased $1,192,242, or 23%, and $959,611, or 23%, from
1996 to 1997 and 1995 to 1996, respectively. The increases are primarily due
to increases in salaries and employee benefits and occupancy and equipment
expenses, offset by a reduction of $441,991 in 1997 of expenses related to
the previously mentioned credit card operation. Increases in noninterest
expenses are primarily related to the two new banking facilities located in
St. Charles County and the City of Sunset Hills and normal increases
associated with growth.
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 a 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 of assessable deposits, down
from the previous rate of 23 cents per $100. The SAIF members will continue
to pay the 23 cents per $100 of assessable deposits. The reduction in the
assessment rate schedule became effective June 1, 1995. In addition, as a
result of the continued improvement in the capitalization of the FDIC's BIF,
the assessment rate schedule 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.
YEAR 2000
In 1997, the Company organized a formal program to address the implications
of Year 2000 issues. The Company completed the assessment, analysis and
planning phases and is in the implementation phase of the project. Testing
of the systems will be conducted throughout 1998. The Company expects
expenditures related to Year 2000 issues to be immaterial.
INCOME TAXES
Income tax expense was $1,316,590, $1,031,344 and $741,091 for 1997, 1996 and
1995, respectively. The effective tax rate was 37%, 38% and 36% for the
years ended December 31, 1997, 1996, and 1995, respectively.
16
<PAGE> 19
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio,
maturities in the investment portfolio, amortization of term loans, and by
the Company's deposit inflows, proceeds from borrowings, and retained
earnings.
The following table reflects the Company's GAP analysis (rate sensitive
assets minus rate sensitive liabilities) as of December 31, 1997:
<TABLE>
<CAPTION>
Over After After
3 Months 1 Year 5 Years
3 Months Through 12 Through or No Stated
or Less Months 5 Years Maturity Total
-------- ---------- ------- ------------ -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Investments in debt and
equity securities $ 9,324 3,100 421 589 13,434
Interest-bearing deposits 50 98 -- -- 148
Federal funds sold 32,825 -- -- -- 32,825
Loans, net of unearned loan fees 157,350 10,997 56,621 592 225,560
-------- -------- ------ ------ -------
Total interest-sensitive
assets $199,549 14,195 57,042 1,181 271,967
-------- -------- ------ ------ -------
Liabilities:
Interest-bearing transaction
accounts $ 22,520 -- -- -- 22,520
Money market and savings
accounts 100,068 -- -- -- 100,068
Certificates of deposit 26,880 63,453 5,212 115 95,660
-------- -------- ------ ------ -------
Total interest-sensitive
liabilities $149,468 63,453 5,212 115 218,248
-------- -------- ------ ------ -------
Interest-sensitivity GAP
GAP by period $ 50,081 (49,258) 51,830 1,066 53,719
======== ======== ====== ====== =======
Cumulative GAP $ 50,081 823 52,653 53,719 53,719
======== ======== ====== ====== =======
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 1.34 0.22 10.94 10.27 1.25
Cumulative GAP 1.34 1.00 1.24 1.25 1.25
======== ======== ====== ====== =======
</TABLE>
As indicated in the preceding table, the Company was asset sensitive on a
cumulative basis in the near term (three months or less) at December 31, 1997
based on contractual maturities. In this regard, a decrease in the general
level of interest rates would generally have a negative effect on the
Company's net interest income as the repricing of the larger volume of
interest sensitive assets would create a larger reduction in interest income
as compared to the reduction in interest expense created by the repricing of
the smaller volume of interest sensitive liabilities.
17
<PAGE> 20
MARKET RISK
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest
income and to adjust the balance sheet to minimize the inherent risk while at
the same time maximizing income. Management realizes certain risks are
inherent and that the goal is to identify and minimize those risks. Tools
used by management include the standard GAP report. The Bank has no market
risk sensitive instruments held for trading purposes.
The following tables present the scheduled maturity of market risk sensitive
instruments at December 31, 1997:
<TABLE>
<CAPTION>
Beyond 5
Years or
No
Stated
Year 1 Year 2 Year 3 Year 4 Year 5 Maturity Total
------ ------ ----- ------ ------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investment in debt and
equity securities $ 12,424 106 -- 315 -- 589 $ 13,434
Interest-bearing deposits 148 -- -- -- -- -- 148
Federal funds sold 32,825 -- -- -- -- -- 32,825
Loans, net of unearned
loan fees 168,347 15,184 26,363 3,772 11,302 592 225,560
-------- ------ ------ ----- ------ ----- --------
Total $213,744 15,290 26,363 4,087 11,302 1,181 $271,967
======== ====== ====== ===== ====== ===== ========
Liabilities:
Savings, Now, Money
Market deposits $122,588 -- -- -- -- -- 122,588
Certificates of deposit 90,332 4,243 277 193 500 115 95,660
-------- ------ ------ ----- ------ ----- --------
Total $212,920 4,243 277 193 500 115 $218,248
======== ====== ====== ===== ====== ===== ========
<CAPTION>
Average Estimated
Total Interest Rate Fair Value
----- ------------- ----------
<S> <C> <C> <C>
Assets:
Investment in debt and
equity securities $ 13,434 5.70% 13,435
Interest-bearing deposits 148 4.47 148
Federal funds sold 32,825 5.45 32,825
Loans, net of unearned 225,560 9.48 225,287
loan fees
Liabilities:
Savings, Now, Money
Market deposit $122,588 4.33% 122,588
Certificates of deposit 95,660 5.87 95,898
</TABLE>
18
<PAGE> 21
BALANCE SHEET TREND
The following table summarizes certain trends in the Company's balance sheet
during the three-year period ended December 31, 1997:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1997 1996 1995
-------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C>
Total assets $291,365 $184,584 $153,706
Earning assets 271,967 172,629 143,601
Deposits 264,301 168,961 141,140
Loans to deposits 85.34% 79.39% 78.27%
Loans to total assets 77.41 72.67 71.87
Investment securities to total assets 4.61 8.26 11.00
Earning assets to total assets 93.34 93.52 93.43
======== ======== ========
Loans $225,608 $134,150 $110,496
Unearned loan fees (48) (17) (32)
-------- -------- --------
Net loans $225,560 $134,133 $110,464
======== ======== ========
Investment securities - AFS $ 12,515 $ 14,006 $ 16,065
Investment securities - HTM 919 1,240 842
-------- -------- --------
Total investments $ 13,434 $ 15,246 $ 16,907
======== ======== ========
Investment securities - AFS $ 12,515 $ 14,006 $ 16,065
Investment securities - HTM 919 1,240 842
Federal funds sold 32,825 23,250 16,230
Interest-bearing deposits 148 -- --
Net loans 225,560 134,133 110,464
-------- -------- --------
Total earning assets $271,967 $172,629 $143,601
======== ======== ========
</TABLE>
The ratio of earning assets to total assets remained relatively constant at
93% over the three years ending December 31, 1997. Earning assets increased
$99,338,000 and $29,028,000, or 58% and 20%, for the years ended December 31,
1997 and 1996, respectively. Total assets increased $106,781,000 and
$30,878,000, or 58% and 20%, during the same periods, respectively.
The following table shows, for the periods indicated, the average annual
amount and the average rate paid by type of deposit:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ---------------------------- -------------------------
(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 $ 33,247 $ -- --% $ 24,427 $ -- --% $ 20,532 $ -- --%
Interest-bearing transaction
accounts 15,840 452 2.85 13,180 332 2.52 14,002 352 2.51
Money market accounts 77,198 3,604 4.67 44,710 2,007 4.49 38,084 1,741 4.57
Savings accounts 1,270 32 2.52 1,105 33 2.99 1,068 32 3.00
Certificates of deposit 77,081 4,521 5.87 54,756 3,181 5.81 45,669 2,760 6.04
-------- ------ -------- ------ -------- ------
$204,636 $8,609 4.21% $138,178 $5,553 4.02% $119,355 $4,885 4.09%
======== ====== ==== ======== ====== ==== ======== ====== ====
</TABLE>
19
<PAGE> 22
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to aggressive direct calling efforts of relationship officers
and sustained economic growth in the local market served by the Company.
Recent growth is also attributed to the new locations in St. Charles County
and the City of Sunset Hills. Management has pursued closely-held businesses
whose management desires a close working relationship with a locally-managed,
full-service bank. Due to the relationships developed with these customers,
management views large deposits from this source a stable deposit base.
Additionally, the Company belongs to a national network of time depositors
(primarily credit unions) who place time deposits with the Company, typically
in increments of $99,000. The Company has used this source of deposits for
over four 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 $31 million of deposits from the national network with the
Company at December 31, 1997 and 1996.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at December 31, 1997:
<TABLE>
<CAPTION>
Remaining Maturity Amount
------------------ ------
(Dollars in Thousands)
<S> <C>
Three months or less $14,144
Over three through six months 5,225
Over six through twelve months 11,732
Over twelve months 1,725
-------
$32,826
=======
</TABLE>
The table below sets forth the carrying value of investment securities held
by the Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1997 1996 1995
------------------------ --------------------- -------------------
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 $11,963 89.05% $13,850 90.84% $15,698 92.85%
Municipal bonds 881 6.56 891 5.85 792 4.68
Mortgage-backed securities 38 0.28 44 0.29 50 0.30
Federal Home Loan Bank stock 552 4.11 461 3.02 367 2.17
------- ------ ------- ------ ------- ------
$13,434 100.00% $15,246 100.00% $16,907 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
As of December 31, 1997, debt securities with an amortized cost of $919,163
were classified as held-to-maturity securities; debt and equity securities
with an amortized cost of $12,516,952 were classified as available-for-sale
securities; the market valuation account for the available-for-sale
securities was adjusted to approximately $2,231 to decrease the recorded
balance of such securities at December 31, 1997 to fair value on that date.
As of December 31, 1996, debt securities with an amortized cost of $1,240,183
were classified as held to maturity securities, and debt and equity
securities with an amortized cost of $13,995,643 were classified as available
for sale securities. The market valuation account for the available for sale
securities was adjusted to approximately $10,154 to increase the recorded
balance of such securities at December 31, 1996 to fair value on that date.
As of December 31, 1995, debt securities with an amortized cost of $841,732
were classified as held to maturity securities, and 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
20
<PAGE> 23
adjusted to $36,910 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.
The following table summarizes maturity and yield information on the
investment portfolio at December 31, 1997:
<TABLE>
<CAPTION>
Carrying
Value Yield <F1>
-------- ----------
(Dollars in Thousands)
<S> <C> <C>
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies:
0 to 1 year $11,963 5.81%
1 to 5 years -- --
5 to 10 years -- --
No stated maturity -- --
------- ----
Total $11,963 5.81%
======= ====
Municipal bonds:
0 to 1 year $ 460 6.38%
1 to 5 years 421 6.71
5 to 10 years -- --
No stated maturity -- --
------- ----
Total $ 881 6.54%
======= ====
Mortgage-backed securities:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 38 6.54%
------- ----
Total 38 6.54%
======= ====
Federal Home Loan Bank stock:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 552 6.71%
------- ----
Total $ 552 6.71%
======= ====
Total
0 to 1 year $12,424 5.83%
1 to 5 years 421 6.71
5 to 10 years -- --
No stated maturity 589 6.70
------- ----
Total $13,434 5.90%
======= ====
<FN>
<F1> Weighted average tax-equivalent yield
</TABLE>
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.
21
<PAGE> 24
CAPITAL ADEQUACY
On February 14, 1997, the Company completed a stock offering of 451,612
shares of common stock registered under the Securities Act of 1933 on Form
S-1. These shares were offered to the public at $15.50 per share. The
offering allowed for the sale of a minimum of 193,548 shares, or $3,000,000,
and a maximum of 451,612 shares, or $7,000,000, in common stock. The maximum
number of shares were sold at $15.50 per share.
On October 31, 1997, the Company completed a private placement of its common
stock to Moneta principals (as previously mentioned) of 130,940 shares of
common stock exempt from registration under the Securities Act of 1933
pursuant to Regulation D thereunder. These shares were offered at $16.75 per
share. The offering allowed for the sale of a minimum of 59,701 shares, or
$1,000,000, and a maximum of 131,343 shares, or $2,200,000, in common stock.
The Company sold 130,940 shares at $16.75 per share. The offering and
substantially all shares of common stock were made to accredited investors.
In April 1996, the Company obtained a $1,000,000 unsecured line of credit.
The line of credit was a one-year interest only note accruing interest at the
prime rate. The outstanding principal balance on the loan as of December 31,
1996 was $300,000 which was repaid from the proceeds of the Common Stock
offering in the first quarter of 1997. The Company chose not to renew the
line of credit at the maturity date in April 1997.
Risk-based capital guidelines for financial institutions were adopted by
regulatory authorities effective January 1, 1991. These guidelines were
designed to relate regulatory capital requirements to the risk profile of the
specific institution and to provide for uniform requirements among the
various regulators. Currently, the risk-based capital guidelines require the
Company to meet a minimum total capital ratio of 8.0% of which at least 4.0%
must consist of Tier 1 capital. Tier 1 capital generally consists of (a)
common shareholders' equity (excluding the unrealized market value
adjustments on the available-for-sale securities), (b) qualifying perpetual
preferred stock and related surplus subject to certain limitations specified
by the FDIC, and (c) minority interests in the equity accounts of
consolidated subsidiaries less (d) goodwill, (e) mortgage servicing rights
within certain limits, and (f) any other intangible assets and investments in
subsidiaries that the FDIC determines should be deducted from Tier 1 capital.
The FDIC also requires a minimum leverage ratio of 3.0%, defined as the ratio
of Tier 1 capital to average total assets for banking organizations deemed
the strongest and most highly rated by banking regulators. A higher minimum
leverage ratio is required of less highly rated banking organizations. Total
capital, a measure of capital adequacy, includes Tier 1 capital, allowance
for possible loan losses, and debt considered equity for regulatory capital
purposes.
The following table summarizes the Company's risk-based capital and leverage
ratios at the dates indicated:
<TABLE>
<CAPTION>
December 31,
------------------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets 11.20% 10.29% 10.21%
Total capital to risk weighted assets 12.28 11.53 11.40
Leverage ratio (Tier 1 capital to
average assets) 8.93 7.96 7.81
Tangible capital to tangible assets 9.79 8.91 8.72
</TABLE>
At December 31, 1997, the Company's Tier 1 capital was $26.0 million compared
to $14.7 million and $12.6 million at December 31, 1996 and 1995,
respectively. At December 31, 1997, the Company's total capital was $28.6
million compared to $16.5 million and $13.5 million at December 31, 1996 and
1995, respectively.
22
<PAGE> 25
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
SFAS 130, Reporting Comprehensive Income, was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and
losses on available-for-sale securities. Components of the Company's
comprehensive income will be reported in a financial statement that is
displayed with the same prominence as other financial statements starting in
the first quarter of 1998. SFAS 130's disclosure requirements will have no
impact on the Company's financial condition or results of operations.
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for financial statements for periods beginning
after December 15, 1997, but interim period reporting is not required in
1998. An operating segment is defined under SFAS 131 as a component of an
enterprise that engages in business activities that generate revenue and
expense for which operating results are reviewed by the chief operating
decision maker in the determination of resource allocation and performance.
The Company does not believe the impact of SFAS 131 on future financial
statement disclosures will be material.
EFFECT OF INFLATION
Persistent high rates of inflation can have a significant effect on the
reported financial condition and results of operations of all industries.
However, the asset and liability structure of commercial banks is
substantially different from that of an industrial company in that virtually
all assets and liabilities of commercial banks are monetary in nature.
Accordingly, changes in interest rates may have a significant impact on a
commercial bank's performance. Interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services.
Inflation does have an impact on the growth of total assets in the banking
industry, often resulting in a need to increase equity capital at higher than
normal rates to maintain an appropriate equity-to-assets ratio.
SUPERVISION AND REGULATION
--------------------------
The Company and the Bank are subject to state and federal banking laws and
regulations which impose specific requirements or restrictions on and provide
for general regulatory oversight with respect to virtually all aspects of
operations. These laws and regulations are generally intended to protect
depositors, not shareholders. To the extent that the following summary
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory and regulatory provisions. Any
change in applicable laws or regulations may have a material effect on the
business and prospects of the Company. The numerous regulations and policies
promulgated by the regulatory authorities creates a difficult and
ever-changing atmosphere in which to operate. The Company and the Bank
commit substantial resources in order to comply with these statutes,
regulations and policies. The Company is unable to predict the nature or the
extent of the effect on its business and earnings that fiscal or monetary
policies, economic control, or new federal or state legislation may have in
the future.
