-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JdVnar/Upq49oYRS2Wzppon6TEvfaqUGRH+codI+/Kg4Md9hMkaOvqJsl+Ukxb3e hKaFsVufQ1k/neMuBMP8Kw== 0000950114-99-000041.txt : 19990326 0000950114-99-000041.hdr.sgml : 19990326 ACCESSION NUMBER: 0000950114-99-000041 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ENTERBANK HOLDINGS INC CENTRAL INDEX KEY: 0001025835 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 431706259 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24131 FILM NUMBER: 99572642 BUSINESS ADDRESS: STREET 1: 150 NORTH MERAMEC STREET 2: P O BOX 16020 CITY: CLAYTON STATE: MO ZIP: 63105 BUSINESS PHONE: 3147255500 MAIL ADDRESS: STREET 1: 150 NORTH MERAMEC STREET 2: P O BOX 16020 CITY: CLAYTON STATE: MO ZIP: 63105 10-K 1 ENTERBANK HOLDINGS, INC. 10-K 1 =============================================================================== UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K [x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 [Fee Required] For the fiscal year ended December 31, 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 =============================================================================== 2 ENTERBANK HOLDINGS, INC. 1998 ANNUAL REPORT ON FORM 10-K
Page ---- 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
3 SELECTED FINANCIAL DATA -----------------------
Year ended December 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (Dollars and number of shares in thousands, except per share data) 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 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 ============================================================================================================================ Excludes loans held for sale.
1 4 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 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 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 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 5 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:
Year Amount ---- ------ 1999 $776,125 2000 784,892 2001 793,658 2002 793,658 2003 426,065 ========
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:
Operating Unit Address Description - -------------- ------- ----------- 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
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 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:
Market Price 1998 High Low 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
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, 7 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 8 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 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 13
Year ended December 31, ---------------------------------------------------- 1998 ---------------------------------------------------- Percent Interest Average Average of Total Income/ Yield/ Balance Assets Expense Rate -------- -------- -------- ------- Interest-earning assets: Loans $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 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% ==== Year ended December 31, ---------------------------------------------------- 1997 ---------------------------------------------------- Percent Interest Average Average of Total Income/ Yield/ Balance Assets Expense Rate -------- -------- -------- -------- Interest-earning assets: Loans $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 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% ==== Year ended December 31, ---------------------------------------------------- 1996 ---------------------------------------------------- Percent Interest Average Average of Total Income/ Yield/ Balance Assets Expense Rate -------- -------- -------- ------- Interest-earning assets: Loans $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 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% ==== - --------------------------- 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. Nontaxable investment income is presented on a fully tax-equivalent basis assuming a tax rate of 34%.
11 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:
1998 Compared to 1997 1997 Compared to 1996 Increase (Decrease) Due to Increase (Decrease) Due to ------------------------------------ ------------------------------------ Volume Rate Net Volume Rate Net ---------- -------- ------- ---------- -------- ------- (Dollars in Thousands) 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 (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 ====== ===== ====== ====== ===== ====== Change in volume multiplied by yield/rate of prior period. Change in yield/rate multiplied by volume of prior period. 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.
12 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:
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) 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% ======== ====== ======== ====== ======== ====== ======== ====== ======= ======
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 16 The following table sets forth the interest rate sensitivity of the loan portfolio at December 31, 1998:
Loans Maturing or Repricing --------------------------------------------------------- After One In One Through After Year or Less Five Years Five Years Total ------------ ---------- ---------- ------- (Dollars in Thousands) FIXED RATE LOANS - ---------------- 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 - ------------------- 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 - ----------- 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 ======== ======= ====== ======== Loan balances are shown net of unearned loan fees and loans held for sale.
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 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:
December 31, ------------------------------------------------------------ 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (Dollars in Thousands) 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
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 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 19 The following table sets forth information concerning the Company's nonperforming assets as of the dates indicated:
December 31, ----------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (Dollars in Thousands) 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
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.
