<PAGE> 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
[Fee Required] For the fiscal year ended December 31, 1998
[ ] 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 000-24131
ENTERBANK HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 43-1706259
(State or other jurisdiction (I.R.S. Employer Identification
of incorporation or organization) 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 [ ]
State the aggregate market value of the voting stock held by non-affiliates
of the Registrant as of March 17, 1999:
Common Stock, par value $.01, $64,625,995.00
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of March 17, 1999:
Common Stock, par value $.01, 2,378,637 shares outstanding
===============================================================================
<PAGE> 2
<TABLE>
ENTERBANK HOLDINGS, INC.
1998 ANNUAL REPORT ON FORM 10-K
<CAPTION>
Page
----
<S> <C>
Selected Financial Data........................................ 1
Business....................................................... 2
Market for Common Stock........................................ 7
Dividends...................................................... 7
Description of Capital Stock................................... 7
Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................... 8
Supervision and Regulation..................................... 27
Management..................................................... 30
Beneficial Ownership of Securities............................. 31
Certain Related Party Transactions............................. 31
Independent Auditors' Report................................... 32
Consolidated Financial Statements.............................. 33
Signatures..................................................... 60
Exhibit Index.................................................. 62
</TABLE>
<PAGE> 3
<TABLE>
SELECTED FINANCIAL DATA
-----------------------
<CAPTION>
Year ended December 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars and number of shares in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 25,414 $ 18,759 $ 12,554 $ 10,914 $ 7,374
Interest expense 11,869 8,582 5,569 4,887 2,570
-------- -------- -------- -------- --------
Net interest income 13,545 10,177 6,985 6,027 4,804
Provision for loan losses 711 775 345 631 450
-------- -------- -------- -------- --------
Net interest income after provision
for loan losses 12,834 9,402 6,640 5,396 4,354
Noninterest income 2,079 476 1,239 836 805
Noninterest expense 10,052 6,339 5,146 4,187 3,551
-------- -------- -------- -------- --------
Income before income tax expense 4,861 3,539 2,733 2,045 1,608
Income tax expense 1,850 1,317 1,031 741 607
-------- -------- -------- -------- --------
Net income 3,011 2,222 1,702 1,304 1,001
======== ======== ======== ======== ========
Basic earnings per share 1.28 1.06 1.11 0.89 0.68
Diluted earnings per share 1.20 1.00 0.97 0.77 0.62
Cash dividends per common share .10 0.09 0.08 0.07 0.06
Basic weighted average common
shares and common stock
equivalents outstanding 2,351 2,095 1,538 1,463 1,462
Diluted weighted average common
shares and common stock
equivalents outstanding 2,515 2,225 1,751 1,685 1,614
============================================================================================================================
BALANCE SHEET DATA
Cash and due from banks $ 29,701 $ 13,897 $ 9,261 $ 8,110 $ 5,930
Federal funds sold 14,250 32,825 23,250 16,230 11,300
Investments in debt and equity securities:
Available for sale 45,592 12,515 14,006 16,065 15,740
Held to maturity 699 919 1,240 842 802
-------- -------- -------- -------- --------
Total investments 46,291 13,434 15,246 16,907 16,542
-------- -------- -------- -------- --------
Loans, net of unearned loan fees <F1> 273,818 225,560 134,133 110,464 85,687
Allowance for loan losses 3,200 2,510 1,765 1,400 1,000
Total assets 375,304 291,365 184,584 153,706 122,212
Total deposits 339,180 264,301 168,961 141,140 104,799
Borrowings 6,000 -- 300 -- --
Shareholders' equity 29,240 26,067 14,758 12,052 10,781
Book value per common share 12.33 11.34 8.88 8.24 7.38
Tangible book value per common share 12.32 11.32 8.84 8.19 7.38
============================================================================================================================
SELECTED RATIOS
Return on average assets 0.94% 0.97% 1.12% 0.99% 0.96%
Return on average equity 10.86 9.78 12.73 11.13 9.71
Total capital to risk-weighted assets 10.97 12.28 11.53 11.40 11.75
Leverage ratio 9.16 11.42 9.62 9.11 10.46
Net yield on average earning assets 8.59 8.84 8.90 9.00 7.78
Cost of interest-bearing liabilities 4.88 5.03 4.89 4.94 3.36
Net interest margin 4.59 4.79 4.96 4.98 5.07
Nonperforming loans as a percent of loans 0.00 0.02 0.12 0.10 0.00
Nonperforming assets as a percent of assets 0.22 0.29 0.56 0.64 1.45
Net loan charge offs (recoveries)
as a percent of average loans 0.01 0.02 (0.02) 0.24 0.23
Allowance for loan losses as a percent
of loans, net of unearned loan fees 1.17 1.11 1.32 1.27 1.17
Dividend payout ratio 7.81 8.49 7.21 7.87 8.82
Average equity to average assets ratio 8.70 9.97 8.76 8.89 9.92
============================================================================================================================
<FN>
<F1> Excludes loans held for sale.
</TABLE>
1
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SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
Readers should note that in addition to the historical information contained
herein, some of the information in this report contains forward-looking
statements within the meaning of the federal securities laws.
Forward-looking statements typically are identified with use of terms such as
"may," "expect," "anticipate," "estimate" and similar words, although some
forward-looking statements are expressed differently. You should be aware
that the Company's actual results could differ materially from those
contained in the forward-looking statements due to a number of factors,
including burdens imposed by federal and state regulation of banks, credit
risk, exposure to local economic conditions, risks associated with rapid
increase or decrease in prevailing interest rates and competition from banks
and other financial institutions, all of which could cause the Company's
actual results to differ from those set forth in the forward-looking
statements.
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 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. During 1998, the Bank
opened an operations facility in St. Louis County, Missouri.
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("SBA"), providing
venture capital to growing companies. In March 1998, Capital Resources
changed its name to Enterprise Merchant Banc, Inc. ("Merchant Banc"). In
March 1998, Merchant Banc opened an office in Overland Park, Kansas. The
Company is currently raising capital for a second merchant banking fund (Fund
II). It is anticipated that Fund II will not be an SBIC regulated by the
SBA. Due to current Federal Reserve regulations, the Company cannot have
control of an investment company that is not SBA regulated. Therefore, if
successful, the Company will restructure the ownership of Merchant Banc
resulting in a minority ownership of Enterprise Merchant Banc.
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, trust services, 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 were renegotiated with the
introduction of trust services by Financial Advisors. These agreements call
for Moneta to provide assistance in staffing, training, marketing and
regulatory compliance for Financial Advisors. 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. Moneta will receive a
percent of the gross margin generated in Financial Advisors as compensation.
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.
As used herein, unless the context indicates otherwise, Enterbank Holdings,
Inc. and all of its subsidiaries are referred collectively as the
"Organization".
2
<PAGE> 5
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, net income, earnings per share, and return on
shareholders' equity are the financial performance indicators the Company
considers most critical in measuring success.
Through the Bank, the Company currently delivers a full range of commercial
banking services to the closely-held business market. Merchant banking and
venture capital services are conducted through Merchant Banc and Capital
Management. Financial planning and trust services are offered through
Financial Advisors. The Company plans to continue to expand the range of
services it provides within its market niche while expanding the base of
customers.
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, by borrowing from the Federal Home Loan Bank 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 operating ratios comparable to peer
banks despite its increasing investment in sales personnel whose goal is to
expand the number and depth of the Bank's customer relationships. The Bank
can expand its customer relationships and control operating costs by: operating
3
<PAGE> 6
a small number of offices with a high per office asset base; emphasizing
commercial loans which tend to be larger than retail loans; employing an
experienced staff, all of whom are rewarded on the basis of performance and
customer service; improving data processing and operational systems to increase
productivity and control risk; leasing facilities so that capital can be
deployed more effectively to support growth in earning assets; and outsourcing
services where possible.
The Bank has a strong orientation toward commercial banking, with a specific
focus on closely-held businesses, their owners, and professionals located in
its target service areas. The Bank stresses personal service, flexibility in
structuring loan and deposit relationships which meet customers' needs and
timely responsiveness to the needs of customers. Senior management of the
Bank makes it a practice to maintain close working relationships and personal
contact with each of its commercial customers.
The Bank's Board of Directors is comprised primarily of business owners and
professionals who fit the current and target customer profile of the Bank.
The Board of Directors takes an active role in the Bank's business
development activities and the credit review process. Its input and
understanding of the needs of the Bank's current and target customers has
been critical in the Bank's past success and will be critical in the Bank's
plans for future growth.
The Bank has historically had low turnover of relationship officers, and its
policy is to keep officers assigned to accounts for long periods of time.
This practice improves each officer's understanding of clients' businesses
resulting in knowledgeable credit assessments and superior customer service.
Relationship officers are supported by credit analysts and other support
personnel who are familiar with each assigned customer, creating a team
approach to serving customers' needs. A significant portion of the Bank's
new business results from referrals from existing customers.
The Bank's growth in loans has been due in large measure to its strategy of
targeting closely-held businesses and to the relationships and experience of
the Bank's management and directors in the St. Louis community.
The Loan authority and Approval Process of the Bank consists of several
committee reviews. The Presidents of all geographic banking units, the
Bank's Chief Financial Officer, and the Bank's Chief Executive Officer review
and vote on any aggregate loan relationships greater than $350,000 and all
insider loans. Any aggregate loan relationships greater than $3,000,000 and
all insider loans, are reviewed and examined by each banking unit's board
committee consisting of all members of the Board of Directors. These
directors serve on a rotating basis at their respective banking units.
Notwithstanding the required board committee approvals for insider loans, 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, and the
establishment of an operations facility in St. Louis County. As mentioned
above, the Company believes that local management and the involvement of a
Board of Directors comprised of local business persons and professionals are
key ingredients for success. Management believes that credit decisions,
pricing matters, business development strategies, etc. should be made locally
by managers who have an equity stake in the Company (see "Management.") The
Company, as part of its expansion effort, plans to continue its strategies of
operating a small number of offices with a high per office asset base,
emphasizing commercial loans, and employing experienced staff who are
rewarded on the basis of performance and customer service.
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
4
<PAGE> 7
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
$9 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. In 1998, the Company
entered into a lease agreement for Enterprise Merchant Banc at 7400 West
110th Street, Overland Park, Kansas, 66210 that expires in 2003.
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, trust
services, 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 were renegotiated with the introduction of trust services by
Financial Advisors. These agreements call for Moneta to provide assistance in
staffing, training, marketing and regulatory compliance for Financial
Advisors. 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. Moneta will receive a percent of the gross margin
generated in Financial Advisors as compensation. 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.
EMPLOYEES
At December 31, 1998, the Company had approximately 116 employees. None of
the Company's employees are covered by a collective bargaining agreement.
Management believes that its relationship with its employees is good.
PROPERTIES
----------
All of the Company's banking facilities are leased under agreements that
expire in 1999, 2003, 2012 and 2015, for Clayton, St. Louis County, the City
of Sunset Hills, and St. Charles County, respectively. The Company has the
option to renew the Clayton facility lease for three additional five-year
periods with future rentals to be agreed upon. One section of the Clayton
facility is sublet and the proceeds are used to reduce the Company's
occupancy expenses. The Company has the option to renew the St. Louis County
facility lease for three additional five-year periods with future rentals to
agreed upon. The Company has the option to renew the Sunset Hills facility
lease for two additional five-year periods with future rentals to be agreed
upon. The Company has no future rental options for the St. Charles County
facility; however, during the term of the lease, the monthly rentals are
adjusted periodically based on then-current
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<PAGE> 8
market conditions and inflation. The Merchant Banc facility in Kansas is leased
under an agreement that expires in 2003. The Company has no future rental
options for the Kansas office. The Company's aggregate rent expense totaled
$749,086, $436,524 and $319,002 in 1998, 1997 and 1996, respectively, and
sublease rental income totaled $42,816, $35,422 and $77,568 in 1998, 1997 and
1996, respectively. The Company leases its Clayton facility from a partnership
in which a director, [Robert E. Saur], and an officer, [Fred H. Eller], have an
ownership interest.
The future aggregate minimum rental commitments required under the leases are
as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1999 $776,125
2000 784,892
2001 793,658
2002 793,658
2003 426,065
========
</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.
The following is a list of the Company's current facilities:
<TABLE>
<CAPTION>
Operating Unit Address Description
- -------------- ------- -----------
<S> <C> <C>
Enterprise Bank, Clayton 150 North Meramec Commercial and Retail Banking
Clayton, Missouri 63105
Enterprise Bank, St. Charles 300 St. Peters Center Blvd. Commercial and Retail Banking
St. Peters, Missouri 63376
Enterprise Bank, Sunset Hills 3890 South Lindbergh Blvd. Commercial and Retail Banking
Sunset Hills, Missouri 63127
Enterprise Bank, St. Louis 12281 North Warson Road Operations Offices
St. Louis, Missouri 63132
Enterprise Merchant Banc, Kansas City 7400 W. 110th Street; 5th Floor, Merchant Banking
Overland Park, Kansas 66210
</TABLE>
LEGAL PROCEEDINGS
-----------------
The Company and its subsidiaries are, from time to time, parties to various
legal proceedings arising out of their businesses. Management believes that
there are no such proceedings pending or threatened against the Company or
its subsidiaries which, if determined adversely, would have a material effect
on the business, financial condition, results of operations or cash flows of
the Company or any of its subsidiaries.
6
<PAGE> 9
MARKET FOR COMMON STOCK
-----------------------
As of March 17, 1999, the Company had approximately 675 common stock
shareholders of record and a market price of $35.00. The common stock has
not been traded on an exchange or in any established public trading market,
although there have been a limited number of transactions in the common stock
that have been 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 were as follows:
<TABLE>
<CAPTION>
Market Price
1998 High Low
<S> <C> <C>
First Quarter $ 25.75 $ 21.00
Second Quarter 30.00 25.75
Third Quarter 32.00 28.00
Fourth Quarter 31.00 29.50
1997
First Quarter $ 15.50 $ 13.75
Second Quarter 15.50 15.50
Third Quarter 20.25 15.50
Fourth Quarter 20.25 20.25
</TABLE>
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 stock of the Company are entitled to receive
dividends when, as, and if declared by the Company's Board of Directors out
of funds legally available for the purpose of paying dividends. The 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 common stock.
The Company declared and paid dividends quarterly during calendar years 1998
and 1997, in annual amounts of $.10 and $.09 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. In all elections of directors,
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<PAGE> 10
holders of Common Stock have the right to cast votes equaling the number of
shares of Common Stock held by such stockholder multiplied by the number of
directors to be elected. All of such votes may be cast for a single director
or may be distributed among the number of directors to be elected, or any two
or more directors, as such stockholder may deem fit. Holders of Common Stock
have no preemptive, conversion, redemption, or sinking fund rights. In the
event of a liquidation, dissolution or winding-up of the Company, holders of
Common Stock are entitled to share equally and ratably in the assets of the
Company, if any, remaining after the payment of all debts and liabilities of
the Company.
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, 1998. Reference should be made
to the accompanying consolidated financial statements and the selected
financial data presented elsewhere and herein for an understanding of the
following review.
FISCAL 1998 COMPARED TO FISCAL 1997
- -----------------------------------
FINANCIAL CONDITION
Total assets at December 31, 1998 were $375 million, an increase of $84
million, or 29%, over total assets of $291 million at December 31, 1997.
Loans were $274 million, an increase of $48 million, or 21%, over total loans
of $226 million at December 31, 1997. Federal funds sold and investment
securities were $61 million, an increase of $15 million, or 33%, from total
federal funds sold and investment securities of $46 million at December 31,
1997.
Total deposits at December 31, 1998 were $339 million, an increase of $75
million, or 28%, over total deposits of $264 million at December 31, 1997.
Most of the deposit growth occurred in the money market deposits, demand
deposits and certificates of deposit $100,000 and over. Money market
deposits grew $51 million, or 51%, during 1998. Certificates of deposit
$100,000 and over grew $11 million or 32% during 1998. Demand deposits grew
$15 million, or 33%, during 1998. Growth in transaction and money market
deposit accounts is attributed primarily to direct calling efforts of
relationship officers and $16 million in money market accounts referred by
Moneta. Growth in certificates of deposit is also due to an established
presence in the marketplace.
Total shareholders' equity increased $3.2 million primarily due to retained
earnings of $2.8 million for the year and the exercise of incentive stock
options by employees.
RESULTS OF OPERATIONS
Net income was $3.0 million for the year ended December 31, 1998, an increase
of 36% over net income of $2.2 million for the same period in 1997. Diluted
earnings per share for the years ended December 31, 1998 and 1997 were $1.20
and $1.00, respectively.
NET INTEREST INCOME
The largest component of the Company's net income is net interest income.
Net interest income (presented on a tax equivalent basis) was $13.6 million,
which yielded a net interest margin of 4.59%, for the year ended December 31,
1998, compared to net interest income and net interest margin of $10.2
million and 4.79%, for the same period in 1997.
The $3.4 million, or 33%, increase in net interest income was driven
primarily by a $84 million increase in average earning assets to $297 million
for the year ended December 31, 1998 compared to $71 million of earning asset
growth during the same period in 1997. The increase in the earning assets is
attributable
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<PAGE> 11
to the continued calling efforts of the Company's relationship officers and
sustained economic growth in the local market served by the Company. Some of
the increase was offset by a lower average earning asset yield and growth in
interest bearing deposits.
The yield on average earning assets decreased to 8.59% for the year ended
December 31, 1998 from 8.84% for the same period in 1997. The decrease in
asset yield was primarily due to three 0.25% drops in the prime rate during
the third and fourth quarters of 1998 and a general decrease in average yield
on loans.
Average loans as a percent of average total assets increased to 79.06% in
1998 from 77.89% in 1997. For the same periods, the yield on average loans
was 9.16% and 9.48%, respectively. The decrease in loan yield in 1998
compared to 1997 offset the margin benefits obtained by increasing the loan
to asset ratio during the same period.
The yield on interest bearing liabilities decreased to 4.88% for the year
ended December 31, 1998 from 5.03% for the same period in 1997. The yield on
all deposits decreased in 1998 as compared to 1997. This drop is due to the
above mentioned drops in the prime rate and a concerted effort by the ALCO
committee to decrease the interest paid on deposits. This general drop in
yields was offset by deposits shifting to higher yielding money market
accounts.
FISCAL 1997 COMPARED TO FISCAL 1996
- -----------------------------------
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. Diluted
earnings per share for the years ended December 31, 1997 and 1996 were $1.00,
and $0.97, 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
9
<PAGE> 12
the year ended December 31, 1997, compared to net interest income and net
interest margin of $7.0 million and 4.96%, for the same period in 1996.
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.
The yield on average earning assets decrease to 8.84% for the year ended
December 31, 1997 from 8.90% for the same period in 1996. 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. For the same period, the yield on average loans
was 9.48% and 9.47%.
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. 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 each
of the three years ended December 31, 1998:
10
<PAGE> 13
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------
1998
----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans <F1> $251,916 79.06% $23,084 9.16%
Taxable investments in debt
and equity securities 15,887 4.99 878 5.53
Nontaxable investments in
debt securities <F2> 619 0.19 40 6.46
Federal funds sold 27,679 8.69 1,469 5.31
Interest earning deposits 795 0.25 40 5.03
-------- ------ ------- ----
Total interest-earning assets 296,896 93.18 25,511 8.59
Noninterest-earning assets:
Cash and due from banks 17,422 5.47
Office equipment and leasehold
improvements 2,686 0.84
Prepaid expenses and other assets 4,609 1.45
Allowance for loan losses (2,985) (0.94)
-------- ------
Total assets $318,628 100.00%
======== ======
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 20,503 6.43% $ 492 2.40%
Money market 117,027 36.74 5,361 4.58
Savings 1,496 0.47 37 2.47
Certificates of deposit 102,897 32.29 5,912 5.75
Notes payable -- -- -- --
Federal Home Loan Bank advances 1,447 0.45 67 4.63
Federal funds purchased -- -- -- --
-------- ------ ------- ----
Total interest-bearing liabilities 243,370 76.38 11,869 4.88
-------
Noninterest-bearing liabilities:
Demand deposits 46,326 14.54
Other liabilities 1,213 0.38
-------- ------
Total liabilities 290,909 91.30
Shareholders' equity 27,719 8.70
-------- ------
Total liabilities and
shareholders' equity $318,628 100.00%
======== ======
Net interest income $13,642
=======
Net interst margin 4.59%
====
<CAPTION>
Year ended December 31,
----------------------------------------------------
1997
----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans <F1> $177,532 77.89% $16,834 9.48%
Taxable investments in debt
and equity securities 17,859 7.84 1,018 5.70
Nontaxable investments in
debt securities <F2> 805 0.35 52 6.46
Federal funds sold 16,679 7.32 909 5.45
Interest earning deposits 38 0.02 2 5.26
-------- ------ ------- ----
Total interest-earning assets 212,913 93.42 18,815 8.84
Noninterest-earning assets:
Cash and due from banks 11,580 5.08
Office equipment and leasehold
improvements 1,677 0.74
Prepaid expenses and other assets 3,829 1.68
Allowance for loan losses (2,085) (0.91)
-------- ------
Total assets $227,914 100.00%
======== ======
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 15,840 6.95% $ 452 2.85%
Money market 77,198 33.87 3,604 4.67
Savings 1,270 0.56 32 2.52
Certificates of deposit 77,081 33.82 4,521 5.87
Notes payable 25 0.01 3 12.00
Federal Home Loan Bank advances -- -- -- --
Federal funds purchased 105 0.05 11 10.48
-------- ------ ------- -----
Total interest-bearing liabilities 171,519 75.26 8,623 5.03
-------
Noninterest-bearing liabilities:
Demand deposits 33,247 14.59
Other liabilities 426 0.19
-------- ------
Total liabilities 205,192 90.03
Shareholders' equity 22,722 9.97
-------- ------
Total liabilities and
shareholders' equity $227,914 100.00%
======== ======
Net interest income $10,192
=======
Net interst margin 4.79%
====
<CAPTION>
Year ended December 31,
----------------------------------------------------
1996
----------------------------------------------------
Percent Interest Average
Average of Total Income/ Yield/
Balance Assets Expense Rate
-------- -------- -------- -------
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans <F1> $120,849 79.14% $11,449 9.47%
Taxable investments in debt
and equity securities 12,300 8.05 693 5.63
Nontaxable investments in
debt securities <F2> 860 0.56 57 6.63
Federal funds sold 7,526 4.93 396 5.26
Interest earning deposits -- -- -- --
-------- ------ ------- ----
Total interest-earning assets 141,535 92.68 12,595 8.90
-------
Noninterest-earning assets:
Cash and due from banks 8,686 5.69
Office equipment and leasehold
improvements 1,789 1.17
Prepaid expenses and other assets 2,215 1.45
Allowance for loan losses (1,520) (0.99)
-------- ------
Total assets $152,706 100.00%
======== ======
Liabilities and Shareholders' Equity:
Interest-bearing liabilities:
Interest-bearing transaction accounts $ 13,180 8.63% $ 332 2.52%
Money market 44,710 29.28 2,007 4.49
Savings 1,105 0.72 33 2.99
Certificates of deposit 54,756 35.86 3,181 5.81
Notes payable 205 0.13 15 7.32
Federal Home Loan Bank advances -- -- -- --
Federal funds purchased 18 0.01 1 5.56
-------- ------ ------- ----
Total interest-bearing liabilities 113,974 74.63 5,569 4.89
-------
Noninterest-bearing liabilities:
Demand deposits 24,427 16.00
Other liabilities 932 0.61
-------- ------
Total liabilities 139,333 91.24
Shareholders' equity 13,373 8.76
-------- ------
Total liabilities and
shareholders' equity $152,706 100.00%
======== ======
Net interest income $ 7,026
=======
Net interst margin 4.96%
====
<FN>
- ---------------------------
<F1> Average balances include non-accrual loans and loans held for sale. The Company had $6,272,124 and 1,324,244
in loans held for sale at December 31, 1998 and 1997, respectively. The income on non-accrual loans is
included in interest but is recognized only upon receipt. Loan fees included in interest income are
approximately $625,000, $671,000 and $474,000 for 1998, 1997 and 1996, respectively.
<F2> Nontaxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%.
</TABLE>
11
<PAGE> 14
During 1998, an increase in the average volume of earning assets caused an
increase in interest income of $7,335,000. Interest income decreased
$639,000 due to a decrease in rates on earning assets. Increases in the
average volume of interest-bearing demand deposits, savings and money market
accounts, time deposits and notes payable resulted in an increase in interest
expense of $3,463,000. Changes in interest rates on the average volume of
interest-bearing liabilities resulted in a decrease in interest expense of
$217,000. The net effect of the volume and rate changes associated with all
categories of interest-earning assets during 1998 as compared to 1997
increased interest income by $6,696,000 while the net effect of the volume
and rate changes associated with all categories of interest-bearing
liabilities increased interest expense by $3,246,000.
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.
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>
1998 Compared to 1997 1997 Compared to 1996
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 $6,834 $(584) $6,250 $5,375 $ 10 $5,385
Taxable investments in debt
and equity securities (111) (29) (140) 317 8 325
Nontaxable investments in debt
and equity securities <F3> (12) -- (12) (4) (1) (5)
Federal funds sold 584 (24) 560 498 15 513
Certificates of deposit 40 (2) 38 -- 2 2
------ ----- ------ ------ ----- ------
Total interest-earning assets $7,335 $(639) $6,696 $6,186 $ 34 $6,220
------ ----- ------ ------ ----- ------
Interest paid on:
Interest-bearing transaction
accounts $ 119 $ (79) $ 40 $ 72 $ 48 $ 120
Money market 1,826 (69) 1,757 1,514 83 1,597
Savings 6 (1) 5 5 (6) (1)
Certificates of deposit 1,485 (94) 1,391 1,309 31 1,340
Notes payable (2) (1) (3) (18) 6 (12)
Federal Home Loan Bank Advances 34 33 67 -- -- --
Federal funds purchased (5) (6) (11) 8 2 10
------ ----- ------ ------ ----- ------
Total interest-bearing
liabilities $3,463 $(217) $3,246 $2,890 $ 164 $3,054
------ ----- ------ ------ ----- ------
Net interest income $3,872 $(422) $3,450 $3,296 $(130) $3,166
====== ===== ====== ====== ===== ======
<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>
12
<PAGE> 15
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,
-----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
----------------- ---------------- ---------------- ----------------- -----------------
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 $ 81,346 29.70% $ 69,490 30.81% $ 43,876 32.71% $ 43,728 39.59% $30,001 35.01%
Real estate:
Commercial 33,242 12.14 37,349 16.56 24,946 18.60 25,507 23.09 22,333 26.06
Construction 76,739 28.03 47,771 21.18 23,362 17.42 11,634 10.53 10,186 11.89
Residential 69,978 25.56 63,772 28.27 37,449 27.92 24,537 22.21 21,483 25.07
Consumer and other 12,513 4.57 7,178 3.18 4,500 3.35 5,058 4.58 1,684 1.97
-------- ------ -------- ------ -------- ------ -------- ------ ------- ------
Total loans $273,818 100.00% $225,560 100.00% $134,133 100.00% $110,464 100.00% $85,687 100.00%
======== ====== ======== ====== ======== ====== ======== ====== ======= ======
</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, 1998, $180.0 million in loans, or
66% of the loan portfolio, involved real estate as part or all of the
collateral package, as compared to $148.9 million or 66% and $85.8 million or
64% in 1997 and 1996, respectively. Of these loans, $75.6 million or 28%,
for 1998, were personal and business loans and loans on owner-occupied
properties as compared to $55.2 million or 37% and $32.6 million or 38% for
1997 and 1996, 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
consider-ations 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.