FEDERAL BANK HOLDING COMPANY REGULATION
The Company is a bank holding company under the definition of the Bank
Holding Company Act of 1956 (the "BHCA"). Under the BHCA, the Company is
subject to periodic examination by the Federal Reserve and is required to
file periodic reports of its operations and such additional information as
the 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
23
<PAGE> 26
(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 of regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a related activity. Some
of the activities that the Federal Reserve has determined by regulation to be
proper incidents to the business of banking include investment in and
management of Small Business Investment Companies, making or servicing loans
and certain types of leases, engaging in certain insurance and brokerage
activities, performing data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in limited projects designed
primarily to promote community welfare.
Source of Strength; Cross-Guarantee. In accordance with Federal Reserve
policy, the Company is expected to act as a source of financial strength to
the Bank and to commit resources to support the Bank in circumstances in
which the Company might not otherwise do so. Under the BHCA, the Federal
Reserve may require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary
of a bank) upon the Federal Reserve's determination that such activity or
control constitutes a serious risk to the financial soundness or stability of
any subsidiary depository institution of the bank holding company. Further,
federal bank regulatory authorities have additional discretion to require a
bank holding company to divest itself of any bank or nonbank subsidiary if
the agency determines that divestiture may aid the depository institution's
financial condition.
BANK REGULATION
General. 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, 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
24
<PAGE> 27
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 nonaffiliated companies. The Bank is subject to certain restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders, and their related interests. Such extensions of credit (i)
must be made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
third parties and (ii) must not involve more than the normal risk of
repayment or present other unfavorable features.
Community Reinvestment Act. The Community Reinvestment Act ("CRA") requires
that, in connection with examinations of financial institutions within its
jurisdiction, the FDIC shall evaluate the record of the financial
institutions in meeting the credit needs of their local communities,
including low and moderate income neighborhoods, consistent with the safe and
sound operation of those institutions. These factors are also considered in
evaluating mergers, acquisitions, and applications to open a branch or
facility. The company has a satisfactory rating under CRA.
Other Regulations. Interest and certain other charges collected or
contracted for by the Bank are subject to state usury laws and certain
federal laws concerning interest rates. The Bank's loan operations are also
subject to certain federal laws applicable to credit transactions, such as
the federal Truth-In-Lending Act governing disclosures of credit terms to
consumer borrowers; the Home Mortgage Disclosure Act of 1975 requiring
financial institutions to provide information to enable the public and public
officials to determine whether a financial institution is fulfilling its
obligation to help meet the housing needs of the community it serves; the
Equal Credit Opportunity Act prohibiting discrimination on the basis of race,
creed or other prohibited factors in extending credit; the Fair Credit
Reporting Act of 1978 governing these and provision of information to credit
reporting agencies; the Fair Debt Collection Act governing the manner in
which consumer debts may be collected by collection agencies; and the rules
and regulations of the various federal agencies charged with the
responsibility of implementing such federal laws. The deposit operations of
the Bank also are subject to the Right to Financial Privacy Act, which
imposes a duty to maintain confidentiality of consumer financial records and
prescribes procedures for complying with administrative subpoenas of
financial records, and the Electronic Funds Transfer Act and Regulation E
issued by the Federal Reserve Board to implement that act, which governs
automatic deposits to and withdrawals from deposit accounts and customers'
rights and liabilities arising from the use of automated teller machines and
other electronic banking services.
Deposit Insurance. The deposits of the Bank are currently insured by the
FDIC to a maximum of $100,000 per depositor, subject to certain aggregation
rules. The FDIC establishes rates for the payment of premiums by federally
insured banks for deposit insurance. An insurance fund (BIF) is maintained
for commercial banks, with insurance premiums from the industry used to
offset losses from insurance payouts when banks and thrifts fail. The FDIC
has adopted a risk-based deposit insurance premium system for all insured
depository institutions, including the Bank, which requires premiums from a
depository institution based upon its capital levels and risk profile, as
determined by its primary federal regulator on a semiannual basis.
DIVIDENDS
The principal source of the Company's cash revenues comes from dividends
received from the Bank. The amount of dividends that may be paid by the Bank
to the Company depends on the Bank's earnings and capital position and is
limited by federal and state law, regulations, and policies.
CAPITAL REGULATIONS
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance-sheet
exposure, and minimize disincentives for holding liquid assets. The
resulting capital ratios represent qualifying capital as a percentage of
total risk-weighted assets and off-balance-sheet items. The guidelines are
minimums, and the federal regulators have noted that banks and bank holding
companies
25
<PAGE> 28
contemplating significant expansion programs should not allow expansion to
diminish their capital ratios and should maintain ratios well in excess of
the minimums. The current guidelines require all bank holding companies and
federally-regulated banks to maintain a minimum risk-based total capital
ratio, a portion of which must be Tier 1 capital. Tier 1 capital includes
common shareholders' equity, qualifying perpetual preferred stock, and
minority interests in equity accounts of consolidated subsidiaries, but
excludes goodwill and most other intangibles and excludes the allowance for
loan and lease losses. Tier 2 capital includes the excess of any preferred
stock not included in Tier 1 capital, mandatory convertible securities,
hybrid capital instruments, subordinated debt and intermediate term-preferred
stock, and general reserves for loan and lease losses up to 1.25% of
risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are given
risk-weights of 0%, 20%, 50% or 100%. In addition, certain off-balance-sheet
items are given credit conversion factors to convert them to asset equivalent
amounts to which an appropriate risk-weight will apply. These computations
result in the total risk-weighted assets. Most loans are assigned to the
100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstance, residential
construction loans, both of which carry a 50% rating. Most investment
securities are assigned to the 20% category, except for municipal or state
revenue bonds, which have a 50% rating, and direct obligations of or
obligations guaranteed by the United States Treasury or United States
Government agencies, which have a 0% rating.
The federal bank regulatory authorities have also implemented a leverage
ratio, which is Tier 1 capital as a percentage of average total assets less
intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity
capital base.
MANAGEMENT
----------
The biographical information is furnished with respect to each member of the
Board of Directors (the Board) of the Company, some of whom also serve as
directors and/or officers of one or more of the Company's subsidiaries
Enterprise Bank, Enterprise Capital Management, Inc., and Enterprise Merchant
Banc, Inc. There are no family relationships between or among any directors
or executive officers of the Company.
<TABLE>
<CAPTION>
PRESENT POSITION(S) PRINCIPAL OCCUPATION
NAME AND AGE WITH THE COMPANY DURING PAST FIVE YEARS
- ------------ ---------------- ----------------------
<S> <C> <C>
Fred H. Eller, 53 President and Chief President, Chief Executive Officer
Executive Officer, Director 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, 66 Chairman of the Board 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, 47 Vice Chairman of the Executive Vice President, General American
Board, Director (insurance product provider); Vice Chairman of the
Board of the Company (since 1995); Vice Chairman of the
Board of the Bank, (since 1991)
26
<PAGE> 29
Randall D. Humphreys, 43 Director President of Enterprise Capital Management
(since 1997); President of Enterprise Merchant
Banc, Inc., formerly Enterprise Capital Resources (since
1997), Director of the Company (since 1997)
Paul R. Cahn, 72 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 since
1995)
Birch M. Mullins, 54 Director President, Baur Properties (developer of commercial
real estate properties); Director of the Company (since 1996);
Director of the Bank (since 1991)
Robert E. Saur, 54 Director President, Conrad Properties (developer of commercial and
residential real estate properties); Director of the
Company (since 1995); Director of the Bank (since 1991)
Henry D. Warshaw, 44 Director Principal, Moneta Group (provides financial planning
products and services); Director of the Company (since
1996); Director of the Bank (1991-1996); Chairman of
Clayton Banking Unit (since 1996)
James L. Wilhite, 64 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. Peters Banking Unit (since 1996)
James A. Williams, 45 Director President, Sunset Transportation (trucking brokerage and
consulting firm); Director of the Company (since 1996);
Director of the Bank (since 1996); Chairman of the Sunset
Hills Banking Unit (since 1996)
Ted C. Wetterau, 70 Director Chairman, Chief Executive Officer (retired 1993) Wetterau
Incorporated (wholesale food distributor); Director of the
Company (since 1997)
</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.
The Bank's standing committees are the audit and the compensation committee
and the Bank's entire Board of Directors performs the functions of these
committees.
27
<PAGE> 30
COMPENSATION OF EXECUTIVE OFFICERS AND OTHERS
The following table shows the compensation paid by the Company to its Chief
Executive Officer and each of the other executive officers of the Company who
earned more than $100,000.00 per year in compensation for any of the years
ended December 31, 1997, 1996 and 1995:
<TABLE>
EXECUTIVE COMPENSATION
----------------------
<CAPTION>
Company
Fiscal Split Life Match
Name Age Title Year Salary<F1> Bonus Premium Deferrals
- ---- --- ----- ---- ---------- ----- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Eller 53 President and 1997 $175,225 $50,000 $2,586 $6,400
CEO of the 1996 166,197 50,000 2,484 7,600
Company 1995 166,473 64,000 2,330 4,620
David J. Mishler 39 President of 1997 $146,139 $45,000 $ 751 $6,400
Enterprise Bank, 1996 123,648 35,000 735 6,372
Clayton 1995 112,094 25,000 751 3,430
Richard C. Leuck 40 President of 1997 $ 94,761 $30,000 $ 698 $3,172
Enterprise Bank, 1996 67,976 20,000 674 n/a
St. Peters 1995 n/a n/a n/a n/a
James E. Graser 38 President of 1997 $ 84,920 $12,500 $ 732 $3,924
Enterprise Bank, 1996 80,641 22,000 726 4,132
Sunset Hills 1995 76,508 24,500 749 2,528
<FN>
<F1> Includes car allowance
</TABLE>
STOCK OPTIONS PLANS
In 1988 and 1992, the Bank established two incentive stock options 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 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 88,500 shares of Common Stock at a price of $5.00 to $7.00 per
share are outstanding, all of which are currently exercisable ("1988
Options"). In addition, options to purchase 74,600 shares of Common Stock
are currently outstanding, representing those originally issued under the
1992 stock option plan ("1992 Options"). Of the 1992 Options, options to
purchase 69,000 shares carry a purchase price of $7.00 per share, of which
69,000 were exercisable as of December 31, 1997, options to purchase 2,000
shares carry a purchase price of $9.25 per share, of which 1,200 were
exercisable as of December 31, 1997, and options to purchase 3,600 shares
carry a purchase price of $16.00 per share, of which none were exercisable as
of December 31, 1997. All of the 1988 Options will expire between May 9,
1998 and December 1, 2002, 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, June 15, 2004 for those with a purchase price of $9.25 per share,
and April 1, 2007 for those with a purchase price of $16.00 per share.
In 1996, 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
options 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. The purchase price for any
options granted under ISO Plan III will be determined based upon the market
value of the Common Stock at the time such options are granted. At December
31, 1997, options to purchase 187,900 shares of Common Stock at a price of
$16.00 per share were outstanding, none of which were currently exercisable.
In addition, options to purchase 2,000 shares of Common Stock at a price of
$16.75 per share were outstanding, none of which were exercisable.
28
<PAGE> 31
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 loan committee
meeting they attend.
BENEFICIAL OWNERSHIP OF SECURITIES
----------------------------------
The following is a list of persons who beneficially owned more than 5% of the
outstanding Common Stock of the Company, and the ownership of the executive
officers and directors, and all directors and executive officers as a group
at the close of business on March 6, 1998, according to record-ownership
listings as of that date:
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares % Ownership<F1><F2>
- ---------------- ---------------- -------------------
<S> <C> <C>
Fred H. Eller <F3><F5><F6> 94,260 3.84%
Ronald E. Henges <F3><F8> 141,640 5.76%
Kevin C. Eichner <F3> 77,193 3.14%
Randall D. Humphreys -- n/a
Paul R. Cahn <F4> 69,967 2.85%
Birch M. Mullins 17,850 <F*>
Robert E. Saur 39,000 1.59%
Henry D. Warshaw <F9> 17,260 <F*>
James L. Wilhite <F12> 8,721 <F*>
James A. Williams <F7> 4,840 <F*>
Ted C. Wetterau <F13> 11,940 <F*>
David J. Mishler <F3><F11><F6> 38,304 1.56%
James E. Graser <F3><F10><F6> 15,000 <F*>
Richard C. Leuck <F14> 6,591 <F*>
James C. Wagner <F15> 19,595 <F*>
All Directors and Executive Officers as
a Group 562,161 22.88%
<FN>
<F*> Less than 1%
<F1> Percentages are calculated based on 2,457,112 shares, which represents
2,298,412 shares outstanding as of December 31, 1997, plus Options
outstanding and exercisable as of December 31, 1997 or within 60 days
thereafter totaling 158,700 shares, of which 6,700 were exercised
subsequent to year end.
<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
December 31, 1997 or within 60 days thereafter, including those
beneficially owned by the named person, as follows: Mr. Eichner,
30,000 shares; Mr. Eller, 55,000 shares; Mr. Henges, 10,000 shares; Mr.
Graser, 10,000 shares; Mr. Mishler, 10,000 shares; Mr. Wagner, 10,000
shares, of which 4,000 were exercised subsequent to year end; all
directors and executive officers as a group, 125,000 shares, of which
4,000 shares were exercised subsequent to year end.
29
<PAGE> 32
<F4> Excludes 23,980 held by two adult children of Mr. Cahn, as well as
5,000 shares held by the son-in-law 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; and 64,967 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, and 20
shares held in the name of Mr. Eller to which Mr. Eller has voting
power.
<F6> Excludes all of the 15,460 shares held of record by EBSP Partnership in
which each of Mr. Eller, Mr. Graser and Mr. Mishler each 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
each hold a 1/6 partnership interest, but for which none of the named
persons holds sole voting power.
<F7> Includes 845 shares held by Mr. Williams held in an Individual
Retirement Account for the benefit of Mr. Williams to which Mr.
Williams has voting power.
<F8> Excludes 18,110 shares held by and/or for the benefit of adult children
of Mr. Henges. Includes 76,770 shares held of record by Henges Equity,
L.P., to which Mr. Henges is the General Partner and 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; 20 shares in the
name 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. Mr. Henges' address is c/o Enterbank Holdings, Inc., 150 North
Meramec, Clayton, Missouri 63105.
<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,
and 20 shares in the name of Mr. Warshaw to which Mr. Warshaw has
voting power.
<F10> Includes 4,999 shares held jointly by Mr. Graser and his spouse; and
one share in the name of Mr. Graser to which Mr. Graser has voting
power.
<F11> Includes 25,672 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; and one share
held in the name of Mr. Mishler to which Mr. Mishler has voting power.
<F12> Includes 650 shares held in a trust for the benefit of the spouse of
Mr. Wilhite of which the spouse of Mr. Wilhite is trustee, to which Mr.
Wilhite has voting power.
<F13> Includes 11,940 shares held jointly by Mr. Wetterau and his spouse.
<F14> Includes 2,500 shares held in a trust of Mr. Leuck for the benefit of
Mr. Leuck to which Mr. Leuck has voting power; 2,500 shares held in a
trust of the spouse of Mr. Leuck, for the benefit of the spouse of Mr.
Leuck; to which Mr. Leuck has shared voting power; 1,590 shares held in
the Individual Retirement Account for the benefit of Mr. Leuck to which
Mr. Leuck has voting power; one share in the name of Mr. Leuck to which
Mr. Leuck has voting power.
<F15> Includes 9,595 shares held jointly by Mr. Wagner and his spouse.
</TABLE>
CERTAIN RELATED PARTY TRANSACTIONS
----------------------------------
The Company and the Bank have and expect to continue to have banking and
other transactions in the ordinary course of business with directors and
executive officers of the Company and their affiliates, including members of
their families or corporations, partnerships or other organizations in which
such directors or executive officers have a controlling interest, on
substantially the same terms (including price, or interest rates and
collateral) as those prevailing at the time for comparable transactions with
unrelated parties. Such transactions are not expected to involve more than
the normal risk of collectibility nor present other unfavorable features to
the Company and the Bank. The Bank is subject to limits on the aggregate
amount it can lend to the Bank's and the Company's directors and officers as
a group. This limit is currently equal to two times the applicable entity's
unimpaired capital and surplus. Loans to individual directors and officers
must also comply with the Bank's lending policies and statutory lending
limits, and directors with a personal interest in any loan application are
excluded from the consideration of such loan application.