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) 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% ====== ====== ====== ====== ====== ====== ====== ====== ====== ======
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 20 NONINTEREST INCOME The following table depicts the annual changes in various noninterest income categories:
1998 versus 1997 1997 versus 1996 ------------------------------------ ----------------------------------- $ Change 1998 1997 $ Change 1997 1996 -------- ---------- -------- -------- ----------- ----------- 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 ========== ========== ======== ========= ======== ==========
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:
1998 versus 1997 1997 versus 1996 ------------------------------------- ------------------------------------ $ Change 1998 1997 $ Change 1997 1996 ---------- ----------- ---------- ---------- ---------- ---------- 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 ========== =========== ========== ========== ========== ==========
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 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:
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) 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 ======== ======== ======= ======= ========
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 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 23 The following tables present the scheduled maturity of market risk sensitive instruments at December 31, 1998:
Beyond 5 Years or No Year 1 Year 2 Year 3 Year 4 Year 5 Stated Total ------ ------ ------ ------ ------ Maturity ----- -------- 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 ======== ======= ========= ======= ======= ====== ======== Average Estimated Total Interest Rate Fair Value ---- ------------- ---------- 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
21 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:
December 31, --------------------------------------------- 1998 1997 1996 --------- --------- --------- (Dollars in Thousands) 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 ======== ======== ========
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:
December 31, ---------------------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------------ -------------------------- --------------------------- (Dollars in Thousands) Average Interest Average Interest Average Interest Balance Expense Rate Balance Expense Rate Balance Expense Rate ------- ------- ---- ------- ------- ---- ------- ------- ---- 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% ======== ======= ==== ======== ====== ==== ======== ====== ====
22 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:
Remaining Maturity Amount ------------------ ------ (Dollars in Thousands) 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 =======
The table below sets forth the carrying value of investment securities held by the Company at the dates indicated:
December 31, --------------------------------------------------------------------------------------- 1998 1997 1996 ------------------------- ---------------------------- ----------------------- Percent Percent Percent of Total of Total of Total Amount Securities Amount Securities Amount Securities ------ ---------- ------ ---------- ------ ---------- (Dollars in Thousands) 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% ======= ====== ======= ====== ======= ======
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 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:
Carrying Value Yield -------- ---------- (Dollars in Thousands) 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% ======= ====== Weighted average tax-equivalent yield
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 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:
December 31, ------------------------------ 1998 1997 1996 ------ ------ ------ 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
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 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 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 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 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 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 33 Following is a summary of the various plan transactions:
Number Price of shares per share Total ---------- ---------------- ------------- 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 ========== ================ =============
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 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 35 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 1998 and 1997
Assets 1998 1997 ------ ---------- ---------- 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.
33 36 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Income Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ----------- ----------- ----------- 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.
34 37 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Shareholders' Equity Years ended December 31, 1998, 1997 and 1996
Net unrealized holding gains (losses) on Total Common Stock available- share- ------------------------- Retained for-sale holders' Shares Amount Surplus earnings securities equity ---------- ------- ----------- --------- ---------- ----------- 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.
35 38 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ------------ ------------ ------------ 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.
36 39 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income Years ended December 31, 1998, 1997 and 1996
1998 1997 1996 ---------- ---------- ---------- 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.
37 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 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 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 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 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 45 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements The components of basic earnings per share are as follows:
1998 1997 1996 ---------- ---------- ---------- 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 ===== ===== =====
The components of diluted earnings per share are as follows:
1998 1997 1996 ---------- ---------- ---------- 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 ===== ===== =====
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 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:
1998 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ----------- ---------- ---------- ---------- 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 =========== ======= ====== =========== 1997 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ----------- ---------- ---------- ---------- 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 =========== ======= ====== ===========
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.
Amortized Estimated Cost Fair Value ----------- ----------- 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 =========== ===========
(Continued) 44 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:
1998 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ----------- ---------- ---------- ---------- Mortgage-backed securities $ 30,106 $ 245 $ -- $ 30,351 Municipal bonds 668,503 5,908 39 674,372 -------- ------ ----- -------- $698,609 $6,153 $ 39 $704,723 ======== ====== ===== ======== 1997 --------------------------------------------------------------- Gross Gross Amortized Unrealized Unrealized Estimated Cost Gains Losses Fair Value ----------- ---------- ---------- ---------- Mortgage-backed securities $ 37,825 $ -- $ 24 $ 37,801 Municipal bonds 881,338 1,914 899 882,353 -------- ------ ---- -------- $919,163 $1,914 $923 $920,154 ======== ====== ==== ========
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.