13
<PAGE> 16
The following table sets forth the interest rate sensitivity of the loan
portfolio at December 31, 1998:
<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 $ 2,995 $24,556 $ 638 $ 28,189
Real estate:
Commercial 5,743 12,898 152 18,793
Construction 3,460 9,255 205 12,920
Residential 6,148 25,126 482 31,756
Consumer and other 837 3,370 -- 4,207
-------- ------- ------ --------
Total $ 19,183 $75,205 $1,477 $ 95,865
======== ======= ====== ========
VARIABLE RATE LOANS <F1>
- -------------------
Commercial and industrial $ 53,157 $ -- $ -- $ 53,157
Real estate:
Commercial 14,449 -- -- 14,449
Construction 63,819 -- -- 63,819
Residential 38,222 -- -- 38,222
Consumer and other 8,306 -- -- 8,306
-------- ------- ------ --------
Total $177,953 $ -- $ -- $177,953
======== ======= ====== ========
TOTAL LOANS <F1>
- -----------
Commercial and industrial $ 56,152 $24,556 $638 $ 81,346
Real estate:
Commercial 20,192 12,898 152 33,242
Construction 67,279 9,255 205 76,739
Residential 44,370 25,126 482 69,978
Consumer and other 9,143 3,370 -- 12,513
-------- ------- ------ --------
Total $197,136 $75,205 $1,477 $273,818
======== ======= ====== ========
<FN>
<F1> Loan balances are shown net of unearned loan fees and loans held for sale.
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses was $711,000, $775,000, and $345,000 in 1998,
1997, and 1996 respectively. During 1998, the decrease in provision
reflects a decrease in net loan charge-offs to $21,000 as compared to net
charge-offs of $30,000 for the year ended December 31, 1997. In addition,
the Company experienced loan growth of $48 million during 1998 versus loan
growth of $92 million during the same period in 1997.
The Company 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 $645,000 in loans from January 1, 1994 through December 31,
1998. Total recoveries for the same period are $211,000, resulting in a
five-year net charge-off experience of $434,000, or 0.07% per year of average
loans for the same period.
14
<PAGE> 17
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,
------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 2,510 $ 1,765 $ 1,400 $ 1,000 $ 722
-------- -------- -------- ------- -------
Loans charged off:
Commercial and industrial 30 90 -- 19 45
Real estate:
Commercial 19 45 -- 118 132
Construction -- -- -- -- --
Residential -- 27 -- 106 --
Consumer and other -- -- -- -- 14
-------- -------- -------- ------- -------
Total loans charged off 49 162 -- 243 191
-------- -------- -------- ------- -------
Recoveries of loans previously
charged off:
Commercial and industrial 18 44 -- -- 18
Real estate:
Commercial 10 50 4 12 --
Construction -- -- -- -- --
Residential -- 38 15 -- --
Consumer and other -- -- 1 -- 1
-------- -------- -------- ------- -------
Total recoveries of
loans previously
charged off 28 132 20 12 19
-------- -------- -------- ------- -------
Net loans charged
off (recovered) 21 30 (20) 231 172
-------- -------- -------- ------- -------
Provisions charged to operations 711 775 345 631 450
-------- -------- -------- ------- -------
Allowance at end of period $ 3,200 $ 2,510 $ 1,765 $ 1,400 $ 1,000
======== ======== ======== ======= =======
Average loans $251,916 $177,532 $120,849 $94,737 $76,263
Total loans, net of unearned
loan fees 73,818 225,560 134,133 110,464 85,687
Nonperforming loans 2 50 161 107 --
Net charge-offs (recoveries)
to average loans 0.01% 0.02% (0.02%) 0.24% 0.23%
Allowance for loan losses to total
loans, net of unearned loan fees 1.17 1.11 1.32 1.27 1.17
</TABLE>
The Company's credit management policy and procedures focus on identifying,
measuring and controlling credit exposure. These procedures employ a
lender-initiated system of rating credits, which is ratified in the loan
approval process and subsequently tested in internal loan reviews, external
audits and regulatory bank examinations. Basically, the system requires rating
all loans at the time they are made.
Adversely rated credits, including loans requiring close monitoring which
would not normally be considered criticized credits by regulators, are
included on a monthly loan watch list. Loans may be added to the watch list
for reasons which are temporary and correctable, such as the absence of
current financial statements of the borrower, or a deficiency in loan
documentation. Other loans are added whenever any adverse circumstance is
detected which might affect the borrower's ability to meet the terms of the
loan. This could be initiated by the delinquency of a scheduled loan
payment, a deterioration in the borrower's financial condition identified in
a review of periodic financial statements, a decrease in the value of the
collateral securing the loan, or a change in the economic environment within
which the borrower operates. Loans on the watch list require detailed loan
status reports prepared
15
<PAGE> 18
by the responsible officer every four months, which are then discussed in formal
meetings with the loan review and loan administration staffs. Downgrades of loan
risk ratings may be initiated by the responsible loan officer at any time.
However, upgrades of risk ratings may only be made with the concurrence of the
loan review and credit administration staffs generally at the time of the formal
watch list review meetings.
Each month, loan administration provides management with detailed lists of
loans on the watch list and summaries of the entire loan portfolio by risk
rating. These are coupled with analyses of changes in the risk profiles of
the portfolios, changes in past due and nonperforming loans and changes in
watch list and classified loans over time. In this manner, the overall
increases or decreases in the levels of risk in the portfolios are monitored
continually. Factors are applied to the loan portfolios for each category of
loan risk to determine acceptable levels of allowance for possible loan
losses. These factors are derived primarily from the actual loss experience
and from published national surveys of norms in the industry. The calculated
allowances required for the portfolios are then compared to the actual
allowance balances to determine the provisions necessary to maintain the
allowances at appropriate levels. In addition, management exercises judgment
in its analysis of determining the overall level of the allowance for
possible loan losses. In its analysis, management considers the change in
the portfolio, including growth and composition, and the economic conditions
of the region in which the Company operates. Based on this quantitative and
qualitative analysis, the allowance for possible loan losses is adjusted.
Such adjustments are reflected in the consolidated statements of income.
The Company does not engage in foreign lending. Additionally, the Company
does not have any concentrations of loans exceeding 10% of total loans which
are not otherwise disclosed in the loan portfolio composition table. The
Company does not have a material amount of interest-bearing assets which
would have been included in nonaccrual, past due or restructured loans if
such assets were loans.
Management believes the allowance for loan losses is adequate to absorb
losses in the loan portfolio. While management uses available information to
recognize loan losses, future additions to the allowance may be necessary
based on changes in economic conditions. In addition, various regulatory
agencies, as an integral part of their examination process, periodically
review the allowance for loan losses. Such agencies may require the Company
to increase the allowance for loan losses based on their judgments and
interpretations about information available to them at the time of their
examinations.
While the Company has benefited from very low historical net charge-offs
during an extended period of rapid loan growth, management remains cognizant
that historical loan loss and non-performing asset experience may not be
indicative of future results. If the experience were to deteriorate and
additional provisions for loan losses were required, future operation 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, 1998, 1997, and 1996, the Company had thirteen, eleven,
and eight impaired loans in the amount of $1,087,000, $967,000, and $636,000
respectively, all of which are considered potential problem loans.
Non-performing assets decreased from $856,000 as of December 31, 1997 to
$808,000 as of December 31, 1998. Non-performing assets decreased from
$1,035,000 as of December 31, 1996 to $856,000 as of December 31, 1997.
16
<PAGE> 19
The following table sets forth information concerning the Company's
nonperforming assets as of the dates indicated:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Nonaccrual loans $ 2 $ 50 $ 131 $ 107 $ --
Loans past due 90 days or more
and still accruing interest -- -- 30 -- --
Restructured loans -- -- -- -- --
-------- -------- -------- -------- --------
Total nonperforming loans 2 50 161 107 --
Foreclosed property 806 806 874 881 1,776
-------- -------- -------- -------- --------
Total nonperforming assets $ 808 $ 856 $ 1,035 $ 988 $ 1,776
======== ======== ======== ======== ========
Total assets $375,304 $291,365 $184,584 $153,706 $122,212
Total loans, net of unearned
loan fees 273,818 225,560 134,133 110,464 85,687
Total loans plus foreclosed property 274,624 226,366 135,007 111,345 87,463
Nonperforming loans to total loans 0.00% 0.02% 0.12% 0.10% 0.00%
Nonperforming assets to total loans
plus foreclosed property 0.29 0.38 0.77 0.89 2.03
Nonperforming assets to total assets 0.22 0.29 0.56 0.64 1.45
</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.
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,
----------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------ ------------------ ------------------ --------------------
Percent Percent Percent Percent Percent
of of of of of
Category Category Category Category Category
Total Total Total Total Total
Allowance Loans Allowance Loans Allowance Loans Allowance Loans Allowance Loans
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $ 848 29.70% $ 656 30.81% $ 423 32.71% $ 348 39.59% $ 247 35.01%
Real estate:
Commercial 447 12.14 316 16.56 253 18.60 265 23.09 218 26.06
Construction 679 28.03 465 21.18 413 17.42 93 10.53 69 11.89
Residential 798 25.56 605 28.27 381 27.92 510 22.21 350 25.07
Consumer and other 112 4.57 82 3.18 56 3.35 44 4.58 16 1.97
Not allocated 316 -- 386 -- 239 -- 140 -- 100 --
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $3,200 100.00% $2,510 100.00% $1,765 100.00% $1,400 100.00% $1,000 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</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.
17
<PAGE> 20
NONINTEREST INCOME
The following table depicts the annual changes in various noninterest income
categories:
<TABLE>
<CAPTION>
1998 versus 1997 1997 versus 1996
------------------------------------ -----------------------------------
$ Change 1998 1997 $ Change 1997 1996
-------- ---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Merchant Banc management fee $ 33,000 $ 191,600 $158,600 $ (49,500) $158,600 $ 208,100
Merchant Banc consulting fees 224,500 232,500 8,000 8,000 8,000 --
Service charges on deposit accounts 79,421 252,873 173,452 44,038 173,452 129,414
Merchant credit card income N/A -- -- (600,981) -- 600,981
Gain on sale of mortgage loans 1,163,921 1,242,869 78,948 78,948 78,948 --
Gain on sale of credit card operation N/A -- -- (320,000) -- 320,000
Loss on investment in the Enterprise
Fund L.P. 2,705 (2,199) (4,904) 57,786 (4,904) (62,690)
Other noninterest income 99,190 161,069 61,879 17,892 61,879 43,987
---------- ---------- -------- --------- -------- ----------
Total noninterest income $1,602,737 $2,078,712 $475,975 $(763,817) $475,975 $1,239,792
========== ========== ======== ========= ======== ==========
</TABLE>
Total noninterest income was $2,078,712 in 1998, representing a $1,602,737
increase from 1997. The increase is primarily the result of a $1,163,921
increase on the gain on sale of mortgage loans. The company started offering
mortgage products during the third quarter of 1997. In addition, Merchant
Banc consulting fees increased $224,500 in 1998 as compared to 1997. These
fees are a result of increased business activity in this company from the new
office in Kansas. Noninterest income, excluding Merchant Banc consulting
fees and gain on sale of mortgage loans increased $214,316 in 1998 as
compared to 1997. This increase is due to an increase in service charges on
a larger deposit base and other fees.
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.
NONINTEREST EXPENSE
Total noninterest expense was $10,051,702 in 1998 representing a $3,713,126
or 59% increase from 1997. The increase in noninterest expenses are
primarily attributable to: 1) a new merchant bank office in Kansas City
opened in March, 1998 2) new banking facilities opened during 1997 in St.
Peters and Sunset Hills; and 3) expenses related to the origination and sale
of mortgage loans. The following table depicts changes in noninterest
expenses in the above mentioned operations:
<TABLE>
<CAPTION>
1998 versus 1997 1997 versus 1996
------------------------------------- ------------------------------------
$ Change 1998 1997 $ Change 1997 1996
---------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Merchant banking division $ 409,361 $ 591,737 $ 182,376 $ (18,235) $ 182,376 $ 200,611
St. Peters and Sunset Hills banking
units 1,871,666 3,928,985 2,057,319 1,913,695 2,057,319 143,624
Mortgage operations 724,830 855,405 130,575 130,575 130,575 --
Merchant credit card expense N/A -- -- (441,991) -- 441,991
Other operations 707,269 4,675,575 3,968,306 (391,801) 3,968,306 4,360,108
---------- ----------- ---------- ---------- ---------- ----------
Total noninterest expense $3,713,126 $10,051,702 $6,338,576 $1,192,243 $6,338,576 $5,146,334
========== =========== ========== ========== ========== ==========
</TABLE>
The increases are primarily due to increases in salaries and benefits
expense, occupancy and equipment expense and other operating expenses related
to the above mentioned operations. Noninterest expenses attributable to
other operations increased 18% in 1998 as compared to 1997 and is due to
normal increases related to growth.
18
<PAGE> 21
Noninterest expense increased $1,192,242, or 23%, from 1996 to 1997. 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.
INCOME TAXES
Income tax expense was $1,850,275, $1,316,590 and $1,031,344 for 1998, 1997,
and 1996, respectively. The effective tax rate was 38%, 37% and 38% for the
years ended December 31, 1998, 1997, and 1996, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Liquidity is provided by the Company's earning assets, including short-term
investments in federal funds sold, maturities in the loan portfolio,
maturities in the investment portfolio, amortization of term loans, and by
the Company's deposit inflows, proceeds from borrowings, and retained
earnings.
The following table reflects the Company's GAP analysis (rate sensitive
assets minus rate sensitive liabilities) as of December 31, 1998:
<TABLE>
<CAPTION>
Over Over After
3 Months 1 Year 5 Years
3 Months Through 12 Through or No Stated
or Less Months 5 Years Maturity Total
-------- --------- ------- ------------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Investments in debt and
equity securities $ 34,017 $ 8,802 $ 2,570 $ 902 $ 46,291
Interest-bearing deposits 5 -- -- -- 5
Federal funds sold 14,250 -- -- -- 14,250
Loans, net of unearned loan fees 181,563 15,573 75,205 1,477 273,818
-------- -------- ------- ------- --------
Total interest-sensitive
assets $229,835 $ 24,375 $77,775 $ 2,379 $334,364
-------- -------- ------- ------- --------
Liabilities:
Interest-bearing transaction
accounts 24,235 -- -- -- 24,235
Money market and savings
accounts 150,650 -- -- -- 150,650
Certificates of deposit 34,495 58,827 9,844 15 103,181
Federal Home Loan Bank
advances -- -- 6,000 -- 6,000
-------- -------- ------- ------- --------
Total interest-sensitive
liabilities $209,380 $(34,452) $61,931 $ 2,364 $ 50,298
-------- ======== ======= ======= ========
Cumulative GAP $ 20,455 $(13,997) $47,934 $50,298 $ 50,298
======== ======== ======= ======= ========
Ratio of interest-sensitive assets to
interest-sensitive liabilities:
Periodic 1.1 0.41 4.91 158.60 1.18
Cumulative GAP 1.1 0.95 1.17 1.18 1.18
======== ======== ======= ======= ========
</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, 1998
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
19
<PAGE> 22
reduction in interest income as compared to the reduction in interest expense
created by the repricing of the smaller volume of interest sensitive
liabilities.
MARKET RISK
The Company's exposure to market risk is reviewed on a regular basis by the
Asset/Liability Committee. Interest rate risk is the potential of economic
losses due to future interest rate changes. These economic losses can be
reflected as a loss of future net interest income and/or a loss of current
fair market values. The objective is to measure the effect on net interest
income and to adjust the balance sheet to minimize the inherent risk while at
the same time maximizing income. Management realizes certain risks are
inherent and that the goal is to identify and minimize those risks. Tools
used by management include the standard GAP report subject to different rate
shock scenarios. At December 31, 1998, the rate shock scenario models
indicated that annual net interest income would change by less than 5% should
rates rise or fall within 200 basis points from their current level over a
one year period. The Bank has no market risk sensitive instruments held for
trading purposes.
20
<PAGE> 23
The following tables present the scheduled maturity of market risk sensitive
instruments at December 31, 1998:
<TABLE>
<CAPTION>
Beyond
5 Years
or No
Year 1 Year 2 Year 3 Year 4 Year 5 Stated Total
------ ------ ------ ------ ------ Maturity -----
--------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets:
Investment in debt and
equity securities $ 42,819 $ 2,570 $ -- $ -- $ -- $ 902 $ 46,291
Interest-bearing deposits 5 -- -- -- -- -- 5
Federal funds sold 14,250 -- -- -- -- -- 14,250
Loans, net of unearned
loan fees 197,136 21,108 27,282 14,122 12,692 1,477 273,818
-------- ------- --------- ------- ------- ------ --------
Total $254,210 $23,678 $ 27,282 $14,122 $12,692 $2,379 $334,364
======== ======= ========= ======= ======= ====== ========
Liabilities:
Savings, Now, Money
Market deposits $174,885 $ -- $ -- $ -- $ -- $ -- $174,885
Certificates of deposit 93,323 6,011 1,704 548 1,579 16 103,181
Federal Home Loan
Bank advances -- -- 3,000 -- 3,000 -- 6,000
-------- ------- --------- ------- ------- ------ --------
Total $268,208 $ 6,011 $ 4,704 $ 548 $ 4,579 $ 16 $284,066
======== ======= ========= ======= ======= ====== ========
<CAPTION>
Average Estimated
Total Interest Rate Fair Value
---- ------------- ----------
<S> <C> <C> <C>
Assets:
Investment in debt and
equity securities $ 46,291 5.48% $ 46,297
Interest-bearing deposits 5 5.03 5
Federal funds sold 14,250 5.31 14,250
Loans, net of unearned
loan fees 273,818 9.16 274,121
-------- ------- --------
Total $334,364 $334,673
Liabilities:
Savings, Now, Money
Market deposit $174,885 4.24% $174,885
Certificates of deposit 103,181 5.75 103,697
Federal Home Loan Bank
advances 6,000 4.63 6,004
-------- --------
Total $284,066 $284,586
</TABLE>
21
<PAGE> 24
BALANCE SHEET TREND
The following table summarizes certain trends in the Company's balance sheet
during the three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997 1996
--------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C>
Total assets $375,304 $291,365 $184,584
Earning assets 334,364 271,967 172,629
Deposits 339,180 264,301 168,961
Loans to deposits 80.73% 85.34% 79.39%
Loans to total assets 72.96 77.41 72.67
Investment securities to total assets 12.33 4.61 8.26
Earning assets to total assets 89.09 93.34 93.52
======== ======== ========
Loans $273,915 $225,608 $134,150
Unearned loan fees (97) (48) (17)
-------- -------- --------
Net loans $273,818 $225,560 $134,133
======== ======== ========
Investment securities - AFS $ 45,592 $ 12,515 $ 14,006
Investment securities - HTM 699 919 1,240
-------- -------- --------
Total investments $ 46,291 $ 13,434 $ 15,246
======== ======== ========
Investment securities - AFS $ 45,592 $ 12,515 $ 14,006
Investment securities - HTM 699 919 1,240
Federal funds sold 14,250 32,825 23,250
Interest-bearing deposits 5 148 --
Net loans 273,818 225,560 134,133
-------- -------- --------
Total earning assets $334,364 $271,967 $172,629
======== ======== ========
</TABLE>
The ratio of earning assets was 89.09%, 93.34% and 93.52% for years ending
December 31, 1998, 1997 and 1996, respectively. Earning assets increased
$62,397,000 and $99,338,000, or 23% and 58%, for the years ended December 31,
1998 and 1997, respectively. Total assets increased $83,939,000 and
$106,781,000, or 29% and 58%, 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,
----------------------------------------------------------------------------------------------------
1998 1997 1996
------------------------------ -------------------------- ---------------------------
(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 $ 46,326 $ -- --% $ 33,247 $ -- --% $ 24,427 $ -- --%
Interest-bearing transaction
accounts 20,503 492 2.40 15,840 452 2.85 13,180 332 2.52
Money market accounts 117,027 5,361 4.58 77,198 3,604 4.67 44,710 2,007 4.49
Savings accounts 1,496 37 2.47 1,270 32 2.52 1,105 33 2.99
Certificates of deposit 102,897 5,912 5.75 77,081 4,521 5.87 54,756 3,181 5.81
-------- ------- -------- ------ -------- ------
$288,249 $11,802 4.09% $204,636 $8,609 4.21% $138,178 $5,553 4.02%
======== ======= ==== ======== ====== ==== ======== ====== ====
</TABLE>
22
<PAGE> 25
Since inception, the Company has experienced rapid loan and deposit growth
primarily due to aggressive direct calling efforts of relationship officers
and sustained economic growth in the local market served by the Company.
Recent growth is also attributed to the new locations in St. Charles County
and the City of Sunset Hills. Management has pursued closely-held businesses
whose management desires a close working relationship with a locally-managed,
full-service bank. Due to the relationships developed with these customers,
management views large deposits from this source a stable deposit base.
Additionally, the Company belongs to a national network of time depositors
(primarily credit unions) who place time deposits with the Company, typically
in increments of $99,000. The Company has used this source of deposits for
over five years and considers it to be a stable source of deposits that
allows the Company to acquire funds at a cost below its alternative cost of
funds. There were $29 million at December 31, 1998 and $31 million at
December 31, 1997 and 1996 in deposits from the national network.
The following table sets forth the amount and maturity of certificates of
deposit that had balances of more than $100,000 at December 31, 1998:
<TABLE>
<CAPTION>
Remaining Maturity Amount
------------------ ------
(Dollars in Thousands)
<S> <C>
Three months or less $18,037
Over three through six months 8,167
Over six through twelve months 13,913
Over twelve months 3,209
-------
$43,326
=======
</TABLE>
The table below sets forth the carrying value of investment securities held
by the Company at the dates indicated:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ---------------------------- -----------------------
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 $44,720 96.61% $11,963 89.05% $13,850 90.84%
Municipal bonds 669 1.45 881 6.56 891 5.85
Mortgage-backed securities 30 0.06 38 0.28 44 0.29
Federal Home Loan Bank stock 872 1.88 552 4.11 461 3.02
------- ------ ------- ------ ------- ------
$46,291 100.00% $13,434 100.00% $15,246 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
As of December 31 1998, debt securities with an amortized cost of $698,609
were classified as held to maturity securities, and debt and equity
securities with an amortized cost of $45,576,239 were classified as available
for sale securities. The market valuation account for the available for sale
securities was adjusted to approximately $16,088 to increase the recorded
balance of such securities at December 31, 1998 to fair value on that date.
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
23
<PAGE> 26
adjusted to approximately $10,154 to increase the recorded balance of such
securities at December 31, 1996 to fair value on that date.
The following table summarizes maturity and yield information on the
investment portfolio at December 31, 1998:
<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 $42,715 5.33%
1 to 5 years 2,005 5.33
5 to 10 years -- --
No stated maturity -- --
------- ------
Total $44,720 5.33%
======= ======
Municipal bonds:
0 to 1 year $ 104 7.10%
1 to 5 years 565 5.91
5 to 10 years -- --
No stated maturity -- --
------- ------
Total $ 669 6.09%
======= ======
Mortgage-backed securities:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 30 6.13%
------- ------
Total 30 6.13%
======= ======
Federal Home Loan Bank stock:
0 to 1 year $ -- --
1 to 5 years -- --
5 to 10 years -- --
No stated maturity 872 6.13%
------- ------
Total $ 872 6.13%
======= ======
Total
0 to 1 year $42,819 5.33%
1 to 5 years 2,570 5.46
5 to 10 years -- --
No stated maturity 902 6.69
------- ------
Total $46,291 5.37%
======= ======
<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.
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.
24
<PAGE> 27
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. 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,
------------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Tier 1 capital to risk weighted assets 9.89% 11.20% 10.29%
Total capital to risk weighted assets 10.97 12.28 11.53
Leverage ratio (Tier 1 capital to
average assets) 9.16 11.42 9.62
Tangible capital to tangible assets 8.63 9.79 8.91
</TABLE>
At December 31, 1998, the Company's Tier 1 capital was $29.2 million compared
to $26.0 million and $14.7 million at December 31, 1997 and 1996,
respectively. At December 31, 1998, the Company's total capital was $32.4
million compared to $28.6 million and $16.5 million at December 31, 1997 and
1996, respectively.
YEAR 2000
OVERVIEW
The year 2000 ("Y2K") issue refers to the ability of a date-sensitive
computer program to reorganize a two-digit date field designated "00" as the
year 2000. Mistaking "00" for 1900 could result in a system failure or
miscalculations causing a disruptions to operations and normal business
activities. This is a significant issue for many companies, including banks,
and the implications of the Y2K issue cannot be predicted with any high
degree of certainty.
25
<PAGE> 28
The Company's State of Readiness:
The Company has developed a Y2K compliance program with five primary phases.
These are: 1) Awareness, 2) Assessment, 3) Renovations, 4) Validation and
5) Implementation. As of December 31, 1998 the Awareness and Assessment and
Renovations phases were complete and all systems had been reviewed for Y2K
compliance. The scope of the Assessment phase included all areas of
technology for the Company and its subsidiaries including, but not limited
to, the phone system, voice mail system, computer network, banking mainframe
and related software. As of December 31, 1998, the Validation phase was
approximately 80% complete and the Implementation phase was approximately 30%
complete. The Company expects to have the Validation Phase completed March
31, 1999. Testing of the Company's hardware and software applications will
take place during the first six months of fiscal 1999. Management is
comfortable that the program will identify areas of exposure early enough to
address Y2K issues prior to December 31, 1999. The Company feels the primary
Y2K exposure is in the core banking software, which is leased from a third
party bank software vendor providing the same software to hundreds of other
banks. This vendor is working closely with the Company to address any Y2K
issues that may be discovered and has indicated to the Company that there
will be no material Y2K problems.
The Cost of Y2K Compliance:
The total cost to the Company to assess, correct and verify Y2K issues is
estimated at $83,000, consisting of $40,000 in salaries and benefit costs
allocated to Y2K projects and $43,000 in software and hardware expenses
required for upgrading and testing of the Company's systems. This cost
estimate does not include the cost associated with regulatory reporting,
legal review of regulatory requirements, auditing requirements or other costs
incurred related only to the disclosure requirements and not actual software
or hardware issues. Such costs are difficult to determine as these
requirements change frequently. If these non-systems related costs become
significant and quantifiable, they will be disclosed at that time.
What Risks Exist for the Company:
The most likely risk the Company faces with respect to Y2K issues is in the
core banking software. This system identifies and calculates payments due
the Company's subsidiary bank for loans made to customers and amounts due to
the bank's customers for deposits in the bank. The loss of these records or
inability to accurately perform these calculations could cause the bank to
incur additional expenses such as loan losses, underpayments of amounts due
on loans, overpayments of amounts due to depositors or increased personnel
expenses required to track this information manually. Such expenses are not
currently quantifiable, but may be material to the operations and financial
performance of the Company and its subsidiaries.