The Company's Clayton banking facility is leased from a limited partnership
in which Fred H. Eller, the Company's Chief Executive Officer, is a limited
partner and Robert E. Saur, a director of the Company, is a general partner.
Terms of the lease were negotiated by parties other than Fred H. Eller or
Robert E. Saur and based on the fair market value at origination. Rent
expense, net of income from the sublet portions of the premises, amounted to
$258,620 in 1997.
30
<PAGE> 33
[LETTERHEAD OF KPMG PEAT MARWICK LLP]
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, 1997 and
1996, and the related consolidated statements of income, shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Enterbank
Holdings, Inc. and subsidiaries as of December 31, 1997 and 1996, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
January 23, 1998, except as to Note 19,
which is as of March 13, 1998
<PAGE> 34
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<CAPTION>
Assets 1997 1996
------ ------------ ------------
<S> <C> <C>
Cash and due from banks $ 13,897,054 $ 9,261,035
Federal funds sold 32,825,000 23,250,000
Interest-bearing deposits 148,349 --
Investments in debt and equity securities:
Available for sale, at estimated fair value 12,514,721 14,005,797
Held to maturity, at amortized cost
(estimated fair value of $920,154 in 1997
and $1,239,498 in 1996) 919,163 1,240,183
------------ ------------
Total investments in debt and equity securities 13,433,884 15,245,980
------------ ------------
Loans held for sale 1,324,244 --
Loans, net of unearned loan fees 225,560,208 134,133,092
Less allowance for loan losses 2,510,000 1,765,000
------------ ------------
Loans, net 223,050,208 132,368,092
------------ ------------
Other real estate owned 806,072 874,426
Office equipment and leasehold improvements 2,328,699 1,119,268
Accrued interest receivable 1,448,343 935,864
Investment in Enterprise Fund, L.P. 225,683 550,087
Prepaid expenses and other assets 1,877,320 979,361
------------ ------------
Total assets $291,364,856 $184,584,113
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 46,052,686 $ 31,137,649
Interest-bearing transaction accounts 22,519,772 16,648,185
Money market accounts 98,639,345 54,637,747
Savings 1,429,316 1,030,346
Certificates of deposit:
$100,000 and over 32,824,697 24,067,363
Other 62,834,818 41,439,799
------------ ------------
Total deposits 264,300,634 168,961,089
Note payable -- 300,000
Accounts payable and accrued expenses 997,430 565,131
------------ ------------
Total liabilities 265,298,064 169,826,220
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000
shares; issued and outstanding 2,298,412 shares in
1997 and 1,662,360 shares in 1996 22,984 16,624
Surplus 18,879,210 9,595,956
Retained earnings 7,166,071 5,138,612
Net unrealized holding gains (losses) on
available for sale securities (1,473) 6,701
------------ ------------
Total shareholders' equity 26,066,792 14,757,893
------------ ------------
Total liabilities and shareholders' equity $291,364,856 $184,584,113
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE> 35
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $16,795,887 $11,426,260 $ 9,393,945
Interest on debt and equity securities:
Taxable 1,017,897 692,742 744,956
Nontaxable 34,630 38,914 27,427
Interest on federal funds sold 909,326 396,244 745,044
Interest on interest bearing deposits 1,289 -- 2,464
----------- ----------- -----------
Total interest income 18,759,029 12,554,160 10,913,836
----------- ----------- -----------
Interest expense:
Interest-bearing transaction accounts 410,915 331,943 351,998
Money market accounts 3,604,225 2,006,578 1,740,701
Savings 32,357 33,122 31,958
Certificates of deposit:
$100,000 and over 1,658,554 1,346,428 1,246,703
Other 2,862,256 1,834,540 1,513,251
Federal funds purchased 11,035 1,027 2,681
Notes payable 2,888 15,274 --
----------- ----------- -----------
Total interest expense 8,582,230 5,568,912 4,887,292
----------- ----------- -----------
Net interest income 10,176,799 6,985,248 6,026,544
Provision for loan losses 775,064 345,410 630,734
----------- ----------- -----------
Net interest income after
provision for loan losses 9,401,735 6,639,838 5,395,810
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts 173,452 129,414 131,640
Other service charges and fee income 307,427 252,087 150,404
Merchant credit card income -- 600,981 562,449
Gain on sale of credit card operation -- 320,000 --
Loss on investment in Enterprise Fund, L.P. (4,904) (62,690) (8,222)
----------- ----------- -----------
Total noninterest income 475,975 1,239,792 836,271
----------- ----------- -----------
Noninterest expense:
Salaries 3,221,147 2,400,165 1,710,740
Payroll taxes and employee benefits 620,438 465,475 332,220
Occupancy 552,063 333,795 275,179
Equipment 227,061 145,501 120,594
FDIC insurance 21,846 2,000 114,944
Data processing 237,248 247,696 209,267
Merchant credit card expense -- 441,991 455,718
Other 1,458,773 1,109,711 968,061
----------- ----------- -----------
Total noninterest expense 6,338,576 5,146,334 4,186,723
----------- ----------- -----------
Income before income tax expense 3,539,134 2,733,296 2,045,358
Income tax expense 1,316,590 1,031,344 741,091
----------- ----------- -----------
Net income $ 2,222,544 $ 1,701,952 $ 1,304,267
=========== =========== ===========
Basic earnings per share $ 1.06 $ 1.11 $ .89
Diluted earnings per share $ 1.00 $ .97 $ .77
Basic weighted average common shares and common
stock equivalents outstanding 2,095,359 1,538,418 1,463,400
Diluted weighted average common shares and common
stock equivalents outstanding 2,224,967 1,750,686 1,685,479
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE> 36
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
Net
unrealized
holding
gains
(losses) on Total
Common Stock available- share-
-------------------------- Retained for-sale holders'
Shares Amount Surplus earnings securities equity
--------- ------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
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 -- -- -- 1,701,952 -- 1,701,952
Dividends declared
($.08 per share) -- -- -- (121,548) -- (121,548)
Stock warrants exercised 198,960 1,990 1,092,290 -- -- 1,094,280
Change in net unrealized
holding gains (losses)
on available for sale
securities, net of tax
effect -- -- -- -- 31,062 31,062
--------- ------- ----------- ---------- -------- -----------
Balance, December 31, 1996 1,662,360 16,624 9,595,956 5,138,612 6,701 14,757,893
Net income -- -- -- 2,222,544 -- 2,222,544
Dividends declared
($.09 per share) -- -- -- (195,085) -- (195,085)
Stock options exercised 53,500 535 266,965 -- -- 267,500
Issuance of common stock 582,552 5,825 9,016,289 -- -- 9,022,114
Change in net unrealized
holding gains (losses)
on available for sale
securities, net of
tax effect -- -- -- -- (8,174) (8,174)
--------- ------- ----------- ---------- -------- -----------
Balance, December 31, 1997 2,298,412 $22,984 $18,879,210 $7,166,071 $ (1,473) $26,066,792
========= ======= =========== ========== ======== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE> 37
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 2,222,544 $ 1,701,952 $ 1,304,267
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 311,132 225,328 177,454
Provision for loan losses 775,064 345,410 630,734
Write-downs and losses on other real estate owned, net 24,259 6,646 152,982
Net accretion of debt and equity securities (207,715) (6,357) (149,398)
Loss on investment in Enterprise Fund, L.P. 4,904 62,690 8,222
Mortgage loans originated (8,455,878) -- --
Proceeds from mortgage loans sold 7,210,582 -- --
Gain on sale of mortgage loans (78,948) -- --
(Increase) decrease in accrued interest receivable (512,479) 45,178 (380,400)
Increase in prepaid expenses and other assets (897,959) (333,550) (106,635)
Increase in accounts payable and accrued expenses 436,511 35,271 425,670
------------ ------------ ------------
Net cash provided by operating activities 832,017 2,082,568 2,062,896
------------ ------------ ------------
Cash flows from investing activities:
Purchases of interest-bearing deposits (148,349) -- --
Proceeds from maturity of interest-bearing deposits -- -- 98,000
Purchases of available for sale debt securities (18,788,955) (8,922,967) (20,877,229)
Purchases of available for sale equity securities (90,500) (94,200) (366,800)
Purchases of held to maturity debt securities (101,076) (414,733) (255,367)
Proceeds from maturities of available for sale debt securities 20,580,000 11,140,000 21,200,000
Proceeds from maturities and principal paydowns on
held to maturity debt securities 407,956 6,276 180,799
Net increase in loans (91,597,180) (23,649,751) (24,557,838)
Proceeds from sale of other real estate owned 184,095 -- 292,417
Purchases of office equipment and leasehold improvements (1,520,563) (549,219) (288,503)
Contributions returned from (paid to) investment in Enterprise Fund, L.P. 319,500 (520,500) (100,500)
------------ ------------ ------------
Net cash used in investing activities (90,755,072) (23,005,094) (24,675,021)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand and savings accounts 65,187,192 12,195,505 22,161,043
Net increase in certificates of deposit 30,152,353 15,625,520 14,180,109
Decrease in federal funds purchased -- -- (6,500,000)
(Decrease) increase in notes payable (300,000) 300,000 --
Cash dividends paid (195,085) (121,548) (124,373)
Proceeds from the issuance of common stock 9,022,114 -- --
Proceeds from the exercise of stock warrants and common stock options 267,500 1,094,280 5,500
------------ ------------ ------------
Net cash provided by financing activities 104,134,074 29,093,757 29,722,279
------------ ------------ ------------
Net increase in cash and due from banks 14,211,019 8,171,231 7,110,154
Cash and cash equivalents, beginning of year 32,511,035 24,339,804 17,229,650
------------ ------------ ------------
Cash and cash equivalents, end of year $ 46,722,054 $ 32,511,035 $ 24,339,804
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 8,342,681 $ 5,546,601 $ 4,759,095
Income taxes 1,509,322 1,144,759 779,900
Noncash transactions:
Transfers to other real estate owned in settlement of loans 140,000 50,000 --
Loans made to facilitate the sale of other real estate owned -- 70,000 449,895
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
35
<PAGE> 38
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997, 1996 and 1995
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. (Capital Resources) 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 Capital
Resources. Subsequent to year end, Capital Resources changed its name to
Enterprise Merchant Banc, Inc. (Merchant Banc).
In 1997, the Company organized Enterprise Financial Advisors ("Financial
Advisors") as a division of the Bank to provide fee-based personal financial
planning, estate planning, and corporate planning services to the Company's
target market. The Company entered into solicitation and referral agreements
with Moneta Group, Inc., a financial planning company, as part of the
organization of Financial Advisors.
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 statement. Estimates which are
particularly susceptible to change in a short period of time include the
determination of the allowance for loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction of amounts
due from borrowers on loans. Actual amounts could differ from those
estimates.
CONSOLIDATION
The consolidated financial statements include the accounts of the Company;
its banking subsidiary, Enterprise Bank (100% owned) and its merchant banking
company, Merchant Banc (100% owned). All significant intercompany accounts
and transactions have been eliminated.
(Continued)
36
<PAGE> 39
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company currently classifies investments in debt and equity securities as
follows:
Trading - includes securities which the Company has bought and held
principally for the purpose of selling them in the near term. 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.
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.
LOANS HELD FOR SALE
During 1997, the Company began mortgage banking operations. Mortgage banking
activities included the origination of residential mortgage loans for sale to
various investors. Mortgage loans are originated and intended for sale in
the secondary market, principally under programs with the Government National
Mortgage Association (GNMA) or the Federal National Mortgage Association
(FNMA). Mortgage loans held for sale are carried at the lower of cost or
fair value, which is determined on a specific identification method.
Mortgage banking revenues, including origination fees, net gains on sales of
servicing rights, net gains or losses on sales of mortgages and other fee
income, which is determined on a specific identification method, were less
than one percent of the Company's total revenue for the year ended December
31, 1997. The Company does not retain servicing on any loans originated and
sold, nor does the Company have any purchased mortgage servicing rights at
December 31, 1997.
(Continued)
37
<PAGE> 40
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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 contractual life of the loan using the straight-line method,
which approximates the interest method.
LOANS AND ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is increased by provisions charged to expense
and is available to absorb charge-offs, net of recoveries. Management
utilizes a systematic, documented approach in determining the appropriate
level of the allowance for loan losses. Management's approach, which
provides for general and specific allowances, is based on current economic
conditions, past losses, collection experience, risk characteristics of the
portfolio, assessments of collateral values by obtaining independent
appraisals for significant properties, and such other factors which, in
management's judgment, deserve current recognition in estimating loan losses.
Management believes the allowance for loan losses is adequate to absorb
possible losses in the loan portfolio. While management uses available
information to recognize losses on loans, future additions to the allowance
may be necessary based on changes in economic conditions and other factors.
In addition, various regulatory agencies, as an integral part of the
examination process, periodically review the Bank's loan portfolio. Such
agencies may require the Bank to add to the allowance for loan losses based
on their judgments and interpretations of information available to them at
the time of their examinations.
ACCOUNTING FOR IMPAIRED LOANS
A loan is considered impaired when it is probable the Bank will be unable to
collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the
expected future cash flows of an impaired loan are discounted at the loan's
effective interest rate. Alternatively, impairment is measured by reference
to an observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan. Regardless of the measurement
method used, historically, the Bank measures impairment based on the fair
value of the collateral when foreclosure is probable. Additionally,
impairment of a restructured loan is measured by discounting the total
expected future cash flow at the loan's effective rate of interest as stated
in the original loan agreement. The Bank recognizes interest income on
nonaccrual loans only when received and on impaired loans continuing to
accrue interest as earned.
OTHER REAL ESTATE OWNED
Other real estate owned represents property acquired through foreclosure or
deeded to the Company's subsidiary bank in lieu of foreclosure on loans on
which the borrowers have defaulted as to the payment of principal and
interest. Other real estate owned is recorded on an individual asset basis
at the lower of (1) current fair value minus estimated selling costs, or (2)
fair value at the time of the acquisition (cost). Subsequent reductions in
fair value are expensed or recorded in a valuation reserve account through a
(Continued)
38
<PAGE> 41
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
provision against income. Subsequent increases in the fair value are
recorded through a reversal of the valuation reserve, but not below zero.
Gains and losses resulting from the sale of other real estate owned are
credited or charged to current period earnings. Costs of maintaining and
operating other real estate owned are expensed as incurred, and expenditures
to complete or improve other real estate owned properties are capitalized if
the expenditures are expected to be recovered upon ultimate sale of the
property.
OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Office equipment and leasehold improvements are stated at cost less
accumulated depreciation and amortization is computed using the straight-line
method over their respective estimated useful lives. Bank equipment is
depreciated over three to ten years and leasehold improvements over ten to 30
years.
INCOME TAXES
The Company and its subsidiaries file consolidated federal income tax
returns. Deferred tax assets and liabilities are recognized for the
estimated future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
CASH FLOW INFORMATION
For purposes of reporting cash flows, the Company considers cash and due from
banks and federal funds sold to be cash and cash equivalents.
RECLASSIFICATION
Certain reclassifications have been made to the prior year amounts to conform
to the present year presentation.
STOCK OPTIONS
Prior to January 1, 1996, the Corporation accounted for its stock option
plans in accordance with the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees, and related
interpretations. As such, compensation expense was recorded on the date of
grant only if the current market price of the underlying stock exceeded the
exercise price. On January 1, 1996, the Company adopted Financial Accounting
Standards Board (FASB) Statement of Financial Accounting Standard (SFAS) No.
123, Accounting for Stock-Based Compensation, which permits entities to
expense the fair value of stock-based awards, as measured on the date of
grant, over their vesting period. Alternatively, SFAS 123 also allows
entities to continue to apply the provisions of APB Opinion No. 25 and
provide pro forma net income and pro forma net income per share disclosures
for employee stock option grants made in 1995 and future years as if the
fair-value-based method defined in SFAS 123 had been applied. The Company
has elected to continue to apply the provisions of APB Opinion No. 25 and
provide the pro forma disclosure provisions of SFAS 123.