Amortized Estimated Cost Fair Value --------- ---------- 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 ======== ========
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 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:
1998 1997 ------------ ------------ 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 ============ ============
The breakdown of loans secured by real estate at December 31, 1998 and 1997 is as follows:
1998 1997 ------------ ------------ 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 ============ ============
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. 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 ===========
(Continued) 46 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:
1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
A summary of impaired loans, which include nonaccrual loans, at December 31, 1998, 1997 and 1996 is as follows:
1998 1997 1996 ---------- -------- -------- 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 ========== ======== ========
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:
1998 1997 ---------- ---------- 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 ========== ==========
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 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:
Year Amount ---- ------ 1999 $776,125 2000 784,892 2001 793,658 2002 793,658 2003 426,065 ========
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 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:
$100,000 Maturity Period and Over Other Total --------------------------------------- ----------- ----------- ------------ 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 =========== =========== ============
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:
1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
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:
1998 1997 1996 ---------- ---------- ---------- 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 ========== ========== ==========
(Continued) 49 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:
1998 1997 ---------- -------- 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 ========== ========
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 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.
To Be Well Capitalized Under For Capital Prompt Actual Adequacy Purposes Action Provisions ------------------- ------------------- ------------------ Amount Ratio Amount Ratio Amount Ratio ------ ----- ------ ----- ----- ----- 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
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 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:
Number Price of shares per share Total ---------- ---------------------------------- 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 ========== ================ =============
(Continued) 52 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:
1998 1997 1996 ------ ------ ------ 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
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 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:
1998 1997 ------------ ------------ Commitments to extend credit $164,012,297 $124,493,916 Standby letters of credit 10,368,944 6,237,738 ============ ============
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:
1998 1997 ---------------------------- ------------------------------ Carrying Estimated Carrying Estimated Amount fair value Amount fair value ------------ ------------ ------------ ------------ 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 ============ ============ ============ ============
(Continued) 54 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 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 59 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements
Enterbank Enterprise Bank Merchant Eliminations Consolidated Holdings Banc 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 ---------- ------------ --------- ------------ ------------
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 60 ENTERBANK HOLDINGS, INC. AND SUBSIDIARIES Notes to Consolidated Financial Statements NOTE 19--PARENT COMPANY ONLY CONDENSED FINANCIAL STATEMENTS Condensed Balance Sheets
December 31, -------------------------------------- Assets 1998 1997 ------ ----------- ----------- 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 =========== =========== Condensed Statements of Income December 31, ----------------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- 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 61 Condensed Statements of Cash Flow December 31, ----------------------------------------------------- 1998 1997 1996 ---------- ---------- ---------- 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 =========== =========== ===========
59 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.
Signatures Title Date ---------- ----- ---- /s/ Fred H. Eller - ----------------------------- Fred H. Eller Chief Executive Officer and and Director March 17, 1999 - ----------------------------- Ronald E. Henges Chairman of the Board of Directors March 17, 1999 - ----------------------------- Kevin C. Eichner Vice Chairman of the Board of Directors March 17, 1999 - ----------------------------- Paul R. Cahn Director March 17, 1999 - ----------------------------- Birch M. Mullins Director March 17, 1999 - ----------------------------- Robert E. Saur Director March 17, 1999 - ----------------------------- James A. Williams Director March 17, 1999 - ----------------------------- Henry D. Warshaw Director March 17, 1999 - ----------------------------- James L. Wilhite Director March 17, 1999 - ----------------------------- Ted C. Wetterau Director March 17, 1999 - ----------------------------- Randall D. Humphreys Director March 17, 1999 - ----------------------------- Paul L. Vogel Director March 17, 1999 - ----------------------------- William B. Moskoff Director March 17, 1999 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 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
61 64 EXHIBIT INDEX -------------
Exhibit No. Exhibit ------- ------- 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. 11.1 Statement regarding computation of per share earnings. 13.1 1998 Annual Report. 21.1 Subsidiaries of the Registrant. 23.1 Consent of KPMG. 24.1 Power of Attorney. 27.1 Financial Data Schedule. (EDGAR only) 99.1 1998 Proxy Statement. - ------------------------ Filed Herewith
62 EX-10.3 2 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 - 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 - 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 - 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 - 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:
Annual Fee as a EFA Gross Margin Percentage of EFA Gross Margin ----------------- ------------------------------ 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
- 5 - 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 - 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.