Contingency Plans:
Management feels the Company will be Y2K compliant by December 31, 1999.
However, as a precautionary measure, the Company will create electronic and
paper based reports of every customer's account as a back up. The back up
reports will include the necessary information to calculate balance and
payment information. If necessary, the electronic version of this
information can be used by other common software applications such as Lotus
1-2-3 or Microsoft Excel to perform many of the calculations performed by the
bank's core software system. The back up reports can also be used to
manually calculate customer information indefinitely if needed.
IMPLEMENTATION OF NEW ACCOUNTING PRONOUNCEMENTS
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, Reporting Comprehensive Income. This
statement requires presentation of the components of comprehensive earnings,
including the changes in equity from items such as unrealized gains (losses)
on securities. The company did not sell any investments in debt and equity
securities during 1998 and 1997.
26
<PAGE> 29
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) 131, Disclosures about Segments of an Enterprise
and Related Information. This statement establishes standards for the way
public business enterprises report information about operating segments. 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.
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 1999. Earlier
application is encouraged but should not be applied retroactively to
financial statements of prior periods. SFAS 133 establishes standards for
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The Company is currently evaluating the requirements and impact
of SFAS 133.
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 (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.
27
<PAGE> 30
In addition, and subject to certain exceptions, the BHCA and the Change in
Bank Control Act, together with regulations thereunder, require Federal
Reserve approval (or, depending on the circumstances, no notice of
disapproval) prior to any person or company acquiring "control" of a bank
holding company, such as the Company. Control is conclusively presumed to
exist if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. Under Federal Reserve regulations
applicable to the Company, control will be refutably presumed to exist if a
person acquires at least 10% of the outstanding shares of any class of voting
securities once the Company registers the common stock under the Securities
and Exchange Act of 1934. The regulations provide a procedure for challenge
of the rebuttable control presumption.
Under the BHCA, the Company is generally prohibited from engaging in, or
acquiring direct or indirect control of more than 5% of the voting shares of
any company engaged in, nonbanking activities, unless the Federal Reserve, by
order of regulation, has found those activities to be so closely related to
banking or managing or controlling banks as to be a related activity. Some
of the activities that the Federal Reserve has determined by regulation to be
proper incidents to the business of banking include investment in and
management of Small Business Investment Companies, making or servicing loans
and certain types of leases, engaging in certain insurance and brokerage
activities, performing data processing services, acting in certain
circumstances as a fiduciary or investment or financial advisor, owning
savings associations, and making investments in limited projects designed
primarily to promote community welfare.
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 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
28
<PAGE> 31
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 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
29
<PAGE> 32
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 information required by this item is incorporated herein by reference to
pages 2-4 of the Company's 1998 Proxy Statement.
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.
COMPENSATION OF EXECUTIVE OFFICERS AND OTHERS
The information required by this item is incorporated herein by reference to
pages 4 and 5 of the Company's 1998 Proxy Statement.
STOCK OPTIONS PLANS
At December 31, 1998, the Company had three qualified incentive stock option
plans for the benefit of the employees of Enterbank Holdings and its
subsidiaries. Plan I was adopted on April 20, 1988 with 144,000 options. As
of December 31, 1998, Plan I had 16,575 options outstanding and no options
available for future grant. Plan II was adopted on April 25, 1990 with
75,000 options. Plan II had 73,400 options outstanding and no options
available for grant. Plan III was adopted on June 19, 1996 with 200,000
options. Plan III has 183,400 options outstanding and 16,300 options
available for future grants.
In 1998, the Company adopted by Board Approval a nonqualified stock option
plan ("the Nonqualified Plan"), which sets aside up to 35,000 shares of
company Common Stock to grant options to certain key employees of the Company
or any of its subsidiaries. There are limitations as to the number of
options which my be granted to any individual and additional restrictions for
options which may be granted to any individual who is also a ten percent
shareholder. The Company believes strongly in motivating its key employees
by encouraging ownership in the organization. The purchase price for any
options granted under the Nonqualified Plan will be determined based upon the
market value of the Common Stock at the time such options are granted. At
December 31, 1998, the Nonqualified plan had 23,000 options outstanding and
12,000 options available for future grants.
30
<PAGE> 33
Following is a summary of the various plan transactions:
<TABLE>
<CAPTION>
Number Price
of shares per share Total
---------- ---------------- -------------
<S> <C> <C> <C>
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
Granted 28,800 25.00-32.00 863,425
Exercised 73,425 5.00-16.00 385,525
Forfeited 12,000 9.25-16.00 186,600
---------- ---------------- -------------
December 31, 1998 296,375 $ 5.00-32.00 $4,372,800
========== ================ =============
</TABLE>
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 information required by this item is incorporated herein by reference to
pages 7 and 8 of the Company's 1998 Proxy Statement.
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
$202,270 in 1998.
31
<PAGE> 34
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, 1998 and
1997, and the related consolidated statements of income, shareholders'
equity, cash flows, and comprehensive income for each of the years in the
three-year period ended December 31, 1998. 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, 1998 and 1997, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally
accepted accounting principles.
January 29, 1999
32
<PAGE> 35
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1998 and 1997
<CAPTION>
Assets 1998 1997
------ ---------- ----------
<S> <C> <C>
Cash and due from banks $ 29,701,018 $ 13,897,054
Federal funds sold 14,250,000 32,825,000
Interest-bearing deposits 5,035 148,349
Investments in debt and equity securities:
Available for sale, at estimated fair value 45,592,327 12,514,721
Held to maturity, at amortized cost
(estimated fair value of $704,723 in 1998
and $920,154 in 1997) 698,609 919,163
------------ ------------
Total investments in debt and equity securities 46,290,936 13,433,884
------------ ------------
Loans held for sale 6,272,124 1,324,244
Loans, net of unearned loan fees 273,817,522 225,560,208
Less allowance for loan losses 3,200,000 2,510,000
------------ ------------
Loans, net 270,617,522 223,050,208
------------ ------------
Other real estate owned 806,072 806,072
Office equipment and leasehold improvements 3,063,123 2,328,699
Accrued interest receivable 1,648,775 1,448,343
Investment in Enterprise Fund, L.P. 424,484 225,683
Prepaid expenses and other assets 2,224,829 1,877,320
------------ ------------
Total assets $375,303,918 $291,364,856
============ ============
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 61,114,961 $ 46,052,686
Interest-bearing transaction accounts 24,234,717 22,519,772
Money market accounts 149,177,922 98,639,345
Savings 1,471,647 1,429,316
Certificates of deposit:
$100,000 and over 43,326,061 32,824,697
Other 59,854,862 62,834,818
------------ ------------
Total deposits 339,180,170 264,300,634
Federal Home Loan Bank advances 6,000,000 --
Accrued interest payable 608,056 549,059
Accounts payable and accrued expenses 275,563 448,371
------------ ------------
Total liabilities 346,063,789 265,298,064
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000
shares; issued and outstanding 2,371,837 shares in
1998 and 2,298,412 shares in 1997 23,719 22,984
Surplus 19,264,000 18,879,210
Retained earnings 9,941,792 7,166,071
Accumulated other comprehensive income 10,618 (1,473)
------------ ------------
Total shareholders' equity 29,240,129 26,066,792
------------ ------------
Total liabilities and shareholders' equity $375,303,918 $291,364,856
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE> 36
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $23,001,165 $16,795,887 $11,426,260
Interest on debt and equity securities:
Taxable 878,147 1,017,897 692,742
Nontaxable 26,565 34,630 38,914
Interest on federal funds sold 1,468,652 909,326 396,244
Interest on interest bearing deposits 39,740 1,289 --
----------- ----------- -----------
Total interest income 25,414,269 18,759,029 12,554,160
----------- ----------- -----------
Interest expense:
Interest-bearing transaction accounts 492,581 410,915 331,943
Money market accounts 5,361,463 3,604,225 2,006,578
Saving 36,918 32,357 33,122
Certificates of deposit:
$100,000 and over 2,189,803 1,658,554 1,346,428
Other 3,722,039 2,862,25 1,834,540
Federal funds purchased -- 11,035 1,027
Federal Home Loan Bank advances 66,527 -- --
Notes payable -- 2,888 15,274
----------- ----------- -----------
Total interest expense 11,869,331 8,582,230 5,568,912
----------- ----------- -----------
Net interest income 13,544,938 10,176,799 6,985,248
Provision for loan losses 710,899 775,064 345,410
----------- ----------- -----------
Net interest income after
provision for loan losses 12,834,039 9,401,735 6,639,838
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts 252,873 173,452 129,414
Other service charges and fee income 585,169 228,479 252,087
Merchant credit card income -- -- 600,981
Gain on sale of credit card operation -- -- 320,000
Gain on sale of mortgage loans 1,242,869 78,948 --
Loss on investment in Enterprise Fund, L.P. (2,199) (4,904) (62,690)
----------- ----------- -----------
Total noninterest income 2,078,712 475,975 1,239,792
----------- ----------- -----------
Noninterest expense:
Salaries 5,103,863 3,221,147 2,400,165
Payroll taxes and employee benefits 999,579 620,438 465,475
Occupancy 879,046 552,063 333,795
Equipment 389,274 227,061 145,501
FDIC insurance 40,638 21,846 2,000
Data processing 306,691 237,248 247,696
Merchant credit card expense -- -- 441,991
Other 2,332,611 1,458,773 1,109,711
----------- ----------- -----------
Total noninterest expense 10,051,702 6,338,576 5,146,334
----------- ----------- -----------
Income before income tax expense 4,861,049 3,539,134 2,733,296
Income tax expense 1,850,275 1,316,590 1,031,344
----------- ----------- -----------
Net income $ 3,010,774 $ 2,222,544 $ 1,701,952
=========== =========== ===========
Basic earnings per share $ 1.28 $ 1.06 $ 1.11
Diluted earnings per share $ 1.20 $ 1.00 $ .97
Basic weighted average common shares and
potential common stock 2,350,763 2,095,359 1,538,418
Diluted weighted average common shares and
potential common stock 2,514,940 2,224,967 1,750,686
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE> 37
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1998, 1997 and 1996
<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, 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
Other comprehensive income -- -- -- -- 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
($.09 per share) -- -- -- (195,085) -- (195,085)
Stock options exercised 53,500 535 266,965 -- -- 267,500
Issuance of Common Stock 582,552 5,825 9,016,289 -- -- 9,022,114
Other comprehensive income -- -- -- -- (8,174) (8,174)
--------- ------- ----------- ---------- -------- -----------
Balance, December 31, 1997 2,298,412 22,984 18,879,210 7,166,071 (1,473) 26,066,792
Net income -- -- -- 3,010,774 -- 3,010,774
Dividends declared
($.10 per share) -- -- -- (235,053) -- (235,053)
Stock options exercised 73,425 735 384,790 385,525
Other comprehensive income -- -- -- -- 12,091 12,091
--------- ------- ----------- ---------- -------- -----------
Balance, December 31, 1998 2,371,837 $23,719 $19,264,000 $9,941,792 $ 10,618 $29,240,129
========= ======= =========== ========== ======== ===========
See accompanying notes to consolidated financial statements.
</TABLE>
35
<PAGE> 38
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 3,010,774 $ 2,222,544 $ 1,701,952
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 488,790 311,132 225,328
Provision for loan losses 710,899 775,064 345,410
Write-downs and losses on other real estate owned, net -- 24,259 6,646
Gain on sale of other real estate owned (26,546) -- --
Net accretion of debt and equity securities (288,951) (207,715) (6,357)
Loss on investment in Enterprise Fund, L.P. 2,199 4,904 62,690
Mortgage loans originated (94,433,924) (8,455,878) --
Proceeds from mortgage loans sold 90,728,913 7,210,582 --
Gain on sale of mortgage loans (1,242,869) (78,948) --
(Increase) decrease in accrued interest receivable (200,432) (512,479) 45,178
Increase in prepaid expenses and other assets (347,509) (897,959) (333,550)
Increase in accrued interest payable 58,997 239,549 22,311
Increase (decrease) in accounts payable and accrued expenses (179,036) 196,962 12,960
------------ ------------ ------------
Net cash provided by operating activities (1,718,695) 832,017 2,082,568
------------ ------------ ------------
Cash flows from investing activities:
Purchases of interest-bearing deposits -- (148,349) --
Proceeds from maturity of interest-bearing deposits 143,314 -- --
Purchases of available for sale debt securities (49,683,878) (18,788,955) (8,922,967)
Purchases of available for sale equity securities (320,000) (90,500) (94,200)
Purchases of held to maturity debt securities (256,689) (101,076) (414,733)
Proceeds from maturities of available for sale debt securities 17,250,000 20,580,000 11,140,000
Proceeds from maturities and principal paydowns on
held to maturity debt securities 460,785 407,956 6,276
Net increase in loans (48,275,994) (91,597,180) (23,649,751)
Proceeds from sale of other real estate owned 24,327 184,095 --
Purchases of office equipment and leasehold improvements (1,225,736) (1,520,563) (549,219)
Write-down of office equipment and leasehold improvements 2,522 -- --
Contributions returned from (paid to) investment in Enterprise Fund, L.P. (201,000) 319,500 (520,500)
------------ ------------ ------------
Net cash used in investing activities (82,082,349) (90,755,072) (23,005,094)
------------ ------------ ------------
Cash flows from financing activities:
Net increase in demand and savings accounts 67,358,128 65,187,192 12,195,505
Net increase in certificates of deposit 7,521,408 30,152,353 15,625,520
Increase in Federal Home Loan Bank Advances 6,000,000 -- --
(Decrease) increase in notes payable -- (300,000) 300,000
Cash dividends paid (235,053) (195,085) (121,548)
Proceeds from the issuance of common stock -- 9,022,114 --
Proceeds from the exercise of stock warrants and common stock options 385,525 267,500 1,094,280
------------ ------------ ------------
Net cash provided by financing activities 81,030,008 104,134,074 29,093,757
------------ ------------ ------------
Net increase in cash and due from banks (2,771,036) 14,211,019 8,171,231
Cash and cash equivalents, beginning of year 46,722,054 32,511,035 24,339,804
------------ ------------ ------------
Cash and cash equivalents, end of year $ 43,951,018 $ 46,722,054 $ 32,511,035
============ ============ ============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 11,810,334 $ 8,342,681 $ 5,546,601
Income taxes 2,014,266 1,509,322 1,144,759
Noncash transactions:
Transfers to other real estate owned in settlement of loans 97,781 140,000 50,000
Loans made to facilitate the sale of other real estate owned 100,000 -- 70,000
============ ============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
36
<PAGE> 39
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
Years ended December 31, 1998, 1997 and 1996
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income $3,010,774 $2,222,544 $1,701,952
Other comprehensive income, before tax:
Unrealized gains (losses) on securities:
Unrealized holding gains (losses) arising
during period 18,319 (12,385) 47,065
---------- ---------- ----------
Other comprehensive income, before tax 18,319 (12,385) 47,065
Income tax benefit (expense) related to items of
other comprehensive income (6,228) 4,211 (16,003)
---------- ---------- ----------
Other comprehensive income, net of tax 12,091 (8,174) 31,062
---------- ---------- ----------
Comprehensive income $3,022,865 $2,214,370 $1,733,014
========== ========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
37
<PAGE> 40
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1998, 1997 and 1996
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 December 31, 1997, 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. In 1998, Financial Advisors obtained
trust powers. The Company renegotiated the agreements with Moneta with the
introduction of trust services.
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.
38
<PAGE> 41
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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.
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 five percent of the Company's total revenue for the year ended December
31, 1998. 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, 1998.
(Continued)
39
<PAGE> 42
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 cost or fair value less estimated costs to sell. Subsequent
reductions in fair value are expensed or recorded in a valuation reserve
account through a provision against income. Subsequent increases in the fair
value are recorded through a reversal of the valuation reserve, but not below
zero.
(Continued)
40
<PAGE> 43
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
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
The Corporation accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations. As such,
compensation expense is recorded on the date of grant only if the current
market price of the underlying stock exceeded the exercise price. On January
1, 1996, the Company adopted Financial Accounting Standards Board (FASB)
Statement of Financial Accounting Standard (SFAS) No. 123, Accounting for
Stock-Based Compensation, which permits entities to expense the fair value of
stock-based awards, as measured on the date of grant, over their vesting
period. Alternatively, SFAS 123 also allows entities to continue to apply
the provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma net income per share disclosures for employee stock option grants made
in 1995 and future years as if the fair-value-based method defined in SFAS
123 had been applied. The Company has elected to continue to apply the
provisions of APB Opinion No. 25 and provide the pro forma disclosure
provisions of SFAS 123.
(Continued)
41
<PAGE> 44
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NEW ACCOUNTING STANDARDS
Effective December 31, 1998, the Company adopted SFAS 130, Reporting
Comprehensive Income. 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. Comparative
financial statements provided for earlier periods have been restated to
reflect the application of SFAS 130. SFAS 130's disclosure requirements had
no impact on the Company's financial condition or results of operations.
Effective December 31, 1998, the Company adopted SFAS 131, Disclosures about
Segments of an Enterprise and Related Information. 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 new disclosures
are included in Note 18 to the consolidated financial statements.
SFAS 133, Accounting for Derivative Instruments and Hedging Activities, is
effective for all fiscal years beginning after June 15, 1999. Earlier
application is encouraged but should not be applied retroactively to
financial statements of prior periods. SFAS 133 establishes standards for
derivative instruments embedded in other contracts, and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at
fair value. The Company is currently evaluating the requirements and impact
of SFAS 133.
NOTE 3--EARNINGS PER SHARE
Basic earnings per share data is calculated by dividing net income by the
weighted average number of common shares outstanding during the period.
Diluted earnings per share gives effect to the increase in the average shares
outstanding which would have resulted from the exercise of dilutive stock
options and warrants.
(Continued)
42
<PAGE> 45
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The components of basic earnings per share are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
BASIC
Net income attributable to
common shareholders' equity $3,010,774 $2,222,544 $1,701,952
========== ========== ==========
Weighted average common
shares outstanding 2,350,763 2,095,359 1,538,418
========== ========== ==========
Basic earnings per share $1.28 $1.06 $1.11
===== ===== =====
</TABLE>
The components of diluted earnings per share are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
DILUTED
Net income attributable to
common shareholders' equity $3,010,774 $2,222,544 $1,701,952
========== ========== ==========
Weighted average common
shares outstanding 2,350,763 2,095,359 1,538,418
Stock warrants -- -- 79,979
Stock options 164,177 129,608 132,289
---------- ---------- ----------
Diluted weighted average
common shares outstanding $2,514,940 $2,224,967 $1,750,686
========== ========== ==========
Diluted earnings per share $1.20 $1.00 $0.97
===== ===== =====
</TABLE>
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, 1998 and 1997, approximately $8,001,000 and $3,427,000,
respectively, of cash and due from banks represented required reserves on
deposits maintained by the Bank in accordance with Federal Reserve Bank
requirements.
(Continued)
43
<PAGE> 46
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 5--INVESTMENTS IN DEBT AND EQUITY SECURITIES
A summary of the amortized cost and estimated fair value of debt and equity
securities classified as available for sale at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
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 $44,704,739 $24,142 $8,054 $44,720,827
Federal Home Loan Bank stock 871,500 -- -- 871,500
----------- ------- ------ -----------
$45,576,239 $24,142 $8,054 $45,592,327
=========== ======= ====== ===========
<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
=========== ======= ====== ===========
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as available for sale at December 31, 1998, 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 $42,692,435 $42,715,621
Due after one year through five years 2,012,304 2,005,206
Securities with no stated maturity 871,500 871,500
----------- -----------
$45,576,239 $45,592,327
=========== ===========
</TABLE>
(Continued)
44
<PAGE> 47
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, 1998 and 1997 is as
follows:
<TABLE>
<CAPTION>
1998
---------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Fair Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Mortgage-backed securities $ 30,106 $ 245 $ -- $ 30,351
Municipal bonds 668,503 5,908 39 674,372
-------- ------ ----- --------
$698,609 $6,153 $ 39 $704,723
======== ====== ===== ========
<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
======== ====== ==== ========
</TABLE>
The amortized cost and estimated fair value of debt and equity securities
classified as held to maturity at December 31, 1998, 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 $103,400 $103,361
Due after one year through five years 565,103 571,011
Mortgage-backed securities 30,106 30,351
-------- --------
$698,609 $704,723
======== ========
</TABLE>
There were no sales of investments in debt and equity securities in 1998,
1997 or 1996. Debt and equity securities having a carrying value of
$6,941,888 and $8,748,476 at December 31, 1998 and 1997, 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)
45
<PAGE> 48
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 6--LOANS
A summary of loans by category at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commercial and industrial $ 81,346,004 $ 64,489,557
Loans secured by real estate 179,959,303 148,892,185
Other 12,609,494 7,226,719
------------ ------------
273,914,801 225,608,461
Less unearned loan fees 97,279 48,253
------------ ------------
$273,817,522 $225,560,208
============ ============
</TABLE>
The breakdown of loans secured by real estate at December 31, 1998 and 1997 is
as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Business and personal loans $ 65,011,812 $ 44,965,663
Income-producing properties 55,283,273 55,025,798
Owner-occupied properties 10,628,492 10,259,749
Real estate development properties 49,035,726 38,640,975
------------ ------------
$179,959,303 $148,892,185
============ ============
</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.
Following is a summary of activity for the year ended December 31, 1998 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>
<S> <C>
Balance, December 31, 1997 $11,015,254
New loans 4,836,823
Payments and other reductions (8,218,356)
-----------
Balance, December 31, 1998 $ 7,633,721
===========
</TABLE>
(Continued)
46
<PAGE> 49
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, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $2,510,000 $1,765,000 $1,400,000
Provisions charged to operations 710,899 775,064 345,410
Loans charged off (48,854) (161,799) --
Recoveries of loans previously
charged off 27,955 131,735 19,590
---------- ---------- ----------
Balance at end of year $3,200,000 $2,510,000 $1,765,000
========== ========== ==========
</TABLE>
A summary of impaired loans, which include nonaccrual loans, at December 31,
1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Nonaccrual loans $ 2,000 $ 50,000 $130,704
Impaired loans continuing
to accrue interest 1,084,658 916,803 505,669
---------- -------- --------
Total impaired loans $1,086,658 $966,803 $636,373
========== ======== ========
Allowance for losses on specific
impaired loans $ 157,870 $191,804 $ 82,616
Impaired loans with no related
allowance for loan losses -- -- --
Average balance of impaired
loans during the year $ 915,260 $563,943 $636,563
========== ======== ========
</TABLE>
If interest on nonaccrual loans had been accrued, such income would have been
$31, $1,537 and $15,147 for the years ended December 31, 1998, 1997 and 1996,
respectively. The amount recognized as interest income on nonaccrual loans
was $138, $4,864 and $2,005 for the years ended December 31, 1998, 1997 and
1996, respectively. The amount recognized as interest income on impaired
loans continuing to accrue interest was $126,355, $94,801 and $44,616 for the
years ended December 31, 1997, 1996 and 1995, respectively.
NOTE 7--OFFICE EQUIPMENT AND LEASEHOLD IMPROVEMENTS
A summary of office equipment and leasehold improvements at December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Data processing equipment $ 903,851 $ 691,985
Furniture, fixtures and equipment 2,299,995 1,741,621
Leasehold improvements 1,633,585 1,184,052
Automobile 29,023 26,425
---------- ----------
4,866,454 3,644,083
Less accumulated depreciation
and amortization 1,803,331 1,315,384
---------- ----------
Office equipment and leasehold improvements, net $3,063,123 $2,328,699
========== ==========
</TABLE>
Depreciation and amortization of office equipment and leasehold improvements
included in occupancy expense amounted to $488,790 in 1998, $311,132 in 1997
and $225,328 in 1996.
(Continued)
47
<PAGE> 50
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company's banking facilities are leased under agreements that expire in
1999, 2015, 2012 and 2003 for Clayton, St. Charles County, the City of Sunset
Hills, and St. Louis County, 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. The Company has the option to renew the St. Louis County
facility lease for three additional five-year periods with future rentals to
agreed upon. One section of the Clayton facility is sublet and the proceeds
are used to reduce the Company's occupancy expenses. The Merchant Banc
facility in Kansas is leased under an agreement that expires in 2003. The
Company has no future rental options for the Kansas office. Rent expense
amounted to $749,086, $436,524 and $319,002 in 1998, 1997 and 1996,
respectively, and sublease rental income amounted to $42,816, $35,422 and
$77,568 in 1998, 1997 and 1996, 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>
1999 $776,125
2000 784,892
2001 793,658
2002 793,658
2003 426,065
========
</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 8--INVESTMENT IN ENTERPRISE FUND, L.P.
The Company and its subsidiaries have a combined 10% interest in a limited
liability small business investment partnership, The Enterprise Fund L.P.,
for which a subsidiary of the company serves as the general partner. The
Company has an additional $502,500 in future capital commitments. This
investment, which is accounted for using the equity method of accounting, had
a carrying value of $424,484 and $225,683 at December 31, 1998 and 1997,
respectively.
NOTE 9--FEDERAL HOME LOAN BANK ADVANCES
The Bank maintains a $2 million line of credit from the Federal Home Loan
Bank of Des Moines. In addition, the Bank has access to Federal Home Loan
Bank advances. Federal Home Loan Bank advances are secured under a blanket
agreement which assigns all Federal Home Loan Bank stock, and one to four
family mortgage loans equal to 150% of the outstanding balance. On October
5, 1998, the Bank obtained two advances from the Federal Home Loan Bank -
$3,000,000 for three years at 4.68% payable monthly and $3,000,000 for five
years at 4.72% payable monthly. No advances on the line were made in 1997.
(Continued)
48
<PAGE> 51
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,
1998:
<TABLE>
<CAPTION>
$100,000
Maturity Period and Over Other Total
--------------------------------------- ----------- ----------- ------------
<S> <C> <C> <C>
Less than 1 year $40,116,764 $53,204,783 $ 93,321,547
Greater than 1 year and less than 2 years 2,354,297 3,658,391 6,012,688
Greater than 2 years and less than 3 years 350,000 1,354,065 1,704,065
Greater than 3 years and less than 4 years 405,000 548,077 953,077
Greater than 4 years and less than 5 years 100,000 1,074,032 1,174,032
Over 5 years -- 15,514 15,514
----------- ----------- ------------
$43,326,061 $59,854,862 $103,180,923
=========== =========== ============
</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. The
average rate paid on the note payable was 8.25% in 1997.