(Continued)
39
<PAGE> 42
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NEW ACCOUNTING STANDARDS
SFAS 130, Reporting Comprehensive Income, was issued in June 1997.
Comprehensive income is defined as net income plus certain items that are
recorded directly to shareholders' equity, such as unrealized gains and
losses on available for sale securities. Components of the Company's
comprehensive income will be included in a financial statement that has the
same prominence as other financial statements starting in the first quarter
of 1998. SFAS 130's disclosure requirements will have no impact on the
Company's financial condition or results of operations.
SFAS 131, Disclosures about Segments of an Enterprise and Related
Information, is effective for financial statements for periods beginning
after December 15, 1997, but interim period reporting is not required in
1998. An operating segment is defined under SFAS 131 as a component of an
enterprise that engages in business activities that generate revenue and
expense for which operating results are reviewed by the chief operating
decision maker in the determination of resource allocation and performance.
The Company does not believe the impact of SFAS 131 on future financial
statement disclosures will be material.
NOTE 3--EARNINGS PER SHARE
Basic earnings per share data is calculated by dividing net income, after
deducting dividends on preferred stock, by the weighted average number of
common shares outstanding during the period. Diluted earnings per share
gives effect to the increase in the average shares outstanding which would
have resulted from the exercise of dilutive stock options and warrants.
The components of basic earnings per share are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
BASIC
Net income attributable to
common shareholders' equity $2,222,544 $1,701,952 $1,304,267
========== ========== ==========
Weighted average common
shares outstanding 2,095,359 1,538,418 1,463,400
========== ========== ==========
Basic earnings per share $1.06 $1.11 $0.89
===== ===== =====
<CAPTION>
The components of diluted earnings per share are as follows:
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
DILUTED
Net income attributable to
common shareholders' equity $2,222,544 $1,701,952 $1,304,267
========== ========== ==========
Weighted average common
shares outstanding 2,095,359 1,538,418 1,463,400
Stock warrants -- 79,979 110,377
Stock options 129,608 132,289 111,702
---------- ---------- ----------
Diluted weighted average
common shares outstanding $2,224,967 $1,750,686 $1,685,479
========== ========== ==========
Diluted earnings per share $1.00 $0.97 $0.77
===== ===== =====
</TABLE>
(Continued)
40
<PAGE> 43
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 4--REGULATORY RESTRICTIONS
The Company's subsidiary bank is subject to regulations by regulatory
authorities which require the maintenance of minimum capital standards which
may affect the amount of dividends the Company's subsidiary bank can pay.
At December 31, 1997 and 1996, approximately $3,427,000 and $1,174,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by the Bank in accordance with Federal Reserve Bank
requirements.
NOTE 5--INVESTMENTS IN DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as available for sale at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1997
--------------------------------------------------------
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 $11,965,452 $4,152 $6,383 $11,963,221
Federal Home Loan Bank stock 551,500 -- -- 551,500
----------- ------ ------ -----------
$12,516,952 $4,152 $6,383 $12,514,721
=========== ====== ====== ===========
<CAPTION>
1996
--------------------------------------------------------
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 $13,534,643 $10,449 $295 $13,544,797
Federal Home Loan Bank stock 461,000 -- -- 461,000
----------- ------- ------ -----------
$13,995,643 $10,449 $295 14,005,797
=========== ======= ====== ===========
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as available for sale at December 31, 1997, 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 $11,965,452 $11,963,221
Due after one year through five years -- --
Due after five years through ten years -- --
Securities with no stated maturity 551,500 551,500
----------- -----------
$12,516,952 $12,514,721
=========== ===========
</TABLE>
(Continued)
41
<PAGE> 44
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as held to maturity at December 31, 1997 and 1996 is as
follows:
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 37,825 $ -- $ 24 $ 37,801
Municipal Bonds 881,338 1,914 899 882,353
-------- ------ ---- --------
$919,163 $1,914 $923 $920,154
======== ====== ==== ========
<CAPTION>
1996
-------------------------------------------------------
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 corporation
and agencies $ 305,583 $ 655 $ -- $ 306,238
Mortgage-backed securities 43,857 -- 164 43,693
Municipal Bonds 890,743 1,652 2,828 889,567
---------- ------ ------ ----------
$1,240,183 $2,307 $2,992 $1,239,498
========== ====== ====== ==========
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as held to maturity at December 31, 1997, 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 $460,312 $459,731
Due after one year through five years 421,026 422,622
Due after five years through ten years -- --
Securities with no stated maturity 37,825 37,801
-------- --------
$919,163 $920,154
======== ========
</TABLE>
There were no sales of investments in debt and equity securities in 1997,
1996 or 1995. Debt and equity securities having a carrying value of
$8,748,476 and $10,933,728 at December 31, 1997 and 1996, respectively, were
pledged as collateral to secure public deposits and for other purposes as
required by law.
As a member of the Federal Home Loan Bank system administered by the Federal
Housing Finance Board, the Bank is required to maintain an investment in the
capital stock of the Federal Home Loan Bank of Des Moines (FHLB) in an amount
equal to the greater of 1% of the aggregate outstanding balance of loans
secured by dwelling units at the beginning of each year or .3% of its total
assets. The FHLB stock is recorded at cost which represents redemption
value.
(Continued)
42
<PAGE> 45
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Statements
NOTE 6--LOANS
A summary of loans by category at December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Commercial and industrial $ 69,489,557 $ 43,875,936
Loans secured by real estate 148,892,185 85,756,588
Other 7,226,719 4,517,501
------------ ------------
225,608,461 134,150,025
Less unearned loan fees 48,253 16,933
------------ ------------
$225,560,208 $134,133,092
============ ============
</TABLE>
The breakdown of loans secured by real estate at December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ -----------
<S> <C> <C>
Business and personal loans $ 44,965,663 $26,508,877
Income-producing properties 55,025,798 29,898,499
Owner-occupied properties 10,259,749 6,133,825
Real estate development properties 38,640,975 23,215,387
------------ -----------
$148,892,185 $85,756,588
============ ===========
</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.
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 1997 and 1996.
Following is a summary of activity for the year ended December 31, 1997 of
loans to executive officers and directors or to entities in which such
individuals had beneficial interests as a shareholder, officer, or director.
Such loans were made in the normal course of business on substantially the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other customers and did not involve
more than the normal risk of collectibility.
<TABLE>
<CAPTION>
<S> <C>
Balance, December 31, 1996 $ 8,333,344
New loans 4,210,930
Payments and other reductions (1,529,020)
-----------
Balance, December 31, 1997 $11,015,254
===========
</TABLE>
(Continued)
43
<PAGE> 46
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A summary of activity in the allowance for loan losses for the years ended
December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $1,765,000 $1,400,000 $1,000,000
Provisions charged to operations 775,064 345,410 630,734
Loans charged off (161,799) -- (242,734)
Recoveries of loans previously
charged off 131,735 19,590 12,000
---------- ---------- ----------
Balance at end of year $2,510,000 $1,765,000 $1,400,000
========== ========== ==========
</TABLE>
A summary of impaired loans, which include nonaccrual loans, at December 31,
1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ----------
<S> <C> <C> <C>
Nonaccrual loans $ 50,000 $130,704 $ 106,504
Impaired loans continuing
to accrue interest 916,803 505,669 948,510
-------- -------- ----------
Total impaired loans $966,803 $636,373 $1,055,014
======== ======== ==========
Allowance for losses on specific
impaired loans $191,804 $82,616 $ 166,045
Impaired loans with no related
allowance for loan losses -- -- --
Average balance of impaired
loans during the year $563,943 $636,563 $1,252,362
======== ======== ==========
</TABLE>
If interest on nonaccrual loans, including amounts computed on principal
balances charged off on such loans, had been accrued, such income would have
been $1,537, $15,147 and $3,119 for the years ended December 31, 1997, 1996
and 1995, respectively. The amount recognized as interest income on
nonaccrual loans was $4,864, $2,005 and $-0- for the years ended December 31,
1997, 1996 and 1995, respectively. The amount recognized as interest income
on impaired loans continuing to accrue interest was $94,801, $44,616 and
$90,251 for the years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 7--OTHER REAL ESTATE OWNED
A summary of activity in the valuation allowance for other real estate owned
for the years ended December 31, 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 20,000 $20,000 $ 75,000
Provisions charged to operations -- -- 152,982
Charge-offs and reversals (20,000) -- (207,982)
-------- ------- ---------
Balance at end of year $ -- $20,000 $ 20,000
======== ======= =========
</TABLE>
(Continued)
44
<PAGE> 47
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 8--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of office equipment and leasehold improvements at December 31, 1997
and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Data processing equipment $ 691,985 $ 692,204
Furniture, fixtures and equipment 1,741,621 1,116,772
Leasehold improvements 1,184,052 507,106
Automobile 26,425 26,426
---------- ----------
3,644,083 2,342,508
Less accumulated depreciation
and amortization 1,315,384 1,223,240
---------- ----------
Office equipment and leasehold improvements, net $2,328,699 $1,119,268
========== ==========
</TABLE>
Depreciation and amortization of office equipment and leasehold improvements
included in occupancy expense amounted to $311,132 in 1997, $225,328 in 1996
and $177,454 in 1995.
The Company's banking facilities are leased under agreements that expire in
1999, 2015, and 2012 for Clayton, St. Charles County and the City of Sunset
Hills, respectively. The Company has the option to renew the Clayton
facility lease for three additional five-year periods with future rentals to
be agreed upon. The Company has no future rental options for the St. Charles
County facility; however, during the term of the lease, the monthly rentals
are adjusted periodically based on then current market conditions and
inflation. The Company has the option to renew the Sunset Hills facility
lease for two additional five-year periods with future rentals to be agreed
upon. One section of the Clayton facility is sublet and the proceeds are
used to reduce the Company's occupancy expenses. Rent expense amounted to
$436,524, $319,002 and $285,178 in 1997, 1996 and 1995, respectively, and
sublease rental income amounted to $35,422, $77,568 and $82,394 in 1997, 1996
and 1995 respectively. The Company leases its Clayton facility from a
partnership in which a director and an officer have an ownership interest.
The future minimum rental commitments required under the leases are as
follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1998 $684,957
1999 480,243
2000 377,887
2001 377,887
2002 377,887
========
</TABLE>
For leases which renew or are subject to periodic rental adjustments, the
monthly rental payments will be adjusted based on then current market
conditions and rates of inflation.
NOTE 9--INVESTMENT IN ENTERPRISE FUND, L.P.
The Company and its subsidiaries have a combined 10% interest in a limited
liability small business investment partnership, The Enterprise Fund L.P.,
for which a subsidiary of the company serves as the general partner. The
Company has an additional $703,500 in future capital commitments. This
investment, which is accounted for using the equity method of accounting, had
a carrying value of $225,683 and $550,087 at December 31, 1997 and 1996,
respectively.
(Continued)
45
<PAGE> 48
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 10--MATURITY OF CERTIFICATES OF DEPOSIT
Following is a summary of certificates of deposit maturities at December 31,
1997:
<TABLE>
<CAPTION>
$100,000
Maturity Period and Over Other Total
------------------------------------------ ----------- ----------- -----------
<S> <C> <C> <C>
Less than 1 year $59,233,000 $31,100,000 $90,333,000
Greater than 1 year and less than 2 years 2,956,267 1,285,499 4,241,766
Greater than 2 years and less than 3 years 276,551 -- 276,551
Greater than 3 years and less than 4 years 192,984 -- 192,984
Greater than 4 years and less than 5 years 161,016 339,198 500,214
Over 5 years 15,000 100,000 115,000
----------- ----------- -----------
$62,834,818 $32,824,697 $95,659,515
=========== =========== ===========
</TABLE>
NOTE 11--NOTE PAYABLE
On April 23, 1996, the Company obtained a $1,000,000 unsecured line of credit
from an unaffiliated bank. The line of credit was a one-year interest-only
note accruing interest at the unaffiliated bank's prime rate. The Company
chose not to renew the line of credit at the maturity date in April 1997.
For the year ended December 31, 1997, the average balance and maximum
month-end balance of the note payable were $25,000 and $300,000,
respectively. For the year ended December 31, 1996, the average balance and
maximum month end balance of the note payable were $205,000 and $300,000,
respectively. The average rate paid on the note payable was $8.25% in 1997
and 1996. The Company had no notes payable outstanding during 1995.
NOTE 12--INCOME TAXES
The components of income tax expense (benefit) for the years ended December
31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Current:
Federal $1,407,463 $1,021,847 $711,751
State and local 217,479 153,811 84,086
Deferred (308,352) (144,314) (54,746)
---------- ---------- --------
$1,316,590 $1,031,344 $741,091
========== ========== ========
</TABLE>
(Continued)
46
<PAGE> 49
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A reconciliation of expected income tax expense, computed by applying the
statutory federal income tax rate of 34% in 1997, 1996 and 1995, to income
before income taxes and the amounts reflected in the consolidated statements
of income is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Income tax expense at statutory rate $1,203,306 $ 929,320 $695,422
Increase (reduction) in income taxes
resulting from:
Tax-exempt income (31,828) (23,570) (24,660)
State and local income tax
expense 143,536 101,515 55,497
Other, net 1,576 24,079 14,832
---------- ---------- --------
Total tax expense $1,316,590 $1,031,344 $741,091
========== ========== ========
</TABLE>
A net deferred income tax asset of $778,604 and $466,014 is included in
prepaid expenses and other assets in the consolidated balance sheets at
December 31, 1997 and 1996, 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, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $831,869 $541,530
Other real estate owned -- 7,492
Unrealized losses on securities
available for sale 759 --
Other 17,613 11,706
-------- --------
Total deferred tax assets 850,241 560,728
-------- --------
Deferred tax liabilities:
Deferred loan fees 6,495 51,381
Office equipment and leasehold
improvements 65,142 39,881
Unrealized gains on securities
available for sale -- 3,452
-------- --------
Total deferred tax liabilities 71,637 94,714
-------- --------
Net deferred tax assets $778,604 $466,014
======== ========
</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,
1997, due to management's belief that all criteria for recognition have been
met, including the existence of a history of taxes paid sufficient to support
the realization of the deferred tax assets.
NOTE 13 -- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possible additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative
(Continued)
47
<PAGE> 50
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
measures of the Bank's assets, liabilities, and certain off-balance-sheet
items as calculated under regulatory accounting practices. The Bank's
capital amounts and classification are also subject to qualitative judgments
by the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 capital (as defined) to
average assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC dated
February 28, 1996 categorized the Bank as well as capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier 1
risk-based and Tier 1 leverage ratios as set forth in the table. There are
no conditions or events since that notification that management believes have
changed the institution's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital (to risk weighted assets)
Enterbank Holdings, Inc. $28,538,743 12.28% $18,591,401 8.00% $23,239,251 10.00%
Enterprise Bank 25,915,000 11.19 18,525,813 8.00 23,157,266 10.00
Tier 1 Capital (to risk weighted assets)
Enterbank Holdings, Inc. $26,028,743 11.20% $ 9,295,700 4.00% $13,943,551 6.00%
Enterprise Bank 23,405,000 10.11 9,262,906 4.00 13,894,359 6.00
Tier 1 Capital (to average assets)
Enterbank Holdings, Inc. $26,028,743 11.42% $ 9,116,560 4.00% $11,395,700 5.00%
Enterprise Bank 23,405,000 10.30 9,085,351 4.00 11,356,689 5.00
As of December 31, 1996:
Total Capital (to risk weighted assets)
Enterbank Holdings, Inc. $16,461,861 11.53% $11,424,028 8.00% $14,280,035 10.00%
Enterprise Bank 15,979,917 11.28 11,334,400 8.00 14,168,000 10.00
Tier 1 Capital (to risk weighted assets)
Enterbank Holdings, Inc. $14,696,861 10.29% $ 5,712,014 4.00% $ 8,568,021 6.00%
Enterprise Bank 14,214,917 10.03 5,667,200 4.00 8,500,800 6.00
Tier 1 Capital (to average assets)
Enterbank Holdings, Inc. $14,696,861 9.62% $ 6,108,240 4.00% $ 7,635,300 5.00%
Enterprise Bank 14,214,917 9.35 6,085,960 4.00 7,607,450 5.00
</TABLE>
(Continued)
48
<PAGE> 51
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 14--SHAREHOLDERS' EQUITY
On August 15, 1996, warrants to purchase 9,948 shares of Enterprise Bank
common stock were exercised for $1,094,280. 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.