Type of MGIA Referral Account Margin Contribution Rate ----------------------------- ------------------------ 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%
"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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - 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 - EX-11.1 3 STATEMENT REGARDING COMPUTATION OF EARNINGS 1 EXHIBIT 11 ---------- STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
Basic Diluted EPS number EPS number Net Basic Diluted of shares of shares Income EPS EPS --------------------------------------------------------------------------- 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 12 MONTHS ENDED DECEMBER 31, 1997 Basic Diluted ------------ ------------ 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 12 MONTHS ENDED DECEMBER 31, 1998 Basic Diluted ------------ ------------ 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
EX-13 4 ANNUAL REPORT 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] 2 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
YEAR ENDED DECEMBER 31, -------------------------------------------------------------------- 1998 1997 1996 1995 1994 -------- -------- -------- -------- -------- (DOLLARS AND NUMBER OF SHARES IN THOUSANDS, EXCEPT PER SHARE DATA) 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
page one 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 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 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 6 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
1998 1997 ------------ ------------ 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 ============ ============
page five 7 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
1998 1997 1996 ----------- ----------- ----------- 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
page six 8
ENTERBANK HOLDINGS, INC. BOARD OF DIRECTORS 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 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. ENTERPRISE BANK - CLAYTON BOARD OF DIRECTORS MARK S. CARLIE CHARLES C. EISENKRAMER FRED H. ELLER ROBERT L. GARLICH Stone Carlie & Company, New Mount Sinai Cemetery Enterbank Holdings, Inc. Garlich Printing Company LLC Association JEFFREY W. GLIK ROBERT F. GORMAN HERBERT W. HITCHINGS JEFF B. IKEN 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 Conrad Properties Corp. Code Consultants SHEFFIELD Sunmark Capital DMC, Inc. JAMES L. STEWART HENRY D. WARSHAW HILTON I. PRICE, M.D. DANIEL S. REILLY Stewart Properties, Inc. Moneta Group, Inc. Midwest Radiological Retired -- formerly KPMG, LLP ENTERPRISE BANK - SUNSET HILLS BOARD OF DIRECTORS RONALD G. ABELES JOSEPH E. BARRY LAVONNE L. DECK FRED H. ELLER Abeles & Hoffman, PC Barry Sales, Ltd. Scorpius Enterprises, Enterbank Holdings, Inc. Ltd. RICHARD B. FOX MARK H. GORAN JAMES E. GRASER ROBERT M. KAISER SulfaTreat Co. Bryan Cave, LLP Enterprise Bank Kaiser Electric, Inc. ROBERT F. NICK P. RAINERI EARL W. SWINK HARRY O. TIGGARD, JR. 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. Sunset Transportation Agency, Inc. GVH, Inc. Advisory Directors page seven 9 ENTERPRISE BANK - ST. PETERS BOARD OF DIRECTORS RUDY D. BECK CHARLES W. DALE C. BROWN TIMOTHY J. BURKEMPER 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 Pio's Restaurant Enterbank Holdings, Inc. ISU Corporate Bax Engineering Insurance Management JOHN J. GLOSS RICHARD E. HILL THOMAS M. HOWELL JOHN L. KASTNER BJC Health Hill Partnership Howell & Sons Excavating Client Services, Inc. Systems Architects MARK F. KEEVEN RICHARD C. LEUCK WILLIAM C. VEHIGE SHAWN T. SAALE Missouri Turf, Inc. Enterprise Bank Tax & Accounting Saale & Bailey, LC Services, Inc. PATRICIA E. JAMES L. WILHITE DANIEL J. GNADE RODEHEAVER Stange Company Price-Gnade Ford Retired -- formerly Mercury Custom Design Telephone Systems, Inc. ENTERPRISE FINANCIAL ADVISORS AND ENTERPRISE TRUST J. PHILIP BENDER LAWRENCE BRODY, ESQ. T. JACK CHALLIS, ESQ. FRED H. ELLER Northwestern Mutual Life Bryan Cave, LLP Suelthaus & Walsh, PC Enterbank Holdings, Inc. STEVEN L. FINERTY RALPH E. OSTERMUELLER PETER G. SCHICK PAUL L. VOGEL Argent Capital The Ostermueller Group Moneta Group, Inc. Enterprise Financial Advisors Management, LLC TED C. WETTERAU Retired -- formerly Wetterau and Associates, LLC Advisory Directors
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 EX-21.1 5 SUBSIDIARIES OF THE REGISTRANT 1 Exhibit 21.1 Subsidiaries of the Registrant
State of Company Organization - ------- ------------ 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
EX-23.1 6 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 EX-24.1 7 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. By: ________________________ By:_________________________ By:_________________________ James C. Wagner Fred H. Eller Stacey Tate Chief Financial Officer Chief Executive Officer Controller
Pursuant to the requirements of the Securities Act of 1934, this 10-K Report has been signed by the following persons on behalf of the registrant and in the capacities on the dates indicated.