NOTE 12--INCOME TAXES
The components of income tax expense (benefit) for the years ended December 31,
1998, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $1,821,571 $1,407,463 $1,021,847
State and local 289,415 217,479 153,811
Deferred (260,711) (308,352) (144,314)
---------- ---------- ----------
$1,850,275 $1,316,590 $1,031,344
========== ========== ==========
</TABLE>
A reconciliation of expected income tax expense, computed by applying the
statutory federal income tax rate of 34% in 1998, 1997 and 1996, to income
before income taxes and the amounts reflected in the consolidated statements
of income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income tax expense at statutory rate $1,652,757 $1,203,306 $ 929,320
Increase (reduction) in income taxes
resulting from:
Tax-exempt income (55,510) (31,828) (23,570)
State and local income tax
expense 191,014 143,536 101,515
Other, net 62,014 1,576 24,079
---------- ---------- ----------
Total tax expense $1,850,275 $1,316,590 $1,031,344
========== ========== ==========
</TABLE>
(Continued)
49
<PAGE> 52
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
A net deferred income tax asset of $1,033,086 and $778,604 is included in
prepaid expenses and other assets in the consolidated balance sheets at
December 31, 1998 and 1997, 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, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $1,098,172 $831,869
Unrealized losses on securities
available for sale -- 759
Other 8,297 17,613
---------- --------
Total deferred tax assets 1,106,469 850,241
---------- --------
Deferred tax liabilities:
Deferred loan fees 1,709 6,495
Office equipment and leasehold
improvements 66,204 65,142
Unrealized gains on securities
available for sale 5,470 --
---------- --------
Total deferred tax liabilities 73,383 71,637
---------- --------
Net deferred tax asset $1,033,086 $778,604
========== ========
</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,
1998, due to management's belief that all criteria for recognition have been
met, including the existence of a history of taxes paid sufficient to support
the realization of the deferred tax assets.
NOTE 13-- REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possible additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices.
The Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier 1 capital to risk-weighted assets, and of Tier
1 capital to average assets. Management believes, as of December 31, 1998,
that the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC dated
January 14, 1997 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.
(Continued)
50
<PAGE> 53
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt
Actual Adequacy Purposes Action Provisions
------------------- ------------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital (to risk weighted assets)
Enterbank Holdings,Inc. $32,400,862 10.97% $23,618,397 8.00% $29,522,997 10.00%
Enterprise Bank 30,809,159 10.48 23,520,774 8.00 29,400,967 10.00
Tier 1 Capital (to risk weighted assets)
Enterbank Holdings, Inc. $29,200,862 9.89% $11,809,199 4.00% $17,713,798 6.00%
Enterprise Bank 27,609,159 9.39 11,760,387 4.00 17,640,580 6.00
Tier 1 Capital (to average assets)
Enterbank Holdings, Inc. $29,200,862 9.16% $ 9,558,703 3.00% $15,931,172 5.00%
Enterprise Bank 27,609,159 8.69 9,526,209 3.00 15,877,015 5.00
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% $ 6,837,420 3.00% $11,395,700 5.00%
Enterprise Bank 23,405,000 10.30 6,814,013 3.00 11,356,689 5.00
</TABLE>
NOTE 14--SHAREHOLDERS' EQUITY
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.
(Continued)
51
<PAGE> 54
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 15--COMPENSATION PLANS
STOCK OPTIONS PLANS
At December 31, 1998, the Company had three qualified incentive stock option
plans for the benefit of the employees of Enterbank Holdings and it's
subsidiaries. Plan I was adopted on April 20, 1988 with 144,000 options. As
of December 31, 1998, Plan I had 16,575 options outstanding and no options
available for future grant. Plan II was adopted on April 25, 1990 with
75,000 options. Plan II had 73,400 options outstanding and no options
available for grant. Plan III was adopted on June 19, 1996 with 200,000
options. Plan III had 183,400 options outstanding and 16,300 options
available for future grants.
In 1998, the Company adopted by Board Approval a nonqualified stock option
plan ("the Nonqualified Plan"), which sets aside up to 35,000 shares of
company Common Stock to grant options to certain key employees of the Company
or any of its subsidiaries. There are limitations as to the number of
options which my be granted to any individual and additional restrictions for
options which may be granted to any individual who is also a ten percent
shareholder. The purchase price for any options granted under the
Nonqualified Plan will be determined based upon the market value of the
Common Stock at the time such options are granted. At December 31, 1998, the
nonqualified plan has 23,000 options outstanding and 12,000 options available
for future grants.
Following is a summary of the various plan transactions:
<TABLE>
<CAPTION>
Number Price
of shares per share Total
---------- ----------------------------------
<S> <C> <C> <C>
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
Granted 28,800 25.00 -32.00 863,425
Exercised 73,425 5.00 -16.00 385,525
Forfeited 12,000 9.25 -16.00 186,600
---------- ---------------- -------------
December 31, 1998 296,375 $ 5.00 -32.00 $4,372,800
========== ================ =============
</TABLE>
(Continued)
52
<PAGE> 55
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company applies APB Opinion 25 and related Interpretations in accounting
for its stock option plans. Accordingly, no compensation cost has been
recognized for its stock option plans. Had compensation cost for the
Company's stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method contained in SFAS No. 123, the Company's net income and earnings per
share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Net income
As reported $ 3,011 $ 2,222 $ 1,702
Pro forma 2,762 2,025 1,702
Earnings per share:
Basic:
As reported $ 1.28 $ 1.06 $ 1.11
Pro forma 1.18 0.97 1.11
Diluted:
As reported $ 1.20 $ 1.00 $ 0.97
Pro forma 1.10 0.91 0.97
</TABLE>
The fair value of each option granted in 1998 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions: a risk-free interest rate of 5.50%, 5.46%, 5.40% and 4.67% for
February, June, August and September, respectively; a dividend yield of
0.67%; vesting period for 5 years; expected lives of 10 years; and volatility
of 27.23%. The weighted average fair value of the options granted in 1998
was $13.67.
There were no options granted in 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 was $8.45. There were no options granted in 1996.
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 $153,621 for 1998,
$78,948 for 1997 and $66,000 for 1996.
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
(Continued)
53
<PAGE> 56
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
the same credit policies in making commitments and conditional obligations as
it does for financial instruments included on its balance sheets.
The contractual amount of off-balance-sheet financial instruments as of
December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Commitments to extend credit $164,012,297 $124,493,916
Standby letters of credit 10,368,944 6,237,738
============ ============
</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, 1998, approximately $12,684,764 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, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
---------------------------- ------------------------------
Carrying Estimated Carrying Estimated
Amount fair value Amount fair value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Balance sheet assets:
Cash and due from banks $ 29,701,018 $ 29,701,018 $ 13,897,054 $ 13,897,054
Federal funds sold 14,250,000 14,250,000 32,825,000 32,825,000
Interest-bearing deposits 5,035 5,035 148,349 148,349
Investments in debt and equity
securities 46,290,936 46,297,050 13,433,884 13,434,875
Loans held for sale 6,272,124 6,362,197 1,324,244 1,334,466
Loans, net 270,617,522 270,920,794 223,050,208 222,777,300
Accrued interest receivable 1,648,775 1,648,775 1,448,343 1,448,343
============ ============ ============ ============
Balance sheet liabilities:
Deposits $339,180,170 $339,696,164 $264,300,634 $264,539,273
FHLB advances 6,000,000 6,004,397 -- --
Accrued interest payable 608,056 608,056 549,059 549,059
============ ============ ============ ============
</TABLE>
(Continued)
54
<PAGE> 57
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.
FEDERAL HOME LOAN BANK ADVANCES
The fair value of Federal Home Loan Bank advances is based on the discounted
value of contractual cash flows. The discount rate is estimated using rates
on borrowed money with similar remaining maturities.
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
(Continued)
55
<PAGE> 58
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
subjective in nature and involve uncertainties and matters of significant
judgment, and therefore, cannot be determined with precision. Changes in
assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not
considered financial instruments. In addition, the tax ramifications related
to the realization of the unrealized gains and losses can have a significant
effect on fair value estimates and have not been considered in many of the
estimates.
NOTE 18-LINE OF BUSINESS RESULTS
Management of the Company reviews the financial performance of its operating
segments on an after-tax basis. The company's three major operating segments
in 1998 include Enterbank Holdings, Enterprise Bank and Enterprise Merchant
Banc. Enterbank Holdings includes general corporate expenses not allocated to
the operating segments. Enterprise Bank provides a full range of commercial
banking services. These services include but are not limited to loans,
demand and interest earning accounts, safe deposit boxes, lock boxes and cash
management services. Currently, the Bank includes Enterprise Financial
Advisors, which offers financial planning and trust services. The Merchant
Banc segment offers merchant banking and venture capital services. Following
is the financial results for the Company's operating segments.
(Continued)
56
<PAGE> 59
<TABLE>
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<CAPTION>
Enterbank Enterprise Bank Merchant Eliminations Consolidated
Holdings Banc
<S> <C> <C> <C> <C> <C>
For the year ended December 31,1998
Interest income $ -- $ 25,414,269 $ 4 $ (4) $ 25,414,269
Interest expense -- 11,869,335 -- (4) 11,869,331
Provision for loan losses -- 710,899 -- -- 710,899
Noninterest income 13,670 1,642,481 422,561 -- 2,078,712
Noninterest expense 915,546 8,546,389 589,767 -- 10,051,702
Income before income tax expense (benefit) (901,876) 5,930,127 (167,202) -- 4,861,049
Income tax expense (benefit) (314,474) 2,226,744 (61,995) -- 1,850,275
---------- ------------ --------- ------------ ------------
Net income (587,402) 3,703,383 (105,207) -- 3,010,774
========== ============ ========= ============ ============
Total Assets $1,465,870 $374,054,971 $ 425,291 $ (645,214) $375,303,918
---------- ------------ --------- ------------ ------------
For the year ended December 31,1997
Interest income $ -- $ 18,759,029 $ 1,109 $ (1,109) $ 18,759,029
Interest expense 2,888 8,580,451 -- (1,109) 8,582,230
Provision for loan losses -- 775,064 -- -- 775,064
Noninterest income 13,441 300,241 162,293 -- 475,975
Noninterest expense 742,571 5,417,758 178,247 -- 6,338,576
Income before income tax expense (benefit) (732,018) 4,285,997 (14,845) -- 3,539,134
Income tax expense (benefit) (282,894) 1,605,229 (5,745) -- 1,316,590
---------- ------------ --------- ------------ ------------
Net income (449,124) 2,680,768 (9,100) -- 2,222,544
========== ============ ========= ============ ============
Total Assets $2,605,055 $290,505,483 $ 134,799 $(25,392,992) $291,364,856
---------- ------------ --------- ------------ ------------
For the year ended December 31,1996
Interest income $ -- $ 12,554,160 $ 789 $ (789) $ 12,554,160
Interest expense 15,274 5,554,427 -- (789) 5,568,912
Provision for loan losses -- 345,410 -- -- 345,410
Noninterest income 600,000 1,035,774 204,018 (600,000) 1,239,792
Noninterest expense 243,698 4,723,350 179,286 -- 5,146,334
Income before income tax expense (benefit) 341,028 2,966,747 25,521 (600,000) 2,733,296
Income tax expense (benefit) (97,484) 1,119,510 9,318 -- 1,031,344
---------- ------------ --------- ------------ ------------
Net income 438,512 1,847,237 16,203 (600,000) 1,701,952
========== ============ ========= ============ ============
Total Assets $ 352,875 $183,834,658 $ 931,921 $ (534,801) $184,584,113
---------- ------------ --------- ------------ ------------
</TABLE>
As demonstrated on the table, Enterprise Bank experienced asset growth of
$83.5 million during 1998 and $106.8 million during 1997. The bank is also
providing a majority of the income for the Company. The Merchant Banc had
increased activity in 1998 with the opening of the Kansas office. The
Merchant Banc is beginning to provide more fee income to the company.
Enterbank Holdings has some assets in the form of small investments.
Enterbank Holdings also has noninterest expenses related to items for the
consolidated entity.
(Continued)
57
<PAGE> 60
ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
NOTE 19--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS
<TABLE>
Condensed Balance Sheets
<CAPTION>
December 31,
--------------------------------------
Assets 1998 1997
------ ----------- -----------
<S> <C> <C>
Cash $ 437,727 $ 1,831,497
Investment in Enterprise Bank 27,619,778 23,404,214
Investment in Enterprise Merchant Banc 403,089 108,297
Investment in Enterprise Fund, L.P. 380,129 202,098
Other assets 648,014 571,460
----------- -----------
Total assets $29,488,737 $26,117,566
=========== ===========
Liabilities and Shareholders' Equity
------------------------------------
Accounts payable and other liabilities $ 248,608 $ 50,774
Shareholders' equity 29,240,129 26,066,792
----------- -----------
Total liabilities and shareholders' equity $29,488,737 $ 26,117,566
=========== ===========
<CAPTION>
Condensed Statements of Income
December 31,
-----------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income:
Dividends from subsidiaries $ -- $ -- $ 600,000
Other income 13,670 13,441 --
---------- ---------- ----------
Total income 13,670 13,441 600,000
---------- ---------- ----------
Expenses:
Loss on investment in Enterprise Fund, L.P. 1,969 4,391 56,123
Other expenses 913,577 741,068 202,849
---------- ---------- ----------
Total expenses 915,546 745,459 258,972
---------- ---------- ----------
(Loss) income before tax benefit and equity
in undistributed earnings of subsidiaries (901,876) (732,018) 341,028
Income tax benefit 314,474 282,894 97,484
---------- ---------- ----------
(Loss) income before equity in undistributed
earnings of subsidiaries (587,402) (449,124) 438,512
Equity in undistributed earnings of subsidiaries 3,598,176 2,671,668 1,263,440
---------- ---------- ----------
Net income $3,010,774 $2,222,544 $1,701,952
========== ========== ==========
(Continued)
58
<PAGE> 61
<CAPTION>
Condensed Statements of Cash Flow
December 31,
-----------------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net Income $ 3,010,774 $ 2,222,544 $ 1,701,952
Adjustments to reconcile net income to
net cash provided by operating activities:
Net income of subsidiaries (3,598,176) (2,761,668) (1,863,440)
Dividends from subsidiaries -- -- 600,000
Other, net 123,160 (271,854) (105,484)
----------- ----------- -----------
Net cash provided by operating
activities (464,242) (810,978) 333,028
Cash flows from investing activities:
Capital contributions to subsidiaries (900,000) (6,150,000) (360,000)
Investment in Enterprise Fund L.P. (180,000) (90,000) (90,000)
----------- ----------- -----------
Net cash used in investing activities (1,080,000) (6,240,000) (450,000)
Cash flows from financing activities:
Payment of dividends (235,053) (195,085) (121,548)
Proceeds from issuance of common stock 385,525 9,289,614 --
(Decrease) increase in notes payable -- (300,000) 300,000
----------- ----------- -----------
Net cash provided by
financing activities 150,472 8,794,529 178,452
Net increase(decrease) in cash and cash
equivalents (1,393,770) 1,743,551 61,480
Cash and cash equivalents, beginning of year 1,831,497 87,946 26,466
----------- ----------- -----------
Cash and cash equivalents, end of year $ 437,727 $ 1,831,497 $ 87,946
=========== =========== ===========
</TABLE>
59
<PAGE> 62
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 17th of March 1999.
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
---------- ----- ----
<C> <S> <C>
/s/ Fred H. Eller
- -----------------------------
Fred H. Eller Chief Executive Officer and
and Director March 17, 1999
<F*>
- -----------------------------
Ronald E. Henges Chairman of the Board
of Directors March 17, 1999
<F*>
- -----------------------------
Kevin C. Eichner Vice Chairman of the
Board of Directors March 17, 1999
<F*>
- -----------------------------
Paul R. Cahn Director March 17, 1999
<F*>
- -----------------------------
Birch M. Mullins Director March 17, 1999
<F*>
- -----------------------------
Robert E. Saur Director March 17, 1999
<F*>
- -----------------------------
James A. Williams Director March 17, 1999
<F*>
- -----------------------------
Henry D. Warshaw Director March 17, 1999
<F*>
- -----------------------------
James L. Wilhite Director March 17, 1999
<F*>
- -----------------------------
Ted C. Wetterau Director March 17, 1999
<F*>
- -----------------------------
Randall D. Humphreys Director March 17, 1999
<F*>
- -----------------------------
Paul L. Vogel Director March 17, 1999
<F*>
- -----------------------------
William B. Moskoff Director March 17, 1999
<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.
60
<PAGE> 63
/s/ James C. Wagner
- -----------------------------
James C. Wagner Chief Executive Officer, Treasurer
and Vice President March 17, 1999
/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>
61
<PAGE> 64
<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)).
3.3 Amendment to the Bylaws of the Registrant (incorporated herein
by reference from Exhibit 3 to the Registrant's Registration on
form 8-K dated May 15, 998 (File No. 000-24131)).
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)).
4.4 Enterbank Holdings, Inc., Qualified Incentive Stock Option Plan
(incorporated herein by reference to the Registrant's 1998 Proxy
Statement).
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).
10.3 Revised Customer Referral Agreement by and among Enterbank
Holdings, Inc., Enterprise Bank and Moneta Group Investment
Advisors, Inc.<F1>
11.1 Statement regarding computation of per share earnings. <F1>
13.1 1998 Annual Report. <F1>
21.1 Subsidiaries of the Registrant. <F1>
23.1 Consent of KPMG. <F1>
24.1 Power of Attorney. <F1>
27.1 Financial Data Schedule. (EDGAR only) <F1>
99.1 1998 Proxy Statement. <F1>
<FN>
- ------------------------
<F1>Filed Herewith
</TABLE>
62
<PAGE> 1
CUSTOMER REFERRAL AND SUPPORT AGREEMENT
THIS AGREEMENT is made this 26th day of February, 1999, by and among
Moneta Group Investment Advisors, Inc., a Missouri corporation ("MGIA"),
Enterbank Holdings, Inc., a bank holding company organized under the laws of
Delaware ("Enterbank"), and Enterprise Bank of Clayton, a banking subsidiary
of Enterbank (the "Bank").
RECITALS:
A. MGIA is an investment adviser registered with the Securities and
Exchange Commission pursuant to the Investment Advisers Act of 1940, as
amended, and provides investment advisory and financial planning services to
individuals and business organizations.
B. The Bank is engaged in accepting deposit accounts and in making
loans or otherwise extending credit and providing commercial bank services.
The Bank also has established a new division, Enterprise Financial Advisors,
which offers financial planning, insurance and trust services, through its
subdivision Enterprise Trust (collectively, "EFA").
C. Prior to the date of this Agreement, principals of MGIA ("MGIA
Principals") have recommended to certain of their clients the banking
services offered by Bank, subject to the discharge of their fiduciary
obligation to clients and to the extent consistent with this obligation.
D. Prior to the date of this Agreement, MGIA Principals also have
provided training and consulting services to EFA personnel.
E. Bank believes that referrals by MGIA Principals of MGIA clients
to Bank will contribute to the growth of the Bank's deposit and lending
activities and it desires to enter into this Agreement to promote and
encourage such referrals by MGIA Principals.
F. Bank also believes that training and consulting services provided
by MGIA Principals will contribute to the growth and financial success of EFA
and it desires to enter into this Agreement with MGIA to ensure continued
access to these services.
G. Enterbank has entered into this Agreement to secure for itself
and its subsidiaries the benefits of the incentive inherent in common stock
ownership by MGIA Principals, who are important to its future growth and
financial success; and affording MGIA Principals the opportunity to obtain or
increase a proprietary interest in Enterbank and, thereby, to have an
opportunity to share in its success.
H. The granted options shall be a nonqualified stock options which
do not satisfy the requirements of Section 422 of the Internal Revenue Code.
I. This Agreement shall supersede and replace the Customer Referral
Agreement dated October 31, 1997 by and among MGIA, Enterbank and Bank, as
well as the Moneta Bank
- 1 -
<PAGE> 2
Marketing and Solicitation Agreement dated October 31, 1997, by and among MGIA,
W.S. Griffith & Co., Inc. and Bank; provided that, upon termination, MGIA and
W.S. Griffith & Co., Inc. shall remain obligated to pay to Bank the amounts to
which Bank was entitled to receive with respect to the accounts referred to
MGIA by Bank and listed on Schedule A attached hereto.
NOW, THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS. When used in this Agreement, the following
terms shall have the following meanings:
(a) "Agreement" shall mean this Customer Referral and
Support Agreement.
(b) "Change in Control" shall mean the happening of any
of the following events:
(i) The sale of all or substantially all of the
assets of Enterbank or the Bank;
(ii) Any person or entity who is not a shareholder
of Enterbank on the date this Agreement is executed becomes the
beneficial owner, directly or indirectly, of securities of
Enterbank representing more than fifty percent of the combined
voting power of Enterbank's then outstanding securities;
(iii) Any merger or consolidation involving Enterbank
other than a merger or consolidation in which the outstanding
capital stock of Enterbank immediately prior to the
effectiveness of such merger or consolidation is converted into
(or remains outstanding and constitutes) a majority of the voting
common stock of the surviving or resulting entity; or
(iv) Any transaction pursuant to which a majority of
the outstanding capital stock of either Enterbank or of the Bank
is acquired by a person or group pursuant to a tender offer or
plan of acquisition or reorganization.
(c) "EFA Gross Margin" shall mean total revenues of EFA
including, but not limited to, EFA financial planning and trust fees,
and brokerage commissions and insurance commissions generated from EFA
clients by the Bank, less subcustodial fees paid by the Bank on behalf
of EFA clients (or costs of custodial services incurred directly by
Bank on behalf of EFA clients, in an amount not to exceed the
percentage of such total revenues paid by Bank as subcustodial fees
immediately prior to Bank's direct provision of custodial services) and
less brokerage and insurance commissions paid by the Bank to EFA
financial planning representatives, before taxes and interest, as
determined in accordance with generally accepted accounting principles,
consistently applied.
- 2 -
<PAGE> 3
(d) "Effective Date" Shall mean the date of execution of
this Agreement as set forth above.
(e) "Market Value Per Share" Of a share of Enterbank's
common stock shall mean the following:
(i) if the common stock of Enterbank is traded on a
national securities exchange or if such stock is traded on the
over-the-counter market maintained by NASDAQ, Inc., then the
Market Value Per Share shall be equal to the reported closing
price per share of such stock as of the applicable date; or
(ii) if the common stock of Enterbank is not traded
as provided in (i) above, and Enterbank has granted Stock Options
or Stock Appreciation Rights to employees or directors within
thirty (30) days preceding the applicable date, the Market Value
Per Share shall be the Market Value Per Share as used for
purposes of the last such grant; or
(iii) if not traded as provided in (i), and (ii)
above is not applicable, then the Market Value Per Share shall be
determined in good faith by the Board of Directors of Enterbank
in consultation with the firm of J.A. Glynn & Co., or another
broker-dealer as may be agreed upon by Enterbank and MGIA.
(f) "MGIA Referral Accounts" shall have the meaning set
forth in Section 2(d).
(g) "Option Price" shall mean Market Value Per Share on
the date of the grant of the option.
(h) "Optioned Shares" shall mean the shares an MGIA
Principal is entitled to purchase pursuant to this Agreement.
(i) "Stock Option Agreement" shall mean a stock option
agreement in substantially the form as Exhibit A to this Agreement.
2. REFERRALS OF MGIA CLIENTS TO BANK.
(a) Bank Deposit Accounts. Subject to and to the extent
consistent with its fiduciary duty to its clients, MGIA will recommend
that its clients establish deposit accounts at the Bank. MGIA will
provide to Bank such account documentation as Bank shall require. MGIA
also will request that its clients sign a limited power of attorney
granting MGIA authority to withdraw funds from such Bank account for
the limited purpose of settling purchases of securities by the client
and to disburse funds from such account only to an another account of
client that is titled in an identical manner to the client's Bank
account. Bank will be authorized to rely upon instructions received
from MGIA Principals who have been granted a limited power of attorney
by a
- 3 -
<PAGE> 4
client, and MGIA agrees to indemnify and hold harmless Bank from
and against any loss, claim, damage or expense suffered by Bank as a
result of Bank's reliance on instructions from that Principal; provided
that, the loss was not caused by Bank's negligence.
(b) Loans and Other Bank Services. Subject to and to the
extent consistent with its fiduciary duty to its clients, MGIA will
refer its clients to Bank for loans and other credit and financial
services (but not financial planning services) provided by Bank. MGIA
and Bank agree that any MGIA client referred by MGIA will have
discretion to elect the use of any banking service offered by Bank
subject to the terms and fees as may be agreed upon between Bank and
such client.
(c) Exclusivity of Referrals. Although MGIA may, in the
exercise of its fiduciary duty to its clients, recommend other banks or
financial institutions that offer deposit, loans and other services
similar to those provided by the Bank, MGIA agrees that this is an
exclusive Agreement. Enterbank and Bank agree that, within a 100 mile
radius of the City of St. Louis, neither Enterbank nor Bank shall not
enter into any material agreement with any other non-affiliated party
to provide referrals to Bank for compensation without prior written
consent from MGIA. Material agreements are those agreements that may
reasonably cause the non-affiliated party to earn in excess of $25,000
per year in compensation from Enterbank or Bank, or both. Under no
circumstances shall Enterbank or Bank enter into any compensation
agreement with a non-affiliated financial planning firm within a 100
mile radius of the City of St. Louis.
(d) Identification of MGIA Referral Accounts. Accounts
of MGIA clients referred to the Bank shall be identified as "MGIA
Referral Accounts" as follows:
(i) Each deposit account established by an MGIA
Principal on behalf of an MGIA client, each deposit account of a
MGIA client referred to Bank by an MGIA Principal on or after
October 31, 1997, and each account listed on Schedule B attached
hereto shall be deemed to be an MGIA Referral Account.
(ii) MGIA will identify to Bank at the time of
introduction to Bank those clients that it will introduce to Bank
for loans, deposits or other banking services. Each account
established, or banking service utilized, by a person who was
introduced to the Bank by an MGIA Principal shall be deemed to be
an MGIA Referral Account; provided, however, that any account
established by a client who has had a banking relationship with
Bank prior to the introduction shall not be deemed to be an MGIA
Referral Account unless the Joint Resolution Committee (as
defined below) determines that MGIA's referral of such client has
caused the Bank expand its relationship with that client as a
result of such referral.
(iii) Accounts established with Bank by persons who
have a "primary relationship" with the holder of an MGIA Referral
Account ("Account Holder") also will be deemed to be MGIA
Referral Accounts. For purposes of
- 4 -
<PAGE> 5
this paragraph, "primary relationship" means the person is: (a) a
member of the "immediate family" of the Account Holder, (b) a trust
or other fiduciary account of which the Account Holder is either
the settlor or the fiduciary; or (c) an account established by or
for the benefit of an entity or person that is controlled by or
under common control with the Account Holder. An "immediate
family" member as used herein shall mean the spouse, direct lineal
descendant or parent of an Account Holder.
(e) Monthly Report. Bank shall provide to MGIA a monthly
report of all MGIA Referral Accounts opened during the prior month.
(f) Disclosure of Referral Relationship. As a fiduciary
to its clients, MGIA will disclose to its clients the relationship
arising between MGIA and Bank in a manner consistent with applicable
legal and regulatory requirements.