On February 14, 1997, the Company completed a stock offering of 451,612
shares of common stock registered under the Securities Act of 1933 on Form
S-1. These shares were offered to the public at $15.50 per share. The
offering allowed for the sale of a minimum of 193,548 shares or $3,000,000,
and a maximum of 451,612 shares or $7,000,000 in common stock. The maximum
number of shares were sold at $15.50 per share.
As part of the organization of Financial Advisors, the Company entered into
solicitation and referral agreements with Moneta Group, Inc. (Moneta). These
agreements call for Moneta to provide planning services for Financial
Advisors' customers. Moneta will refer customers, when appropriate, to the
Bank and receive a share of the revenue generated in the form of options in
the Company's common stock. The agreements with Moneta also allow Financial
Advisors to immediately begin offering a full range of products and services
with the depth and expertise of a large planning firm. Financial Advisors
will continue to expand products and services available to customers as the
division develops.
On October 31, 1997, the Company completed a private placement of its common
stock of 130,940 shares of common stock exempt from registration under the
Securities Act of 1933 pursuant to Regulation D thereunder. These shares
were offered at $16.75 per share. These shares were offered in a private
sale to Moneta principals related to the previously mentioned agreements with
Moneta. The offering allowed for the sale of a minimum of 59,701 shares, or
$1,000,000, and a maximum of 131,343 shares, or $2,200,000, in common stock.
The Company sold 130,940 shares at $16.75 per share.
NOTE 15--COMPENSATION PLANS
STOCK OPTION PLANS
In 1988 and 1992, the Bank established two incentive stock options 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 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 88,500 shares of Common Stock at a price of $5.00 to $7.00 per
share are outstanding, all of which are currently exercisable (1988 Options).
In addition, options to purchase 74,600 shares of Common Stock are currently
outstanding, representing those originally issued under the 1992 stock option
plan (1992 Options). Of the 1992 Options, options to purchase 69,000 shares
carry a purchase price of $7.00 per share, of which 69,000 were exercisable
as of December 31, 1997, options to purchase 2,000 shares carry a purchase
price of $9.25 per share, of which 1,200 were exercisable as of December 31,
1997, and options to purchase 3,600 shares carry a purchase price of $16.00
per share, of which -0- were exercisable as of December 31, 1997. All of the
1988 Options will expire between May 9, 1998 and December 1, 2002, if not
exercised. The expiration dates for the 1992 Options are December 1, 2002
for
(Continued)
49
<PAGE> 52
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
those with a purchase price of $7.00 per share, June 15, 2004 for those with
a purchase price of $9.25 per share, and April 1, 2007 for those with a
purchase price of $16.00 per share.
In 1996, 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 options which
may be granted to any individual and additional restrictions for options
which may be granted to any individual who is also a 10% shareholder. The
Company believes strongly in motivating its key employees by encouraging
ownership in the organization. The purchase price for any options granted
under ISO Plan III will be determined based upon the market value of the
Common Stock at the time such options are granted. At December 31, 1997,
options to purchase 187,900 shares of Common Stock at a price of $16.00 per
share were outstanding, none of which were currently exercisable. In
addition, options to purchase 2,000 shares of Common Stock at a price of
$16.75 per share were outstanding, none of which were exercisable.
At December 31, 1997, 8,500 shares forfeited by participants were available
for future issuance under the plans. A total of 10,100 shares were available
for future issuance under the plans at December 31, 1997.
Following is a summary of the various plan transactions:
<TABLE>
<CAPTION>
Number Price
of shares per share Total
---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
December 31, 1994 213,000 $ 5.00 - 7.00 $1,251,500
Granted -- -- --
Exercised -- -- --
Forfeited -- -- --
------- -------------- ----------
December 31, 1995 213,000 $ 5.00 - 9.25 $1,251,500
Granted -- -- --
Exercised -- -- --
Forfeited -- -- --
------- -------------- ----------
December 31, 1996 213,000 $ 5.00 - 9.25 $1,251,500
Granted 202,000 16.00 - 16.75 3,233,500
Exercised 53,500 5.00 267,500
Forfeited 8,500 16.00 136,000
------- -------------- ----------
December 31, 1997 353,000 $ 5.00 - 16.75 $4,081,500
======= ============== ==========
</TABLE>
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
(Continued)
50
<PAGE> 53
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
value at the grant dates for awards under those plans consistent with the
method contained in SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Net income
As reported $2,222 $1,702 $1,304
Pro forma 2,025 1,702 1,304
Earnings per share:
Basic:
As reported $ 1.06 $ 1.11 $ 0.89
Pro forma 0.97 1.11 0.89
Diluted:
As reported $ 1.00 $ 0.97 $ 0.77
Pro forma 0.91 0.97 0.77
</TABLE>
There were no options granted in 1995 or 1996. The fair value of each option
granted in 1997 was estimated on the date of grant using the Black-Scholes
option-pricing model with the following assumptions: a risk-free interest
rate of 6.90%, 6.40% and 6.10% for April, July and September, respectively; a
dividend yield of 0.25%; vesting period of 5 years; expected lives of 10
years; and volatility of 25%. the weighted average fair value of the options
granted in 1997 were $8.45.
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 $78,948 for 1997,
$66,000 for 1996 and $30,000 for 1995.
NOTE 16--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 17--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.
(Continued)
51
<PAGE> 54
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The contractual amount of off-balance-sheet financial instruments as of
December 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1997 1996
------------ ----------
<S> <C> <C>
Commitments to extend credit $124,493,916 71,106,687
Standby letters 6,237,738 3,656,598
============ ==========
</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, 1997, approximately $16,839,747 represents fixed rate
loan commitments. Since certain of the commitments may expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary
by the Bank upon extension of credit, is based on management's credit
evaluation of the borrower. Collateral held varies, but may include accounts
receivable, inventory, premises and equipment, and real estate.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. These standby
letters of credit are primarily issued to support contractual obligations of
Bank customers. The credit risk involved in issuing letters of credit is
essentially the same as the risk involved in extending loans to customers.
SFAS 107, Disclosures about Fair Value of Financial Instruments, extends
existing fair value disclosure for some financial instruments by requiring
disclosure of the fair value of such financial instruments, both assets and
liabilities recognized and not recognized in the consolidated balance sheets.
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, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------------------------------- -----------------------------
Carrying Estimated Carrying Estimated
Amount fair value Amount fair value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due from banks $ 13,897,054 $ 13,897,054 $ 9,261,035 $ 9,261,035
Federal funds sold 32,825,000 32,825,000 23,250,000 23,250,000
Interest-bearing deposits 148,349 148,349 -- --
Investments in debt and equity
securities 13,433,884 13,434,875 15,245,980 15,245,295
Loans held for sale 1,324,244 1,334,466 -- --
Loans, net 223,050,208 222,777,300 132,368,092 132,955,773
Accrued interest receivable 1,448,343 1,448,343 935,864 935,864
============ ============ ============ ============
Balance sheet liabilities:
Deposits $264,300,634 $264,539,273 $168,961,089 $169,156,884
Notes payable -- -- 300,000 300,000
Accrued interest payable 549,059 549,059 309,510 309,510
============ ============ ============ ============
</TABLE>
(Continued)
52
<PAGE> 55
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate
such value:
CASH AND OTHER SHORT-TERM INSTRUMENTS
For cash and due from banks, federal funds sold, and accrued interest
receivable (payable), the carrying amount is a reasonable estimate of fair
value, as such instruments reprice in a short time period.
INVESTMENTS IN DEBT AND EQUITY SECURITIES
Fair values are based on quoted market prices or dealer quotes.
LOANS HELD FOR SALE
Loans held for sale are recorded at the lower of cost or fair value, using
the specific identification method.
LOANS
The fair value of adjustable-rate loans approximates cost. The fair value of
fixed-rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities.
DEPOSITS
The fair value of demand deposits, interest-bearing transaction accounts,
money market accounts and savings deposits is the amount payable on demand at
the reporting date. The fair value of fixed-maturity certificates of deposit
is estimated using the rates currently offered for deposits of similar
remaining maturities.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of commitments to extend credit and standby letters of credit
are estimated using the fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements, the
likelihood of the counterparties drawing on such financial instruments, and
the present creditworthiness of such counterparties. The Company believes
such commitments have been made on terms which are competitive in the markets
in which it operates; however, no premium or discount is offered thereon and
accordingly, the Company has not assigned a value to such instruments for
purposes of this disclosure.
LIMITATIONS
Fair value estimates are made at a specific point in time, based on relevant
market information and information about the financial instrument. These
estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment, and therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
(Continued)
53
<PAGE> 56
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in many of the
estimates.
NOTE 18--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
<TABLE>
Condensed Balance Sheets
<CAPTION>
December 31,
------------------------------
Assets 1997 1996
------ ----------- -----------
<S> <C> <C>
Cash $ 1,831,497 $ 87,946
Investment in Enterprise Bank 23,404,214 14,221,619
Investment in Enterprise Merchant Banc 108,297 477,398
Investment in Enterprise Fund, L.P. 202,098 116,489
Other assets 571,460 148,440
----------- -----------
Total assets $26,117,566 $15,051,892
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Accounts payable and other liabilities $ 50,774 $ (6,001)
Notes payable -- 300,000
Shareholders' equity 26,066,792 14,757,893
----------- -----------
Total liabilities and shareholders' equity $26,117,566 $15,051,892
=========== ===========
</TABLE>
<TABLE>
Condensed Statements of Income
<CAPTION>
December 31,
---------------------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ 13,441 $ 600,000 $ 300,000
---------- ---------- ----------
Total income 13,441 600,000 300,000
---------- ---------- ----------
Expenses:
Loss on investment in Enterprise Fund, L.P. 4,391 56,123 7,388
Other expenses 741,068 202,849 27,460
---------- ---------- ----------
Total expenses 745,459 258,972 34,848
---------- ---------- ----------
(Loss) income before tax benefit and equity
in undistributed earnings of subsidiaries (732,018) 341,028 265,152
Income tax benefit 282,894 97,484 13,590
---------- ---------- ----------
(Loss) income before equity in undistributed
earnings of subsidiaries (449,124) 438,512 278,742
Equity in undistributed earnings of subsidiaries 2,671,668 1,263,440 1,025,525
---------- ---------- ----------
Net income $2,222,544 $1,701,952 $1,304,267
========== ========== ==========
</TABLE>
(Continued)
54
<PAGE> 57
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
Condensed Statements of Cash Flow
<CAPTION>
December 31,
--------------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 2,222,544 $ 1,701,952 $ 1,304,267
Adjustments to reconcile net income to
net cash provided by operating activities:
Net income of subsidiaries (2,761,668) (1,863,440) (1,325,525)
Dividends from subsidiaries -- 600,000 300,000
Other, net (271,854) (105,484) 14,553
----------- ----------- -----------
Net cash provided by operating
activities (810,978) 333,028 293,295
Cash flows from investing activities:
Capital contributions to subsidiaries (6,150,000) (360,000) (100,000)
Investment in Enterprise Fund L.P. (90,000) (90,000) (90,000)
----------- ----------- -----------
Net cash used in investing activities (6,240,000) (450,000) (190,000)
Cash flows from financing activities:
Payment of stock dividends (195,085) (121,548) (76,829)
Proceeds from issuance of common stock 9,289,614 -- --
(Decrease) increase in notes payable (300,000) 300,000 --
----------- ----------- -----------
Net cash provided by
financing activities 8,794,529 178,452 (76,829)
Net increase in cash and cash
equivalents 1,743,551 61,480 --
Cash and cash equivalents, beginning of year 87,946 26,466 26,466
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,831,497 $ 87,946 $ 26,466
=========== =========== ===========
</TABLE>
NOTE 19--SUBSEQUENT EVENTS
On February 17, 1998, the Company signed a lease agreement for a building at
1277 North Warson Road in St. Louis County, Missouri. The Company plans on
using the space for the operations unit, which is currently housed at the
Clayton facility. The lease is for 11,458 square feet of a 31,100 square
foot building. The Company entered a five-year lease with options to renew
for three additional five-year periods. The annual rent expense for the
first five years of the lease is $72,185 per year, paid monthly.
(Continued)
55
<PAGE> 58
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15d of the Securities Act of
1934, the undersigned Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Clayton, State of Missouri, on the 24th of March 1998.
ENTERBANK HOLDINGS, INC.
By: /s/ Fred H. Eller
-------------------
Fred H. Eller
Chief Executive Office
Pursuant to the requirements of the Securities Act of 1934, this 10-K Report
has been signed by the following persons in the capacities and on the dates
indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
---------- ----- ----
<S> <C> <C>
/s/ Fred H. Eller
- ---------------------------------
Fred H. Eller Chief Executive Officer and
and Director March 24, 1998
<F*>
- ---------------------------------
Ronald E. Henges Chairman of the Board
of Directors March 24, 1998
<F*>
- ---------------------------------
Kevin C. Eichner Vice Chairman of the
Board of Directors March 24, 1998
<F*>
- ---------------------------------
Paul R. Cahn Director March 24, 1998
<F*>
- ---------------------------------
Birch M. Mullins Director March 24, 1998
<F*>
- ---------------------------------
Robert E. Saur Director March 24, 1998
<F*>
- ---------------------------------
James A. Williams Director March 24, 1998
<F*>
- ---------------------------------
Henry D. Warshaw Director March 24, 1998
<F*>
- ---------------------------------
James L. Wilhite Director March 24, 1998
<F*>
- ---------------------------------
Ted C. Wetterau Director March 24, 1998
<F*>
- ---------------------------------
Randall D. Humphreys Director March 24, 1998
/s/ James C. Wagner
- ---------------------------------
James C. Wagner Chief Executive Officer, Treasurer
and Vice President March 24, 1998
<FN>
<F*> By Fred H. Eller, James C. Wagner and Stacey Tate, as Attorney-in-Part
pursuant to Powers of Attorney executed by the persons listed above, which
Powers of Attorney have been filed with the Securities and Exchange
Commission.
/s/ Fred H. Eller /s/ James C. Wagner /s/ Stacey Tate
- --------------------------------- --------------------------------- -------------------------------
Fred H. Eller James C. Wagner Stacey Tate
Attorney-in-Part Attorney-in-Part Attorney-in-Part
</TABLE>
56
<PAGE> 59
<TABLE>
EXHIBIT INDEX
-------------
<CAPTION>
Exhibit
No. Exhibit
--- -------
<C> <S>
3.1 Certificate of Incorporation of the Registrant, as amended (incorporated herein
by reference from Exhibit 3.1 to the Registrant's Registration Statement on Form
S-1 dated December 19, 1996 (File No. 333-14737)).
3.2 Bylaws of the Registrant, as amended, (incorporated herein by reference from
Exhibit 3.2 to the Registrant's Registration Statement on Form S-1 dated December
19, 1996 (File No. 333-14737)).
4.1 Enterprise Bank Incentive Stock Option Plan (incorporated herein by reference
from Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 dated
December 29, 1997 (File No. 333-43365)).
4.2 Enterprise Bank Second Incentive Stock Option Plan (incorporated herein by
reference from Exhibit 44.4 to the Registrant's Registration Statement on Form
S-8 dated December 29, 1997 (File No. 333-43365)).
4.3 Enterbank Holdings, Inc. Third Incentive Stock Option Plan (incorporated herein
by reference from Exhibit 4.5 to the Registrant's Registration Statement on Form
S-8 dated December 29, 1997 (File No. 333-43365)).
10.1 Lease with respect to the Registrant's Clayton banking facility (Incorporated
herein by reference from Exhibit 10.1 to the Registrant's Registration Statement
on Form S-1 dated December 19, 1996 (File No. 333-14737)).
10.2 Customer Referral Agreement by and among Enterbank Holdings, Inc., Enterprise
Bank and Moneta Group Investment Advisors, Inc. (Incorporated herein by reference
from Exhibit 10 to the Registrant's Quarterly Report on Form 10-Q for the period
ended September 30, 1997).
11.1 Statement regarding computation of per share earnings.
13.1 1997 Annual Report.