SIGNATURES TITLE DATE - ---------- ----- ---- ______________________ 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 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
EX-27 8 ARTICLE 9 FINANCIAL DATA SCHEDULE
9 12-MOS DEC-31-1999 JAN-01-1998 DEC-31-1998 29,701,018 5,035 14,250,000 0 45,592,327 698,609 704,723 273,817,522 3,200,000 375,303,918 339,180,170 0 883,619 6,000,000 0 0 23,719 29,216,410 375,303,198 23,001,165 904,712 1,508,392 25,414,269 11,802,804 11,869,331 13,544,938 710,899 0 10,051,702 4,861,049 0 0 0 3,010,774 1.28 1.20 8.59 2,000 0 0 1,084,658 2,510,000 49,000 28,000 3,200,000 2,884,000 0 316,000
EX-99.1 9 PROXY STATEMENT 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. 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 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.
PRESENT POSITION(S) PRINCIPAL OCCUPATION NAME AND AGE WITH THE COMPANY DURING PAST 5 YEARS - ------------ ------------------- -------------------- 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 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).
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 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.
COMPANY FISCAL OTHER MATCH NAME AGE TITLE YEAR SALARY BONUS BENEFITS DEFERRALS - --------------------------- ----- -------------------- ------- ----------- --------- ----------- ----------- 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 Includes car allowance
4 6 OPTIONS GRANTS IN THE LAST FISCAL YEAR --------------------------------------
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 - ---------------------- ------------ ----------- --------- ----------- ---------- ---------- ------------ 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 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 - ---------------------- ------------ ---------- ------------ -------------- ----------- ------------- 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
The Company has not granted stock appreciation rights to any director, officer or employee. [The remainder of this page intentionally left blank] 5 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]
- ---------------------------------------------------------------------------------------------------- 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98 - ---------------------------------------------------------------------------------------------------- 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 - ----------------------------------------------------------------------------------------------------
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 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.
BENEFICIAL OWNER NUMBER OF SHARES OWNERSHIP ---------------- ---------------- ------------------ Fred H. Eller 97,260 4.06% Ronald E. Henges 118,285 4.95% Kevin C. Eichner 79,193 3.31% Randall D. Humphreys -0- N/A Paul R. Cahn 70,967 2.98% William B. Moskoff 28,359 1.19% Birch M. Mullins 17,850 Robert E. Saur 39,000 1.64% Henry D. Warshaw 17,260 James L. Wilhite 10,721 James A. Williams 7,340 Ted C. Wetterau 11,940 David J. Mishler 42,304 1.77% James E. Graser 18,000 Richard C. Leuck 9,591 Paul L. Vogel 6,610 James C. Wagner 27,500 1.15% All Directors and Executive Officers as a Group 602,180 24.59% Less than 1% 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. Unless otherwise indicated, the named person has sole voting and dispositive power for all shares shown. 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. 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. 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. 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. 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. 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. 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 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. 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. 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 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. 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. Includes 11,940 shares held jointly by Mr. Wetterau and his spouse. 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. 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. 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. 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. 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. 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.
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 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 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. 10 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 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." 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); 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 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 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 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 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 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 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 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 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 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 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 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. ______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
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. 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. 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. -----END PRIVACY-ENHANCED MESSAGE-----