3. TRAINING SERVICES TO BE PROVIDED BY MGIA. MGIA will
provide training for all EFA financial planning representatives ("EFA
Financial Planners"), which training shall be comparable to that provided by
MGIA to its investment advisory representatives. MGIA will provide
consulting services regarding registration of EFA Financial Planners with the
appropriate broker-dealer firm and applicable federal and state securities
and insurance regulatory authorities and MGIA will use its best efforts to
secure fee arrangements with a broker-dealer firm and other service providers
similar to those obtained by MGIA. MGIA also will provide EFA with training
regarding, and access to, financial planning software and programs, which
software and programs shall be comparable to those provided by MGIA to its
investment advisory representatives. MGIA will train EFA officers in
recruiting and testing techniques for testing potential candidates. MGIA
also will train new EFA employees in sales techniques and case work
preparation. MGIA shall provide such additional training and consulting
services in the future as the parties may agree to in writing.
MGIA shall not engage in any investment advisory, securities brokerage
or insurance agent activities on behalf of Bank clients. MGIA Principals
shall not recommend any security or insurance product, give any form of
advice or discuss the merits of any security or insurance product with a Bank
customer.
4. CASH COMPENSATION TO MGIA.
(a) Beginning January 1, 2001 and each year thereafter,
Bank shall pay to MGIA an annual fee as set forth below:
<TABLE>
<CAPTION>
Annual Fee as a
EFA Gross Margin Percentage of EFA Gross Margin
----------------- ------------------------------
<S> <C>
First $2,000,000 12.5% of EFA Gross Margin
Next $2,000,000 15.0% of EFA Gross Margin
$4,000,001 and above 17.5% of EFA Gross Margin
</TABLE>
- 5 -
<PAGE> 6
The fee shall be computed based upon EFA Gross Margin as of
December 31st of the prior year. The fee shall be due and payable
annually within thirty (30) days after December 31st of the prior year.
If, prior to December 31st, there is a Change in Control or this
Agreement is terminated by Enterbank or Bank prior to the Termination
Date (defined below), MGIA shall be entitled to a pro-rated portion of
the above-referenced fee from January 1 to the date of the Change in
Control or the Termination Date, as applicable. Such pro-rated fee
shall be due and payable within thirty (30) days of the date of such
Change in Control or the Termination Date.
(b) In the event of a Change in Control, Enterbank agrees
to pay to MGIA a lump sum payment within thirty (30) days of the date
of the Change in Control in an amount calculated as follows:
EFA Adjusted Net Income for the four complete fiscal quarters
immediately preceding the Change in Control
x 17.5%
x Enterbank's Price/Earnings Ratio (based on the earnings for
such four fiscal quarters) as of the date of the Change in
Control
= Lump Sum Payment to MGIA upon Change in Control
As used herein, "EFA Adjusted Net Income" shall mean Net Income of the
EFA division as reflected in the books and records of Enterbank as determined
in accordance with generally accepted accounting principles. Net Income
shall reflect revenues from all trust and financial planning activities,
including, but not limited to, trust fees, brokerage and insurance
commissions and financial planning fees. Net Income shall also reflect all
expenses directly associated with the operations of the EFA division,
including, but not limited to, commissions, personnel, occupancy, general and
administrative expenses. Adjustments to Net Income shall reverse the effects
of inter-company revenue sharing arrangements and holding company pass
through expenses not directly attributed to the operations of the EFA
division.
5. GRANT OF OPTIONS TO MGIA PRINCIPALS.
(a) Options Granted as a Result of MGIA Referral
Accounts. Subject to and upon the terms and conditions set forth in
this Agreement, as of December 31st of each year during the term of
this Agreement, Enterbank hereby grants to each MGIA Principal who is
designated by MGIA as the principal responsible for an MGIA Referral
Account according to Section 8 below the number of options ("Annual
Options") calculated as set forth below.
If there is a Change in Control or if this Agreement is
terminated prior to the Termination Date (defined below), Enterbank
hereby grants to each designated MGIA Principal the number of Annual
Options earned from January 1 to the date of the Change in Control or
the Termination Date, as applicable, calculated as set forth below.
- 6 -
<PAGE> 7
For each MGIA Referral Account for which an MGIA Principal
is designated as the principal responsible for that Account, the MGIA
Principal will receive the following number of Annual Options with
respect to that Account:
Margin Contribution Rate
x Annual Average Balance
---------------------------------------------------------
= Margin Contribution
- Prior Year Margin Contribution
---------------------------------------------------------
= Margin Contribution Increase
/ Market Value Per Share as of December 31st
---------------------------------------------------------
= Number of Annual Options (rounded to the nearest
whole share)
As used herein, the above-referenced terms shall be defined as follows:
"Margin Contribution Rate" shall mean the rate established below.
<TABLE>
<CAPTION>
Type of MGIA Referral Account Margin Contribution Rate
----------------------------- ------------------------
<S> <C>
Loan 4.00%
Free Checking 4.00%
NOW Account 2.50%
Personal Money Market 0.50%
Commercial Money Market 0.50%
Investment Money Market 0.75%
Certificate of Deposit 0.25%
</TABLE>
"Annual Average Balance" shall mean the aggregate daily sum of each
day's balance (as determined on the 15th and last days of each month)
of an MGIA Referral Account divided by the total number of days in the
year.
"Margin Contribution" shall mean the Margin Contribution Rate
multiplied by the Annual Average Balance.
"Prior Year Margin Contribution" shall mean the Margin Contribution for
the prior year.
"Margin Contribution Increase" shall mean the Margin Contribution less
the Prior Year Margin Contribution.
EXAMPLE: MGIA PRINCIPAL REFERS A CLIENT TO BANK WHO
BORROWS $1 MILLION FROM BANK ON JULY 1. THE LOAN IS DESIGNATED
AN " MGIA REFERRAL ACCOUNT" AND IT REMAINS OUTSTANDING UNTIL
REPAID BY THE CLIENT ON JULY 30TH (30 DAYS). ASSUME, FOR
PURPOSES OF THIS EXAMPLE ONLY, THAT THE MGIA PRINCIPAL'S MARGIN
CONTRIBUTION FOR THE PRIOR YEAR WAS $1,000 AND THAT THE MARKET
VALUE PER SHARE OF ENTERBANK STOCK AS OF DECEMBER 31ST IS
$30.00.
- 7 -
<PAGE> 8
ENTERBANK WOULD GRANT THE FOLLOWING NUMBER OF ANNUAL OPTIONS TO
MGIA PRINCIPAL AS OF DECEMBER 31ST:
0.04 (4.00% Margin Contribution Rate for loans)
x $82,191.78 (($1 million x 30 days)/ 365 days - Annual
Average Balance)
----------------------------------------------------------------
= $ 3,287.67 (Margin Contribution)
- $ 1,000.00 (Prior Year Margin Contribution)
----------------------------------------------------------------
= $ 2,287.67 (Margin Contribution Increase)
/ $ 30.00 (Market Value Per Share as of 12/31)
----------------------------------------------------------------
= 76 Annual Options
(b) Options Granted For Training Services. Subject to
and upon the terms and conditions set forth in this Agreement,
Enterbank hereby grants to those MGIA Principals as designated by MGIA
according to Section 8 below the following:
(i) on the Effective Date, options to purchase up
to an aggregate number of 20,000 shares of Enterbank's common
stock during the Option Term at the Option Price as of the
Effective Date ("Initial Optioned Shares").
(ii) on the date on which Enterprise Trust, a
division of EFA, reaches $100 million in assets under custody,
options to purchase up to an additional aggregate number of
20,000 shares of Enterbank's common stock during the Option Term
at the Option Price as of such date ("Second Optioned Shares").
(c) In the event that Enterbank or Bank terminates this
Agreement prior to the Termination Date (as defined below), Enterbank
hereby agrees to grant to those MGIA Principals designated by MGIA
according to Section 8 below, as of the Termination Date, options to
purchase the number of shares of Enterbank common stock ("Termination
Options") determined as follows:
(EFA Gross Margin for the four complete fiscal quarters
immediately preceding termination) x 17.5%
divided by the Market Value Per Share as of the Termination Date
----------
= Number of Termination Options (rounded to nearest whole
share)
(d) Anything in this Agreement to the contrary
notwithstanding, the maximum number of shares of the common stock of
Enterbank to be subject to options awarded hereunder shall not exceed
[200,000] (subject to adjustment to reflect any stock
- 8 -
<PAGE> 9
split, stock dividend, combination or other recapitalization of the
common stock of Enterbank subsequent to the date of this Agreement).
(e) Enterbank agrees that it shall reserve from its
authorized but unissued shares of common stock a sufficient number of
shares to permit the award and exercise of options issuable in
accordance with the foregoing.
6. EXERCISE PRICE. Each option to be issued and awarded as a
result of Section 5 shall be issued and evidenced by a Stock Option Agreement
in the form of Exhibit A attached hereto and shall provide for an exercise
price per share equal to the Market Value Per Share as of the date of grant
of the option. Notwithstanding the actual date of award of such Option and
execution of the related Stock Option Agreement, each such option shall bear
a date of grant as specified in Section 5 above.
7. OPTION TERM. For so long as an MGIA Principal remains a
principal of MGIA, options to purchase Optioned Shares held by that MGIA
Principal shall expire on the Termination Date, unless sooner terminated
pursuant to this Agreement. Upon termination of an MGIA Principal's
employment with MGIA, that Principal's options to purchase Optioned Shares
shall expire ninety (90) days after the date on which his or her employment
is terminated with MGIA.
8. ISSUANCE OF OPTIONS TO MGIA PRINCIPALS.
(a) MGIA shall provide to Enterbank a list of the MGIA
Principals to whom options are to be granted and the number of Optioned
Shares to be granted to each Principal on the list. Such allocation
and designation shall be made in the sole discretion of MGIA, having
due regard for the contributions of such MGIA Principals primarily
responsible for establishing MGIA Referral Accounts or who provided
training and consulting services to EFA or the Trust Division, as
applicable; provided, however, that the total number of individuals to
whom options are granted shall not exceed 35 individuals who are not
"accredited investors" as that term is defined in Regulation D under
the Securities Act of 1933. MGIA shall certify those Principals that
are accredited investors and shall provide to Enterbank such
Principals' social security numbers, residential address and other
information as Enterbank reasonably may request.
(b) Within thirty (30) days of receipt of MGIA's written
notice described above, Enterbank shall prepare, execute and deliver
Stock Option Agreements in the form of Exhibit A reflecting each MGIA
Principal's individual options.
(c) At the time of first issuance of an option to any
MGIA Principal in accordance with the terms of this Agreement,
Enterbank will deliver to such MGIA Principal a copy of its most recent
report on Form 10-K filed with the SEC pursuant to the Securities
Exchange Act of 1934, together with copies of all subsequent interim
reports filed under such Act. For so long as an MGIA Principal holds
any unexercised
- 9 -
<PAGE> 10
option issued pursuant to this Agreement, Enterbank shall deliver copies
of all subsequent filings made by it under Sections 12, 14 or 15 of the
Securities Exchange Act.
9. OPTIONS NON-TRANSFERABLE. These options shall be neither
transferable nor assignable by any MGIA Principal other than by will or by
the laws of descent and distribution, and may be exercised during an MGIA
Principal's lifetime only by such Principal.
10. VESTING. The Optioned Shares shall vest 20% per year on
the anniversary date of the date of grant of the options; provided that if
there is a Change in Control or if this Agreement is terminated prior to the
Termination Date (defined below), the Optioned Shares shall be fully vested
as of the Date of Change in Control or the Termination Date, as applicable.
11. DATES OF EXERCISE. Pursuant to the provisions of this
Agreement, an MGIA Principal may purchase any or all of the Optioned Shares
that are vested at any time, or from time to time, during the Option Term
after the date of grant.
12. PRIVILEGE OF STOCK OWNERSHIP. As holder of an option, an
MGIA Principal shall not have any of the rights of a shareholder with respect
to the Optioned Shares until such Principal has exercised the option and paid
the Option Price.
13. TERM OF THE AGREEMENT; TERMINATION DATE
(a) Term. This Agreement shall be for a term of ten
years commencing on the date hereof and expiring on January 1, 2009
("Termination Date"); provided, however, that:
(i) This Agreement may be terminated prior to the
expiration of its term (i) in the event that Enterbank or the
Bank shall be subject to a Change of Control and Enterbank pays
to MGIA the compensation set forth in Section 4(b), or (ii) at
the election of Enterbank or the Bank after the grant by
Enterbank of Termination Options to MGIA as determined in
accordance with Section 5(c).
(ii) the expiration of this Agreement at the end of
the term or otherwise shall not relieve Bank of its obligation to
determine the EFA Gross Margin for the final accounting period of
this Agreement or the obligation of Enterbank to pay compensation
to MGIA or issue options in accordance with the terms of this
Agreement with respect to such final accounting period.
(iii) the expiration or termination of this Agreement
shall not affect the validity of any outstanding option.
(iv) the expiration of this Agreement at the end of
the term or otherwise shall not terminate the indemnification and
hold harmless obligations and covenants of the parties as set
forth herein.
- 10 -
<PAGE> 11
14. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PARTIES.
(a) MGIA represents, warrants and agrees that:
(i) MGIA is a corporation duly organized and
validly existing under the laws of the State of Missouri with
full corporate power and authority to execute, deliver and
perform this Agreement.
(ii) The execution, delivery and performance of this
Agreement by MGIA will not violate or conflict with any provision
of, or constitute a default under, any law, or any order, writ,
injunction, decree of any court or other governmental agency, or
any contract, agreement or instrument to which MGIA is a party or
by which MGIA is bound, or constitute an event which, with the
lapse of time or action by a third party or both, could result in
the creation of any lien, charge or encumbrance upon any of the
assets or properties of MGIA.
(iii) The sole director of MGIA has authorized and
approved the execution and delivery of this Agreement and the
transactions contemplated hereby. This Agreement constitutes a
valid and binding obligation of MGIA in accordance with its
terms.
(iv) MGIA is duly registered with the Securities and
Exchange Commission as an investment adviser under the Investment
Advisers Act of 1940, as amended, and has heretofore provided to
Enterbank a true, correct and complete copy of Part II of its
registration statement on Form ADV as amended to date.
(b) Enterbank represents, warrants and agrees that:
(i) Enterbank is a corporation duly organized and
validly existing under the laws of the State of Delaware with
full corporate power and authority to execute, deliver and
perform this Agreement. Enterbank has sufficient authorized but
unissued shares of its common stock for the purpose of the
options to be issued under this Agreement.
(ii) The execution, delivery and performance of this
Agreement by Enterbank will not violate or conflict with any
provision of, or constitute a default under, any law, or any
order, writ, injunction, decree of any court or other
governmental agency, or any contract, agreement or instrument to
which Enterbank is a party or by which Enterbank or any of its
subsidiaries is a party or by which any of them is bound or
constitute an event which, with the lapse of time or action by a
third party or both, could result in the creation of any lien,
charge or encumbrance upon any of the assets or properties of
Enterbank.
(iii) The Board of Directors of Enterbank has
authorized and approved the execution and delivery of this
Agreement and the transactions
- 11 -
<PAGE> 12
contemplated hereby. This Agreement constitutes a valid and
binding obligation of Enterbank in accordance with its terms.
(iv) Enterbank has heretofore delivered to MGIA
true, correct and complete copies of all filings required of it
under section 15(d) of the Securities Exchange Act of 1934, as
amended. Enterbank covenants and agrees that during the term of
this Agreement and for so long thereafter as any option issued
pursuant hereto is outstanding, it will either (i) remain subject
to and use its best efforts to file in a timely manner all
reports required under section 15(d) of the Securities Exchange
Act of 1934, as amended, or it (ii) will cause its common stock
to be registered as a class of securities under section 12 of the
Securities Exchange Act of 1934, as amended, and in such event
will use its best efforts to file in a timely manner all reports
required under section 13 or 14 of the Securities Act of 1934.
(c) Bank represents, warrants and agrees that:
(i) Bank is a banking corporation duly organized
and validly existing under the laws of the State of Missouri with
full corporate power and authority to execute, deliver and
perform this Agreement.
(ii) The execution, delivery and performance of this
Agreement by Bank will not violate or conflict with any provision
of, or constitute a default under, any law, or any order, writ,
injunction, decree or any court or other governmental agency, or
any contract, agreement or instrument to which Bank is a party or
by which Bank is bound or constitute an event which, with the
lapse of time or action by a third party or both, could result in
the creation of any lien, charge or encumbrance upon any of the
assets or properties of Bank.
(iii) The Board of Directors of Bank has authorized
and approved the execution and delivery of this Agreement and the
transactions contemplated hereby. This Agreement constitutes a
valid and binding obligation of Bank in accordance with its
terms.
15. INDEMNIFICATION.
(a) By Enterbank and Bank. Enterbank and the Bank shall
jointly and severally defend, reimburse, indemnify and hold harmless
MGIA and its affiliates, officers, directors, employees and agents
against any and all losses, claims, damages, liabilities, actions,
costs or expenses, joint or several, to which any indemnified party may
become subject (including any legal or other expenses reasonably
incurred by it in connection with investigating any claim against it
and any amounts paid in settlement or compromise, provided the Bank
shall have given its prior written approval of such settlement or
compromise), insofar as such losses, claims, damages, liabilities,
actions, costs or expenses arise in connection with or are based upon:
(i) the breach by the Bank of any representation, warranty or covenant
made by Enterbank or the Bank herein; (ii) any act or omission to act,
- 12 -
<PAGE> 13
whether negligent, reckless or intentional, by Enterbank or the Bank or
their employees or affiliates in connection with the subject of this
Agreement; or (iii) the failure of Enterbank or the Bank or their
affiliates to or employees to comply with all banking laws, rules and
regulations applicable to this Agreement.
(b) By MGIA. MGIA shall defend, reimburse, indemnify and
hold harmless Enterbank and the Bank, their affiliates, officers,
directors and employees against any and all losses, claims, damages,
liabilities, actions, costs or expenses, joint or several, to which any
indemnified party may become subject (including any legal or other
expenses reasonably incurred by it in connection with investigating any
claim against it and any amounts paid in settlement or compromise,
provided MGIA shall have given its prior written approval of such
settlement or compromise), insofar as such losses, claims, damages,
liabilities, actions, costs or expenses arise in connection with or are
based upon: (i) the breach by MGIA of any representation, warranty or
covenant made by MGIA herein; or (ii) any act or omission to act,
whether negligent, reckless or intentional, by MGIA or its employees or
affiliates under this Agreement.
(c) Notice of Indemnification. In the event any legal
proceeding is threatened or instituted or any claim or demand is
asserted by any person for which payment may be sought by one party
hereto from the other party under the provisions of this section, the
party seeking indemnification (the "Indemnitee") will promptly cause
written notice of the assertion of any such claim of which it has
knowledge to be forwarded to the other party (the "Indemnitor"). Any
notice of a claim will state specifically the representation, warranty
or covenant with respect to which the claim is made (if applicable),
the facts giving rise to an alleged basis for the claim and the amount
of the liability asserted against the Indemnitor by reason of the
claim.
(d) Indemnification Procedure for Third-Party Claims. In
the event of the initiation of any legal proceeding against an
Indemnitee by a third party, the Indemnitor will have the absolute
right after the receipt of notice, at its option and at its own
expense, to be represented by counsel of its choice, and to defend
against, negotiate, settle or otherwise deal with any proceeding, claim
or demand which relates to any loss, liability or damage indemnified
against hereunder; provided, however, that the Indemnitee may
participate in any such proceeding, with counsel of its choice and at
its expense. The parties hereto agree to cooperate fully with each
other in connection with the defense, negotiation or settlement of any
such legal proceeding, claim or demand. To the extent the Indemnitor
elects not to defend such proceeding, claim or demand, and the
Indemnitee defends against or otherwise deals with any such proceeding,
claim or demand, the Indemnitee may retain counsel, at the Indemnitor's
expense, and control the defense of such proceeding. Neither the
Indemnitor nor the Indemnitee may settle any such proceeding without
the consent of the other party, such consent not to be unreasonably
withheld. After any final judgment or award has been rendered by a
court, arbitration board or administrative agency of competent
jurisdiction and the time in which to appeal therefrom has expired, or
a settlement has been consummated, or the Indemnitee and the Indemnitor
have arrived at a mutually binding agreement with respect to each
separate matter alleged to be indemnified by the Indemnitor
- 13 -
<PAGE> 14
hereunder, the Indemnitee will forward to the Indemnitor notice of any
sums due and owing by it with respect to such matter and the Indemnitor
will pay all of the sums so owing to the Indemnitee by wire transfer,
certified or bank cashier's check within thirty (30) days after the date
of such notice.
16. DISPUTE RESOLUTION. The parties shall establish a Joint
Resolution Committee to resolve any dispute arising out of this Agreement.
Such Committee initially shall consist of Peter G. Schick and one other
representative designated by MGIA, and Fred H. Eller and one other
representative designated by the Bank. Either MGIA or the Bank shall have
the right, from time to time, to change its representation on the Committee
by written notice. The Joint Resolution Committee shall have access to such
financial records of Enterbank as it shall deem reasonably necessary in order
to settle disputes regarding financial calculations as set forth in the
Agreement relevant to compensation to be paid to MGIA or the number of
options to be granted to MGIA Principals and Enterbank agrees to provide such
information upon request. Each member of the Committee, by serving thereon,
agrees to maintain the confidentiality of such information.
In addition to the duties set forth above, the Joint Resolution
Committee shall function to review the determination by the Chief Financial
Officer of the Bank of the EFA Gross Margin and other financial calculations
described in this Agreement, and to certify such results to the President of
MGIA and the Chief Executive Officer of the Bank.
In the event that the Joint Resolution Committee shall be divided
and unable to resolve any dispute, such dispute shall be resolved as follows:
(a) If the dispute relates to the determination of the EFA Gross Margin or
other financial calculation, the dispute will be referred to an independent
accountant selected by the Joint Resolution Committee, and the determination
of such firm shall be conclusive; or (b) if the dispute relates to any other
matter arising out of the Agreement, the dispute will be resolved by an
abbreviated arbitration process pursuant to which MGIA and the Bank shall
agree upon a single arbitrator and the decision of that arbitrator shall be
final. In the event that MGIA and the Bank are unable to agree upon a single
arbitrator, each of MGIA and the Bank shall appoint one arbitrator and the
arbitrators so selected will appoint a third arbitrator who will serve as
chairman of the panel. Any arbitration shall be conducted in accordance with
the rules of the American Arbitration Association, unless otherwise agreed by
the parties.
17. MISCELLANEOUS.
(a) Entire Agreement. This Agreement, together with the
Exhibits attached hereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof and supersedes all
prior agreements or understandings of the parties hereto.
(b) Amendments. This Agreement may be amended by the
parties hereto at any time by action taken by, or pursuant to authority
delegated by, their respective Boards of Directors, provided, however
that no amendment which shall alter the form or
- 14 -
<PAGE> 15
terms of any option hereunder shall affect the terms or construction of
any option issued prior to the date of such amendment without the consent
of the optionee.
(c) Captions and Headings. All headings or captions
contained in this Agreement or in any Exhibit attached hereto are for
convenience of reference only and shall not be deemed a part of this
Agreement and shall not affect the meaning or interpretation of the
Agreement.
(d) No Third-Party Rights. Except for the rights of the
optionees under any option granted pursuant hereto and except for the
treatment of officers, directors and employees of the parties as
potential indemnitees in accordance with the terms of Section 15, no
provision of this Agreement shall be deemed or construed in any way to
result in the creation of any rights or obligations in any person or
entity not a party to this Agreement.
(e) Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original but
all of which together shall constitute a single instrument.
(f) Governing Law. Except regarding matters controlled
by federal law, this Agreement shall be governed and construed in
accordance with the laws of the State of Missouri excluding any choice
of law rules which may direct the application of the law of another
state; provided, however, that matters of law concerning the internal
corporate affairs of Enterbank shall be governed by the general
corporation laws of its state of incorporation.
(g) Successors and Assigns. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and
their respective successors and assigns; provided, however, that except
by operation of law no party may assign any of its rights, duties or
obligations hereunder without the prior written consent of each other
party; and provided, further, that no assignment of this Agreement or
any rights hereunder shall relieve the assigning party of any of its
obligations or liability hereunder.
(h) Notices. Any notice required or permitted under this
Agreement shall be in writing, and either hand delivered mailed by
certified mail, return receipt requested, to the following addresses:
Moneta Group Investment Advisors, Inc.
700 Corporate Park Drive, Suite 300
Clayton, Missouri 63105
Attn: Joseph A. Sheehan
- 15 -
<PAGE> 16
Enterbank Holdings, Inc.
Enterprise Bank of Clayton
150 N. Meramec
Clayton, Missouri 63105
Attn: James C. Wagner, Chief Financial Officer
Notice shall be deemed given on the date of receipt, in the case
of hand delivery, or on the date delivered, as shown on the U.S. Postal
Service return receipt, in the case of mailing. Any party may change
the address to which notice is to be delivered to it under this
Agreement by giving notice to that effect to the other parties hereto
in the manner provided in this Section.
(i) Severability. If any provision of this Agreement is
found or declared to be invalid or unenforceable by any court or other
competent governmental regulatory agency having jurisdiction, such
finding or declaration shall not invalidate any other provision hereof
and this Agreement shall thereafter continue in full force and effect
except that such invalid or unenforceable provision, and (if necessary)
other provisions(s) thereof, shall be reformed by a court of competent
jurisdiction so as to effect, insofar as is practicable, the intention
of the parties as set forth in this Agreement, provided that if such
court is unwilling or unable to effect such reformation, the invalid or
unenforceable provision shall be deemed deleted to the same extent as
if it had never existed.
(ii) Expenses. Each party to this Agreement shall pay its
respective expenses incurred in connection with the preparation and
performance of this Agreement and the transactions contemplated hereby.
IN WITNESS WHEREOF, MGIA, Bank and Enterbank each have caused this
Agreement to be executed in duplicate on its behalf by its duly authorized
officer, all as of the day and year indicated above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED
BY THE PARTIES.
MONETA GROUP INVESTMENT ADVISORS, INC.
By: -----------------------------------
Peter G. Schick, President
Address:
700 Corporate Park Drive, Suite 300
Clayton, MO 63105
- 16 -
<PAGE> 17
ENTERBANK HOLDINGS, INC.
By: -----------------------------------
James C. Wagner, Chief Financial Officer
Address:
150 North Meramec
St. Louis, MO 63105
ENTERPRISE BANK OF CLAYTON
By: -----------------------------------
Fred H. Eller, President
Address:
150 North Meramec
St. Louis, MO 63105
The undersigned hereby consents to the revocation and termination
of the Moneta Bank Marketing and Solicitation Agreement dated October 31,
1997:
W.S. GRIFFITH & CO., INC.
By: -----------------------------------
- 17 -
<PAGE> 18
EXHIBIT A
STOCK OPTION AGREEMENT
THIS AGREEMENT is made this day of , , by and
---- ----------- -----
between Enterbank Holdings, Inc. (the "Company") and
("You" or "Your").
- --------------------------------
RECITALS:
A. You are a principal of Moneta Group Investment Advisors, Inc.
("MGIA Principal"). The Company and MGIA have entered into a Customer
Referral and Support Agreement dated February 26, 1999 pursuant to which MGIA
Principals have agreed to provide account referral and training and
consulting services to subsidiaries of the Company.
B. The Company has entered into this Stock Option Agreement for the
purpose of securing for itself and its affiliates the benefits of the
incentive inherent in common stock ownership by MGIA Principals whose
services under the Customer Referral and Support Agreement are important to
the Company's future growth and continued financial success; and affording
You the opportunity to obtain or increase a proprietary interest in the
Company and, thereby, to have an opportunity to share in its success.