21.1 Subsidiaries of the Registrant.
23.1 Consent of KPMG Peat Marwick LLP.
24.1 Power of Attorney.
27.1 Financial Data Schedule.
99.1 Proxy Materials for 1998 Annual Meeting of Shareholders.
</TABLE>
57
<PAGE> 1
EXHIBIT 11.1
<TABLE>
<CAPTION>
Basic Diluted
Number of Number of Net Basic Diluted
Shares Shares Income EPS EPS
--------- --------- --------- ----- -------
<S> <C> <C> <C> <C> <C>
Year ended 1993 1,460,000 1,560,557 $ 751,823 $0.51 $0.48
Year ended 1994 1,462,400 1,614,176 1,001,181 0.68 0.62
Year ended 1995 1,463,400 1,685,479 1,304,267 0.89 0.77
Year ended 1996 1,538,418 1,750,686 1,701,951 1.11 0.97
Year ended 1997 2,095,359 2,224,967 2,222,544 1.06 1.00
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
YEAR ENDED 1993
Basic Dilution Fully Diluted
--------- --------- -------------
<S> <C> <C> <C>
Average Shares Outstanding 1,460,000 1,460,000
Warrants 200,000
Average Warrant Price 5.50
Total Exercise Cost 1,100,000
Shares Repurchased 146,667
Net Shares from Warrants 53,333
Options - 1 144,000
Average Option Price 5.28
Total Exercise Cost 760,320
Shares Repurchased 101,376
Net Shares from Option - 1 42,624
Options - 2 69,000
Average Option Price 7.00
Total Exercise Cost 483,000
Shares Repurchased 64,400
Net Shares from Option - 2 4,600
--------- ---------
Gross Shares 1,460,000 1,560,557
Average Price 7.50
<CAPTION>
YEAR ENDED 1994
Basic Dilution Fully Diluted
--------- --------- -------------
<S> <C> <C> <C>
Shares Outstanding 1,462,400 1,462,400
Warrants 200,000
Average Warrant Price 5.50
Total Exercise Cost 1,100,000
Shares Repurchased 122,222
Net Shares from Warrants 77,778
Options - 1 142,000
Average Option Price 5.28
Total Exercise Cost 749,760
Shares Repurchased 83,307
Net Shares from Option - 1 58,693
Options - 2 71,000
Average Option Price 7.06
Total Exercise Cost 501,260
Shares Repurchased 55,696
Net Shares from Option - 2 15,304
--------- ---------
Gross Shares 1,462,400 1,614,176
Average Price 9.00
<PAGE> 2
<CAPTION>
YEAR ENDED 1995
Basic Dilution Fully Diluted
--------- --------- -------------
<S> <C> <C> <C>
Shares Outstanding 1,463,400 1,463,400
Warrants 199,000
Average Warrant Price 5.50
Total Exercise Cost 1,094,500
Shares Repurchased 88,623
Net Shares from Warrants 110,377
Options - 1 142,000
Average Option Price 5.28
Total Exercise Cost 749,760
Shares Repurchased 60,709
Net Shares from Option - 1 81,291
Options - 2 71,000
Average Option Price 7.06
Total Exercise Cost 501,260
Shares Repurchased 40,588
Net Shares from Option - 2 30,412
--------- ---------
Gross Shares 1,463,400 1,685,479
Price 12.35
<CAPTION>
YEAR ENDED 1996
Basic Dilution Fully Diluted
--------- --------- -------------
<S> <C> <C> <C>
Average Shares Outstanding 1,538,418 1,538,418
Warrants 123,967
Average Warrant Price 5.50
Total Exercise Cost 681,819
Shares Repurchased 43,988
Net Shares from Warrants 79,979
Options - 1 142,000
Average Option Price 5.28
Total Exercise Cost 749,760
Shares Repurchased 48,372
Net Shares from Option - 1 93,628
Options - 2 71,000
Average Option Price 7.06
Total Exercise Cost 501,260
Shares Repurchased 32,339
Net Shares from Option - 2 38,661
--------- ---------
Gross Shares 1,538,418 1,750,686
Price 15.50
<CAPTION>
YEAR ENDED 1997
Basic Dilution Fully Diluted
--------- --------- -------------
<S> <C> <C> <C>
Average Shares Outstanding 2,095,359 2,095,359
Options - 1 126,212
Average Option Price 5.32
Total Exercise Cost 671,084
Shares Repurchased 40,860
Net Shares from Option - 1 85,352
Options - 2 73,702
Average Option Price 7.39
Total Exercise Cost 544,661
Shares Repurchased 33,163
Net Shares from Option - 2 40,540
Options - 3 146,372
Average Option Price 16.01
Total Exercise Cost 2,342,986
Shares Repurchased 142,657
Net Shares from Option - 3 3,715
--------- ---------
Gross Shares 2,095,359 2,224,967
Price 16.42
</TABLE>
<PAGE> 1
THE
ENTERPRISE
PHILOSOPHY
Enterprise Banking was founded in 1988 on three very powerful principles
which have served our customers and shareholders extremely well. These
principles continue to drive Enterprise everyday.
First, we concentrate on one primary market, closely-held businesses. No
business can "be all things to all people," and this is especially true for
banks. This focus gives us the ability to stand apart from our competition on
the one thing that really separates Enterprise from anyone else-our total
service commitment!
Second, business banking requires highly talented people in lending, customer
service, operations-everywhere the Bank touches the customer. We hire the
best and expect exceptional performance. They make the real difference for
our customers.
Third, a bank in today's turbulent markets must be well capitalized and
capable of responding quickly to changing market conditions. Enterprise
maintains a capital-to-asset ratio in excess of average banks.
Using this philosophy, Enterprise has achieved a record of outstanding growth
in assets and earnings. We expect to continue this philosophy and performance
in the future.
YEAR END ASSETS
[GRAPH]
NET INCOME
[GRAPH]
DILUTED
EARNINGS PER SHARE
[GRAPH]
<PAGE> 2
<TABLE>
SUMMARY OF SELECTED
FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- -------
(DOLLARS AND NUMBER OF SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 18,759 $ 12,554 $ 10,914 $ 7,374 $ 5,770
Interest expense 8,582 5,569 4,887 2,570 2,083
Net interest income 10,177 6,985 6,027 4,804 3,687
Provision for possible loan losses 775 345 631 450 162
Noninterest income 476 1,239 836 805 744
Noninterest expense 6,339 5,146 4,187 3,551 3,106
Net income 2,222 1,702 1,304 1,001 752
Diluted earnings per share 1.00 0.97 0.77 0.62 0.48
Basic earnings per share 1.06 1.11 0.89 0.68 0.51
Cash dividends per common share 0.09 0.08 0.07 0.06 0.05
Diluted weighted average common
shares and common stock
equivalents outstanding 2,225 1,751 1,685 1,614 1,561
Basic weighted average common
shares and common stock
equivalents outstanding 2,095 1,538 1,463 1,462 1,460
BALANCE SHEET DATA
Cash and due from banks $ 13,897 $ 9,261 $ 8,110 $ 5,930 $ 4,872
Federal funds sold 32,825 23,250 16,230 11,300 10,125
Total investments 13,434 15,246 16,907 16,542 9,679
Loans, less unearned loan fees 225,560 134,133 110,464 85,687 72,215
Allowance for loan losses 2,510 1,765 1,400 1,000 722
Total assets 291,365 184,584 153,706 122,212 99,266
Total deposits 264,301 168,961 141,140 104,799 89,113
Notes payable -- 300 -- -- ---
Shareholders' equity 26,067 14,758 12,052 10,781 9,943
Tangible book value per
common share 11.32 8.84 8.19 7.38 6.81
SELECTED RATIOS
Return on average assets 0.97% 1.12% 0.99% 0.96% 0.84%
Return on average equity 9.78 12.73 11.13 9.71 7.83
Total capital to risk-adjusted assets 12.28 11.53 11.40 11.75 14.12
Net yield on average earning assets 8.84 8.90 9.00 7.78 7.14
Cost of interest-bearing liabilities 5.03 4.89 4.94 3.36 3.11
Net interest margin 4.79 4.96 4.98 5.07 4.57
Nonperforming assets as a percent
of assets 0.29 0.56 0.64 1.45 2.08
Net loan charge offs (recoveries)
as a percent of average loans 0.02 (0.02) 0.24 0.23 0.07
Allowance for possible loan losses as
a percent of net loans 1.11 1.32 1.27 1.17 1.00
</TABLE>
page one
<PAGE> 3
TO OUR SHAREHOLDERS
March 23, 1998
Dear Valued Shareholder:
In last year's shareholder letter we discussed the upheavals in the St. Louis
banking market due to bank consolidations. As this trend continued in 1997,
many customers felt their banks had further lost focus of what was really
important, taking care of the customer! Those banks making local, customer
oriented decisions enjoyed an elevated level of success compared with the
bureaucracies of the larger or out of town providers in the market. The
Enterprise business model of operating dedicated, standalone business units
directed by partner-managers allows us to deliver this increasingly scarce
attention to service customers desire. We believe our financial results in
1997 confirm this strategy.
We achieved record asset and loan growth in 1997. Total assets at December
31, 1997 were $291 million, an increase of 58% over total assets at year end
1996. Outstanding loans at December 31, 1997 were $227 million, an increase
of 69% over total loans at year end 1996. Loan growth was due to the
continued calling efforts of our bank officers and the opening of two new
banks in St. Peters and Sunset Hills. Combined, these two new units
contributed $37 million of the loan growth in 1997.
Operating results for 1997 produced net income of $2.2 million, an increase
of 31% over net income in 1996. This was particularly gratifying considering
the increased costs associated with this level of growth. Also contributing
to net income was our excellent asset quality and the resulting low loan
losses. Despite raising $9.0 million in capital with the issuance of 582,552
new shares, diluted earnings per share increased to $1.00 for 1997, a $0.03
increase over 1996.
Enterprise grew in ways not yet reflected in our financial performance. In
1997 we completed several major initiatives designed to further enhance
shareholder value. These initiatives included additional asset quality
programs, technological enhancements, facilitated trades of our stock, and
the addition of a new business.
With the economy in its seventh year of expansion, and competition for
earning assets at extremes, banks are beginning to take on additional risk to
maintain margins. At Enterprise, we continued to focus on asset quality in
1997, improving for the sixth consecutive year. The ratio of non-performing
assets to total assets at December 31, 1997 was 0.29%. While we must credit a
strong economy, our
page two
<PAGE> 4
performance here is also due to the talented staff of relationship officers who,
through an organized effort to maintain asset quality, are spending more time
with our customers addressing any potential problems or needs before the
customer experiences operating problems. We feel playing an active role in the
financial well being of our customers is important. In addition, we developed a
uniform loan grading system in 1997 to assess the risks of each loan and any
changes in the portfolio.
During 1997 we completed a conversion of our data processing systems. When we
opened the Bank nearly ten years ago, we chose in-house processing versus
out-sourcing, the more common choice for new banks. Our decision enabled us
to customize our products and services with very little effort, setting us
apart from our competition. To keep our technological edge, we completely
replaced the Bank's hardware and software in April of 1997. We are proud to
say that very few of our customers even noticed our upgrade - a sign of a
smooth conversion. This was a critical step toward "YEAR 2000" compliance.
Upon the completion of our stock offering in February of 1997, we became a
publicly held company. In 1997 we introduced a broker-dealer to help
interested buyers and sellers transact in our common stock. Since J.A. Glynn
& Co. began providing this service, the volume of transactions in our stock
has increased as well as the price per share. As of March 15, 1998, the last
trade was at $25.75 per share, up from $15.50 per share a year ago.
In 1997 we expanded our efforts to provide financial products and services to
help our customers build wealth. With the formation of Enterprise Financial
Advisors, we began providing personal financial planning, estate planning and
corporate planning services to our target market of professionals, privately
held businesses and their owners. As part of this effort, we chose to
affiliate with Moneta Group Inc., one of the premier firms in the financial
planning industry. With this affiliation, we immediately began offering a
full range of products and services with the expertise of a large planning
firm and the personalized attention expected by our customers.
The financial services industry will continue developing in an environment of
extraordinary change. As the lines between the typical providers such as
brokerage houses, banks, and insurance companies continue to blur, we will be
challenged. We will also see unprecedented opportunities. To capitalize on
these opportunities we continually plan for the future. As part of that
planning process, a group of 20
page three
<PAGE> 5
board members and employees met for a strategic planning session in January
1998. This process further defined our vision and objectives for the next three
years focusing on growth, new business additions, and technological
improvements. We are proud of our accomplishments but also realize we must
continually improve to stay ahead of the competition.
Growth always comes at a cost. One of our challenges will be to continue our
strong growth trend while diverting some of our human resource capital toward
existing relationships. There is a twofold purpose to such an exercise.
First, as mentioned initially, many banks are losing touch with their
customers. We do not want to be part of that trend. We want to make sure we
are growing with all of our valuable customers as we gain new ones. Second,
to continue providing service which will differentiate us from other
providers, we need to concentrate on our target markets - professionals,
privately held businesses and their owners. We will continue reevaluating our
customer base to confirm we have the right customers in place now and in the
future.
With the advent of Enterprise Financial Advisors in 1997, we are now
operating in three distinct businesses: commercial banking, merchant banking,
and financial planning. We believe that this positions us to participate in
the financial service industry of the future. To prepare for this challenge,
we continue to develop a management team to run each of our businesses. In
addition to our banking business, we will concentrate resources on developing
the non-banking parts of our business into entities which will add material
value to the Company as a whole.
Technology has reshaped the delivery mechanisms in the financial services
industry in ways unimaginable just a few years ago. There is no doubt that
this trend will continue. We have the technology in place to offer
state-of-the-art services to our target markets. However, this does not mean
we will replace service with computers. We plan to use technology to deepen
customer relationships and broaden our product line, thus saving time and money
for our clients and Enterprise.
We appreciate the contributions from our shareholders, customers, and
employees who helped us achieve our results in 1997. We are optimistic about
our future together and equally embrace its challenges and opportunities.
/s/ Ronald E. Henges /s/ Kevin C. Eichner /s/ Fred H. Eller
- --------------------- -------------------------- -------------------
Ronald E. Henges Kevin C. Eichner Fred H. Eller
Chairman of the Board Vice-chairman of the Board President and Chief
Executive Officer
page four
<PAGE> 6
<TABLE>
ENTERBANK HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<CAPTION>
ASSETS 1997 1996
------------ ------------
<S> <C> <C>
Cash and due from banks $ 13,897,054 $ 9,261,035
Federal funds sold 32,825,000 23,250,000
Interest-bearing deposits 148,349 --
Investments in debt and equity securities:
Available for sale, at estimated fair value 12,514,721 14,005,797
Held to maturity, at amortized cost
(estimated fair value of $920,154 in 1997 and
$1,239,498 in 1996) 919,163 1,240,183
------------ ------------
Total investments in debt and equity securities 13,433,884 15,245,980
------------ ------------
Loans held for sale 1,324,244 --
Loans, net of unearned loan fees 225,560,208 134,133,092
Less allowance for loan losses 2,510,000 1,765,000
------------ ------------
Loans, net 223,050,208 132,368,092
------------ ------------
Other real estate owned 806,072 874,426
Office equipment and leasehold improvements 2,328,699 1,119,268
Accrued interest receivable 1,448,343 935,864
Investment in Enterprise Fund, L.P. 225,683 550,087
Prepaid expenses and other assets 1,877,320 979,361
------------ ------------
Total assets $291,364,856 $184,584,113
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 46,052,686 $ 31,137,649
Interest-bearing transaction accounts 22,519,772 16,648,185
Money market accounts 98,639,345 54,637,747
Savings 1,429,316 1,030,346
Certificates of deposit:
$100,000 and over 32,824,697 24,067,363
Other 62,834,818 41,439,799
------------ ------------
Total deposits 264,300,634 168,961,089
Notes payable -- 300,000
Accounts payable and accrued expenses 997,430 565,131
------------ ------------
Total liabilities 265,298,064 169,826,220
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000
shares; issued and outstanding 2,298,412 shares in
1997 and 1,662,360 shares in 1996 22,984 16,624
Surplus 18,879,210 9,595,956
Retained earnings 7,166,071 5,138,612
Net unrealized holding gains (losses) on
available-for-sale securities (1,473) 6,701
------------ ------------
Total shareholders' equity 26,066,792 14,757,893
------------ ------------
Total liabilities and shareholders' equity $291,364,856 $184,584,113
============ ============
</TABLE>
page five
<PAGE> 7
<TABLE>
ENTERBANK HOLDINGS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $16,795,887 $11,426,260 $ 9,393,945
Interest on debt and equity securities:
Taxable 1,017,897 692,742 744,956
Nontaxable 34,630 38,914 27,427
Interest on federal funds sold 909,326 396,244 745,044
Interest on interest-bearing deposits 1,289 -- 2,464
----------- ----------- -----------
Total interest income 18,759,029 12,554,160 10,913,836
----------- ----------- -----------
Interest expense:
Interest-bearing transaction accounts 410,915 331,943 351,998
Money market accounts 3,604,225 2,006,578 1,740,701
Savings 32,357 33,122 31,958
Certificates of deposit:
$100,000 and over 1,658,554 1,346,428 1,246,703
Other 2,862,256 1,834,540 1,513,251
Federal funds purchased 11,035 1,027 2,681
Notes payable 2,888 15,274 --
----------- ----------- -----------
Total interest expense 8,582,230 5,568,912 4,887,292
----------- ----------- -----------
Net interest income 10,176,799 6,985,248 6,026,544
Provision for loan losses 775,064 345,410 630,734
----------- ----------- -----------
Net interest income after
provision for loan losses 9,401,735 6,639,838 5,395,810
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts 173,452 129,414 131,640
Other service charges and fee income 307,427 252,087 150,404
Merchant credit card income -- 600,981 562,449
Gain on sale of credit card operation -- 320,000 --
Loss on investment in Enterprise Fund, L.P. (4,904) (62,690) (8,222)
----------- ----------- -----------
Total noninterest income 475,975 1,239,792 836,271
----------- ----------- -----------
Noninterest expense:
Salaries 3,221,147 2,400,165 1,710,740
Payroll taxes and employee benefits 620,438 465,475 332,220
Occupancy 552,063 333,795 275,179
Equipment 227,061 145,501 120,594
FDIC insurance 21,846 2,000 114,944
Data processing 237,248 247,696 209,267
Merchant credit card expense -- 441,991 455,718
Other 1,458,773 1,109,711 968,061
----------- ----------- -----------
Total noninterest expense 6,338,576 5,146,334 4,186,723
----------- ----------- -----------
Income before income tax expense 3,539,134 2,733,296 2,045,358
Income tax expense 1,316,590 1,031,344 741,091
----------- ----------- -----------
Net income $ 2,222,544 $ 1,701,952 $ 1,304,267
=========== =========== ===========
Basic earnings per share $ 1.06 $ 1.11 $ .89
Diluted earnings per share $ 1.00 $ .97 $ .77
Basic weighted average common shares and
common stock equivalents outstanding 2,095,359 1,538,418 1,463,400
Diluted weighted average common shares and
common stock equivalents outstanding 2,224,967 1,750,686 1,685,479
</TABLE>
page six
<PAGE> 8
<TABLE>
<CAPTION>
ENTERBANK HOLDINGS, INC.
BOARD OF DIRECTORS
<S> <C> <C> <C>
PAUL R. CAHN KEVIN C. EICHNER FRED H. ELLER RONALD E. HENGES
Elan Polo International The Financial Enterbank Holdings, Inc. Enterbank Holdings, Inc.
Imports, Inc. Collaborative, Inc.
RANDALL D. HUMPHREYS BIRCH M. MULLINS ROBERT E. SAUR PETER B. SCHICK<F*>
Enterprise Capital Baur Properties Conrad Properties Corp. Moneta Group, Inc.
Management, Inc.
HENRY D. WARSHAW TED C. WETTERAU JAMES L. WILHITE JAMES A. WILLIAMS
Moneta Group, Inc. Wetterau and Associates Stange Company Sunset Transportation, Inc.
<CAPTION>
ENTERPRISE BANK - CLAYTON
BOARD OF DIRECTORS
<S> <C> <C> <C>
DAVID A. BAYER<F*> MARK S. CARLIE FRED H. ELLER ROBERT L. GARLICH<F*>
DBX Corporation Stone Carlie & Company, Enterbank Holdings, Inc. Garlich Printing Company
LLC
JEFFREY W. GLIK ROBERT F. GORMAN<F*> JEFF B. IKEN<F*> WILLIAM M.
Glik's Retired -- formerly CIS Communications McCORMICK, JR.
United Postal Savings Capital Communications
Corp.
ORVILLE J. DAVID J. MISHLER WILLIAM B. MOSKOFF DAVID L. PAYNE
MIDDENDORF Enterprise Bank Tyler Group Payne Electric, Inc.
Middendorf Meat Co.
ROBERT E. SAUR EDWARD A. SCHULTZ GLENN JOHNSON MENLO F. SMITH<F*>
Conrad Properties Corp. Code Consultants Sheffield<F*> Sunmark Capital
DMC, Inc.
JAMES L. STEWART HENRY D. WARSHAW
Stewart Properties, Inc. Moneta Group, Inc.
<CAPTION>
ENTERPRISE BANK - SUNSET HILLS
BOARD OF DIRECTORS
<S> <C> <C> <C>
RONALD G. ABELES<F*> JOSEPH E. BARRY FRED H. ELLER JAMES E. GRASER
Abeles & Hoffman, PC Barry Sales, Ltd. Enterbank Holdings, Inc. Enterprise Bank
ROBERT M. KAISER ROBERT F. ROBERT H. PECHA TODD B. SIWAK
Kaiser Electric, Inc. O'LOUGHLIN Fleming Printing Co. The Handshake Group, LLC
Lodging Hospitality
Mgmt. Co.
EARL W. SWINK<F*> JAMES A. WILLIAMS THOMAS F. VOGEL GEORGE W.
Swink, Fiehler & Co. Sunset Transportation Thomas F. Vogel VONHOFFMANN, JR.<F*>
Insurance Agency GVH, Inc.
<FN>
<F*> Advisory Directors
page seven
<PAGE> 9
<CAPTION>
ENTERPRISE BANK - ST. PETERS
BOARD OF DIRECTORS
<S> <C> <C> <C>
RUDY D. BECK<F*> CHARLES W. DALE C. BROWN<F*> TIMOTHY J. BURKEMPER<F*>
Beck, Tiemeyer & Zerr, BENNETT Botz Deal Company, PC Burkemper Construction
P.C. C. Bennett Building & Real Estate
Supply, Inc.
ERNEST W. DEMPSEY FRED H. ELLER W. DALE FINKE RICHARD L. FRANCIS<F*>
Pio's Restaurant Enterbank Holdings, Inc. ISU Corporate Bax Engineering
Insurance Management
JOHN J. GLOSS RICHARD E. HILL<F*> THOMAS M. HOWELL<F*> JOHN L. KASTNER
Barnes St. Peters Hill Partnership Howell & Sons Excavating Client Services, Inc.
Hospital Architects
RICHARD C. LEUCK JAMES L. WILHITE SHAWN T. SAALE<F*> WILLIAM C. VEHIGE
Enterprise Bank Stange Company Saale & Bailey, LC Tax & Accounting Services, Inc.
PATRICIA E.
RODEHEAVER
Retired-formerly
Custom Design Telephone
Systems, Inc.
<CAPTION>
ENTERPRISE CAPITAL MANAGEMENT, INC.
BOARD OF DIRECTORS
<S> <C> <C> <C>
PAUL R. CAHN JOHN M. RANDALL D. HUMPHREYS LEONARD M. RUBENSTEIN
Elan Polo International EGGEMEYER III Enterprise Capital General American Life
Imports, Inc. Castle Creek Capital Management, Inc. Insurance
TED WETTERAU
Wetterau and Associates
<FN>
<F*> Advisory Directors
</TABLE>
CORPORATE HEADQUARTERS
Enterbank Holdings, Inc.
P.O. Box 16020
150 North Meramec
Clayton, Missouri 63105
(314) 725-5500
ANNUAL MEETING
The annual meeting of Enterbank Holdings,
Inc. shareholders will be held at
4:00 p.m. on Tuesday, April 28, 1998,
at The University Club, 1034 South
Brentwood Blvd., St. Louis, Missouri 63117.
BROKER-DEALER
J.A. Glynn & Co.
9841 Clayton Road
St. Louis, Missouri 63124
(314) 997-1277
10-K REPORT AVAILABLE
A copy of Enterbank Holdings, Inc. 1997
Annual Report on Form 10-K to the
Securities and Exchange Commission
accompanies this Summary Annual Report. It
is also available on request to the Company.
LEGAL COUNSEL
Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square, Suite 2800
St. Louis, Missouri 63102
(314) 621-5070
INDEPENDENT AUDITORS
KPMG Peat Marwick LLP
1010 Market Street
St. Louis, Missouri 63101
(314) 444-1400
page eight
<PAGE> 1
Exhibit 21.1
Subsidiaries of the Registrant
<TABLE>
<CAPTION>
State of
Company Organization
------- ------------
<S> <C>
Enterbank Holdings, Inc. Delaware
Enterprise Bank Missouri
Charford, Inc. Missouri
Enterprise Premium Finance Corp. Missouri
Enterprise Merchant Banc, Inc. Missouri
Enterprise Capital Management, Inc. Missouri
</TABLE>
<PAGE> 1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Enterbank Holdings, Inc.:
We consent to the incorporation by reference in Enterbank Holdings, Inc.'s
(Enterbank) registration statement 333-43365 on Form S-8 of our report dated
January 23, 1998, except as to Note 19, which is as of March 13, 1998,
relating to the consolidated balance sheets of Enterbank and subsidiaries as
of December 31, 1997 and 1996, and the related consolidated statements of
income, shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1997, which report appears in the
December 31, 1997 annual report on Form 10-K of Enterbank.
/s/ KPMG Peat Marwick LLP
St. Louis, Missouri
March 24, 1998
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints James C. Wagner, Fred H. Eller, and Stacey Tate
and each of them, and substitution and resubstitution, for him and in his name,
place and stead, in any and all capacities, to sign this 10-K Report, and any
and all documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as
he might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
ENTERBANK HOLDINGS, INC.
By: By: By:
----------------------- ----------------------- -----------------
James C. Wagner Fred H. Eller Stacey Tate
Chief Financial Officer Chief Executive Officer Controller
Pursuant to the requirements of the Securities Act of 1934, this 10-K
Report has been signed by the following persons on behalf of the registrant
and in the capacities on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ---------- ----- ----
<S> <C> <C>
/s/ Fred H. Eller
- ---------------------------------- Chief Executive Officer March 18, 1998
Fred H. Eller and Director
/s/ Ronald E. Henges
- ---------------------------------- Chairman of the Board March 18, 1998
Ronald E. Henges of Directors
/s/ Kevin C. Eichner
- ---------------------------------- Vice Chairman of the March 18, 1998
Kevin C. Eichner Board of Directors
/s/ Paul R. Cahn
- ---------------------------------- Director March 18, 1998
Paul R. Cahn
/s/ Birch M. Mullins
- ---------------------------------- Director March 18, 1998
Birch M. Mullins
/s/ Robert E. Saur
- ---------------------------------- Director March 18, 1998
Robert E. Saur
/s/ James A. Williams
- ---------------------------------- Director March 18, 1998
James A. Williams
/s/ Henry D. Warshaw
- ---------------------------------- Director March 18, 1998
Henry D. Warshaw
<PAGE> 2
/s/ James L. Wilhite
- ---------------------------------- Director March 18, 1998
James L. Wilhite
/s/ Ted C. Wetterau
- ---------------------------------- Director March 18, 1998
Ted C. Wetterau
/s/ Randall D. Humphreys
- ---------------------------------- Director March 18, 1998
Randall D. Humphreys
/s/ James C. Wagner
- ---------------------------------- Chief Financial Officer, March 18, 1998
James C. Wagner Treasurer, Vice President
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<S> <C>
<CASH> 13,897,054
<INT-BEARING-DEPOSITS> 148,349
<FED-FUNDS-SOLD> 32,825,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,514,721
<INVESTMENTS-CARRYING> 13,433,884
<INVESTMENTS-MARKET> 13,432,411
<LOANS> 225,560,208
<ALLOWANCE> 2,510,000
<TOTAL-ASSETS> 291,364,856
<DEPOSITS> 264,300,634
<SHORT-TERM> 0
<LIABILITIES-OTHER> 997,430
<LONG-TERM> 0
0
0
<COMMON> 22,984
<OTHER-SE> 26,043,808
<TOTAL-LIABILITIES-AND-EQUITY> 291,364,856
<INTEREST-LOAN> 16,795,887
<INTEREST-INVEST> 1,052,257
<INTEREST-OTHER> 910,615
<INTEREST-TOTAL> 18,759,029
<INTEREST-DEPOSIT> 8,568,307
<INTEREST-EXPENSE> 13,923
<INTEREST-INCOME-NET> 10,176,799
<LOAN-LOSSES> 775,064
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 6,338,576
<INCOME-PRETAX> 3,539,134
<INCOME-PRE-EXTRAORDINARY> 3,539,134
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,222,544
<EPS-PRIMARY> 1.06
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 8.84
<LOANS-NON> 50,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 966,803
<ALLOWANCE-OPEN> 1,765,000
<CHARGE-OFFS> 161,799
<RECOVERIES> 131,735
<ALLOWANCE-CLOSE> 2,510,000
<ALLOWANCE-DOMESTIC> 2,124,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 386,000
</TABLE>
<PAGE> 1
ENTERBANK HOLDINGS, INC.
150 N. MERAMEC
CLAYTON, MISSOURI 63105
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
APRIL 28, 1998
To the Shareholders of Enterbank Holdings, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of Enterbank
Holdings, Inc. (the "Company") will be held at The University Club at 1034
South Brentwood Boulevard, St. Louis, Missouri 63117, on Tuesday, April 28,
1998, at 4:00 p.m., for the following purposes:
1. To elect eleven (11) directors to hold office until the next
Annual Meeting of Shareholders or until their successors are
elected and have qualified.
2. To ratify the selection of KPMG Peat Marwick LLP as independent
accountants for the year ending December 31, 1998.
3. To transact such other business as may properly come before the
meeting or any adjournment or postponement thereof.
The Board of Directors has fixed the close of business on March 16, 1998, as
the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
By Order of the Board of Directors
James C. Wagner, Secretary
Clayton, Missouri
March 24, 1998
TO ASSURE YOUR REPRESENTATION AT THE MEETING, PLEASE SIGN, DATE
AND RETURN YOUR PROXY IN THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU
EXPECT TO ATTEND IN PERSON. SHAREHOLDERS WHO ATTEND THE MEETING
MAY REVOKE THEIR PROXIES AND VOTE IN PERSON IF THEY DESIRE.
<PAGE> 2
ENTERBANK HOLDINGS, INC.
150 N. MERAMEC
CLAYTON, MISSOURI 63105
PROXY STATEMENT
This Proxy Statement is furnished to the shareholders of Enterbank Holdings,
Inc. (the "Company") in connection with the solicitation of proxies by the
Board of Directors of the Company to be voted at the Annual Meeting of
Shareholders to be held on April 28, 1998, at The University Club at 1034
South Brentwood Boulevard, St. Louis, Missouri 63117, or any adjournment or
postponement thereof. The cost of this solicitation will be borne by the
Company. In addition to solicitation by mail, officers, directors and
employees of the Company may solicit proxies by telephone, telegraph, or in
person. The Company may also request banks and brokers to solicit their
customers who have a beneficial interest in the Company's Common Stock
registered in the names of nominees and will reimburse such banks and brokers
for their reasonable out-of-pocket expenses.
Only holders of Common Stock of record at the close of business on March 16,
1998, are entitled to notice and to vote at the meeting. On that date the
Company had outstanding and entitled to be voted 2,305,112 shares of Common
Stock, par value $.01 share (the "Common Stock"). The presence in person or
by proxy of the holders of a majority of the shares of Common Stock entitled
to vote at the Annual Meeting of Shareholders constitutes a quorum for the
transaction of business. The shares represented by the enclosed proxy will
be voted if the proxy is properly signed and received prior to the meeting.
Each holder of Common Stock is entitled to one vote for each share of Common
Stock held with respect to each matter to be voted upon; provided, however,
that cumulative voting shall be available for the election of directors.
Under cumulative voting, each shareholder is entitled to a cast a number of
votes equal to the number of shares held by such shareholder multiplied by
the total number of directors to be elected. These votes may be divided
among all nominees equally or may be voted for one or more of the nominees,
either in equal or unequal amounts, as the shareholder may elect. A plurality
of votes cast at the Annual Meeting is required for the election of each
director. Ratification of the selection of independent accountants requires
the affirmative vote of a majority of the shares voted on the proposal.