C. The granted option shall be a nonqualified stock option which
does not satisfy the requirements of Section 422 of the Internal Revenue
Code.
NOW, THEREFORE, it is hereby agreed as follows:
1. DEFINITIONS. When used in this Agreement, the following terms
shall have the following meanings:
(a) "AGREEMENT" shall mean this Stock Option Agreement.
(b) "GRANT DATE" shall mean ,
---------- ------
(c) "MARKET VALUE PER SHARE" of a share of Enterbank's common
stock shall mean the following:
(i) if the common stock of Enterbank is traded on a
national securities exchange or if such stock is traded on the
over-the-counter market maintained by NASDAQ, Inc., then the Market
Value Per Share shall be equal to the reported closing price per share
of such stock as of the applicable date; or
(ii) if the common stock of Enterbank is not traded as
provided in (i) above, and Enterbank has granted Stock Options or Stock
Appreciation Rights to
- 1 -
<PAGE> 19
employees or directors within thirty (30) days preceding the applicable
date, the Market Value Per Share shall be the Market Value Per Share as
used for purposes of the last such grant; or
(iii) if not traded as provided in (i), and (ii) above is
not applicable, then the Market Value Per Share shall be determined in
good faith by the Board of Directors of Enterbank in consultation with
the firm of J.A. Glynn & Co., or another broker-dealer as may be agreed
upon by Enterbank and MGIA.
(d) "OPTION PRICE" shall mean $ .
--------
(e) "OPTIONED SHARES" shall mean the shares You are entitled to
purchase pursuant to this Agreement.
2. GRANT OF OPTION. Subject to and upon the terms and conditions
set forth in this Agreement, the Company hereby grants to You, as of the
Grant Date, an option to purchase up to shares of the Company's common
-----
stock during the Option Term at the Option Price.
3. OPTION TERM. For so long as You remain a principal of MGIA, this
option shall expire on January 1, 2009, unless sooner terminated pursuant to
the Customer Referral and Support Agreement. Upon termination of Your
employment with MGIA, this option shall expire ninety (90) days after the
date on which Your employment is terminated with MGIA.
4. OPTION NONTRANSFERABLE. This option shall be neither
transferable nor assignable by You other than by will or by the laws of
descent and distribution, and may be exercised during Your lifetime only by
You.
5. VESTING. The Optioned Shares shall vest 20% each year on the
anniversary date of the Grant Date; provided that if there is a Change of
Control, as defined in Section 1(b) of the Customer Referral and Support
Agreement dated February 26, 1999, by and between the Company, Moneta Group
Investment Advisors, Inc. and Enterprise Bank of Clayton (the "Customer
Referral and Support Agreement"); or if the Customer Referral and Support
Agreement is terminated prior to January 1, 2009 (the "Termination Date"),
the Optioned shares shall be fully vested as of the date of the Change in
Control or Termination Date.
6. DATES OF EXERCISE. Pursuant to the provisions of this Agreement,
You may purchase any or all of the Optioned Shares that have vested at any
time, or from time to time, during the Option Term after the Grant Date.
7. ADJUSTMENT IN OPTIONED SHARES.
(a) In the event any change is made to the common stock of the
Company issuable under this Agreement by reason of any stock split,
stock dividend, combination of shares, or other change affecting the
outstanding common stock as a class without receipt of consideration,
then appropriate adjustments will be made to (i) the total number
- 2 -
<PAGE> 20
of Optioned Shares and (ii) the Option Price payable per share in order
to reflect such change and thereby preclude a dilution or enlargement of
benefits hereunder.
(b) If the Company is the surviving entity in any merger or
other business combination, then this option, if outstanding under this
Agreement immediately after such merger or other business combination,
shall be appropriately adjusted to apply and pertain to the number and
class of securities which would be issuable to You in the consummation
of such merger or business combination if the option were exercised
immediately prior to such merger or business combination, and
appropriate adjustments shall be made to the Option Price payable per
share, provided the aggregate Option Price payable hereunder shall
remain the same.
8. PRIVILEGE OF STOCK OWNERSHIP. As holder of this option, You
shall not have any of the rights of a shareholder with respect to the
Optioned Shares until You have exercised the option and paid the Option
Price.
9. MANNER OF EXERCISING OPTION.
(a) In order to exercise this option with respect to all or any
part of the Optioned Shares for which this option is at the time exercisable,
You (or in the case of exercise after Your death, Your executor,
administrator, heir or legatee, as the case may be) must take the following
actions:
(i) Deliver written notice to the Board of Directors of
the Company in advance of the exercise date;
(ii) Execute and deliver to the President or the Secretary
of the Company a Purchase Agreement;
(iii) Pay the aggregate Option Price for the purchased
shares in one or more of the following alternative forms:
(A) full payment, in cash or cash equivalents; or
(B) any other form which the Company may in its
discretion approve at the time of exercise of this option;
and
(iv) Furnish to the Company appropriate documentation that
the person or persons exercising the option, if other than You,
have the right to exercise this option.
(b) Options shall be deemed to have been exercised with respect
to the number of Optioned Shares specified in the Purchase Agreement at
the end of the calendar year in which the executed Purchase Agreement
for such shares shall have been delivered to the Company. Payment of
the Option Price shall immediately become due
- 3 -
<PAGE> 21
and shall accompany the Purchase Agreement. The Market Value Per Share
of shares tendered in payment of the Option Price shall be determined as
of such date. As soon thereafter as practical, the Company shall mail or
deliver to You or to the other person or persons exercising this option a
certificate or certificates (which may be a certificate of interest in
any applicable voting trust) representing the shares so purchased and
paid for.
10. COMPLIANCE WITH LAWS AND REGULATIONS.
(a) The exercise of this option and the issuance of Optioned
Shares upon such exercise shall be subject to compliance by the Company
and You with all applicable requirements of law relating thereto.
(b) In connection with the exercise of this option, You shall
execute and deliver to the Company such representations in writing as
may be requested by the Company in order for it to comply with the
applicable requirements of federal and state securities laws.
11. SUCCESSORS AND ASSIGNS. Except to the extent otherwise provided
in Paragraph , the provisions of this Agreement shall inure to the benefit
of, and be binding upon, Your successors, administrators, heirs, legal
representatives and assigns and the successors and assigns of the Company.
12. NO EMPLOYMENT OR SERVICE CONTRACT. No provision of this Agreement
shall be construed to grant You status as an employee of the Company or its
subsidiary corporations for any period of specific duration.
13. NOTICES. Any and all notices referred to or relating to this
Agreement shall be furnished in writing and delivered in person or sent by
registered mail to the representative parties at the addresses following
their signatures to this Agreement, or at such other address as may be set
forth in a notice in writing to the sending party.
14. WITHHOLDING. If You acquire Optioned Shares, the Company shall
not deliver or otherwise make such shares available to You until You pay to
the Company in cash (or any other form acceptable to the Company) the amount
necessary to enable the Company to remit to the appropriate government entity
or entities on Your behalf the amount required to be withheld from Your wages
with respect to such transaction.
15. CONSTRUCTION. This Agreement and the option evidenced hereby are
in all respects limited by and subject to the express terms and provisions of
this Agreement. All decisions of the Company with respect to any question or
issue arising under this Agreement shall be conclusive and binding on all
persons having an interest in this option.
16. GOVERNING LAW. The interpretation, performance, and enforcement
of this Agreement shall be governed by the laws of the State of Missouri.
- 4 -
<PAGE> 22
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed in duplicate on its behalf by its duly authorized officer and You
have also executed this Agreement in duplicate, all as of the day and year
indicated above.
ENTERBANK HOLDINGS, INC.
By: -----------------------------------
President
Address:
150 North Meramec
St. Louis, MO 63105
------------------------------------------
You (Grantee)
Address: ------------------------------
------------------------------
------------------------------
- 5 -
<PAGE> 23
NOTICE
------
Schedules A and B referenced in the Customer Referral and Support Agreement
dated February 26, 1999 by and among Moneta Group Investment Advisors, Inc.
and Enterbank Holdings, Inc. are omitted. Registrant will furnish
supplementally a copy of these Schedules to the Securities and Exchange
Commision upon request.
- 6 -
<PAGE> 1
<TABLE>
EXHIBIT 11
----------
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<CAPTION>
Basic Diluted
EPS number EPS number Net Basic Diluted
of shares of shares Income EPS EPS
---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
12 months ended December 31, 1997 2,095,359 2,221,211 $2,222,544 $ 1.06 $ 1.00
12 months ended December 31, 1998 2,350,763 2,514,919 $3,010,774 $ 1.28 $ 1.20
<CAPTION>
12 MONTHS ENDED DECEMBER 31, 1997 Basic Diluted
------------ ------------
<S> <C> <C> <C>
Average Shares Outstanding 2,095,359 2,095,359
Options - Plan 1 126,212
Average Option Price $ 5.32
Total Exercise Cost $ 671,448
Shares Repurchased 40,892
Net Shares from Option - Plan 1 85,320
Options - Plan 2 73,702
Average Option Price $ 7.39
Total Exercise Cost $ 544,658
Shares Repurchased 33,170
Net Shares from Option - Plan2 40,532
Options - Plan 3 146,306
Average Option Price $ 16.01
Total Exercise Cost $2,342,359
Shares Repurchased 142,653
Net Shares from Option - Plan 3 -
------------ ------------
Gross Shares 2,095,359 2,221,211
Price $ 16.42
<CAPTION>
12 MONTHS ENDED DECEMBER 31, 1998 Basic Diluted
------------ ------------
<S> <C> <C> <C>
Average Shares Outstanding 2,350,763 2,350,763
Options - Plan 1 43,399
Average Option Price $ 5.90
Total Exercise Cost $ 256,054
Shares Repurchased 9,224
Net Shares from Option - Plan 1 34,175
Options - Plan 2 73,521
Average Option Price $ 7.62
Total Exercise Cost $ 560,230
Shares Repurchased 20,181
Net Shares from Option - Plan 2 53,340
Options - Plan 3 181,223
Average Option Price $ 16.02
Total Exercise Cost $2,903,192
Shares Repurchased 104,582
Net Shares from Option - Plan 3 76,641
------------ ------------
Gross Shares 2,350,763 2,514,919
Price $ 27.76
</TABLE>
<PAGE> 1
A C O M P L E T E
F I N A N C I A L S E R V I C E S
C O M P A N Y
Founded a commercial bank in 1988, Enterprise has evolved into a complete
financial services company. Our mission, strategic intent and business model
reflect our ability to remain flexible and adapt to the evolving needs of our
clients.
OUR MISSION. To help privately held businesses, their owners and
professional individuals build and preserve wealth. We understand that
today's clients require a knowledgeable partner, not just a provider of
financial services.
OUR STRATEGIC INTENT. To position Enterprise as a leading model for serving
the lifetime financial needs of our clients. Through the Enterprise family
of businesses: Enterprise Banking, Enterprise Merchant Banc and Enterprise
Financial Advisors, we provide a level of expertise and service that is
unmatched in our market.
OUR BUSINESS MODEL. To operate dedicated stand-alone business units directed
by partner-managers who, with their associates, share directly in the equity
appreciation of their units. We encourage entrepreneurial autonomy throughout
our organization. This structure is what gives Enterprise the flexibility and
unique flavor our clients find so appealing.
Diligent attention to our mission, strategic intent and business model is how
Enterprise has achieved a record of consistently outstanding growth. We look
forward to serving your lifetime financial needs as your complete financial
services company!
YEAR END ASSETS
[GRAPH]
NET INCOME
[GRAPH]
DILUTED
EARNINGS PER SHARE
[GRAPH]
<PAGE> 2
<TABLE>
S U M M A R Y O F S E L E C T E D
F I N A N C I A L D A T A
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS AND NUMBER OF SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA
Interest income $ 25,414 $ 18,759 $ 12,554 $ 10,914 $ 7,374
Interest expense 11,869 8,582 5,569 4,887 2,570
Net interest income 13,545 10,177 6,985 6,027 4,804
Provision for loan losses 711 775 345 631 450
Noninterest income 2,079 476 1,239 836 805
Noninterest expense 10,052 6,339 5,146 4,187 3,551
Net income 3,011 2,222 1,702 1,304 1,001
Diluted earnings per share 1.20 1.00 0.97 0.77 0.62
Basic earnings per share 1.28 1.06 1.11 0.89 0.68
Cash dividends per common share 0.10 0.09 0.08 0.07 0.06
Diluted weighted average common
shares and common stock
equivalents outstanding 2,515 2,225 1,751 1,685 1,614
Basic weighted average common
shares and common stock
equivalents outstanding 2,351 2,095 1,538 1,463 1,462
BALANCE SHEET DATA
Cash and due from banks $ 29,701 $ 13,897 $ 9,261 $ 8,110 $ 5,930
Federal funds sold 14,250 32,825 23,250 16,230 11,300
Total investments 46,291 13,434 15,246 16,907 16,542
Loans, net of unearned loan fees 273,818 225,560 134,133 110,464 85,687
Allowance for loan losses 3,200 2,510 1,765 1,400 1,000
Total assets 375,304 291,365 184,584 153,706 122,212
Total deposits 339,180 264,301 168,961 141,140 104,799
Borrowings 6,000 -- 300 -- --
Shareholders' equity 29,240 26,067 14,758 12,052 10,781
Tangible book value per
common share 12.32 11.32 8.84 8.19 7.38
SELECTED RATIOS
Return on average assets 0.94% 0.97% 1.12% 0.99% 0.96%
Return on average equity 10.86 9.78 12.73 11.13 9.71
Total capital to risk-weighted assets 10.97 12.28 11.53 11.40 11.75
Net yield on average earning assets 8.59 8.84 8.90 9.00 7.78
Cost of interest-bearing liabilities 4.88 5.03 4.89 4.94 3.36
Net interest margin 4.59 4.79 4.96 4.98 5.07
Nonperforming assets as a percent
of assets 0.22 0.29 0.56 0.64 1.45
Net loan charge offs (recoveries)
as a percent of average loans 0.01 0.02 (0.02) 0.24 0.23
Allowance for loan losses as
a percent of net loans 1.17 1.11 1.32 1.27 1.17
</TABLE>
page one
<PAGE> 3
A L E T T E R T O O U R S H A R E H O L D E R S
March 24, 1999
Dear Valued Shareholders:
For the third year in a row, the financial services industry has dominated
the business headlines with stories about mergers and acquisitions. Our
industry lead the world markets as the industry with the most "deals" in 1998.
With literally millions of Americans affected by these buyouts, the question
remains, what is the long-term effect of these transactions? Time will help
determine the answer. At Enterprise, we believe time will favor those who
remain focused on the customer and continually evolve in anticipation of future
challenges. Maintaining customer loyalty during these turbulent times is even
more important. The results for 1998 confirm this strategy.
We continued to experience excellent asset and loan growth in 1998. Total
assets at December 31, 1998 were $375 million, an increase of 29% over total
assets of $291 million at year-end 1997. Outstanding loans at December 31,
1998 were $274 million, an increase of 21% over total loans at the end of
1997.
Operating results for 1998 produced net income of $3 million, an increase of
36% over net income of $2.2 million in 1997. Fully diluted earnings per share
increased to $1.20 for 1998, a $0.20 increase over 1997. We attribute the
performance to several factors. First, asset quality remained very good in
1998 resulting in net loan losses of $21,000, or 0.01%, of average loans and
contributing to record earnings for our banking franchise. Second, our
customers took advantage of a low interest rate environment by refinancing
their home mortgages resulting in significant fee income from our mortgage
division. Lastly, Enterprise Merchant Banc contributed $433,000 in gross
revenue from merchant banking activities compared to $162,000 in 1997.
While we are pleased with our growth in assets and earnings, we believe such
measures only tell part of the story. In keeping with our business strategy
of continually investing in future opportunities, we are happy to provide an
update on the growth in each of our business units.
ENTERPRISE BANKING
Our commercial banking operation continues to be the cornerstone of our
Company. We are happy to report that we now have three profitable banking
units. Our Sunset Hills and St. Peters locations opened in late 1997 and are
fully operational and profitable. We remain focused on customer needs,
innovative product lines, and exceptional service that is second to none. In
the St. Louis market, Enterprise Banking is becoming synonymous with quality,
and anyone that banks with us does not have to ask why!
page two
<PAGE> 4
ENTERPRISE FINANCIAL ADVISORS
In the beginning of 1998, our clients told us they could benefit greatly from
financial consulting and trust services. With an entrepreneurial spirit that
touches every aspect of our Company, Enterprise Financial Advisors (EFA) took
on a life of its own. EFA now has six employees and an independent advisory
board of directors with many years of combined experience in investments,
trust and estate planning, banking and business management! In addition,
since inception in August of 1998, EFA now has over $33 million in assets
under management in the financial consulting and trust divisions combined.
ENTERPRISE MERCHANT BANC
Enterprise Merchant Banc has been very busy as well. Fund I has grown
rapidly, and we are raising capital for a new, larger fund. Many investors,
both private and corporate, are excited about the vast array of opportunities
that will be presented with this second Fund. In 1998 the Merchant Banc
exited two businesses creating a profit on both investments. Merchant Banking
activity also generated fee income in 1998. These fees directly impacted the
net income for the Company, and we greatly appreciate all of the talent and
dedication it takes to make these transactions a reality.
[GRAPH]
page three
<PAGE> 5
We truly are evolving into a complete financial services company serving the
lifetime financial needs of our clients. As can be seen in the diagram on the
previous page, we have three distinct businesses that are joined together by
common philosophies and corporate structure. Each of them a separate business
growing in an entrepreneurial environment, benefiting from and contributing
to one another, and each of them necessary to complete the whole. Our
financial performance indicates that we are successfully implementing our
strategy to create dedicated stand-alone businesses that together add
material value to the Company. As lines continue to blur between financial
service companies, we believe this autonomous yet interdependent structure
will provide the flexibility and creativeness necessary to differentiate us
from others still focused on size as the ultimate measure. This structure
creates dedicated employees, customer loyalty, and ultimately shareholder
value, aptly reflected in our stock price.
As of March 24, 1999, the last known trade was at $37.50 per share, up from
$25.75 a year ago and $15.50 two years ago! J.A. Glynn and Company has been
instrumental in providing a market where interested buyers and sellers can
transact in our Common Stock. Since J.A. Glynn began providing this service
in 1997, the volume of transactions and our price per share have both
increased significantly.
Technology continually reshapes the way we, and our customers, do business.
We want to make sure that we keep pace with technological developments. This
is exemplified most recently in our banking business. To deepen our
relationships and broaden our product lines, we implemented an online
Internet Banking product and telephone voice-response system that will be
offered to our customers in the next few months. Soon, Enterprise Banking
customers will be able to call a voice-response line or visit
http://www.enterprisebank.com 24-hours a day, 7-days a week to conduct
- -----------------------------
business.
We are also in the final stages of the Year 2000 (Y2K) compliance process.
Fortunately, we planned well and positioned ourselves so that Y2K compliance
has had very little impact on our financial performance. We are very proud of
the technological advances we made in the past few years as we continue to
remain competitive in the financial sector.
We appreciate the contributions from our shareholders, customers, directors
and employees who helped us achieve our results in 1998. We embrace the
challenges and opportunities that lie ahead, and look forward to another
prosperous year together!
/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>
E N T E R B A N K H O L D I N G S , I N C .
A N D S U B S I D I A R I E S
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 29,701,018 $ 13,897,054
Federal funds sold 14,250,000 32,825,000
Interest-bearing deposits 5,035 148,349
Investments in debt and equity securities:
Available for sale, at estimated fair value 45,592,327 12,514,721
Held to maturity, at amortized cost
(estimated fair value of $704,723 in 1998 and
$920,154 in 1997) 698,609 919,163
------------ ------------
Total investments in debt and equity securities 46,290,936 13,433,884
------------ ------------
Loans held for sale 6,272,124 1,324,244
Loans, net of unearned loan fees 273,817,522 225,560,208
Less allowance for loan losses 3,200,000 2,510,000
------------ ------------
Loans, net 270,617,522 223,050,208
------------ ------------
Other real estate owned 806,072 806,072
Office equipment and leasehold improvements 3,063,123 2,328,699
Accrued interest receivable 1,648,775 1,448,343
Investment in Enterprise Fund, L.P. 424,484 225,683
Prepaid expenses and other assets 2,224,829 1,877,320
------------ ------------
Total assets $375,303,918 $291,364,856
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand $ 61,114,961 $ 46,052,686
Interest-bearing transaction accounts 24,234,717 22,519,772
Money market accounts 149,177,922 98,639,345
Savings 1,471,647 1,429,316
Certificates of deposit:
$100,000 and over 43,326,061 32,824,697
Other 59,854,862 62,834,818
------------ ------------
Total deposits 339,180,170 264,300,634
Federal Home Loan Bank advances 6,000,000 --
Accrued interest payable 608,056 549,059
Accounts payable and accrued expenses 275,563 448,371
------------ ------------
Total liabilities 346,063,789 265,298,064
------------ ------------
Shareholders' equity:
Common stock, $.01 par value; authorized 3,000,000
shares; issued and outstanding 2,371,837 shares in
1998 and 2,298,412 shares in 1997 23,719 22,984
Surplus 19,264,000 18,879,210
Retained earnings 9,941,792 7,166,071
Accumulated other comprehensive income 10,618 (1,473)
------------ ------------
Total shareholders' equity 29,240,129 26,066,792
------------ ------------
Total liabilities and shareholders' equity $375,303,918 $291,364,856
============ ============
</TABLE>
page five
<PAGE> 7
<TABLE>
E N T E R B A N K H O L D I N G S , I N C .
A N D S U B S I D I A R I E S
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $23,001,165 $16,795,887 $11,426,260
Interest on debt and equity securities:
Taxable 878,147 1,017,897 692,742
Nontaxable 26,565 34,630 38,914
Interest on federal funds sold 1,468,652 909,326 396,244
Interest on interest-bearing deposits 39,740 1,289 --
----------- ----------- -----------
Total interest income 25,414,269 18,759,029 12,554,160
----------- ----------- -----------
Interest expense:
Interest-bearing transaction accounts 492,581 410,915 331,943
Money market accounts 5,361,463 3,604,225 2,006,578
Savings 36,918 32,357 33,122
Certificates of deposit:
$100,000 and over 2,189,803 1,658,554 1,346,428
Other 3,722,039 2,862,256 1,834,540
Federal funds purchased -- 11,035 1,027
Federal Home Loan Bank advances 66,527 -- --
Notes payable -- 2,888 15,274
----------- ----------- -----------
Total interest expense 11,869,331 8,582,230 5,568,912
----------- ----------- -----------
Net interest income 13,544,938 10,176,799 6,985,248
Provision for loan losses 710,899 775,064 345,410
----------- ----------- -----------
Net interest income after
provision for loan losses 12,834,039 9,401,735 6,639,838
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts 252,873 173,452 129,414
Other service charges and fee income 585,169 228,479 252,087
Merchant credit card income -- -- 600,981
Gain on sale of credit card operation -- -- 320,000
Gain on sale of mortgage loans 1,242,869 78,948 --
Loss on investment in Enterprise Fund, L.P. (2,199) (4,904) (62,690)
----------- ----------- -----------
Total noninterest income 2,078,712 475,975 1,239,792
----------- ----------- -----------
Noninterest expense:
Salaries 5,103,863 3,221,147 2,400,165
Payroll taxes and employee benefits 999,579 620,438 465,475
Occupancy 879,046 552,063 333,795
Equipment 389,274 227,061 145,501
FDIC insurance 40,638 21,846 2,000
Data processing 306,691 237,248 247,696
Merchant credit card expense -- -- 441,991
Other 2,332,611 1,458,773 1,109,711
----------- ----------- -----------
Total noninterest expense 10,051,702 6,338,576 5,146,334
----------- ----------- -----------
Income before income tax expense 4,861,049 3,539,134 2,733,296
Income tax expense 1,850,275 1,316,590 1,031,344
----------- ----------- -----------
Net income $ 3,010,774 $ 2,222,544 $ 1,701,952
=========== =========== ===========
Basic earnings per share $ 1.28 $ 1.06 $ 1.11
Diluted earnings per share $ 1.20 $ 1.00 $ .97
Basic weighted average common shares and
common stock equivalents outstanding 2,350,763 2,095,359 1,538,418
Diluted weighted average common shares and
common stock equivalents outstanding 2,514,940 2,224,967 1,750,686
</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 General American Enterbank Holdings, Inc. Enterbank Holdings, Inc.
Imports, Inc.
RANDALL D. HUMPHREYS WILLIAM B. MOSKOFF BIRCH M. MULLINS ROBERT E. SAUR
Enterprise Merchant Tyler Group Lindbergh Warson Conrad Properties Corp.
Banc, Inc. Properties, Inc.
PETER G. SCHICK<F*> PAUL L. VOGEL HENRY D. WARSHAW TED C. WETTERAU
Moneta Group, Inc. Enterprise Financial Moneta Group, Inc. Retired -- formerly
Advisors Wetterau and Associates
JAMES L. WILHITE JAMES A. WILLIAMS
Stange Company Sunset Transportation, Inc.
<CAPTION>
ENTERPRISE BANK - CLAYTON
BOARD OF DIRECTORS
<S> <C> <C> <C>
MARK S. CARLIE CHARLES C. EISENKRAMER<F*> FRED H. ELLER ROBERT L. GARLICH<F*>
Stone Carlie & Company, New Mount Sinai Cemetery Enterbank Holdings, Inc. Garlich Printing Company
LLC Association
JEFFREY W. GLIK ROBERT F. GORMAN<F*> HERBERT W. HITCHINGS<F*> JEFF B. IKEN<F*>
Glik's Retired -- formerly Enterprise Bank CIS Communications
United Postal Savings
WILLIAM M. ORVILLE J. DAVID J. MISHLER DAVID L. PAYNE
MCCORMICK, JR. MIDDENDORF Enterprise Bank Payne Electric, Inc.
Capital Communications Middendorf Meat Co.
Corp.
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 HILTON I. PRICE, M.D. DANIEL S. REILLY<F*>
Stewart Properties, Inc. Moneta Group, Inc. Midwest Radiological Retired -- formerly
KPMG, LLP
<CAPTION>
ENTERPRISE BANK - SUNSET HILLS
BOARD OF DIRECTORS
<S> <C> <C> <C>
RONALD G. ABELES JOSEPH E. BARRY LAVONNE L. DECK<F*> FRED H. ELLER
Abeles & Hoffman, PC Barry Sales, Ltd. Scorpius Enterprises, Enterbank Holdings, Inc.
Ltd.
RICHARD B. FOX<F*> MARK H. GORAN<F*> JAMES E. GRASER ROBERT M. KAISER
SulfaTreat Co. Bryan Cave, LLP Enterprise Bank Kaiser Electric, Inc.
ROBERT F. NICK P. RAINERI<F*> EARL W. SWINK<F*> HARRY O. TIGGARD, JR.<F*>
O'LOUGHLIN Raineri Building Swink, Fiehler & Co. Trademark Medical, Inc.
Lodging Hospitality Materials, Inc.
Mgmt. Co.
THOMAS F. VOGEL GEORGE W. JAMES A. WILLIAMS
Tom Vogel VONHOFFMANN, JR.<F*> Sunset Transportation
Agency, Inc. 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
BJC Health Hill Partnership Howell & Sons Excavating Client Services, Inc.
Systems Architects
MARK F. KEEVEN<F*> RICHARD C. LEUCK WILLIAM C. VEHIGE SHAWN T. SAALE<F*>
Missouri Turf, Inc. Enterprise Bank Tax & Accounting Saale & Bailey, LC
Services, Inc.
PATRICIA E. JAMES L. WILHITE DANIEL J. GNADE<F*>
RODEHEAVER Stange Company Price-Gnade Ford
Retired -- formerly Mercury
Custom Design Telephone
Systems, Inc.
<CAPTION>
ENTERPRISE FINANCIAL ADVISORS
AND ENTERPRISE TRUST
<S> <C> <C> <C>
J. PHILIP BENDER<F*> LAWRENCE BRODY, ESQ.<F*> T. JACK CHALLIS, ESQ.<F*> FRED H. ELLER<F*>
Northwestern Mutual Life Bryan Cave, LLP Suelthaus & Walsh, PC Enterbank Holdings, Inc.
STEVEN L. FINERTY<F*> RALPH E. OSTERMUELLER<F*> PETER G. SCHICK<F*> PAUL L. VOGEL<F*>
Argent Capital The Ostermueller Group Moneta Group, Inc. Enterprise Financial Advisors
Management, LLC
TED C. WETTERAU<F*>
Retired -- formerly Wetterau
and Associates, LLC
<FN>
<F*> Advisory Directors
</TABLE>
CORPORATE HEADQUARTERS
Enterbank Holdings, Inc.
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 Wednesday, April 28, 1999, 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. 1998 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 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
[LETTERHEAD KPMG]
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Enterbank Holdings, Inc.:
We consent to the incorporation by reference in Enterbank Holdings, Inc.
and subsidiaries (Enterbank) registration statement 333-43365 on Form S-8
of our report dated January 29, 1999, relating to the consolidated balance
sheets of Enterbank as of December 31, 1998 and 1997, and the related
consolidated statements of income, shareholders' equity, cash flows, and
comprehensive income for each of the years in the three-year ended December
31, 1998, which report appears in the December 31, 1998 annual report on
Form 10-K of Enterbank.
/s/ KPMG LLP
St. Louis, Missouri
March 22, 1999
<PAGE> 1
POWER OF ATTORNEY
KNOW ALL MEN BY PRESENT, 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.
<TABLE>
<S> <C> <C>
By: ________________________ By:_________________________ By:_________________________
James C. Wagner Fred H. Eller Stacey Tate
Chief Financial Officer Chief Executive Officer Controller
</TABLE>
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
- ---------- ----- ----
<C> <S> <C>
______________________
Fred H. Eller Chief Executive Officer
and Director March __, 1999
_____________________
Ronald E. Henges Chairman of the Board
of Directors March __, 1999
______________________
Kevin C. Eichner Vice Chairman of the
Board of Directors March __, 1999
______________________
Paul R. Cahn Director March __, 1999
______________________
Birch M. Mullins Director March __, 1999
______________________
Robert E. Saur Director March __, 1999
______________________
James A. Williams Director March __, 1999
______________________
Henry D. Warshaw Director March __, 1999
______________________
James L. Wilhite Director March __, 1999
<PAGE> 2
______________________
Ted C. Wetterau Director March __, 1999
______________________
Randall D. Humphreys Director March __, 1999
______________________
Paul L. Vogel Director March __, 1999
______________________
William B. Moskoff Director March __, 1999
______________________
James C. Wagner Chief Financial Officer,
Treasurer, Vice President March __, 1999
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<S> <C>
<CASH> 29,701,018
<INT-BEARING-DEPOSITS> 5,035
<FED-FUNDS-SOLD> 14,250,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 45,592,327
<INVESTMENTS-CARRYING> 698,609
<INVESTMENTS-MARKET> 704,723
<LOANS> 273,817,522
<ALLOWANCE> 3,200,000
<TOTAL-ASSETS> 375,303,918
<DEPOSITS> 339,180,170
<SHORT-TERM> 0
<LIABILITIES-OTHER> 883,619
<LONG-TERM> 6,000,000
0
0
<COMMON> 23,719
<OTHER-SE> 29,216,410
<TOTAL-LIABILITIES-AND-EQUITY> 375,303,198
<INTEREST-LOAN> 23,001,165
<INTEREST-INVEST> 904,712
<INTEREST-OTHER> 1,508,392
<INTEREST-TOTAL> 25,414,269
<INTEREST-DEPOSIT> 11,802,804
<INTEREST-EXPENSE> 11,869,331
<INTEREST-INCOME-NET> 13,544,938
<LOAN-LOSSES> 710,899
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 10,051,702
<INCOME-PRETAX> 4,861,049
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,010,774
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.20
<YIELD-ACTUAL> 8.59
<LOANS-NON> 2,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 1,084,658
<ALLOWANCE-OPEN> 2,510,000
<CHARGE-OFFS> 49,000
<RECOVERIES> 28,000
<ALLOWANCE-CLOSE> 3,200,000
<ALLOWANCE-DOMESTIC> 2,884,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 316,000
</TABLE>
<PAGE> 1
[ENTERBANK HOLDINGS, INC. LOGO]
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
ENTERBANK HOLDINGS, INC.
150 N. MERAMEC
CLAYTON, MISSOURI 63105
April 28, 1999
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 Wednesday, April 28,
1999, at 4:00 p.m., for the following purposes:
1. To elect thirteen (13) 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, LLP as independent accountants
for the year ending December 31, 1999.
3. To approve an amendment to Article Four of the Articles of
Incorporation of Enterbank Holdings, Inc. to increase the number
of common shares authorized from 3,000,000 to 3,500,000.
4. To authorize 200,000 options in a qualified incentive stock
option plan for the benefit of the employees of Enterbank
Holdings and its subsidiaries.
5. 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 17, 1999, 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
/s/ James C. Wagner
James C. Wagner, Secretary
Clayton, Missouri
March 29, 1999
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
PROXY STATEMENT
ENTERBANK HOLDINGS, INC.
150 N. Meramec
Clayton, Missouri 63105
This Proxy Statement is furnished to the shareholders of Enterbank Holdings,
Inc. (the "Company") by the Board of Directors of the Company in connection
with the solicitation of proxies to be voted at the Annual Meeting of
Shareholders to be held at 4:00 p.m. on April 28, 1999, 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, 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, par
value $.01 (the "Common Stock"), registered in the names of nominees and will
reimburse such banks and brokers for their reasonable out-of-pocket expenses.
The mailing of this proxy statement to shareholders of the Company commenced
on or about March 29, 1999.
Only holders of Common Stock of record at the close of business on March 17,
1999 are entitled to notice and to vote at the meeting. On that date the
Company had outstanding and entitled to be voted 2,378,637 shares of 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 the election of directors,
ratification of the selection of independent accountants, approval of the
amendment to Article Four of the Articles of Incorporation to increase the
number of shares outstanding to 3,500,000, or to authorize an additional
200,000 options in a qualified incentive stock option plan. Abstentions will
be considered shares entitled to vote, and broker non-votes will be excluded
from the calculation of shares entitled to vote with respect to any proposal
for which authorization to vote was withheld.
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,
FOR the ratification of the recommended independent accountants, FOR
approving an amendment to the Articles of
1
<PAGE> 3
Incorporation of the Company to increase the number of shares of common stock
authorized to 3,500,000, and FOR the authorization of 200,000 options in a
qualified incentive stock option plan for the benefit of the employees of the
Company and its subsidiaries.
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 shares represented by such
proxy will be voted. The mailing of this proxy statement to shareholders of
the Company commenced on or about March 29, 1999. 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 thirteen (13) 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.
<TABLE>
<CAPTION>
PRESENT POSITION(S) PRINCIPAL OCCUPATION
NAME AND AGE WITH THE COMPANY DURING PAST 5 YEARS
- ------------ ------------------- --------------------
<C> <C> <S>
Fred H. Eller, 54 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, 66 Chairman of the Board, Former Chief Executive Officer, Creve Coeur Camera
Director (multi-store retailer of camera and video equipment);
Former 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, 48 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, 44 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, 73 Director President, Elan Polo Imports, Inc. (importer of women's
and children's casual shoes); Director of the Company
(since 1996); Director of the Bank, (1991-1993 and
1995-1997).
2
<PAGE> 4
William B. Moskoff, 56 Director Former President and Chief Operating Officer, Bock
Pharmacal (1993-1996); President Tyler Group (Veterinary
Pharmaceuticals) Since 1996; Director of the Bank (1997-
1998); Director of the Company (since 1998).
Birch M. Mullins, 55 Director Former President, Baur Properties (developer of
commercial real estate properties); Vice President of
Duke Realty Investments; Director of the Company
(since 1996); Director of the Bank (1993-1996).
Robert E. Saur, 55 Director President, Conrad Properties (developer of commercial
and residential real estate properties); Director of
the Company (since 1995); Director of the Bank
(since 1991).
Paul L. Vogel, 32 Director Formerly, a practice leader of the Private Client
Services Group with Arthur Andersen LLP; President,
Enterprise Financial Advisors and Enterprise Trust
(financial planning and trust divisions of Enterprise
Bank) since 1998; Director of the Company (since 1998).
Henry D. Warshaw, 45 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, 65 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, 46 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, 71 Director Former Chairman and Chief Executive Officer Wetterau
Incorporated (wholesale food distributor); Director of
the Company (since 1997).
</TABLE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" EACH OF THE INDIVIDUALS LISTED
FOR ELECTION AS DIRECTORS OF THE COMPANY.
MEETINGS AND COMMITTEES OF THE BOARD
The Board met 12 times in 1998. Ted C. Wetterau is the only director that
has not been in attendance for at least 75% of the Board of Directors'
meetings. The entire Board serves as the audit and compensation committees
of the Board. Compensation is determined by employee performance,
contribution to the Company, market conditions, Company performance, and
other factors. Each of the executive officer's compensation is comprised of
salary, bonus, options and other benefits that are focused upon performance
rather than longevity with the Company.
EXECUTIVE COMPENSATION COMMITTEE REPORT
Mr. Eller's (Chief Executive Officer) compensation is tied to the performance
of the Company as a whole. His salary for the fiscal year 1998 was $252,569
with approximately a 30% bonus of $75,000. The possible ranges for his bonus as
a percent of base salary was 0 - 50%. Each year, Mr. Eller writes a "Performance
Contract" to outline his goals and objectives. These goals are often more
qualitative in nature and require the Board to exercise judgement in their
evaluation of the performance. His compensation structure is largely dependent
upon the fulfillment of this Performance Contract with the Company. Due to
Mr. Eller's position, his goals and objectives significantly and directly
influence the Company's overall performance. Financial measures include, but
are not limited to, earnings per share, return on equity, net income, growth,
and asset quality. For the year ended December 31, 1998, diluted earnings per
share was $1.20, return on average equity was 10.86%, net
3
<PAGE> 5
income was $3 million, assets grew 29% over year end 1997, and net loan losses
(indicative of asset quality) were $21,000, or .01%, of average loans. Less
tangible measures include the implementation of strategic plans set by the
Board of Directors, improving operations of the Company, and looking for new
business opportunities.
Each of the other executive officers of the Company write a similar
"Performance Contract" each year which is tailored to their particular
function within the Company. Like Mr. Eller, their compensation and bonus
are largely dependent upon the fulfillment of these goals and objectives.
Typically, the executive officers have goals that are unit specific, such as
loan and deposit growth within a banking unit, and they also have company-wide
goals to increase shareholder value and the net worth of the Company.
All factors, both financial and strategic, are taken into consideration when
determining compensation.
EXECUTIVE COMPENSATION
The following tables show the compensation paid by the Company, to the
Company's Chief Executive Officer and the four 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, 1998, 1997 and 1996. Also included is the
option grant information for the executive officers of the Company, and a
performance graph for the common stock of the Company as of December 31,
1998.
All executive officers below have been with the Company for the past five
years with the exception of Mr. Humphreys and Mr. Leuck. Prior to becoming
the President of Enterprise Merchant Banc, Mr. Humphreys led the
diversification effort of St. Joseph Light and Power Company in St. Joseph,
Missouri. In this capacity, his primary responsibilities were to identify,
acquire and manage portfolio companies. Mr. Humphreys also worked for Ceres
Group and Brierley Investments Limited where he had similar job
responsibilities. Prior to becoming the President of Enterprise Bank in St.
Peters, Missouri, Mr. Leuck was the President and Chief Executive Officer of
Confluence Bancshares, Inc., the bank holding company for Duchesne Bank.
<TABLE>
<CAPTION>
COMPANY
FISCAL OTHER MATCH
NAME AGE TITLE YEAR SALARY<F1> BONUS BENEFITS DEFERRALS
- --------------------------- ----- -------------------- ------- ----------- --------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Eller 54 President, CEO of 1998 $252,569 $75,000 $4,834 $6,400
the Company 1997 175,225 50,000 3,702 6,400
1996 166,197 50,000 3,548 7,600
Randall D. Humphreys 44 President, Enterprise 1998 $199,304 $65,000 $ 0 $ 0
Merchant Banc 1997 16,549 550 0 0
1996 N/A N/A N/A N/A
David J. Mishler 40 President, Enterprise 1998 $153,484 $36,000 $1,321 $6,400
Bank, Clayton 1997 146,139 45,000 1,285 6,400
1996 123,648 35,000 1,244 6,372
Richard C. Leuck 41 President, Enterprise 1998 $108,143 $24,000 $ 710 $5,320
Bank, St. Peters 1997 94,761 30,000 698 3,172
1996 67,976 20,000 674 0
James E. Graser 39 President, Enterprise 1998 $103,914 $32,500 $1,071 $5,484
Bank, Sunset Hills 1997 84,920 12,500 1,054 3,924
1996 80,641 22,000 1,033 4,132
<FN>
<F1> Includes car allowance
</TABLE>
4
<PAGE> 6
<TABLE>
OPTIONS GRANTS IN THE LAST FISCAL YEAR
--------------------------------------
<CAPTION>
No. of Percent of Potential Realizable Value at
Securities Total Assumed Annual Rates of
Underlying Options Stock Price Appreciation for
Options Granted to Exercise Option Term Grant Date
Granted in Employees of Base Expiration Present
Name 1998 in 1998 Price Date 5% 10% Value
- ---------------------- ------------ ----------- --------- ----------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fred H. Eller 0 0 N/A N/A N/A N/A N/A
David J. Mishler 0 0 N/A N/A N/A N/A N/A
Richard C. Leuck 0 0 N/A N/A N/A N/A N/A
James E. Graser 0 0 N/A N/A N/A N/A N/A
Paul L. Vogel 18,000 51% $30.00 8/19/08 $340,000 $861,000 $540,000
James C. Wagner 0 0 N/A N/A N/A N/A N/A
<CAPTION>
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
-------------------------------------------------------------------------------------
No. of Securities
No. of Underlying Unexercised
Shares Options at Fiscal Year Value of Unexercised In-The-Money
Acquired on End Options at Fiscal Year End
Option Value
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---------------------- ------------ ---------- ------------ -------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fred H. Eller 40,000 $840,000 18,000 12,000 $405,000 $180,000
David J. Mishler 0 0 14,000 16,000 $300,000 $240,000
Richard C. Leuck 0 0 3,000 12,000 $ 45,000 $180,000
James E. Graser 5,000 $120,000 8,000 12,000 $165,000 $180,000
Paul L. Vogel 0 0 0 18,000 0 $ 18,000
James C. Wagner 4,000 $ 61,000 8,000 8,000 $174,000 $120,000
</TABLE>
The Company has not granted stock appreciation rights to any director,
officer or employee.
[The remainder of this page intentionally left blank]
5
<PAGE> 7
PERFORMANCE GRAPH
-----------------
The following graph depicts the cumulative total shareholder return on the
Company's Common Stock from December 31, 1993 through December 31, 1998 (all
figures have been altered to reflect comparable prices after the 20 for 1
split in December of 1994). The graph compares the Common Stock of Enterbank
Holdings, Inc. with the NASDAQ Stock Market Composite Index for United States
Companies and an industry peer group. The peer group is determined using an
SIC code (6710) which is a group of bank holding companies that are NASDAQ
traded and are similar in nature to the Company. The comparisons reflected
in the graph, however, are not intended to forecast the future performance of
the Common Stock of the Company and may not be indicative of such future
performance. The graph assumes an investment of $100.00 in the Common Stock
and each index on December 31, 1993 and the reinvestment of all dividends.
The beginning stock price for the Company's Common Stock was $9.50 per share
on December 31, 1993 and the ending price was $31.00 per share on December
31, 1998.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
PERFORMANCE GRAPH FOR
ENTERBANK HOLDINGS, INC.
[GRAPH]
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ENTERBANK 100.0 103.3 127.9 147.5 218.3 335.4
- ----------------------------------------------------------------------------------------------------
NASDAQ MKT 100.0 97.8 138.3 170.0 208.6 293.2
- ----------------------------------------------------------------------------------------------------
PEER GROUP 100.0 99.8 148.0 195.4 330.8 335.1
- ----------------------------------------------------------------------------------------------------
</TABLE>
NOTES:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily using the market capitalization on the
previous trading day.
C. If the monthly interval, based on the fiscal year end, is not a trading
day, the preceding day is used.
D. The index level for all series was set to $100.00 on 12/31/1993.
E. Data for Enterbank Holdings, Inc. was provided by the Company.
F. Market and Peer Group data was supplied by The University of Chicago
Graduate School of Business, Center for Research in Security Prices.
6
<PAGE> 8
INFORMATION REGARDING BENEFICIAL OWNERSHIP OF PRINCIPAL SHAREHOLDERS,
DIRECTORS AND MANAGEMENT
The following is a list of all directors and executive officers at the close
of business on March 17, 1999, according to record-ownership listings as of
that date. The Company is not aware of any shareholders that beneficially
owned more than 5% of the outstanding common shares of the Company as of the
record date. As of March 17, 1999 there were 2,378,637 shares of Common
Stock outstanding.
<TABLE>
<CAPTION>
BENEFICIAL OWNER NUMBER OF SHARES OWNERSHIP <F1><F2>
---------------- ---------------- ------------------
<S> <C> <C>
Fred H. Eller <F3><F6><F7> 97,260 4.06%
Ronald E. Henges <F3><F9> 118,285 4.95%
Kevin C. Eichner <F3><F4> 79,193 3.31%
Randall D. Humphreys -0- N/A
Paul R. Cahn <F5> 70,967 2.98%
William B. Moskoff <F18> 28,359 1.19%
Birch M. Mullins 17,850 <F*>
Robert E. Saur <F19> 39,000 1.64%
Henry D. Warshaw <F10> <F20> 17,260 <F*>
James L. Wilhite <F13> 10,721 <F*>
James A. Williams <F8> 7,340 <F*>
Ted C. Wetterau <F14> 11,940 <F*>
David J. Mishler <F3><F7><F12> 42,304 1.77%
James E. Graser <F3><F7><F11> 18,000 <F*>
Richard C. Leuck <F3><F15> 9,591 <F*>
Paul L. Vogel <F17> 6,610 <F*>
James C. Wagner <F3><F16> 27,500 1.15%
All Directors and Executive Officers as a Group 602,180 24.59%
<FN>
<F*> Less than 1%
<F1> Pursuant to the rules of the Securities and Exchange Commission,
certain shares of Common Stock which a person has the right to acquire
within 60 days pursuant to the exercise of stock options and warrants
are deemed to be outstanding for the purposes of computing beneficial
ownership and the percentages of ownership of that person, but are not
deemed outstanding for the purposes of computing the percentage
ownership of any other person. All directors and officers as a group
hold options to purchase an aggregate of 70,000 shares of Common Stock.
<F2> Unless otherwise indicated, the named person has sole voting and
dispositive power for all shares shown.
<F3> Includes options as of March 17, 1999 outstanding and exercisable as of
December 31, 1998 or within 60 days thereafter, including those
beneficially owned by the named person, as follows: Mr. Eichner, 12,000
shares; Mr. Eller, 18,000 shares; Mr. Henges, 12,000 shares; Mr.
Graser, 3,000 shares; Mr. Mishler, 14,000 shares; Mr. Wagner, 8,000;
Mr. Leuck, 3,000; all directors and executive officers as a group,
70,000 shares.
<F4> Includes 47,193 held in the name of Mr. Eichner in which he has voting
power and 20,000 shares held in Mr. Eichner's trust in which he has
voting power.
<F5> Excludes 23,980 held by two adult children of Mr. Cahn, as well as
5,675 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 65,967 shares held of record by Cahn Family
Partnership, L.P., to which Mr. Cahn has voting power.
<F6> Includes 24,060 shares held jointly by Mr. Eller and his spouse; 20
shares held in the name of Mr. Eller to which Mr. Eller has voting
power; 15,180 shares held in trust for the benefit of Mr. Eller's
spouse to which Mr. Eller has voting power; and 40,000 shares held in
Mr. Eller's trust to which Mr. Eller has voting power.
<F7> 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.
<F8> 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; 3,995 shares held in the name of Mr.
Williams in which Mr. Williams has voting power and 2,500 shares held
in a joint trust account with the spouse of Mr. Williams in which Mr.
Williams has voting power.
<F9> Excludes 18,510 shares held by and/or for the benefit of adult children
of Mr. Henges. Includes 77,095 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
7
<PAGE> 9
which the spouse of Mr. Henges is trustee, and to which Mr. Henges has
voting power. Excluded also are 25,680 shares held in six separate trusts,
that were disclosed last year, for the benefit of the grandchildren of Mr.
Henges. It has been determined that Mr. Henges does not have beneficial
ownership or voting power over these shares, and thus they have been
excluded.
<F10> 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. On January 1, 1999, Mr. Warshaw was granted one block of
options (2,958 shares) and second block (4,509 shares) as a result of
Enterbank Holdings, Inc. referral relationship with Moneta Group, Inc.
These options are excluded as none are vested.
<F11> Includes 14,999 shares held in Mr. Graser's trust in which Mr. Graser
has voting power; one share in the name of Mr. Graser to which Mr.
Graser has voting power
<F12> 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.
<F13> 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; one share in the name of Mr. Wilhite in which
Mr. Wilhite has voting power; 3,500 shares in Mr. Wilhite's trust in
which he has voting power; 1,000 shares held of record by the Wilhite
Family Partnership, L.P. to which Mr. Wilhite has voting power; and
5,570 shares held in an Individual Retirement Account for Mr. Wilhite
in which Mr. Wilhite has voting power.
<F14> Includes 11,940 shares held jointly by Mr. Wetterau and his spouse.
<F15> 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.
<F16> Includes 14,000 shares held jointly by Mr. Wagner and his spouse; and
5,500 shares held in a trust for the benefit of Mr. Wagner's children
and other relatives. Mr. Wagner is a co-trustee and has voting power
and investment authority for this trust.
<F17> Includes 5,835 shares held in the name of Mr. Vogel in which Mr. Vogel
has voting power; and 775 shares held in Mr. Vogel's Individual
Retirement Account in which Mr. Vogel has voting power. Mr. Vogel was
granted 18,000 non-qualified stock options in 1998, none of which are
vested, and thus have been excluded.
<F18> Includes 28,358 shares held of record by Vasil's L.P., to which Mr.
Moskoff is the General Partner and has voting power; and one share held
in the name of Mr. Moskoff in which Mr. Moskoff has voting power.
<F19> Includes 20 shares held in the name of Mr. Saur to which Mr. Saur has
voting power; and 38,980 shares held in a trust for the benefit of Mr.
Saur to which Mr. Saur has voting power.
<F20> Mr. Warshaw, in addition to being a director of the Company, is a
principal at Moneta Group, Inc. The Company has a Customer Referral
agreement with Moneta Group, Inc. where principals may earn Enterbank
Holdings, Inc. stock options (right to purchase) by referring customers
to the Company.
</TABLE>
INDEPENDENT PUBLIC ACCOUNTANTS
(PROPOSAL NO. 2)
The Company engaged KPMG, LLP to audit the financial statements for the years
ended December 31, 1996, 1997 and 1998. Representatives of KPMG, LLP are
expected to be present at the Annual Meeting of Shareholders. 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, LLP to be the independent public accountants
for calendar year 1999 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, LLP AS THE COMPANY'S INDEPENDENT PUBLIC ACCOUNTANTS.
8
<PAGE> 10
COMMON SHARES AUTHORIZED
(PROPOSAL NO. 3)
The Company currently has 3,000,000 shares of common stock authorized. Due
to the number of issued shares (2,378,637 as of March 17, 1999) and the
number of shares designated for current and possible future option plans of
the Company and its subsidiaries, the number of shares authorized in 1995 is
no longer sufficient. On March 17, 1999, the Board of Directors approved an
amendment to Article Four of the Certificate of Incorporation to increase the
number of authorized shares, subject to obtaining Shareholder approval.
Management recommends an Amendment to Article Four of the Articles of
Incorporation of Enterbank Holdings, Inc. to reflect an increase in the
number of authorized shares to 3,500,000. In the event shareholder approval
of the Amendment is obtained, it will become effective upon filing of the
Amendment with the Delaware Secretary of State. Attached is a copy of the
Amendment to Article Four of the Articles of Incorporation (Exhibit A).
In the event that the Shareholders approve this proposal and there occurs
an event (such as an acquisition) by which the Common Stock of the Company
is issued, the possibility exists that either book value per share or
earnings per share, or both, could be diluted due to the larger number of
shares outstanding. Under the Company's Certificate of Incorporation,
shareholders do not have preemptive rights to subscribe to additional
securities which may be issued by the Company, which means that current
shareholders do not have prior right to purchase any new issue of capital
stock of the Company in order to maintain the proportionate ownership of
the Company's Common Stock. In addition, there could be a dilution to the
voting power of each share of Common Stock as additional shares are issued.
Such events would require the prior approval of the Board of Directors, and
under certain circumstances, the Shareholders. No such actions are planned
at this time.
The approval of this proposal could be construed as having an anti-takeover
effect in that these authorized shares of Common Stock could be available to
defend a possible third-party takeover attempt. Management is not aware of any
such attempt to take control of the Company and the Board of Directors has not
presented this proposal with the intent that it be utilized as a type of anti-
takeover device.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AMENDING THE
ARTICLES OF INCORPORATION OF ENTERBANK HOLDINGS, INC. TO INCREASE THE NUMBER
OF AUTHORIZED SHARES OF THE COMMON STOCK OF ENTERBANK HOLDINGS, INC. TO
3,500,000.
QUALIFIED INCENTIVE STOCK OPTION PLAN
(PROPOSAL NO. 4)
The Company currently has three qualified incentive stock option plans for
the benefit of the employees of Enterbank Holdings and its subsidiaries.
Plan I was adopted on April 20, 1988 with 144,000 options. As of March 17,
1999, Plan I has 11,575 options outstanding and no options available for
future grant. Plan II was adopted on April 25, 1990 with 75,000 options.
Plan II has 72,400 options outstanding and no options available for grant.