Abstentions and broker non-votes are counted in the number of shares present
in person or represented by proxy for purposes of determining whether a
quorum is present, but not for purposes of directors or ratification of the
selection of independent accountants.
All shares of Common Stock represented at the Annual Meeting by properly
executed proxies received prior to or at the Annual Meeting not properly
revoked will be voted at the Annual Meeting in accordance with the
instructions indicated on such proxies. If no instructions are indicated,
such proxies will be voted FOR the election of the Board's director nominees
and FOR the ratification of the recommended independent accountants.
Any proxy may be revoked at any time before it is voted by written notice to
the Secretary, by receipt of a proxy properly signed and dated subsequent to
an earlier proxy, or by revocation of a written proxy by request in person at
the Annual Meeting; but if not so revoked, the share represented by such
proxy will be voted. The mailing of this proxy statement to shareholders of
the Company commenced on or about March 24, 1998. The Company's corporate
offices are located at 150 North Meramec, Clayton, Missouri 63105 and its
telephone number is (314) 725-5500.
ELECTION OF DIRECTORS
(PROPOSAL NO. 1)
The Board of Directors has nominated for election the eleven (11) persons
named below. All of the nominees are currently members of the Board of
Directors. All of the nominees were elected by the shareholders. It is
intended that proxies solicited will be voted for such nominees. The Board
of Directors believes that each nominee named below will be able to serve,
but should any nominee be unable to serve as a director, the persons named in
the proxies have advised that they will vote for the election of such
substitute nominee as the Board of Directors may propose.
The biographical information is furnished with respect to each member of the
Board of Directors of the Company, some of whom also serve as directors
and/or officers of one or more of the Company's subsidiaries Enterprise Bank
("Bank"), Enterprise Capital Management, Inc., and Enterprise Merchant Banc,
Inc. (formerly Enterprise Capital Resources, Inc.). There are no family
relationships between or among any directors or executive officers of the
Company.
<PAGE> 3
<TABLE>
<CAPTION>
PRESENT POSITION(S) PRINCIPAL OCCUPATION
NAME AND AGE WITH THE COMPANY DURING PAST 5 YEARS
- ------------ ------------------- --------------------
<S> <C> <C>
Fred H. Eller, 53 President and Chief Executive President, Chief Executive Officer and Director of the
Officer, Director 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, 65 Chairman of the Board, Chief Executive Officer, Creve Coeur Camera
Director (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, 47 Vice Chairman of the Board, Executive Vice President, General American (insurance
Director product provider); Vice Chairman of the Board of the
Company (since 1995); Vice Chairman of the Board of
the Bank (since 1991)
Randall D. Humprheys, 43 Director President of Enterprise Capital Management (since
1997), President of Enterprise Merchant Banc, Inc.,
formerly Enterprise Capital Resources (since 1997),
Director of the Company (since 1997)
Paul R. Cahn, 72 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 since 1995)
Birch M. Mullins, 54 Director President, Baur Properties (developer of commercial
real estate properties); Director of the Company
(since 1996); Director of the Bank (since 1991)
Robert E. Saur, 54 Director President, Conrad Properties (developer of commercial
and residential real estate properties); Director of
the Company (since 1995); Director of the Bank (since
1991)
Henry D. Warshaw, 44 Director Principal, Moneta Group (provides financial planning
products and services); Director of the Company (since
1996); Director of the Bank, 1991-1996; Chairman of
Clayton Banking Unit (since 1996)
James L. Wilhite, 64 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. Peters Banking Unit (since
1996)
James A. Williams, 45 Director President, Sunset Transportation (trucking brokerage
and consulting firm); Director of the Company (since
1996); Director of the Bank (since 1996); Chairman of
the Sunset Hills Banking Unit (since 1996)
Ted C. Wetterau, 70 Director Chairman, Chief Executive Officer (retired 1993)
Wetterau Incorporated (wholesale food distributor);
Director of the Company (since 1997)
</TABLE>
MEETING AND COMMITTEES OF THE BOARD
The Board met 12 times in 1997. The entire Board serves as the audit and
compensation committees of the Board.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE
INDIVIDUALS LISTED FOR ELECTION AS DIRECTORS OF THE COMPANY.
<PAGE> 4
EXECUTIVE OFFICER COMPENSATION AND OTHER MATTERS
The following tables show the compensation paid by the Company, to the
Company's Chief Executive Officer and each of the other executive officers of
the Company who earned more than $100,000.00 per year in compensation for any
of the years ended December 31, 1997, 1996 and 1995 and option grant
information for the executive officers of the Company:
<TABLE>
EXECUTIVE COMPENSATION
----------------------
<CAPTION>
Company
Fiscal Split Life Match
Name Age Title Year Salary<F1> Bonus Premium Deferrals
- ----------------- --- ---------------------- ------ ---------- ------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Eller 53 President, CEO of 1997 $175,225 $50,000 $2,586 $6,400
the Company 1996 166,197 50,000 2,484 7,600
1995 166,473 64,000 2,330 4,620
David J. Mishler 39 President, Enterprise 1997 $146,139 $45,000 $ 751 $6,400
Bank, Clayton 1996 123,648 35,000 735 6,372
1995 112,094 25,000 751 3,430
Richard C. Leuck 40 President, Enterprise 1997 $ 94,761 $30,000 $ 698 $3,172
Bank, St. Peters 1996 67,976 20,000 674 n/a
1995 n/a n/a n/a n/a
James E. Graser 38 President, Enterprise 1997 $ 84,920 $12,500 $ 732 $3,924
Bank, Sunset Hill 1996 80,641 22,000 726 4,132
1995 76,508 24,500 749 2,528
<FN>
<F1> Includes car allowance
</TABLE>
<TABLE>
OPTIONS
-------
<CAPTION>
No. of
Shares No. Un-
Options % of Acquired exercised Number Number
Granted in Total Exercise Exp. on Option Options at Exer- Unexer-
Name 1997 Granted Price Date Exercise Year End cisable cisable
- ---------------- ---------- ------- -------- -------- --------- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Fred H. Eller 15,000 7.43% $16.00 04-01-97 0 70,000 55,000 15,000
David J. Mishler 20,000 9.90 16.00 04-01-97 13,000 30,000 10,000 20,000
Richard C. Leuck 15,000 7.43 16.00 04-01-97 0 15,000 0 15,000
James E. Graser 15,000 7.43 16.00 04-01-97 0 25,000 10,000 15,000
James C. Wagner 10,000 4.95 16.00 04-01-97 8,000 16,000 6,000 10,000
</TABLE>
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS, DIRECTORS
AND MANAGEMENT
The following is a list persons who beneficially owned more than 5% of the
outstanding Common Stock of the Company, and the ownership of the executive
officers and directors, and all directors and executive officers as a group
at the close of business on March 16, 1998, according to record-ownership
listings as of that date:
<TABLE>
<CAPTION>
Beneficial Owner Number of Shares % Ownership <F1><F2>
- ----------------------------- ---------------- --------------------
<S> <C> <C>
Fred H. Eller <F3><F5><F6> 94,260 3.84%
Ronald E. Henges <F3><F8> 141,640 5.76%
Kevin C. Eichner <F3> 77,193 3.14%
Randall D. Humprheys -0- n/a
Paul R. Cahn <F4> 69,967 2.85%
Birch M. Mullins 17,850 <F*>
Robert E. Saur 39,000 1.59%
<PAGE> 5
Henry D. Warshaw <F9> 17,260 <F*>
James L. Wilhite <F12> 8,721 <F*>
James A. Williams <F7> 4,840 <F*>
Ted C. Wetterau <F13> 11,940 <F*>
David J. Mishler <F3><F11><F6> 38,304 1.56%
James E. Graser <F3><F10><F6> 15,000 <F*>
Richard C. Leuck <F14> 6,591 <F*>
James C. Wagner <F15> 19,595 <F*>
All Directors and Executive Officers as
a Group 562,16 22.88%
<FN>
<F*> Less than 1%
<F1> Percentages are calculated based on 2,457,112 shares which represents
2,298,412 shares outstanding as of December 31, 1997, plus Options
outstanding and exercisable as of December 31, 1997 or within 60 days
thereafter totaling 158,700 shares, of which 6,700 were exercised
subsequent to year end.
<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
December 31, 1997 or within 60 days thereafter, including those
beneficially owned by the named person, as follows: Mr. Eichner,
30,000 shares; Mr. Eller, 55,000 shares; Mr. Henges, 10,000 shares;
Mr. Graser, 10,000 shares; Mr. Mishler, 10,000 shares; Mr. Wagner,
10,000, of which 4,000 were exercised subsequent to year end; all
directors and executive officers as a group, 125,000 shares, of which
4,000 were exercised subsequent to year end.
<F4> Excludes 23,980 held by two adult children of Mr. Cahn, as well as 5,000
shares held by the son in law 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; and 64,967 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,
and 20 shares held in the name of Mr. Eller to which Mr. Eller
has voting power.
<F6> Excludes all of the 15,460 shares held of record by EBSP Partnership in
which each of Mr. Eller, Mr. Graser and Mr. Mishler each hold a 1/7
partnership interest, but for which none of the named persons holds
sole 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 each hold a 1/6 partnership interest, but for which none of
the named persons holds sole voting power.
<F7> Includes 845 shares held by Mr. Williams held in an Individual
Retirement Account for the benefit of Mr. Williams to which Mr. Williams
has voting power.
<F8> Excludes 18,110 shares held by and/or for the benefit of adult children
of Mr. Henges. Includes 76,770 shares held of record by Henges
Equity, L.P., to which Mr. Henges is the General Partner and 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;
20 shares in the name of Mr. Henges in 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. Mr. Henges address is
c/o Enterbank Holdings, Inc. 150 North Meramec, Clayton, Missouri
63105.
<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;
and 20 shares in the name of Mr. Warshaw to which Mr. Warshaw has
voting power.
<F10> Includes 4,999 shares held jointly by Mr. Graser and his spouse; and one
share in the name of Mr. Graser to which Mr. Graser has voting power
<F11> Includes 25,672 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; and one share
held in the name of Mr. Mishler to which Mr. Mishler has voting power.
<F12> Includes 650 shares held in a trust for the benefit of the spouse of Mr.
Wilhite of which the spouse of Mr. Wilhite is trustee, to which Mr.
Wilhite has voting power.
<F13> Includes 11,940 shares held jointly by Mr. Wetterau and his spouse.
<F14> Includes 2,500 shares held in a trust of Mr. Leuck for the benefit of
Mr. Leuck to which Mr. Leuck has voting power; 2,500 shares held in a
trust of the spouse of Mr. Leuck, for the benefit of the spouse of Mr.
Leuck, to which Mr. Leuck has shared voting power; 1,590 shares held
in the Individual Retirement Account for the benefit of Mr. Leuck to
which Mr. Leuck has voting power; one share in the name of Mr. Leuck
to which Mr. Leuck has voting power.
<F15> Includes 9,595 shares held jointly by Mr. Wagner and his spouse.
</TABLE>
<PAGE> 6
INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
The Company engaged KPMG Peat Marwick LLP to audit the financial statements
for the years ended December 31, 1995, 1996 and 1997. Representatives of
KPMG Peat Marwick LLP are expected to be present at the Annual Meeting of
Shareholders, and they will have an opportunity to make a statement if they
desire to do so and will be available to respond to appropriate questions.
The Company has selected KPMG Peat Marwick LLP to be the independent public
accountants for calendar year 1998 and recommends that the appointment of the
auditors be ratified by the Shareholders. Although Shareholder approval is
not required, it is the policy of the Board of Directors to request, whenever
possible, Shareholder ratification of the appointment or reappointment of
independent public accountants.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE SHAREHOLDER
RATIFICATION OF KPMG PEAT MARWICK LLP AS THE COMPANY'S INDEPENDENT
PUBLIC ACCOUNTANTS.
OTHER MATTERS
Management knows of no other matters that will be presented at the meeting.
If any other matters arise at the meeting, it is intended that the shares
represented by the proxies will be voted in accordance with the judgement of
the persons named in the proxies.
The Annual Report of the Company for the calendar year 1997 is enclosed.
A copy of Form 10-K, the Annual Report filed by the Company with the
Securities and Exchanged Commission, is enclosed.
By Order of the Board of Directors
James C. Wagner, Secretary
<PAGE> 7
ENTERBANK HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1998
THE UNDERSIGNED HEREBY APPOINTS RONALD E. HENGES, KEVIN C. EICHNER AND FRED H.
ELLER, AND EACH OF THEM, WITH OR WITHOUT THE OTHERS, PROXIES, WITH FULL POWER
OF SUBSTITUTION TO VOTE AS DESIGNATED BELOW, ALL SHARES OF STOCK OF ENTERBANK
HOLDINGS, INC. (THE "COMPANY") THAT THE UNDERSIGNED SIGNATORY HEREOF WOULD BE
ENTITLED TO VOTE IF PERSONALLY PRESENT AT THE ANNUAL MEETING OF STOCKHOLDERS OF
THE COMPANY TO BE HELD AT THE UNIVERSITY CLUB AT 1034 SOUTH BRENTWOOD
BOULEVARD, ST. LOUIS, MISSOURI 63117, ON TUESDAY, APRIL 28, 1998 AT 4:00 P.M.
AND ADJOURNMENT OR POSTPONEMENT THEREOF, ALL IN ACCORDANCE WITH AND AS MORE
FULLY DESCRIBED IN THE NOTICE AND ACCOMPANYING PROXY STATEMENT FOR SUCH
MEETING, RECEIPT OF WHICH IS HEREBY ACKNOWLEDGED.
1. ELECTION OF DIRECTORS
ELECTION OF ELEVEN DIRECTORS TO HOLD OFFICE UNTIL THE NEXT ANNUAL MEETING
OF STOCKHOLDERS OR UNTIL THEIR SUCCESSORS SHALL HAVE BEEN DULY ELECTED AND
QUALIFIED.
/ / FOR ALL NOMINEES LISTED BELOW / / WITHHOLD AUTHORITY TO VOTE
(EXCEPT AS MARKED TO THE FOR ALL NOMINEES LISTED BELOW.
CONTRARY BELOW).
____FRED H. ELLER ____RONALD E HENGES ____KEVIN C. EICHNER
____RANDALL D. HUMPHREYS ____PAUL. R. CAHN ____BIRCH M. MULLINS
____ROBERT E. SAUR ____HENRY D. WARSHAW ____JAMES A. WILHITE
____JAMES A. WILLIAMS ____TED C. WETTERAU
INSTRUCTIONS: YOU MAY VOTE FOR ALL DIRECTORS BY MARKING WHERE INDICATED
ABOVE "FOR ALL NOMINEES LISTED BELOW", WITHHOLD YOUR VOTE
UNTIL THE MEETING BY MARKING WHERE INDICATED ABOVE "WITHHOLD
AUTHORITY TO VOTE" OR VOTE FOR INDIVIDUAL DIRECTOR(S) BY
MARKING NEXT TO EACH NAME THE NUMBER OF VOTES TO BE CAST FOR
THAT PERSON.
2. RATIFICATION AND APPROVAL OF KPMG PEAT MARWICK LLP AS AUDITORS FOR THE
YEAR ENDING DECEMBER 31, 1998.
/ / FOR / / AGAINST / / ABSTAIN
3. IN THEIR DISCRETION, UPON ANY OTHER BUSINESS WHICH MAY PROPERLY COME
BEFORE THE MEETING.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED STOCKHOLDER(S). IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED "FOR" THE ELECTION OF ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSAL
2.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PLEASE DATE, SIGN AND RETURN THIS PROXY CARD BY MAIL, POSTAGE PREPAID.
DATED: ______________, 1998 SIGN HERE:______________________________
______________________________
(PLEASE SIGN EXACTLY AS NAME APPEARS ON THE LABEL FOR THIS MAILING. WHEN STOCK
IS REGISTERED JOINTLY, ALL OWNERS MUST SIGN. WHEN SIGNING AS ATTORNEY,
EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN THE FULL CORPORATE NAME BY THE PRESIDENT OR OTHER
AUTHORIZED OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN PARTNERSHIP NAME BY AN
AUTHORIZED PERSON.)
WHETHER OR NOT YOU PLAN ON ATTENDING THE ANNUAL MEETING, PLEASE COMPLETE AND
RETURN THIS PROXY.