Plan III was adopted on June 19, 1996 with 200,000 options. Plan III has
185,100 options outstanding and 13,800 options available for future grants.
9
<PAGE> 11
The Qualified Incentive Stock Option Plan (hereafter referred to as "Plan
IV") will be very similar to the first three plans referenced above. It is
intended to advance the interests of the Company by providing incentives to
key employees who have substantial responsibility for the direction and
management of the Company to remain in the employ of the Company. The Board
of Directors has sole authority to grant options from Plan IV. Granted
Options will vest in 20% increments over a five-year period and will expire
ten years after the date of grant. In the event of termination of employment
for any reason other than death, the shares of Common Stock that may be
purchased pursuant to an Option shall be limited to the number of vested
Options.
Because this is a Qualified Plan, the gains on options meeting the Internal
Revenue Service's description of qualified stock option plans will not be tax
deductible by the Company when they are exercised. Attached is a copy of
Plan IV and the Option Grant Agreement (Exhibit B).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF AN ADDITIONAL
QUALIFIED INCENTIVE STOCK OPTION PLAN CONTAINING 200,000 OPTIONS TO BE
GRANTED TO EMPLOYEES OF ENTERBANK HOLDINGS AND ITS SUBSIDIARIES.
SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16 (a) of the Securities and Exchange Act of 1934 requires the
Company's directors, executive officers, and holders of more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
(the "SEC") initial reports of ownership and reports of changes in ownership
of Common Stock and other equity securities of the Company. Such officers,
directors and 10% shareholders are required by SEC regulation to furnish the
Company with copies of all Section 16 (a) forms they file. Based upon the
information received from such persons, Mr. Cahn and Mr. Vogel are the only
individuals subject to Section 16 (a) requirements that inadvertently filed a
form either incorrectly or outside of the time allotted by the SEC. All other
individuals are believed to have filed on a timely basis, and the Company
believes that all filings are current with the SEC.
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 1998 is enclosed.
A copy of Form 10-K filed by the Company with the Securities and Exchange
Commission is enclosed.
Shareholders are entitled to present proposals for action at a forthcoming
Shareholders' meeting if they comply with the requirements of the proxy
rules. Any proposals intended to be presented at the 2000 Annual Meeting of
Shareholders of the Company must be received at the Company's office on or
before October 25, 1999 in order to be considered for inclusion in the
Company's proxy statement and form of proxy relating to such meeting.
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<PAGE> 12
The attached proxy card grants the proxy holders discretionary authority to
vote on any matter raised at the Annual Meeting. If a shareholder intends to
submit a proposal at the 2000 Annual Meeting of Shareholders of the Company,
and the proposal is not intended to be included in the Company's proxy
statement and form of proxy relating to such meeting, the shareholder should
give the Company appropriate notice no later than January 8, 2000. If the
Company fails to receive notice of the proposal by such date, the Company
will not be required to provide any information about the nature of the
proposal in its proxy statement and the proposal will not be submitted to the
Shareholders for approval at the 2000 Annual Meeting of Shareholders of the
Company as the Company will not have received proper notice as required by
the Company's Bylaws.
By Order of the Board of Directors,
/s/ James C. Wagner
James C. Wagner, Secretary
11
<PAGE> 13
EXHIBIT A
AMENDMENT TO THE ARTICLES OF INCORPORATION
FOR ENTERBANK HOLDINGS, INC.
BE IT RESOLVED, that the CERTIFICATE OF INCORPORATION of Enterbank
Holdings, Inc. is hereby amended so that ARTICLE FOUR thereof shall read in
its entirety as follows:
"ARTICLE FOUR
------------
The aggregate number of shares which the corporation shall have
authority to issue shall be three million, five hundred thousand (3,500,000)
shares of common stock, par value $.01 each.
The distinguishing preferences, qualifications, limitations, restrictions and
special or relative rights in respect to the common stock as follows:
In all elections of Directors of the Corporation, each common
shareholder shall have the right to cast as many votes as shall equal
(x) the number of shares held by him or her, and multiplied by (y) the
number of Directors to be elected, and he or she may cast all such
votes for a single Director or may distribute them among the number of
directors to be elected, or any two (2) or more of them, as such
shareholder may deem fit."
<PAGE> 14
EXHIBIT B
OPTION GRANT AGREEMENT
ENTERBANK HOLDINGS, INC. (the "Company"), a Delaware chartered bank holding
company, and ("Employee") make and enter into this Option
--------------------
Grant Agreement (the "Agreement") effective as of .
-------------------
WHEREAS, Optionee is a valuable and trusted employee of the Company, and the
Company considers it desirable and in its best interests that Employee be
given an inducement to acquire a proprietary interest in the Company to
provide an added incentive to advance the interests of the Company to provide
an added incentive to advance the interests of the Company; and
WHEREAS, the board of directors of the Company (the "Board") has adopted a
fourth incentive stock option plan (the "Plan") on April 28, 1999 and the
stockholders approved the Plan on April 28, 1999; and
WHEREAS, pursuant to the provisions of the Plan, the Board has decided to
grant Employee an option to purchase shares of the Company's $.01 par value,
voting common stock (the "Common Stock").
NOW, THEREFORE, in consideration of the forgoing recitals and the following
promises, the Employee and the Company agree as follows:
1.
Pursuant to this Agreement, the Company grants to Employee the right,
privilege, and option to purchase shares of its Common Stock at the
---------
purchase price of per share (the "Option").
-------
2.
The Employee may exercise the Option at any time, and from time to time, in
whole or in part, until the termination of the Option as provided in Section
4 of the Agreement, subject to the following:
(a) [20%] of the shares of Common Stock which may be purchased pursuant
to this Option may be purchased on or after (one year
--------------
from grant date);
(b) [20%] of the shares of Common Stock which may be purchased
pursuant to this Option may be purchased on or after (two
--------------
years from grant date);
(c) [20%] of the shares of Common Stock which may be purchased
pursuant to this Option may be purchased on or after (three
--------------
years from grant date);
<PAGE> 15
(d) [20%] of the shares of Common Stock which may be purchased
pursuant to this Option may be purchased on or after (four
--------------
years from grant date);
(e) [20%] of the shares of Common Stock which may be purchased
pursuant to this Option may be purchased on or after (five
--------------
years from grant date);
In the event of termination of employment for any reason other than death,
the shares of Common Stock which may be purchased pursuant to an Option shall
be limited to the number of shares which are fully vested and available for
purchase as of the date and time of termination of employment. In the event
of the death of an Optionee, all shares of Common Stock, which may be
purchased pursuant to an Option held by the Optionee, shall be deemed fully
vested and available for purchase.
In the event of a "Change of Control" of the Company, as defined in the Plan,
all shares of Common Stock which may be purchased pursuant to an Option shall
be deemed fully vested and available for purchase.
The aggregate fair market value (determined at the time the option is granted)
of the Stock with respect to which ISOs are exercisable for the first time by
an individual during any calendar year (under this Plan or any other ISO plan
of Company) may exceed $100,000.00. The options representing such excess
aggregate fair market value shall not be Incentive ISOs pursuant to the
Internal Revenue Code Section 422 (d). Provided, however, that such non-
qualified options shall be subject to all other previsions of the plan. With
respect to such non-qualified options, the Company shall denote on the stock
certificates issued upon exercise of such options that such certificates were
issued as a result of non-qualifed options. If an Optionee receives options
under this agreement, a part of which will be qualified under Section 422 of
the Code and part of which are not qualified, such Optionee shall notify the
Company whether qualified or non-qualified options are being exercised. Absent
such notification, the Company shall treat such exercise as an exercise of
qualified options to the extent available.
The Employee shall in no event exercise this Option while any other Option
previously granted to Employee to purchase Common Stock is still outstanding.
Any such previously granted Option not having been exercised in full shall be
deemed to remain outstanding until the expiration of the period during which
under its provisions it could be exercised.
3.
3.1 The Option shall be exercised by written notice from Employee to
Company, directed to the attention of the Board.
2
<PAGE> 16
3.2 Contemporaneous with the delivery to Employee of the appropriate
evidence of the shares of Common Stock being issued to Employee (which shall
occur as soon as practicable following receipt of notice of exercise by
Company), Employee shall deliver to Company cash or a cashier's check payable
to the order of the Company in payment of the option price for the number of
shares specified and paid for, and Employee and Company shall execute the
Stock Restriction Agreement described hereinafter.
3.3 If at any time the Board shall determine in its discretion, that
the listing, registration, or qualification of the shares covered by this
Option upon any securities exchange or under any state or federal law, or
that the consent or approval of any governmental regulatory body, is
necessary or desirable as a condition of, or in connection with, the issue or
purchase of shares hereunder, no shares shall be issued pursuant to this
Option unless and until such listing registration, qualification, consent, or
approval shall have been effected or obtained free of any conditions not
acceptable to the Board.
4.
4.1 To the extent not previously exercised, the Option shall
terminate upon the first to occur of the following:
(a) If Employee's employment is terminated for any reason, then the
date three months after the date of such termination; or
(b) (ten years from grant date).
---------------
4.2 The transfer of Employee from the employ of the Company to a
Subsidiary or vice versa, or from one Subsidiary to another shall not be
considered an interruption or termination of employment for purposes of this
Agreement.
5.
In the event that additional shares of Common Stock are issued pursuant to a
stock split or a stock dividend, the number of shares of Common Stock,
subject to Option shall be increased proportionally and the price per share
shall be decreased proportionally with no change in the total purchase price
of the shares subject to Option. In the event that the shares of Common
Stock from time to time issued and outstanding are reduced by a combination
of shares, the number of shares of Common Stock subject to Option shall be
reduced proportionally and the price per share shall be increased
proportionally with no change in the total price of the shares subject to
Option. No fractional shares shall be issued, and any fractional shares
resulting from the computations pursuant hereto shall be eliminated from the
Option. No adjustment shall be made for dividends (other than stock
dividends) or the issuance to stockholders of rights to subscribe for
additional Common Stock or other securities.
3
<PAGE> 17
6.
This Option is non-transferable and is exercisable only by Employee or the
Employee's personal representative. Employee shall have no rights as a
stockholder with respect to the optioned shares of Common Stock until payment
of the option price of shares for which the Option has been exercised,
execution of the Stock Restriction Agreement described hereinafter, and
delivery to Employee of the appropriate evidence of the shares as herein
provided.
7.
Subject to the provisions of Section 6 of this Agreement, this Agreement
shall be binding upon and inure to the benefit of the Company and the
Employee and their respective successors, assigns, heirs, executors,
administrators and personal representatives.
8.
This Agreement is not a contract of employment of any kind whatsoever between
Employee and any present of future employer of Employee.
9.
The certificate representing the Option shall be marked with the following
legend endorsement:
"The alienation and transfer of this option certificate and the
option to acquire stock of Enterbank Holdings, Inc. represented
hereby is subject to an Option Grant Agreement between Enterbank
Holdings, Inc. and the registered holder hereof, a copy of which
is in the possession of the Secretary of Enterbank Holdings, Inc."
10.
Any notice required hereunder shall be in writing, and shall be given by
mailing the notice by certified mail, postage prepaid, return receipt
requested, addressed to the party to whom given, at the address of such party
stated below, or at such other address as such party may previously have
designated by notice hereunder. Notices shall be deemed given as of the date
mailed.
11.
This Agreement constitutes the entire contract and understanding between the
Employee and the Company with respect to the Option.
4
<PAGE> 18
12.
As used herein, "Subsidiary" means any corporation which would constitute a
subsidiary corporation of Company as defined in Subsection 425(f) of the
Internal Revenue Code of 1986, as amended, if, in applying such definition,
the term "Company" is substituted for "employer corporation" wherever it
appears.
13.
This Agreement may not be modified or amended except by an instrument in
writing executed by the Employee and the Company.
14.
This Agreement is being entered into in and shall be construed in accordance
with the laws of the State of Missouri.
15.
This Agreement may be executed in several counterparts, each of which shall
be deemed an original.
IN WITNESS WHEREOF, the Employee and the Company have executed this Agreement
as of the date first above written.
Employee:
- ------------------------------------
Employee Name
Employee Address
Company:
ENTERBANK HOLDINGS, INC.
By:---------------------------------
President
150 North Meramec
Clayton, Missouri 63105
5
<PAGE> 19
ENTERBANK HOLDINGS, INC.
FOURTH INCENTIVE STOCK OPTION PLAN
----------------------------------
1.
This Fourth Incentive Stock Option Plan for ENTERBANK HOLDINGS, INC. is
intended to advance the interests of the Organization by providing Key
Employees who have substantial responsibility for the direction and
management of the Company and its Subsidiaries with additional incentive to
promote the success of the Organization's business, and by encouraging the
Key Employees to remain in the employ of the Organization. The above aims
will be accomplished through the granting of certain above aims will be
accomplished through the granting of certain stock options. It is intended
that options issued under the Plan qualify as ISOs, and the provisions of the
Plan shall be interpreted in accordance with this intention. Provided,
however, that such intention shall not be construed to negate any options
granted under the plan that are not treated as incentive stock options by
virtue of the Internal Revenue Code 422 (d).
2.
The items defined below shall have the following meanings throughout
the Plan:
2.1 "Bank" means ENTERPRISE BANK, a Missouri financial institution.
2.2 "Board" means the Board of Directors of Company.
2.3 "Code" means the Internal Revenue Code of 1986, as amended.
2.4 "Company" means ENTERBANK HOLDINGS, INC., a Delaware corporation.
2.5 "ISOs" means stock options which qualify as incentive stock
options under Section 422 of the Code. Such term shall also include those
options that would be considered incentive stock options but for Internal
Revenue Code Section 422 (d).
2.6 "Key Employees" means officers, directors, executives and
supervisory personnel, as well as other employees of the Company or the
Subsidiaries, who have substantial responsibility for the direction and
management of the Organization.
2.7 "Organization" means the Company, the Bank and the Subsidiaries.
2.8 "Optionee" means the person to whom an option is granted.
2.9 "Plan" means the Fourth Incentive Stock Option Plan as defined by
the provisions hereof.
6
<PAGE> 20
2.10 "Stock" means the voting common stock of Company.
2.11 "Subsidiaries" means any subsidiary bank or corporation owned or
controlled by the Company, the Bank, or one of the Subsidiaries.
2.12 "Ten Percent Shareholder" means any individual who at the time an
option is granted owns directly or indirectly stock possessing more than 10%
of the total combined voting power of all classes of stock of the Company,
taking into account the provisions of Section 424 (d) of the Code.
2.13 "Change of Control" means: (i) a merger or consolidation of the
Company with or into any other entity, unless after such event at least a
majority of the voting power of the surviving or resulting entity is
beneficially owned by persons who beneficially own a majority of the voting
power of the Company immediately prior to such event or (ii) a sale of all or
substantially all the assets of the Company (except to a Subsidiary of the
Company), or (iii) the dissolution of the Company, or (iv) a change in the
identity of a majority of the members of the Company's Board of Directors
within any twelve-month period, which change or changes are not recommended
by the incumbent directors determined immediately prior to any such change or
changes, or (iv) any tender or exchange offer or other transaction in which
the holders of the Company's common stock become entitled to receive or may
elect to receive either cash or securities of an entity other than the
Company, but not a stock split or reverse stock split of, or stock dividend
on, the Company's common stock as a class, or (v) any change or changes in
the beneficial ownership of the securities of the Company within any one-year
period, including any such change or changes effected in whole or in part by
the redemption of outstanding securities or the issuance of new securities,
as a result of which any "person," as such term is used in Sections 3(a)(9),
13(d) and 14(d) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustees or other fiduciary
holding securities under any employee benefit plan of the Company, or any
company beneficially owned by the stockholders of th Company in substantially
the same proportions as their ownership of stock of the Company), becomes the
beneficial owner of securities of the Company representing 50% or more of the
combined voting power of the Company's then outstanding securities. For
purposes of this paragraph, beneficial ownership shall be as defined in Rule
13d-3 under the Exchange Act.
3.
The Board shall administer the Plan. Subject to the provisions of the
Plan, the Board shall have authority, in its sole and absolute discretion;
(a) to determine the employees of the Organization (from among the class of
employees eligible under Section 4 to receive options under the Plan) to whom
options shall be granted; (b) to determine the time or times at which
options shall be granted; (c) to determine the option price of the shares
subject to each option, which price shall not be less than the minimum
specified in Section 6.1; (d) to determine (subject to Section 6.2) the
duration
7
<PAGE> 21
of the exercise period for each option subject to the vesting limitations of
the Plan; (e) to determine the form of options granted hereunder; (f) to
determine the exact provisions of any ISO issued hereunder so long as such
provisions are not inconsistent with Section 422 of the Code; and (g) to
interpret the Plan and to prescribe, amend, and rescind rules and regulations
relating to it. For purposes of acting with respect to the Plan, a majority
of the members of the Board shall constitute a quorum and the acts of a
majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the members of the Board shall
be deemed the acts of the Board.
4.
4.1 Options shall be granted only to Key Employees.
4.2 The aggregate fair market value (determined at the time the
option is granted) of the Stock with respect to which ISOs are exercisable
for the first time by an individual during any calendar year (under this Plan
or any other ISO plan of Company) may exceed $100,000.00. The options
representing such excess aggregate fair market value shall not be Incentive
ISOs pursuant to the Internal Revenue Code Section 422 (d). Provided,
however, that such non-qualified options shall be subject to all other
previsions of the plan. With respect to such non-qualified options, the
Company shall denote on the stock certificates issued upon exercise of such
options that such certificates were issued as a result of non-qualifed
options. If an Optionee receives options under this agreement, a part of
which will be qualified under Section 422 of the Code and part of which are
not qualified, such Optionee shall notify the Company whether qualified or
non-qualified options are being exercised. Absent such notification, the
Company shall treat such exercise as an exercise of qualified options to the
extent available.
4.3 Options granted under the Plan may be exercised in whole or in
part throughout the duration of the exercise period for each option set by
the Board subject to the following vesting requirements:
(a) Twenty percent of the shares of Common Stock which
may be purchased pursuant to an Option, shall be available for
purchase on or after one (1) year from the date of grant;
(b) Twenty percent of the shares of Common Stock which
may be purchased pursuant to an Option, shall be available for
purchase on or after two (2) years from the date of grant;
(c) Twenty percent of the shares of Common Stock which
may be purchased pursuant to an Option, shall be available for
purchase on or after three (3) years from the date of grant;
8
<PAGE> 22
(d) Twenty percent of the shares of Common Stock which
may be purchase pursuant to an Option, shall be available for
purchase on or after four (4) years from the date of grant; and
(e) Twenty percent of the shares of Common Stock, which
may be purchased pursuant to an Option, shall be available for
purchase on or after five (5) years from the date of grant.
In the event of termination of employment for any reason other than
death, the shares of Common Stock which may be purchased pursuant to an
Option shall be limited to number of shares which are fully vested and
available for purchase under this Section 4.3 as of the dated and time of
termination of employment. In the event of the death of an Optionee, all
shares of Common Stock, which may be purchased pursuant to an Option held by
the Optionee, shall be deemed fully vested and available for purchase,
subject to the limitation set forth in Section 4.2 of the Plan.
4.4 In the event of a "Change of Control" of the Company, as defined
in Section 4.13 of the Plan, all shares of common Stock which may be
purchased pursuant to an Option shall be deemed fully vested and available
for purchase, subject to the limitation set forth in Section 4.2 of the Plan.
5.
5.1 The maximum number of shares of Stock which may be issued
pursuant to ISOs granted hereunder (subject to adjustment as provided in
Section 5.3 hereof) shall be 200,000 shares and, to the extent allowed by
law, said number of shares will be granted at any time and from time to time
under the Plan (subject to the provisions of Section10). These shares may be
in whole or in part, as the Board shall from time to time determine,
authorized but unissued shares or unauthorized shares which may be authorized
pursuant to powers of attorney granted by shareholders of the company. Any
shares subject to an option under the Plan, which option for any reason
expires or is terminated unexercised as to such shares, may again be
subjected to an option under the Plan.
5.2 In the event that additional shares of Stock are issued pursuant
to a stock split or a stock dividend, the number of shares of Stock then
covered by each outstanding option granted hereunder shall be increased
proportionally and the per share price of such shares shall be decreased
proportionally with no change in the total purchase price of the shares then
so covered. The number of shares of Stock reserved for the purpose of the
Plan shall also be increased proportionally. In the event that the shares of
Stock of the Company from time to time issued and outstanding are reduced by
a combination of shares, the number of shares of Stock then covered by each
outstanding option granted hereunder shall be reduced proportionally and the
per share price shall be increased proportionally with no change in the total
price of the shares then so covered. The number of shares of Stock reserved
for the purposes of the Plan shall also be reduced proportionally. No
fractional shares shall be issued, and any
9
<PAGE> 23
fractional shares resulting from the computations pursuant to this Section
5.2 shall be eliminated from the respective option. No adjustment shall be
made for dividends (other than stock dividends) or the issuance to
stockholders of rights to subscribe for additional common stock or other
securities.
6.
6.1 The option price for each share of Stock covered by an ISO shall
be an amount not less than 100% (or, in the case of an ISO granted to a Ten
Percent Shareholder, not less than 110%) of the fair market value of the
Stock on the date the option is granted.
6.2 All ISOs issued under the Plan shall be for such period as the
Board shall determine, but for not more than ten (10) years (or, if the
Optionee is a Ten Percent Shareholder, five (5) years) from the date of grant
thereof.
6.3 The period of the ISO, once it is granted, may be reduced only as
provided for in Section 7 in connection with the termination of employment of
the Optionee.
6.4 Except as provided in Section 7 hereof, no ISO may be exercised
unless the Optionee is at the time of such exercise in the employ of the
Organization and shall have been continuously so employed since the grant of
the option.
6.5 Each option granted under the Plan shall be nontransferable and
shall be exercisable only by the Optionee to whom the option is granted. No
option granted under the Plan or any of the rights and privileges thereby
conferred shall be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), and no such option, right, or
privilege shall be subject to execution, attachment, or similar process.
Upon any attempt to so transfer, assign, pledge, hypothecate, or otherwise
dispose of the option or of any right or privilege conferred thereby,
contrary to the provisions hereof, or upon the levy of any attachment or
similar process upon such option, right or privilege, the option such rights
and privileges shall immediately become null and void.
7.
7.1 In the event of an Optionee's termination of employment for any
reason, such Optionee or the Optionee's guardian or personal representative
may exercise any Options theretofore granted, which have vested and are not
then expired, within three (3) months after such termination of employment;
provided, however, in the case of termination of employment due to permanent
disability, the three month period of exercise shall be extended to one year.
10
<PAGE> 24
7.2 The transfer of a Key Employee from the Company and any
Subsidiary to the company or any Subsidiary shall not be considered an
interruption or termination of employment for purposes of this Agreement.
8.
8.1 The exercise of any ISO shall also be contingent upon receipt by
the Company of cash or cashier's check to its order, in an amount equal to
the full option price of the shares being purchased.
8.2 No Optionee or his or her legal representative, heir, or legatee,
as the case may be, will be, or will be deemed to be, a holder of any share
subject to an option unless and until appropriate documents evidencing such
shares are issued under the provisions of the Plan. Adjustment shall be
made, however, for dividends for which the record date is after the date the
option is exercised but prior to the date such evidence of such shares is
issued.
8.3 Each option shall be subject to the condition that if at any time
the Board shall determine, in its discretion, that the listing, registration,
or qualification of the shares covered thereby upon any securities exchange
or under any state or federal law or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of, or
in connection with, the issue or purchase of shares under such option, such
option, such shares will not be issued unless and until such listing,
registration, qualification, consent, or approval shall have been effected or
obtained free of any conditions not acceptable to the Board.
8.4 Neither the Plan nor any option agreement covering options issued
under the Plan is to be construed as a contract of employment of any kind
whatsoever between a Key Employee and any present or future employer of Key
Employee.
8.5 Exercise of an option shall result in a decrease in the number of
shares of Stock, which thereafter may be available under the Plan by the
number of shares as to which the option is exercised.
9.
No option shall be granted pursuant to the Plan after ten (10) years
from the date the Plan is adopted by the Board, or the date the Plan is
approved by the majority of the outstanding shares of each class of Company
stock, whichever is earlier.
11
<PAGE> 25
10.
The Board may at any time terminate the plan, and at any time and from
time to time modify and amend the Plan in any respect; provided, however,
that no such amendment shall: (a) increase (except in accordance with Section
5.2) the maximum number of shares for which options may be granted under the
Plan either in the aggregate or to any individual Optionee; or (b) reduce
(except in accordance with Section 5.2) the minimum option prices which may
be established under the Plan; or (c) extend the maximum periods provided
for in Sections 6.2 and 10, respectively, during which options may be
exercised or granted; or (d) change the provisions relating to the
determination of employees to whom options shall be granted and the number of
shares to be covered by such options; or (e) change the provisions relating
to adjustments to be made upon changes in capitalization. The termination or
any modification or amendment of the Plan shall not, without the consent of
an Optionee, affect his or her rights under an option theretofore granted to
such Optionee.
11.
The Plan shall not affect the provisions of any nonqualified stock
options granted to any employee of the Organization under any other plan
relating to non-qualified stock options; nor shall it affect any of the
rights of any employee or the Organization to whom such a non-qualified stock
option was granted.
12.
This Plan shall become effective on the later of the date of its
adoption by the Board or its approval by the vote of the holders of a
majority of the outstanding shares of each class of the Company's stock.
This Plan shall not become effective unless such shareholder approval shall
be obtained within twelve (12) months before or after the adoption of the
Plan by the Board.
12
<PAGE> 26
ENTERBANK HOLDINGS, INC.
PROXY FOR ANNUAL MEETING OF STOCKHOLDERS
APRIL 28, 1999
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 Wednesday, April 28,
1999 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 thirteen 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
(Except as marked to the contrary below). vote FOR all nominees
as listed below.
<TABLE>
<S> <C> <C> <C>
______Fred H. Eller ______Ronald E. Henges ______Kevin C. Eichner ______Randall D. Humphreys
______Paul R. Cahn ______William B. Moskoff ______Birch M. Mullins ______Robert E. Saur
______Henry D. Warshaw ______James A. Wilhite ______James A. Williams ______Ted C. Wetterau
______Paul L. Vogel
</TABLE>
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, LLP as auditors for the year ending
December 31, 1999.
/ / FOR / / AGAINST / / ABSTAIN
3. Approve an amendment to Article Four of the Certificate of Incorporation
of Enterbank Holdings, Inc. to increase the number of common shares
authorized from 3,000,000 to 3,500,000.
/ / FOR / / AGAINST / / ABSTAIN
4. Authorize 200,000 options in a qualified incentive stock option plan
for the benefit of the employees of Enterbank Holdings and its
subsidiaries.
/ / FOR / / AGAINST / / ABSTAIN
5. In their discretion, upon any other business which may properly come
before the meeting.
<PAGE> 27
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,
PROPOSAL 2, PROPOSAL 3 AND PROPOSAL 4.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
Please date, sign and return this Proxy card by
mail, postage prepaid.
Date: _______________________________________, 1999
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.
<PAGE> 28
Appendix
Page 6 of the printed proxy contains a Comparison of Cumulative Total
Returns Graph. The information contained in the graph has been presented in a
format that may be processed by the EDGAR system.
